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About That Detroit Renaissance

shikha.dalmia@reason.org (Shikha Dalmia) — Wed, 09 Sep 2009 00:00:00 EDT

Forbes

Having lived in or near Detroit for almost 21 years, I am used to the buzz that erupts periodically about its renaissance being nigh. But the one that is currently making the rounds is truly fantastical.

I arrived in Detroit (after a short stint in Louisiana) from New Delhi, India, where I grew up. Still fresh off the boat, I didn't have the eyes yet to take measure of this new city that I was about to make home. On the one hand, there were signs everywhere that it lay in the cradle of wealth. Its downtown was located on a glittering river draped in a sparkling skyline whose complex of glass-and-steel skyscrapers--although meager by the standards of New York and Chicago--was really impressive to me. The city was meticulously planned with wide roads, covered sewers, and a slew of parks and open spaces.

On the other hand, its roads were empty and dangerous. Restaurants and shops were few and far between. There were hardly any taxis or buses--although there was a toy-like monorail looping around downtown, taking its non-existent passengers from one spot to another. But by far the most puzzling sight was the scores and scores of abandoned homes. There seemed to be nothing wrong with these structures. In fact, many were beautiful stone or brick Tudors and colonials, with bay windows and spacious yards, that middle-class families in my native land would have given their right arms to live in.

With no one minding these homes, it wasn't surprising that vandals had stripped them of everything remotely valuable--faucets, cabinets, pipes and wiring. What was surprising was that there was no sign that the looters were doing anything constructive with their ill-gotten gains. In India, the entire project of life can be conducted out of ramshackle structures erected on dirty sidewalks from scraps of discarded tarp, pilfered corrugated metal, bamboo poles and a few logs for fuel scavenged daily from trash heaps. In these filthy, exposed dwellings, families are raised, goods produced and sold (tandoori roti, dal, sabzi), services provided (ironing, shoe repair), and even animals given shelter. They are not ennobling or uplifting. But they are testimony to the powerful human need to survive and flourish, even in the direst circumstances.

It didn't seem plausible that this basic urge had somehow ceased to exist in Detroit. Hence, when Mayor Dennis Archer started talking in the mid-'90s about reviving the city by erecting new stadiums and casinos, his message resonated with Detroiters, including me. What needed explaining, in my mind, was not that someone should try and pull Detroit out of the ashes--but that someone should have waited so long. Archer got the ball rolling--so to speak--on two new stadiums and three new casinos.

His successor, Kwame Kilpatrick--before being thrown into jail last year for using public funds to hush up an affair with his chief of staff--picked up where Archer left off. He vowed to make Detroit a "major force in the new millennium." The linchpin of Kilpatrick's strategy involved shepherding new development into the downtown area on the theory that a thriving downtown would attract visitors whose business would jump-start the local economy. He moved the casinos to prime downtown locations and began restoring historic old hotels, such as the Book Cadillac, to serve casino patrons. To lure companies downtown, he handed out hundreds of millions of dollars in tax subsidies. He cut deals with developers to build lavish new lofts and apartment buildings overlooking the river. And then he started hosting events: the MLB All-Star Game in 2005, the Super Bowl and World Series in 2006, and WrestleMania in 2007.

But the Archer-Kilpatrick redevelopment plans have failed miserably to take root. The expected throngs of visitors never materialized. Except on rare occasions, rooms in the restored hotels go a-begging. The employees of the relocated companies prefer to make the long commute from the suburbs rather than live in the city. The vast bulk of the new apartments, therefore, have never found owners. Meanwhile, the bull-dozing of old businesses to make way for the new empty developments has only accelerated the exodus from the city; Detroit's rate of population loss in recent years is second only to that of post-Katrina New Orleans. There are likely even more abandoned buildings and empty spaces now than before. Meanwhile, one casino is already in bankruptcy.

Amid all of this, talk again has erupted that Detroit is about to make a comeback, thanks, this time, not to the efforts of city leaders--but artists!

This idea was first tendered in a March op-ed in The New York Times by Toby Barlow, a Brooklyn writer who recently moved to Detroit. Barlow claimed that, attracted by cheap real estate, artists were returning to the city. ABC, CNN and many other national media outlets picked up Barlow's story, dispatching crews to Detroit to interview Mitch Cope and Gina Reichert, the couple that Barlow credited for starting it all by buying a run-down bungalow for $1,900 in East Detroit.

In Barlow's telling, even as the couple fitted their house with solar heating and other eco-friendly appurtenances, they scooped up adjacent lots for as little as $100 and resold them to fellow artists for $150. Their efforts caught the attention of a group of architects and city planners in Amsterdam, who have started something called the "Detroit Unreal Estate Agency" which aims to clean up lots and turn them over to artists. Some are even beginning to suggest that Detroit might become the next locus of the "SoHo effect," with artists acting as first-stage gentrifiers, paving the way for the return of doctors and lawyers and other bourgeois professionals.

But this time, I ain't buying the hype.

For starters, as best as I can gather from news reports--and after a day-long drive in East Detroit last weekend--this exciting new renaissance seems confined to less than a block. And it is hard to imagine it growing much more.

Real estate in Detroit is certainly cheap--but living in the city is not. That's because, thanks to a dysfunctional city bureaucracy, residents have to pay dearly--either in time or money--for every basic service, particularly for safety. Even Cope, who writes a regular blog called the Power House Report, seems to acknowledge that. In an April post, he described a burglary at the house of his neighbor John. Despite the presence of a German shepherd, Cope noted, the robbers kicked in the two back doors and made away with some irreplaceable jewelry. Cope spent a day helping his friend replace the door, but seemed dejected afterward. "Somehow the neighborhood seems less friendly this week," he wrote. "Maybe it's just the warming of the weather that brings out the rats, fires, garbage and druggists, prostitutes, weirdos or maybe it's just me."

A childless and bohemian couple might well find it rewarding to endure all of this for the sake of a city they have adopted. But for most ordinary folks with families, children and regular jobs, living with rats, fires, garbage, druggists, prostitutes and weirdos is simply too big a price to pay.

