Tag Archives: construction

Edward Glaeser on Cities

Make Entrepreneurship Easy: Regulations are a direct deterrent to new business, and as cities age, they acquire layer after layer of regulation like the grime that can rest on older structures. Like those structures, local restrictions, on everything from construction to taxicabs, need a good cleaning every few years, and I would urge every older city to set up a task force charged with making sure that their town is about the easiest place in the world to open a new start-up. Better rules don’t just empower Detroit’s existing entrepreneurs; they also attract other entrepreneurial people.

That’s Harvard economist Ed Glaeser in an Economix interview with David Leonhardt. He also recommends that cities make it easier for private developers to remake urban spaces, straighten out their books (especially with regards to public sector pensions and health care), and—most importantly, he says—get serious about improving schools. 

His new book, Triumph of the City can be found here.

A BID for Ballston in Arlington, Virginia

Arlington County Board voted to create a Business Improvement District (BID) for Ballston, effective January 1, 2011. Set up like a typical BID, the county will assess a surtax of 0.45 per $1000 of assessed value of taxable property with the boundaries of the BID. Ballston, a commercial and shopping district, has recently expanded its borders with new construction and the BID is intended to promote and improve the area. Fifty percent of Ballston businesses voted in favor of the new district.

The BID functions as a public-private partnership with a non-profit board that oversees the budget on behalf of the interests of commercial businesses. Robert Nelson has written extensively on the BID model as a means for cities to improve their business districts, while giving commercial property owners more say in how tax dollars are applied to making those improvements.

The BID is Arlington’s third, in addition to Rosslyn and Crystal City.

Build America Bonds: Eliminated or in Suspended Animation?

On December 31 state and local governments will no longer be able to issue Build America Bonds (BABs), federally-subsidized, taxable bonds created as part of the American Recovery and Reinvestment Act (ARRA) to fund infrastructure projects. The idea, in addition to creating construction jobs, was BABs would stimulate the municipal debt market which had contracted after the housing bubble/financial market crash in 2008. At that time investors moved away from tax-free municipal bonds since bond insurers stopped insuring debt.

The attraction of BABs is that the program allowed cash-strapped governments to continue issuing debt. The federal government picked up 35 percent of the interest cost. As taxable bonds BABs were marketed largely to overseas investors, who typically don’t buy tax-free municipal debt.

Who’s been issuing the bonds? The most cash-strapped and fiscally profligate states: California, New Jersey, Ohio and New York. Steven Malanga reported in The Wall Street Journal, that in addition to subsidizing big-spending states to take on more debt BABs were used to finance a convention center complex in Dallas, Texas when no private investor was willing. BABs have allowed the most indebted states to effectively ignore market signals concerning risk and increase their debts thanks to the subsidies provided by a very over-extended federal government.

But don’t expect BABs to fade quietly. They have a constituency. Florida Republican, Rep. John Mica, who will chair the House Transportation and Infrastructure Committee aims to find a way to reincarnate the program.

Should New Jersey’s Strip Malls Get a Tax Break?

Two New Jersey legislators have a bill in the works to offer tax breaks to strip mall owners to “refurbish distressed shopping centers.” With store vacancies up, rents down, and new mall construction proceeding, the idea is to attract renters to existing buildings. But instead of helping to soak up excessive inventory, the bill is another example of government planners trying to outguess market signals.

Interestingly, a corporate marketing executive explains in The Philadelphia Inquirer why fixing up older strip malls won’t necessarily bring in new renters, “What’s in fashion now has been in fashion for 10 to 15 years,” he said. “The look has changed. There’s more parking, and everyone wants that stuccoed surface.”  In other words, tax breaks to fix up older buildings won’t necessarily make the space more profitable for business owners. And in fact, older malls with bargain rents might provide an alert entrepreneur with an opportunity to discover another use for the space.

A Greek Tragedy in U.S. Municipal Debt

In recent days, as the debt crisis in Greece and throughout the Euro zone has been splashed across world headlines, smoldering problems in public finance are coming to the fore of public attention.  In Europe and the United States, federal, city, and state governments have habitually bowed to the requests of their employees and public labor unions, offering salaries and benefit packages that they lack the tax dollars to support.

