News Brief, Streets We Can't Afford

Over the Labor day weekend, there were three articles I read covering completely different subjects that I wanted to blog about. I have a little more than a Friday News Digest interest, but not enough for my normal, too-lengthy blog posting. I'm going to give you one each of the next three days and we'll see what happens.

The first one was a fascinating article from the Minneapolis Star Tribune headlined, "Small Towns, Where the streets have no cash." It discussed the difficultly that many small towns are having with road maintenance and how they are putting off repairs until better days. The article also flirted with a topic we are passionate about: the massive financial imbalance that exists in America's small towns between the long-term financial obligations and projected revenues. We are massively overextended and have little or no chance to maintain all of the infrastructure we have in place.

Here is one example from the article's lead:

There aren't many streets in New Trier, Minn., population 105. But potholes and stretches of cracked, bowing and crumbling pavement are plentiful in the Dakota County hamlet southwest of Hastings. And it's likely to stay that way, at least for the foreseeable future, because fixing them would cost more than $600,000 -- something like $15,000 per household.

In 2008, New Trier had a tax capacity of $75,516. In Minnesota, the tax capacity is our state's way of converting the value of a piece of property into how much can be taxed based on the use of the property (residential, commercial, etc...). Residential pays a lower rate than commercial, for instance. The average Minnesota city taxed 36% of tax capacity in 2008. New Trier was slightly less at 32%. 

In real numbers, that means that New Trier is getting $24,000 out of its tax base each year to run the city. 

Let's pretend that the city's elders "got serious" and decided to borrow all of the money they needed to fix the roads and then raise taxes to pay that off. So $600,000 and let's say it is financed at 3% over 20 years. That would give an annual payment of $40,000. 

In order to simply maintain the roads they have today, New Trier needs raise its local taxes from 32% of tax capacity to 85% of tax capacity, a 165% increase in taxes.

This does not include the catch up maintenance of any other infrastructure which, if they are like most other small towns, includes hundreds of thousands to millions of dollars of sewer and water liabilities. The City Clerk is quoted as saying in the article that they have pressing water tower repairs estimated to cost $20,000. (Since the most minor of water tower replacement projects cost upwards of half a million dollars, these repairs must be very minor.) 

Of course, the Star Trib felt it necessary to quote an engineering source in the story who, predictably, indicated we are not spending enough on our roads:

Shelly Pederson, president of the City Engineers Association of Minnesota, said cities of all sizes are guilty of trimming road maintenance in times of tight budgets. But small cities face some unique challenges.

For example, she said, large cities have been able to set up natural rotation for street maintenance by adding roads as the city grew over time. But many small towns paved everything at once, sometimes in ways that were affordable but less durable. Now as they try to fix roads, they find the road beds need extensive work and curbs and gutters must be installed to improve drainage.

"That's the expensive part, when they have to reconstruct it," she said.

Let me again interpret engineer-speak: Pederson is saying that if they had engineered the roads right and spent more money in the first place, their costs of maintaining them would be less now. Let's pretend that is true and overlook the engineering profession's compulsion to over design, it misses the point entirely. The financial mismatch in New Trier and most of our other small towns is not caused by the need to reconstruct poorly designed roads. It is because there are too many miles of road and not enough people and tax base to maintain them, properly or otherwise.

New Trier is on the front edge of this realization. It has not had, in abundance, the three components that have been driving small towns (new growth, government subsidy and the Small Town Ponzi Scheme) and so it is the canary in the mine shaft.

Small Towns across the country should take note that, as the spigot of growth shuts off, the government subsidy is reduced and the Small Town Ponzi Scheme is exhausted, these financial imbalances are very real and cannot be avoid. The strongest towns will be those that realize this today and start preparing for it.