But the most bizarre aspect of the talk about this artist-led renaissance is its timing. Right now, the big fear in Detroit is that with the collapse of the auto industry, the city might have entered an irreversible death spiral. It is confronting a $300 million deficit. The cuts in services that will be required to close this gap are so severe that they will all but guarantee another mass exodus, further shrinking the city's tax base. Every socio-economic indicator in Detroit is trending in the wrong direction. Crime has reached new heights. Seven teenagers were shot at in a drive-by attack outside their school while waiting for a bus in June this year. The Detroit Public School system is confronting a fiscal hole almost as big as the city's and has been handed over to an emergency financial manager. About 70 schools have been closed since 2005. Many haven't ordered new textbooks in 19 years and ask kids to bring their own toilet paper. The graduation rate has dropped to 25%--and about half of the city's population is illiterate.

No one really knows what it will take to contain Detroit's deepening malaise--much less make it livable. But one thing is certain: It isn't starry-eyed artists who have decided to adopt it as their cause du jour.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly Forbes columnist.

San Diego County Planning to Triple Size of Jail Facility in Downtown Santee, Should Consider Cheaper & Better Alternatives

adam.summers@reason.org (Adam Summers) — Fri, 10 Jul 2009 18:42:00 EDT

The City of Santee, California, and San Diego County are currently embroiled in a big fight over the expansion and renovation of a women's detention facility located in Santee. The problem is that when the facility was originally built several decades ago, it was a small, out-of-the way rural community, but now it is a thriving city of 57,000 residents and the jail facility sits right in the downtown area. Santee is a lot different now than it was when the Las Colinas Detention Facility was initially constructed, and residents and business owners in the area are justifiably concerned about plans to triple the size of the jail, from its current 15 acres to 45 acres--complete with guard towers and barbed wire fencing around the perimeter--in the city’s urban core. The expanded facility would comprise roughly 20% of the entire downtown area.

The County owns hundreds of other parcels of land, many of which would be much more suitable for a jail facility and could be built on less valuable land outside a city center, but has so far refused to seriously consider alternative sites.

The Las Colinas land is adjacent to the RiverView office and technology mixed-use campus, which is part of the 700-acre Santee Town Center and transit center. The facility is also surrounded by homes, a church and a day-care center, and senior mobile home parks.

A study of the land for the proposed expanded jail site by The London Group Realty Advisors concluded that the land has a market value of $89 million. In addition, the study estimated that the expansion of the jail would reduce the value of surrounding properties by $75 million. This reduction in land value and the foregone revenue the County could receive from selling the land for more productive and appropriate uses would result in a total economic loss of approximately $165 million.

The consultants’ report also suggested several other potential sites for the jail among the hundreds of parcels of land that the County owns. One promising site at or adjacent to the East Otay Mesa Detention Facility would allow the County to save on costs for food, warehouse services, and transportation of goods by sharing or consolidating services and infrastructure with the existing facility there. Even if the East Otay Mesa site is deemed unsuitable for some reason, there are many other sites of County-owned land that should be considered. In consideration of this, it would be prudent for the County undertake a comprehensive evaluation of its real estate portfolio to identify other sites for an expanded detention facility that would be better alternatives.

Given the value of the land Las Colinas sits on in the downtown Santee area, and the loss in property values and development opportunities that would result from its expansion at the current site, it makes financial sense for the County to sell the land and use the proceeds to develop an upgraded facility elsewhere. The incompatibility of an expanded detention facility with the City of Santee’s current and future makeup and growth, and the resulting public opposition to the proposal, only reinforce this notion.

In deciding on the proper way and place to renovate and expand the Las Colinas Detention Facility, San Diego County supervisors should consider the impact of the jail expansion on taxpayers across the county, as well as the residents of Santee who are rightly concerned about the effects of the County's decision on their community and quality of life. Unfortunately, County supervisors recently voted 4-1 to support the current expansion proposal at the present Santee location. The lone dissenting vote was that of Chairwoman Dianne Jacob, whose district includes Santee. The City of Santee has vowed to fight the County vigorously in the courts.

Cities Can Sell Abandoned Homes in Blocks

sam.staley@reason.org (Samuel Staley) — Sun, 23 Mar 2008 00:00:00 EDT

Indianapolis Star

Indianapolis, like other big cities in the Midwest, is straining under the weight of abandoned homes. Nearly 7,000 abandoned buildings litter the landscape of the city's most hard-pressed neighborhoods, and the Indianapolis Housing Agency and Mayor Greg Ballard deserve credit for trying to take the bull by the horns. Unfortunately, their recently announced initiative may not be bold enough.

Realizing record foreclosure rates were sinking the city's housing market, the housing agency has proposed having the city buy foreclosed homes from the federal Department of Housing and Urban Development and then sell them to neighborhood development agencies. The goal is to have the homes renovated and resold at affordable prices. Indeed, in cities across the nation, nonprofit neighborhood associations have been at the forefront of developing affordable housing in central cities.

Yet Indianapolis can be much bolder. Sherron Franklin, the former councilwoman whom the mayor put in charge of the initiative, could be given the authority to use market incentives to create a model for cities across the nation.

The problem Indianapolis faces, like other major urban centers, is too much housing of the wrong kind. That's one reason home prices are so low compared with outlying suburban areas. These low prices, and the low-income consumers to which they cater, squeeze profit margins to the point that individual developers and builders can't make enough money to justify a major investment or commitment.

Indianapolis is in a position to turn this around in a revolutionary way.

Rather than sell foreclosed and abandoned homes as individual units, the city should use this opportunity to consolidate the properties and sell them as a block. Rather than offer neighborhood groups one house, or several houses scattered throughout these neighborhoods, the city could offer them as one property. This gives developers, whether private for-profit or nonprofit, more opportunities to make the project financially viable.

Then developers can think in terms of larger-scale projects that might include a mix of residential and commercial units, a mix of different kinds of housing units -- or the property might be redeveloped based on its current use. The low profit margins on individual units can be aggregated over the entire project, or even increased by allowing higher-valued commercial uses. Developers can think "urban village" rather than low-income home.

For the first time in decades, developing in poor neighborhoods might hold the promise of profitability. The key will be to consolidate enough parcels to create a large enough threshold to make this attractive.