In the public sector environment of generous pay and benefits, some New York state policymakers are pursuing the difficult option of freezing state and local employees’ pay at current levels.

The Buffalo News reports:

In emergency legislation to keep the government running without a 2010 final budget in place, Paterson has not paid the 4 percent raises for state workers in the executive branch that were to have kicked in April 1. The extra pay is being delayed.

The governor also is threatening to start a once-a-week furlough program next week for about 100,000 state workers. The furlough plan would be put, under Paterson’s current thinking, in next week’s “extender” legislation to provide emergency funding for things like state worker paychecks, some road construction and unemployment and Medicaid payments. The bill requires a straight up-or-down vote — meaning if the Legislature rejected the bill because of the furlough, the government would run out of money and have to shut down.

The Empire Center, a conservative New York think tank, determined that canceling state workers’ raises for this year, as well as limiting municipal worker raises, would be legal if the state Legislature declares a fiscal emergency.

This dramatic action would help New York close its budget gap for the year, but larger municipal finance challenges, such as unfunded pension obligations, will continue to plague workers until state policymakers are willing to stand up to union demands that states cannot afford to meet.

Harrison N.J. and the Red Bull Arena

Major League Soccer has a new stadium. The 25,000 seat Red Bull Arena opens today in Harrison, New Jersey. Home to New York’s Red Bulls,the $200 million stadium was launched 13 years ago.The project was envisioned as a way to spur redevelopment in the former manufacturing town of Harrison. The 250 acres around the arena was to be developed into 6500 housing units, with commercial and retail space. But the recession changed that. So far a hotel and a 313-unit condominium complex have been completed. More construction is slated to follow this year.

Harrison, like the rest of the nation, is facing a budget crunch and drop in revenues. Their immediate worry is how to pay back the $40 million bond it floated to buy the land for the stadium. The town’s  first payment of $3.2 million is due in December. Will it payoff? Economists generally agree public investment to spur stadium construction doesn’t stimulate economies.

Using the public purse to boost economic activity owes its origin to John Manyard Keynes. This notion has been used to justify government involvement in any number of projects, including the Olympic Games.The costs of development tend to far outweigh the potential profits.Vancouver is a recent example. The city is $1 billion in debt from bailout of Olympic Village.

For more on the economics of sports check out Playbooks and Checkbooks by economist Stefan Szymanski.

Recycling puts Berkeley’s budget in the red

The biggest source of Berkeley,California’s budget collapse is the loss of $4 million in recycling revenues. Berkeley is one of the few cities in the US with its own garbage and refuse pickup program.With the recession, people are buying less and building less. The result is a decreased need for trash pickup. And not only is there less garbage, Robert Reed of Recology Sunset Scavenger notes in the SFGate, “the nature of garbage changes.” Construction debris revenues are down 15 percent, in spite of a 10 percent rate hike. Residents switching to smaller trash bins (the city charges for the size of the can) leading to an 8 percent reduction in recycling revenues.

Also affecting the program: the value of ‘recycling commodities‘ has also declined. Aluminum is down from $1,908 a ton to $1,200 a ton.

While the decline in trash pickup may hurt the city’s budget, Berkeley’s residents are changing their behavior.They are recycling more at home and reusing materials. They are buying less. While there is less trash in landfills, according to University of Chicago Ph.D student Alexi Savov, less trash is also a good proxy indicator of less economic consumption.

Not In My Back Yard?

Richard Epstein has a great new article in Forbes detailing his New Year’s resolutions for public policy. Despite the scuttlebutt on a second stimulus, health care, and all the other looming federal issues, he takes time to examine the local and regional policy problems that have proliferated recently; a sort of death-by-a-thousand-cuts:

On real estate, change the culture so that getting permits for yourself and blocking them for everyone else is no longer the preeminent developer’s skill. The government can still prevent buildings from falling down and fund infrastructure through general taxation. But don’t let entrenched landowners and businesses raise NIMBY politics to a fine art. Today our dysfunctional land-use processes too often build thousands of dollars and years of delay into the price of every square foot of new construction. The instructive requirements on aesthetics and handicap access should be junked, along with the crazy-quilt system of real estate exactions that asks new developments to fund improvements whose benefit largely belongs to incumbent landowners. And for heaven’s sake, learn the lesson of Kelo and stop using the state’s power of condemnation for the benefit or private developers.

