Lafayette
Last Thursday I was sitting in a radio station in Lafayette, Louisiana, waiting to go on the air with the City-Parish President, Joey Durel, when he turned to me and said,
“I’ve been telling people for years that we need to think differently. I’ve known it. I’ve seen it. You guys are helping me explain what that means.”
“You guys” would be myself along with Joe Minicozzi and Josh McCarty of Urban 3. For over a year now, we’ve been working with Lafayette to do something that is simple in concept but massively complex in execution: build a tool that will shed light on the geographic mismatch between revenue and expenses throughout the city and surrounding parish. What are the revenues and what are the expenses for each parcel in the city?
This is no coarse model jacked up with assumptions. We’re not splitting the city into arbitrary 40-acre chunks and applying our biases to each. We’re taking an agnostic look at the data, pulling it together in a powerful way that has never been done before. What we’ve uncovered demonstrates in the macro what we’ve pieced together in the micro: auto-oriented development patterns are bankrupting our cities.
Running a city like a business?
It is sometimes said that we need to run our cities like a business. We fundamentally disagree with that premise.
A city is not a business for a number of obvious reasons. A city cannot be liquidated in a bankruptcy. If Lafayette fails, New Orleans does not get to purchase its tax base at bargain prices and make productive use of them. Lafayette does not get to rid itself of its obligations to provide services, even through bankruptcy. It is stuck with miles of roads, miles of pipes and thousands of acres of area along with all the good and bad financially that comes with that.
Joey Durel, Lafayette City-Parish President
And, of course, a city is us: it is a corporation established to help people living together in a community collectively do things that would be difficult, or impossible, to do as individuals.
You would think that would make a city, especially one as well-managed and prudent as Lafayette, incredibly conservative when it comes to taking on long-term commitments. In reality, we see the opposite, not just in Lafayette but in nearly every city across the country. Local governments face enormous incentives to pursue near term growth objectives by taking on onerous long term liabilities. We’ve called it a Ponzi scheme because, despite the lack of a nefarious objective, the mechanism is the same. Cash today with the bill coming due sometime in the future.
Even if we don’t run a city as a business – and we shouldn’t – we still need to use business principles to run a city. Lafayette has a tax base of $16 billion dollars. There is no $16 billion business out there that doesn’t know which of its divisions are profitable and which are bleeding red ink.
Sadly, there is no city that does know. Until now.
Middle of the bell curve
This week and beyond, I’m going to share some of the data we’ve collected from Lafayette, but I want to start with two observations. First, Lafayette is a really well-run city. The people there are smart, prudent and thoughtful. As dire as their situation is, this is not a case of incompetence, corruption or malfeasance. Quite the opposite. I’ve met a lot of mayors, council members and city administrators. Lafayette has some of the best I’ve ever met. Their courage in asking difficult ad uncomfortable questions is an inspiration.
“The story of Lafayette is the story of America.”
Second, and most importantly, while Lafayette has a unique culture and lifestyle, there is nothing unique about its development pattern. This is a very American city. You have the old downtown that is struggling with vacancies surrounded by neighborhoods comprised predominantly of the city’s poorer residents. Stroads run through all of these areas and serve as the primary traffic route to the auto-oriented strip development, big boxes and wealthier subdivisions that surrounding the core.
While we don’t have the level of data we’ve assembled for Lafayette for any other city, my intuition tells me that they are going to fall somewhere in the middle of the bell curve. Many – perhaps most – American cities are going to be in a direr situation. The story of Lafayette is the story of America; they’ve just had the courage and foresight to ask a more sophisticated set of questions.
They are responding to their stress and chronic budget shortfalls not by reflexively seeking more revenue or more service cuts – the standard responses – but by asking: why isn’t this working?
A 533% tax increase….just to tread water
A preview of the model's output: Green is cash flow positive and red is cash flow negative.
The median house in Lafayette costs roughly $150,000. A family living in this house would pay about $1,500 per year in taxes to the local government (more to the schools and regional government) of which 10%, approximately $150, goes to maintenance of infrastructure. A fraction of that $150 – it varies by year – is spent on actual pavement.
To maintain just the roads and drainage systems that have already been built, the family in that median house would need to have their taxes increase by $3,300 per year. That assumes no new roads are built and existing roadways are not widened or substantively improved. That is $3,300 in additional local taxes just to tread water.
That does not include underground utilities – sewer and water – or major facilities such as treatment plants, water towers and public buildings. Using ratios we’ve experienced from other communities, it is likely that the total infrastructure revenue gap for that median home is closer to $8,000 per year.
The median household income in Lafayette is $41,000. Even if there was the will – and that seems highly unlikely – there is no functional way to raise thousands of additional dollars each year from the city’s families and businesses. It is also hard to envision a scenario where state and federal governments will be in a financial position to bail out cities.
Like other local governments around the country, Lafayette must deal with these problems on its own. That's the message Joey Durel has been working to explain. To his fellow elected officials. To the staff. To the voters. It's exciting to be there as the conversation builds momentum.