Moreover, because the properties being transferred are already in foreclosure, the city and private developers won't have to worry about violating property rights through eminent domain. The deeds will be clear. In fact, the potential for realizing higher property values should make it easier to acquire nearby properties or secure the blessings of neighbors. A critical part of the success of such a program would be to create large enough bundles of property that experienced developers would take this opportunity seriously. They should also be market-rate housing units.

With the right leadership, an Indianapolis program could become a model for housing policy for the nation's mayors by turning blight into a bright beacon of urban revitalization, one based on economic realities rather than political good intentions.

Payday Loans Get Pink Slip in California

adam.summers@reason.org (Adam Summers) — Thu, 20 Mar 2008 00:00:00 EDT

Elected officials in Baldwin Park, California, located in the central San Gabriel Valley region of Los Angeles County, are waging a campaign against payday lending and check-cashing businesses in the city. Opponents of the stores say they prey upon the poor and contribute to a negative city image of seedy neighborhoods (as if prohibiting lending services would eradicate crime and poverty). In reality, the stores provide needed services to many, and customers and business owners alike should wonder what right the city has to tell them they cannot engage in lawful, voluntary exchange.

The City Council passed a moratorium on the opening of any new check-cashing businesses, payday loan facilities, money-wiring shops, or free-standing ATMs in the city. According to a recent Los Angeles Times article, Baldwin Park's actions are not an isolated incident, but part of a trend of government attacks on payday advance stores. The Times writes:

Baldwin Park was the latest city to target businesses that conduct payday lending and check cashing; others include San Francisco, Sacramento, Oakland, Oceanside, Pico Rivera, and Montebello. Cities across the country and in Canada have mulled or passed restrictive measures on such businesses. And last year, the Marine Corps and the Navy successfully lobbied the California Legislature to pass a law dramatically reducing the amount payday lending businesses-common near military bases-can charge service members.

In the case of the military, these regulations have led payday lenders to largely stop lending to troops, prompting the Marines and the Navy to start their own quick, no-interest loan programs.

So what of the objections? The chief argument against check-cashing or payday loan stores is that they are "predatory." This objection is made up of two parts: (1) the lending businesses charge higher prices than they should and (2) they somehow coerce or encourage people to do business with them and borrow more than they should.

First, let's address the pricing issue. Opponents of payday advance stores often castigate the businesses for their supposedly high fees, but who is to decide how much is too much in interest or fees? And where do you draw the line? Should you have to ask the city's permission if you want to open a new credit card account or take out a loan at a traditional bank? In a free market, consumers and businesses decide which prices are proper. Prices are ultimately determined by supply and demand and competition. If fees are too high, people won't pay them and businesses lose customers and money.

The very fact that such businesses are succeeding is evidence that customers do feel the services are worth the price. Besides, if high prices really were the concern, then banning new businesses is about the worst thing the City Council could do. By prohibiting new entrants to the market, the city is restricting competition, which only gives existing businesses more pricing power and will likely result in even higher fees.

Next is the paternalistic argument that people don't know what is best for them or how to take care of themselves (but politicians and bureaucrats do). Baldwin Park Mayor Manuel Lozano has called payday advance businesses "vultures" and "eyesores" that are "preying on the poor."

Yet, customers appear happy to patronize them and utilize their services and, according to state regulators, rates are generally clearly spelled out and few complaints are filed, particularly given the number of transactions that take place. This begs the question: why does Mayor Lozano think he knows best with whom people should be allowed to do business and what prices businesses should charge, and what right does he have to dictate the terms of such a transaction?

No one is putting a gun to these customers' heads forcing them to sign over a check for $300 in exchange for $255 in immediate cash. For many, the fees are simply worth it, whether they need the cash quickly in case of emergency or are just anxious to go out and spend it on something.

Entrepreneurship offers those most in need an opportunity to climb the economic ladder, so it is particularly important in poor neighborhoods. If Baldwin Park wants to clean up its image and foster economic growth, it should stop attacking and regulating businesses to death and simply get out of the way.

Stadium Doesn't Guarantee Economic Gains

leonard.gilroy@reason.org (Leonard Gilroy) sam.staley@reason.org (Samuel Staley) — Sun, 01 Jul 2007 00:00:00 EDT

North County Times

If the coin toss goes Oceanside's way, voters may be faced with the difficult decision on whether or not to welcome a new San Diego Chargers stadium on the 70-plus-acre site of the Center City Golf Course. While the Chargers' pitch for a privately financed stadium and office development may sound seductive, the devil is always in the details, and taxpayers need to ask some important questions before signing off.

Even if the stadium proposal would not involve direct public expenditures, tax hikes or bond issues, taxpayers need to be on the lookout for other sneaky subsidies. Would the golf course land be sold to the stadium developer at fair market value, or would the city sell it at a discount as an incentive? Would the private sector also finance the major road, water and other urban services needed to support the stadium development, or would these costs be subsidized by taxpayers? So far, the Chargers have indicated they and a private partner will pony up the capital to make it happen and they should be held to those commitments.

But this is only one element of the deal, particularly in an area of the county experiencing sky-high housing prices and economic growth. Public officials owe it to taxpayers to make clear the big-picture trade-offs involved with a stadium deal. What potential uses of that land would the city be giving up in exchange for the Chargers stadium, and what's the best use for the city's longer-term economic development?

At first glance, a sports stadium seems like an economic boon. In truth, they are, at best, minor economic players in a city's economic health. More than 20 years of academic research has failed to find a significant relationship between an investment in a sports stadium and significant job or income growth. In a 2000 article in the Journal of Economic Perspectives, researchers from Smith College and Vanderbilt University found that "independent work on the economic impact of stadiums and arenas has uniformly found that there is no correlation between sports facility construction and economic development."

In fact, stadiums can actually divert spending away from local businesses and increase expenditures on public safety and other city services. Other research has shown that stadiums inject very little new money into a city's economy; rather, they reshuffle the jobs and money already there.