On labor, state and local governments have to junk the progressive mindset in both the public and the private sector. State and local governments should never, repeat never, be forced to negotiate with local unions. The huge pensions garnered by prison guards in California or transportation workers in New York present the intolerable spectacle of requiring ordinary citizens to pay huge subsidies to union workers far richer than themselves. On the private side, don’t force developers to hire union workers on construction sites or to block the construction of new facilities that hire nonunion labor. If unions are really efficient–and they aren’t–let them compete like everyone else.

(H/T Matt Welch at Reason)

We’ve recently covered the real estate problem. Eileen and I have a forthcoming paper paper on just how monumentally screwed up public pension systems are.

Does New Jersey like being ranked last?

New Jersey is consistently ranked one of the worst places to do business in the nation. They are 50th in the Small Business Survival Index of 2009. William Ruger and Jason Sorens rank New Jersey49th for regulatory freedom.The Tax Foundation puts N.J. 50th in state business tax climate. And ALEC ranks the Garden State 46th for economic outlook.

Sales, profits and spending in companies plunged to record lows in 2009 according to the New Jersey Business and Industry Association.

No matter how bad it gets, it’s not enough to stop the New Jersey legislature from inflicting further damage; this time, by expanding the prevailing wage. S-3028 requires it on Board of Public Utilities projects. A-4268 mandates it on maintenance-related projects. And S-3096 extends the requirement for construction and rehab work done under New Jersey Housing and Mortgage Financing Agency housing project loans.The measures will artificially inflate wages, drive up costs for contractors, drive out businesses, and pass costs to taxpayers.

Each measure accomplishes the exact reverse of stimulating jobs, economic recovery, or fiscal solvency. With measures like these one wonders if legislators think being ranked the worst place to do business  in the country is a good thing.

The Downside of “Better” Housing

Earlier this week President Obama visited the of New Orleans to see a city that, four years after Hurricane Katrina, still has not recovered from the damage.  Most of the homes in the Lower 9th Ward where he spoke at a middle school remain vacant.

November’s issue of The Atlantic includes an article about new housing developments in New Orleans — the efforts of social entrepreneurs who have stepped in where government has failed to provide the new housing that it promised. Journalist Wayne Curtis points out that one of the many problems in recovery after Katrina has been policy makers’ misunderstanding of residents culture and preferences. Curtis quotes Andres Duany, co-founder of the Congress for New Urbanism:

Many of the shotgun houses in New Orleans were built by the fathers and grandfathers of people living in them today, and few of them meet building codes.  But no one worries about paying mortgages or insurance. “The situation is that the housing is essentially paid off, and it allows people to accumulate leisure,” he said. “What’s special about New Orleans is that it’s the only place in the United State where you can have a first-rate urban life for very little money.”

One of the first lessons in economics is that we respect consumer preferences, making no judgment about differences in subjective tastes and utility. Unfortunately this often does not carry over to economic policy making. While federal agencies are busy developing plans to allow people to obtain home mortgages, they are ignoring that some people would prefer not to take on and debt — inexpensive housing allows them to work less and to enjoy more hours of leisure.

Policy makers may think that housing standards requiring higher quality construction make people unambiguously better off, but in that case they fail to take into account the unseen consequences such as higher rates of homelessness and requiring that people devote more of their scarce time to earning money to pay for housing. From the point of view of lawmakers, higher building standards improve safety and neighborhoods’ appearance, but it also leads to higher costs, and this tradeoff may not be in line with the subjective preferences of many New Orleanians.

An unseen consequence of housing policy after Hurricane Katrina may be alterations to the culture and sense of place for which the city is widely known. Policymakers should consider the unique cultural attributes that give each city unique flare when dictating legislation that will result in lifestyle changes.