Tag Archives: NC

Detroit’s Financial Future

This post originally appeared at Market Urbanism.

After flirting with Chapter 9 bankruptcy or a state takeover of its finances, Detroit has reached a deal with the state of Michigan that will allow it to remain independently managed with a requirement for state oversight. The Detroit Free Press reports:

The city has seven days to create the positions of chief financial officer and program management director and 30 days after that to make a hire from a list of three candidates from the mayor and state treasurer. Lewis said the city is compiling a list of candidates.

“We’ve got a lot of requirements that are in the agreement,” Lewis said. “We’ve got a lot of work to do (with the agreement) and then getting to the work of fixing the city. Our focus is on executing the plan and getting the resources here to execute the plan.”

Snyder reiterated that the city “shouldn’t expect” a cash bailout, adding that Detroit is one of many troubled communities in the state. But he said the state would use its resources in a variety of ways to help the city.

Snyder said the agreement assures the things that need to be done will get done, describing it as a “progressive series of steps” that first allow the mayor and the council to make the decisions, and then empowers the project manager to do so if they don’t. “This is a legal document designed to deal with situations when they don’t go right,” he said.

While bankruptcy protection offers the advantage to cities of achieving a more manageable debt load, it doesn’t come without a cost. Bankruptcy would add an additional stigma to Detroit, already known for municipal financial distress, encouraging business disinvestment.

Vallejo, CA filed for bankruptcy in 2008, and as the New York Times explains, the city is still in a difficult financial position. After bankruptcy cities have less room in their budgets to provide public services such as infrastructure, parks, and schools while their tax rates don’t fall accordingly. This contributes to further erosion of the tax base as businesses and residents leave the city.

Municipal bankruptcy is always a two-sided issue involving both revenue and debt. At The Atlantic Cities, Emily Badger covers the equation from the revenue side. While cities often both subsidize and enforce sprawl through road-building, parking requirements, and minimum lot sizes, these policies are detrimental to their property tax equations. She cites the positive example of Asheville, NC as a city that has taken advantage of denser downtown redevelopment to improve its ratio of property taxes to infrastructure costs:

Asheville has a Super Walmart about two-and-a-half miles east of downtown. Its tax value is a whopping $20 million. But it sits on 34 acres of land. This means that the Super Walmart yields about $6,500 an acre in property taxes, while that remodeled JCPenney downtown is worth $634,000 in tax revenue per acre. (Add sales tax revenue, and the downtown property is still worth more than six times as much as the Walmart per acre.)

[. . .]

All of this is also just looking at the revenue side of the ledger. Low-density development isn’t just a poor way to make property-tax revenue. It’s extremely expensive to maintain. In fact, it’s only feasible if we’re expanding development at the periphery into eternity, forever bringing in revenue from new construction that can help pay for the existing subdivisions we’ve already built.

[. . .]

“The thing is it all works fine when you have all this new growth and the new gap is met by all these new permit fees – that’s like free money,” Joe Minicozzi [of Public Interest Projects] says.

Cities should not be in the business of requiring the sort of development that is most expensive for them to support. However, this analysis ignores the debt side of Chapter 9, one that may be even more difficult to tackle politically. Despite the harm that poor financial management causes, local elected officials simply do not have the proper incentives to avoid it.

Politicians operate on election cycles, and during their time in office they generally seek to provide their constituents with the best possible services at the lowest tax rate. This leads them to put off payment on long term debt and liabilities using accounting gimmicks and fiscal evasion techniques to spend more on goods that residents will see in the near term.

A combination of debt and declining revenue has put Detroit in the position it’s in today. Its urban development strategy must be a part of the property tax revenue solution. Perhaps the new officials that the city hires will help with debt management, but this additional oversight is unlikely to overcome the incentives of election cycles.

Another Case for Neighborhoods

A growing trend has emerged across the country of raising chickens in residential neighborhoods. A New Yorker article suggests that the 2000 movie The Natural History of the Chicken helped spur the popularity of chicken raising, but media coverage in Utah, Wisconsin, and Kansas indicates that the practice has reached a tipping point this year. Chicken raising is now so widespread that a market for Amish coops has developed.

News anecdotes indicate that most backyard chicken farmers raise chickens as pets or to take part in the environmental and local food movements. Many cities prohibit agricultural land use in residentially zoned areas, so advocates are working with their city councils to change these laws.

Backyard chicken coops have really taken off in Asheville, NC. The Mountain Xpress quotes the city’s Mayor Jan Davis:

We’re a progressive community, and that’s the thing to do right now, so we’re going to keep chickens. But neglected chickens is something I think we’re going to have a big problem with.

Tolerance for chickens in city limits may be growing because of the current popularity of progressive sentiments, and the chicken movement is certainly good news for homeowners’ property rights. However, it is easy to understand that not everyone wants their next door neighbor to own chickens. Chickens most likely come along with externalities worthy of study by Ronald Coase; for chicken owners the right to have livestock at their homes is a benefit, but to their neighbor who smells and hears the chickens, it is a cost.

This issue provides a clear case for regulation at the neighborhood, rather than the municipal level.  While it may be too difficult for neighbors to work out this zoning issue on an individual basis, saying “yes” or “no” to chickens in neighborhoods city-wide is also unlikely to be an optimal solution. Here in Washington, DC, for example, it is easy to imagine that residential chickens in Takoma would make residents better off while in Bethesda backyard chicken coops would make most people worse off. If neighborhoods were allowed to permit chickens by a super-majority vote, however, a good balance of individual liberty and social practicality could result.