Perhaps a more important issue concerns alternative uses for the land. A large tract of prime urban land a mile from the ocean represents a tremendous development opportunity. Housing, office and retail uses may be a much better long-term investment for the city since they are better integrated into the existing urban fabric. Housing and office space has a much longer economic "shelf life," and is easier to renovate than sports stadiums.

Even though the Chargers' proposal may sound appealing today, the track record of fickle sports teams hungry for newer, more modern facilities isn't something to bank on. Pro sports teams have gotten particularly adept at holding cities hostage if projected stadium revenues don't pan out, threatening to set up shop elsewhere unless they receive public subsidies. It's entirely possible that Oceanside could face this five or 10 years down the road when another city, like Los Angeles, for example, offers a better deal. Worse, if the Chargers were to leave in a decade or two, Oceanside would be left with an urban dinosaur that would be costly and difficult to redevelop. Oceanside should consider carefully the economic impact of the soon-to-be-empty Qualcomm stadium.

Mark Fabiani, the Chargers' special counsel and lead negotiator, has said the team wants to "put responsibility on the private sector for the stadium, infrastructure and everything else that is needed to make the stadium work." Oceanside and San Diego County should take him on his word, and help make it happen, without public subsidy.

A City Without a Plan

leonard.gilroy@reason.org (Leonard Gilroy) info@reason.org (Tory Gattis) — Sun, 31 Dec 2006 00:00:00 EST

Houston Chronicle

The best-laid plans of mice and men often go awry, as the saying goes. Though Robert Burns may have had the vagaries of life in mind when he penned this line over two centuries ago, he probably didn't anticipate that this sentiment would hold equally true for cities and urban economies. However, modern urban planners have yet to realize this, and Houstonians could learn this lesson the hard way.

Houston has recently begun to take significant steps down the road of urban planning by embarking on two major projects. In the first, a committee has recently released a "plan to plan" for the Planning Commission and City Council. The plan outlines a process for creating a general plan for Houston's future development. So far, the process seems wisely focused on Houston's top two critical planning-related issues: mobility and drainage (education and crime falling outside of planners' expertise). But additional committees on other issues may steer the effort in new directions in 2007.

Simultaneously, the city has embarked on an effort to reshape neighborhoods and commercial areas along Houston's urban transit corridors, primarily those served by the expanding light rail system. This planning process will spur changes to city ordinances and regulations to promote "transit-oriented development" � high-density, pedestrian-friendly development around transit stops that blends commercial and residential uses. Think of Brooklyn, New York, and you have a good idea of what they want for the future.

According to local leaders and planning advocates, these efforts are not a backdoor attempt to introduce zoning, nor are they a smokescreen for the imposition of draconian government regulations. Rather, they explain, these efforts are simply aimed at setting priorities for the use of public resources to implement a shared vision of our city's future. (Please see "Houstonians, we need a plan" by Councilmen Adrian Garcia and Peter Brown, Houston Chronicle, Dec. 24.)

It's hard to fault proponents for these noble intentions. After all, they share the same civic spirit that infuses the entirety of the urban planning profession. However, it is important to dig beneath the rhetorical surface to understand the motivations behind these projects and place them in the broader national planning context.

First, it is an accepted mantra among planners that a plan without the tools to implement its vision is a document destined for the bookshelf of history. And all planners know that the major implementation tool is zoning.

In fact, legions of planning students in leading universities are introduced to Houston as the biggest American city without zoning, a fact that leads to no small amount of consternation, bewilderment and derision. Put simply, planners are taught that unzoned Houston is the antithesis of rational design and the triumph of excess, an urban free-for-all of boundless sprawl. They would likely be dumbfounded to find out that most Houstonians actually cherish this eclectic city, the economic opportunities it provides, and the quality of life it affords.

Planners also face a sort of cognitive dissonance when they discover that the types of urban characteristics the profession now promotes — such as the density of Manhattan or the compact, Southern charm of neighborhoods in New Orleans, Charleston, or Savannah — were largely the product of free-market forces in the days before municipal planning and zoning were introduced. Houston is a modern-day example that demonstrates that planning and zoning are not essential to the viability or the livability of a city.

Houstonians have wisely rejected zoning several times over the last century. In the process, it has established itself as one the most vibrant and dynamic cities of the 21st century. Research has shown that development patterns in Houston are not dissimilar to those in other more regulated cities like Dallas and Atlanta, but the lack of strong regulatory barriers to new development has kept housing costs low and allowed the real estate market to keep apace with the demands of a growing and diverse population.

Not surprisingly, Houston ranks among the most affordable major metros in the country. That, in turn, enables the American Dream of home ownership for hundreds of thousands of middle- and working-class families. It also gives all of us increased discretionary income that can be pumped back into the local economy to support other jobs, small businesses, charities, restaurants, culture, amenities, higher education and all-around vibrancy.

Contrast Houston with its polar opposite — Portland, Ore., held by planners as the Mecca of highly prescriptive and restrictive urban planning.

While Portland has succeeded in creating a handful of attractive neighborhoods for young, childless professionals, some of the side effects have been disturbing. Given broad latitude in shaping the city through policy and regulation, its planners have worked for decades to force people to adapt to the plan.

For example, the Portland region has intentionally disinvested in highways to make driving more difficult (i.e., forced congestion) in order to encourage transit usage. Yet this plan has backfired. Portland's heavily subsidized light-rail system only accounts for a paltry 1 percent of the city's total travel, and the city has seen one of the country's largest increases in traffic congestion, a slowly tightening noose around the regional economy.

Even worse, planners have used zoning to reduce the range of consumer housing options by effectively outlawing new suburban and exurban development, forcing families into higher density living environments (i.e., smaller, tightly packed homes on smaller lots). By simultaneously preventing development on surrounding farm and forest land, the city's 30 years of "smart growth" policies have created an artificial land shortage, constricting the supply of new housing, inflating home prices and reducing economic opportunities for working families. By the turn of the century, Portland had become one of the least affordable housing markets in the nation, and its homeownership rate lagged behind the national average. According to Coldwell Banker, a 2,200 square foot, four-bedroom home that costs $155,000 today in the Houston area would cost $357,000 in Portland.

None of this is to say that Houston's current planning efforts are inherently misguided or that planning will take us down the Portland path. To the extent that the process could lead to a loosening of outdated and counterproductive city development regulations — such as minimum lot size requirements, building setback specifications and formulaic rules dictating the amount of parking spaces � the process could introduce more flexibility into urban design and allow the market to provide a wider range of development options to meet the increasingly varied housing preferences of consumers.

For example, some of us want to live in a medium-density Inner Loop townhouse development, while others may prefer a lower-density suburban setting with a larger house and yard. Planning should remain agnostic on urban form and instead create the conditions in which developers can respond to the changing demands for both types of product. In other words, planning should facilitate urban dynamism, not stifle it through stringent rules and the micromanagement of land use.

However, if the end result is the imposition of a decision-making and regulatory bureaucracy on top of something that currently works well, it could create imbalances and inefficiencies that would try to force the wrong things in the wrong places at the wrong time. Current planning tools tend to be too inflexible, static and resistant to economic changes. Houston needs flexibility and adaptability to allow dynamic growth and urban evolution.

For city leaders, the challenge will be to move from the abstract to the concrete. What exactly are the problems that planning is trying to fix, and would the ultimate policy prescriptions create unintended negative side effects or even exacerbate the symptoms? Can we fix them with narrowly targeted ordinances that cause minimal distortion to real estate markets? Would planning in Houston result in a process that facilitates and accommodates changes in the market, or would it stifle the dynamism that makes this such a great city? Is any step forward possibly a step backward, given the limitations in the current tools available in planning? Almost every policy "solution" will be more prescriptive than what's available in Houston now. How exactly will the "planning vision" be enforced in a city without zoning? Or is this a slippery slope to zoning (or to the regulatory equivalent of zoning without actually using the provocative z-word), what Dr. Edward Glaeser of Harvard refers to as "a highly regressive form of taxation?"

No doubt there are things Houston could do better when it comes to infrastructure and development. The key is addressing those issues while being aware of the risks and without making the same mistakes made by other cities. And, in the end, when it comes to "establishing a shared vision for the city," we hope that Houston moves forward as an Enabler rather than a Dictator.

Leonard Gilroy is a Houston-based certified planner and senior policy analyst with the Reason Foundation. An archive of his work is here, and Reason's urban growth and land use research and commentary is here. Tory Gattis is editor of the Houston Strategies weblog.

Uncle Sam: Louisiana's Next Real Estate Baron?

Thu, 16 Feb 2006 00:00:00 EST

Given the furor over the federal government's response to Hurricanes Katrina and Rita, you'd think that any plan to give the feds ultimate control over the rebuilding effort would be laughed off the table. Unfortunately, Rep. Richard Baker (R-LA) is pushing just that — a federal land grab of massive proportions that would jeopardize Louisiana's economic recovery.

A Baker-sponsored bill, H.R. 4100, would create a new federal agency — the Louisiana Recovery Corporation (LRC) — that would purchase up to 200,000 homes and commercial properties throughout the state that were damaged or destroyed by the 2004 hurricanes. The acquisitions would be funded by the issuance of $30 billion in U.S. Treasury bonds. The LRC would compensate owners at 60 percent of their home or business's pre-hurricane value, and banks would receive 60 percent of each property's remaining mortgage. The LRC would then make infrastructure improvements to prepare these properties for redevelopment and auction them off to private developers for rebuilding and resale, with previous owners having right of first refusal.

Baker's proposal is backed by the entire Louisiana legislative delegation and has a great deal of popular support. But, there are several glaring downsides to the plan.

First, history is littered with examples of the government's poor track record in large-scale property development. Failed urban renewal efforts of the post-WWII era like those in Pittsburg and Chicago displaced tens of thousands of poor and minority residents and resulted in the isolation or destruction of previously vibrant neighborhoods. Similarly, ambitious federal public housing projects like St. Louis' Pruitt-Igoe and Chicago's Cabrini-Green led to the concentration of poverty and crime in economically depressed neighborhoods and suffered from poor maintenance and bureaucratic mismanagement. As we've seen so far in Louisiana, the agencies involved in the post-hurricane recovery effort are already mired in a messy stew of red tape, poor oversight, and bureaucratic inertia.

Next, given that state and local officials will be steering the planning process in New Orleans, there's a danger that an LRC-led recovery effort will be based on rebuilding the city as it was, rather than recognizing the reality of an uncertain future for a radically altered city. There are already clear indications that political pressure is mounting to redevelop New Orleans in a manner consistent with its previous social and demographic makeup.

However, New Orleans is unlikely to return anytime soon to its pre-Katrina population level. The New Orleans-based Bureau of Governmental Research estimates that the city's population will be between 250,000 and 275,000 in three years (just over half the pre-Katrina level), and no one can accurately predict what the future population demographics will be. Recovery planners and bureaucrats don't have a crystal ball to tell them what New Orleans will look like, but that's what they would need to effectively plan for the right balance of housing types for a city likely to be in transition for some time.

Also, the Baker bill would make the LRC what The Wall Street Journal described as "the Donald Trump of New Orleans" for the foreseeable future. Giving the federal government control over such a massive amount of land would severely undercut the private real estate market. Lacking any significant local real estate expertise, the feds are in no position to determine if pre-Katrina property values were reasonable in the first place. Further, giving them broad power to determine future land prices would effectively allow the feds to artificially establish the new market price level and thwart the natural evolution of a dramatically changed real estate market.

Finally, the plan would set some dangerous precedents. As USA Today recently pointed out, Baker's bill would force taxpayers to bail out mortgage lenders, even those that skirted federal rules mandating insurance for homes in designated flood plains as a pre-condition to mortgage approval. Also, it's reasonable to assume that victims of future disasters would certainly expect the federal government to come to the rescue with similar aid. Once the bureaucratic genie is out of the bottle, it will be almost impossible to rein it in.

The feds need to take a lesson from previous disasters, such as the San Francisco earthquake of 1906. Over half of the city's population of 400,000 was left homeless as a result of that disaster, and property damages totaled over $8.2 billion (in 2005 dollars). But the city rebuilt itself largely through private sector efforts, without the guiding hand of a benevolent federal agency. Even more impressive is that a century ago, we didn't have anywhere near the sophistication of the capital markets that we do now. We also lacked the transportation infrastructure to efficiently move people in and out of the area and keep businesses in place. Despite the grand scale of property devastation, Louisiana is in a far better position now to rebuild itself using private sector initiative.

Instead of a federal land grab, a far better solution would be to offer grants to individual property owners to rebuild their homes and businesses themselves. Combined with a limited-scale buyout of those neighborhoods deemed unfit for redevelopment, this approach would allow citizens to quickly begin work on repairs or new construction and would provide a needed jolt to the local economy. Entrepreneurial property owners are already starting to do this on their own, as well as numerous nonprofit organizations like Rebuilding Together and ReJazz New Orleans that are on the ground helping residents and businesses rebuild.

It is clear that rebuilding New Orleans and other storm-damaged areas in Louisiana is a national priority. But to maximize the region's chances of future success, the best path would be to let it rebuild itself in an incremental, organic fashion through private initiative. Louisiana citizens and businesses are in the best position to lead the rebuilding effort. Let's keep government from getting in their way.

Leonard Gilroy is a certified planner and policy analyst at the Reason Foundation

Urban Homestead Zones May Help Revitalize City Centers

sam.staley@reason.org (Samuel Staley) — Wed, 01 Feb 2006 14:56:00 EST

Chairman Collier, Rep. Wolpert, and members of the House Economic Development and Environment Committee, thank you for giving me this opportunity to provide feedback and thoughts on H.B. 404 and the creation of Urban Homestead Zones.

Major Program Components

Urban Homestead Zones are intended to encourage the revitalization of our inner cities. The zones would be the voluntary creation of property owners in Ohio's largest cities (the "Big 8"—Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, Toledo, and Youngstown) and cover between 10 and 150 acres.

In order to become an Urban Homestead Zone, the area would have to be considered "blighted."

An area would be considered blighted if the following trends were evident over the last 50-years:

The area experienced a 50 percent decline in population;
Violent crime has increased at least 30 percent; and
Poverty has increased 50 percent.

These zones would be allowed to take two very important independent steps that help encourage revitalization:

Establish a private security force, financed by a special assessment on properties within the zone; and
Establish a legal right to an educational voucher for households that invested in residential renovation (a minimum of $120,000 under current legislation) that can be used to offset tuition at private schools.

Thus, the legislation directly tackles two core issues—personal safety and educational opportunity—that are critical to the revival of our central cities.

Fresh Thinking About Revitalization

HB 404 reflects fresh thinking about urban revitalization and has the potential to give new, important tools to citizens and public officials in our traditional central cities.

I've been working in the area of urban revitalization for 20 years, beginning as a researcher examining the effects of urban enterprise zones as a graduate student at Wright State University. Since then, I have come to realize that a critical factor in revitalizing urban areas is making sure the fundamentals are in place. Two of the most important obstacles to retaining and attracting families in our larger cities are concerns about personal safety and the quality of education.

The concept of an Urban Homestead Zone also reflects a shift in thinking about public policy's role in revitalizing inner-city neighborhoods. Rather than use a more traditional approach emphasizing large-scale projects like sports stadiums, citywide administered community programs, more visible marketing, or simply transferring more resources to existing city governments, the Urban Homestead Zone focuses directly on the needs, aspirations and expectations of citizens and residents (both existing and future).

Revitalization in established urban areas happens on an incremental scale, often through the ongoing and interconnected decisions of individuals and households. Few urban areas or inner city neighborhoods, for example, are revitalized by large scale redevelopment of entire blocks (commercial or residential). On the contrary, revitalization happens parcel by parcel. Urban Homestead Zones recognize this process and provide a mechanism for reinforcing this dynamic.

The Urban Homestead Zone also encourages cities to think at the neighborhood level, at the kinds of personal and physical investments on the parcel level, that provide a foundation for long term, sustainable redevelopment. Central cities already have distinctive neighborhood qualities, and the homestead zones provide a way for these neighborhoods to further tailor public services to their specific needs.

Concerns About Current Legislation

Despite what I think are clear potential benefits of the Urban Homestead Zone concept, the current legislation has several features that may limit its benefits and effectiveness.

The investment threshold may be too high. $120,000 is a very large investment in most of Ohio's urban areas. Homes targeted toward the middle class often sell for between $50,000 and $80,000. The bill, as it currently reads, implies that a family moving into a city (or buying another home in the city) would have to shoulder the burden of the mortgage on the building plus invest $120,000. For a new family, this could mean financing $200,000 or more. Investments on the scale of the current bill, then, really end up targeting high-income households.

I don't think this is necessary, and the benefits of the zone could be expanded dramatically by lowering the threshold. Bringing the investment financial threshold to $50,000 or $75,000 would allow for significant remodeling and investment (bringing many homes to contemporary standards) while providing access to the program for lower middle-income families. Cities need to retain the families they have and minimize the incentives to move outside the city.
The thresholds that qualify an area for zone designation are too high. While the legislation defines blight using specific criteria, and this is very important, the current criteria are sufficiently narrow that few neighborhoods would likely qualify. Moreover, the criteria are keyed into historical trends. In a broader sense, we are more concerned about revitalizing depressed inner city areas than how long it has taken them to become depressed.
- Benchmarks such as a percentage of crime, home values, or poverty above or below the city average would be more accurate and consistent with achieving the goals of revitalization. I would also recommend considering regional benchmarks. Central cities compete with suburbs for homes and families, so the appropriate competitive comparison is probably not other neighborhoods within the city, but nearby suburban cities and locations.
- A shorter time period for the trends would also be reasonable. Most Ohio cities began losing population in significant numbers around 1970, so a 20-year period would be sufficient to capture the relevant decline.
The nonresidential land use maximum of 15 percent in the zone should be increased. Particularly in the current economy, where more and more professionals are working at home, neighborhoods in dense urban environments can tolerate (and thrive) with higher commercial/residential mixed uses. This is particularly true if the commercial property houses professional and neighborhood services that provide its social infrastructure. These commercial uses contribute to creating and sustaining a neighborhood identity.
School vouchers should not be limited by the General Assembly if they are paid for locally. The current legislation allows the state legislature to establish the total number of school vouchers available. This is consistent with current legislation. But at least part of the funding for the Urban Homestead Zone program will come from a Tax Increment Financing program designed to fund the vouchers (an Education TIF). The legislature should not be able to limit the number of vouchers provide in a zone if the TIF fully funds them. Indeed, the fact that the legislature might limit the number of vouchers will likely dilute the incentives to form a zone (and reinvest in the neighborhood) because politics may limit the number of vouchers available in the future. For the program to be effective, the program must have as much certainty as possible linking benefits to neighborhood revitalization.
The student achievement test mandates on private schools should be dropped. This is a very odd provision. If the concern is that private schools do not perform as well as public schools, that issue should be addressed in education reform legislation not economic revitalization legislation. Currently,
- Little or no evidence exists showing that private schools perform more poorly than competing public schools;
- Student achievement test mandates will add a significant resource and cost burden onto private schools that participate, reducing their incentives to accept children from these zones and diluting the expected benefit from investing in the zone by individual households; and
- The mandate runs the risk of creating a two-track testing program, where most private school students take one set of tests (often more consistent with the curriculum) while the students from the homestead zone take another set.

There are, of course, broader issues about whether the student achievement tests are either effective or valid measures of educational achievement, but that debate is best left in a discussion of education reform.

Overall, I applaud the effort to take a fresh approach to revitalize our inner city neighborhoods.

I am available for comments and questions.

Federal Aid Didn't Fix Downtown Detroit

adrian.moore@reason.org (Adrian Moore) — Wed, 04 Jan 2006 00:00:00 EST

Detroit News

Detroit was one of the first cities singled out by the federal government in the 1990s to get grants, tax credits and other help that was supposed to bring economic growth back to its inner city. But it hasn't happened.

The federal Department of Housing and Urban Development's success story for Detroit is how taxpayers helped fund the creation of the Clinica Dra. Elena, which provides affordable health care to inner-city residents.

It is a great story, but it's not necessarily the kind of economic development that will bring back Detroit's inner city — a core urban area that has higher poverty and unemployment rates and a lower income level than the surrounding metropolitan area.

Michael Porter, a professor at the Harvard Business School who focuses on how to improve economic development and competitiveness among regions and cities, recently examined how the economies of inner cities in the nation's 100 largest metro areas are faring today. Detroit did the worst.

Detroit has worst inner city

The Harvard study found that since 1995, inner Detroit's job base shrunk by more than 3 percent and wages plummeted. Back in 1995, Detroit enjoyed wage levels near the top of American cities. But by 2003, average wages had fallen to just below average, meaning the highest-paying jobs fled Detroit the fastest.

Detroit is not alone — most of the inner cities lost jobs or failed to gain jobs as fast as the suburbs.

The irony is that the centerpiece of America's inner city revitalization efforts for the past decade — grants and tax credits under federal empowerment zone and renewal community programs — was apparently the wrong approach.

When Detroit was picked as one of the early targets for turnaround, the inner city empowerment zone got a cool $100 million in grants, followed by a share of $17 billion in tax credits for efforts to create inner-city jobs. And the 2005 annual report from the Detroit empowerment zone lists more than $650 million in other federal, state, local government and private grants.

Federal subsidies wasted

We might as well have stacked those hundreds of millions of dollars and had a bonfire with toasted marshmallows. All we got was a rush — of jobs and people — out of Detroit.

"Whatever these programs were, the research and the experience suggests that their impact was marginal at best," Alan Berube of the Brookings Institution told the Associated Press.

HUD's own assessment of the program was equally bleak. It could point to individual examples of creating jobs, but could not point to anything with broad and sustained growth. Only a third of the inner cities that have empowerment zones saw any job growth during the last 10 years.

It is time to think of a new strategy. The Harvard study points out that a distinguishing characteristic of the 10 inner cities that gained more jobs than their suburbs is that they had a different economic identity and mix of industries than the suburbs.

Identify competitive niches

Detroit does not have an economy distinct from the suburbs — anything you can get downtown you can get elsewhere. So identifying economic niches that the inner city can dominate is crucial.

But before Detroit can really develop economic niches, some things that are broken have to be fixed. As Porter points out, there is no silver bullet for success; it is a matter of fundamentals. The conditions necessary for economic growth are decent public safety, good schools and reasonable taxes and business regulations.

In the last decade, Detroit lost thousands of jobs and saw its population shrink 10 percent, but the number of city workers increased 15 percent. Only in the last couple of years has the city been forced by budget deficits and declining revenue to cut city jobs.

When fewer taxpayers support more workers, it's a familiar recipe for collapse.

At the same time, Detroit has one of the highest tax burdens for a working family among America's large cities and is a poster child for burdensome business regulations. Crime rates have improved but are far from attractive. And the schools have a long way to go.

The future of Detroit doesn't depend on more federal block grants or tax credits. It depends on city leaders learning to focus on fundamentals and making them work.

Adrian Moore, Ph. D., is vice president of research at Reason Foundation.

Market Economy Is Best Hope for Prosperity in Iraq

adrian.moore@reason.org (Adrian Moore) — Sun, 01 Jun 2003 00:00:00 EDT

Two key conditions fostered terrorism out of Iraq. A shattered, centralized economy deprived Iraqis of any hope of bettering their lives and gave them little hope of even holding on to what little they had. And in control of that economy was a ruthless tyrant who fomented hatred among Iraqis, working day and night to convince them that it wasn't his control of the economy and his grand palaces that were to blame for their poor prospects, but the rather the evil United States working to snatch even the crust of bread from their children's hands.

Military operations have solved the second problem. But the first problem, the problem of creating an economy that provides real prospects for Iraqis so that desperation does not make them patsies for tyrants, is one that will require more patience, more finesse, and is even more vulnerable to political ploys than were military options.

From creating a functioning money and banking system to passing budgets for the new government that live within realistic means, the economic challenges of building a new Iraq that is reasonably democratic and with a market based economy is a daunting task, and one that in many ways we are just beginning to examine as the Treasury Department experts grapple with what to do about currency in Iraq.

But markets and a market economy, the real source of prosperity and hope for the Iraqis, rely on some basic institutions. On the political side, we are going to have to help Iraq establish a meaningful rule of law that can control abuses of power and enforce contracts, and also help them to establish a system of property rights so that people can meaningfully use what they own and use what they earn. But in the aftermath of Hussein's rule ownership of much of the assets in Iraq is unclear and U.S. officials and anyone expected to be part of the new Iraqi government are already being pressed with claims from those seeking to regain property taken from them over recent decades.

Hernando De Soto, in The Mystery of Capital, brilliantly exposed how someone who owns something as simple as a small house or old car has capital he can use to borrow against to start a business, send a kid to school, or in some way improve his families prospect. That is, if there are property rights such that his ownership of the property is clear and someone will lend him money with the property as collateral. If he only owns it because he is there and no one has taken it from him yet, he is not likely to be able to borrow against it. But such simple micro loans are a key engine of entrepreneurship and economic growth.

Creating property rights is no simple task. Some reasonable and fair process of assigning or allocating rights has to be established. No such process will be perfect, but rather will be contentious and painful, but it has to be done, there is no substitute. Nor does it have to be perfect. Nobel-prize winning economist Ronald Coase taught us long ago that most of the battle is just getting property rights in place, that is where most of the economic benefit is achieved. The trades people undertake once rights are in place takes care of finding the best allocations, and working hard to make the process fair is worthwhile but only incrementally adds to the overall economic benefits of property rights.

Fixing Iraq's property rights is a big task for the coalition, but one that they must undertake if the military steps we have taken are to be meaningful. A fundamental economic lesson of the last 50 years is that an economy can get a lot of things right, but if property rights are not real, the whole things collapses like a house of cards.

The first, boldest, and most important step for the coalition is to create three teams or task forces: one to sort out and establish ownership title for homes and farms, one to sort out ownership of businesses and commercial property, and a third to manage the shift of Iraq's oil fields from the government to people.

In doing so, the coalition will need to tap the wealth of experience in agrarian land reform and mass share privatizations, experiences with both success and failure. Homes and farms cannot be handed out on a political basis-history and local knowledge and norms have to be the basis. Every Iraqi should have shares in the nation's oil resources, and while they have to be transferable, efforts must be made to help people understand the long-term value of the shares as well as their short-term cash potential. The best results in each of these areas from similar efforts in Eastern Europe and Latin America must be the guide. Iraq is one case where getting property rights straight is vital, or it may well fall back into a breeding ground for terrorism.

Adrian Moore is Vice President of Reason Foundation.

LA's Field of Pipedreams

info@reason.org (Geoffrey Segal) — Thu, 18 Oct 2001 00:00:00 EDT

Los Angeles Daily News

If the outlook for the Los Angeles Convention Center looked uncertain before Sept.11, it looks downright bleak in the wake of the terrorist attacks. A recent audit by the Los Angeles City Controller throws yet another cloud over the faltering complex, reporting that the Convention Center has incurred millions of dollars of losses through poor management and lax bookkeeping.

Unfortunately, city officials seem hell-bent on throwing even more money at the facility. Reminiscent of Kevin Costner's movie, "Field of Dreams" they seem to believe that if they build it, people will come. In reality, the proposal to invest an additional $1 billion in the facility and surrounding areas, including a subsidy for a major new hotel seem akin to Costner's more recent films�big budget, very little return. In such uncertain times, public officials should be dubious about putting more money into failed projects.

In 1983, city officials first visited the idea of convention center expansion. Officials studied the matter and were convinced that expansion would boost economic activity and create new jobs in Los Angeles. The feasibility study that swept officials off their feet reported that expansion would boost attendance some two and a half times. It is now painfully evident that the optimistic projections consultants made about future conference attendance have not panned out and have left taxpayers footing the bill. The devastating impacts of the terrorist attacks on convention business only make matters worse.

Even before the attacks, Los Angeles' most expensive publicly financed building ever carried an annual price tag of $30 million to pay bonds that financed a $500 million expansion and annual operating subsidy. Not only has the convention center not covered the costs of the expansion, it can't even cover operating costs. In fact, the center is doing just about the same level of business now as it did in the late 1970s and early 1980s.

One would think that such a failure would engrain a healthy dose of skepticism about future investments but public officials do not seem changed. City officials blame the center's abysmal performance on too few hotel rooms. Planners have long envisioned a facility that would attract new hotels and restaurants to move in. Unfortunately even the lure of the Staples Center with scheduled events almost every night hasn't been able to bring the necessary financing for a marquee hotel.

Now we are told that if only a new hotel were in place with adequate financing, more conventions, more jobs, and healthy economic growth would certainly follow, in spite of a convention industry in decline across the nation. Only two convention centers in the U.S. make money or break even—Orlando and Las Vegas. Both have reported drops in attendance and revenue since the attacks on September 11th.

Several prominent expansions in Southern California have saturated the market, making the prospects of a successful Los Angeles Convention Center even more unlikely. Space has been added or upgraded in Long Beach, San Diego, and Anaheim—supply has ballooned even as demand has continued to drop.

The September 11th attacks will only worsen the situation in Los Angeles. Two conferences have already been cancelled, costing millions of dollars—but convention center officials continue to assure city hall that other conventions will go on as planned. Concerns about travel and the difficulties associated with travel, especially at LAX, will undoubtedly have dramatic effects�lower long-term attendance, revenue, and economic activity. Coupled with an economic downturn, companies will continue to shy away from hosting conventions or sending their delegates to future conferences.

Los Angeles faces several challenges in the years to come that increased investment in a convention center would certainly distract from. During times of a struggling economy and reduced public revenues city officials should focus on the things that matter most—improving education, transportation infrastructure, and increased public safety. Now is not the time for a grandiose convention center expansion.

While taxpayers must ultimately bite the bullet on the original expansion commitments, city officials can stop the bleeding by refusing to dump even more public money into a field of pipe dreams.

Geoffrey Segal is the Director of Privatization and Government Reform at Reason Foundation

Giving a Leg Up to Bootstrap Entrepreneurship

Thu, 01 Feb 2001 00:00:00 EST

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