Just Say No

We all want our roads, streets, and sidewalks maintained. It’s the base level of municipal competency: Are we able to take care of what we have built and promised to maintain? A well-run city will not only be able to say “yes” today, they’ll be able to project that affirmative response to continue, regardless of what happens to their growth rate, state aid, or federal funding.

That’s because solid transportation investments are directly tied to the tax base. If we’re doing transportation investments correctly, there is a positive feedback loop between the money we spend as a community and the return we collectively experience on those investments. In short, when we spend a dollar on transportation, how many dollars are we getting back.

“ Our core problem is the lack of financial productivity in our development pattern...”

This is a question few, if any, local governments ever struggle with. It’s also the reason why there is never enough money to maintain our transportation networks. We’re so obsessed with building, with getting that new project or making that new connection, that we don’t ask the simple question: Can we afford to maintain this?

For example, my local paper this past weekend had an article about a road project being pursued in the neighboring suburban community of Baxter. The city is planning to undertake a $5.5 million project to “ease traffic congestion” and provide a new route for traffic to flow. According to the public works director, the project has been in the works “for the better part of 20 years.” I am pretty confident that is true.

For some context: Baxter’s population has not grown in the past decade; it sits at around 8,300 (far below projections from 20 years ago, future expectations I had an outside part in preparing). The $5.5 million project cost is roughly five times the entire annual “Highways and Streets” budgets (page II-8), which includes staff salaries. It’s 110x the actual capital outlay in the department’s fund.

A full 22% of the city’s budget is debt service (page III-2), which I’m pretty sure is just general obligation debt (which means it doesn’t include debt where there is theoretically a revenue stream outside of the general fund dedicated to paying it off – cities usually consider that debt “off budget” or show it as an interfund transfer). Either way, it exceeds our recommended debt threshold of 10% of locally-generated revenue by a substantial margin (rough calculations is that their general obligation debt is ~40% of locally-generated revenue).

And the on-the-ground experience of “congestion” – the evil supposedly worth spending millions to combat – is laughable to almost any outside observer. Traffic congestion in Baxter means having to wait at a four-way stop. It means having a car traveling in the same lane as you. I explained years ago why we all perceive and experience traffic congestion, even though it is, as Einstein would say, all relative.

It doesn’t take a genius to understand why there is no money to maintain our roads, streets, and sidewalks. We’re wasting our limited resources building new stuff when we should be spending it maintaining things. Worse, we’re building things that pay no real financial return, investments that create little in the way of new tax revenue but gives us a big maintenance hangover in the decades to come. We’re raising our taxes and borrowing from our future to literally make ourselves poorer.

In this, Baxter in this case is merely representative of the broader American experience.

So, why do we do this? The answer is ridiculously simple because it’s the same reason people rob banks: That’s where the money is.

From the same article:

“… there’s roughly $800,000 on hand in federal funding for the new railroad crossing, as well as $1.1 million in MnDOT highway funds in local initiative money. He added the city would have to look at an array of funding sources, not the least of which would be a portion of the statewide bonding bill being hashed out in the Minnesota Legislature.”

For this one silly project, there’s federal money, state highway money, and state debt money, all being used to pay for part of a project they don’t need. Add to that more local debt in the form of revenue bonds (money pledged from future direct assessment revenue) along with some general tax revenue and a whole lot of people can be employed doing a whole lot of things, regardless of whether it has merit or is a community priority.

When I did engineering and planning work, the communities I worked for chased the money. Whether it was state and federal grants or money a developer could bring to the community, we took existing revenue from taxpayers for granted but coveted anything that would provide a new stream of funding. That was handy to solve today’s problem – and keep us all employed – but it was ruinous for the city’s balance sheet.

A $10,000 project that brings in an additional $20,000 in revenue is a huge financial winner, but it’s not fundable by state, federal, or Wall Street capital. If it’s not fundable, and if it was small, it wasn’t worthy of staff time and energy. It wouldn’t get done. On the other hand, a $5 million project is absolutely fundable, even if it only results in $1 million of additional revenue, an 80% loss to the community. That’s the kind of project that gets attention.

For America’s cities, traffic congestion is not our problem. Lack of funding for basic maintenance isn’t even our problem – that’s a symptom. Our core problem is the lack of financial productivity in our development pattern brought about by the negative return-on-investment from our public infrastructure projects.

Here’s the great thing for any community wanting to become stronger and more prosperous: You don’t have to take the money. These is nothing that forces any local government to take on negative-returning projects. You can say “no” and it’s really easy to do.

Try this:

We’d love to do this project, and I can see why it might help people get around a little bit easier, which would be nice. But the bottom line is, when we spend money on projects like this, that’s money we can’t spend on other things people in this community want, stuff that would directly improve people’s lives and make us all more prosperous.

And not only that, when we build this new infrastructure we someday have to maintain it, and we’re already struggling to maintain what we have. It would be irresponsible to force a future tax increase and a future service cut on our neighbors just because we won’t do the math on this project today. I can’t support it, even with the free money.

That wasn’t so hard, was it? Now go ahead and redirect your staff. It’s a shame they spent two decades working on such a bad project, but imagine what they can now do with all that time and capacity. And what other negative-returning projects are they spending time cultivating? There is all kinds of value to be recaptured here.

If you want to be a Strong Town, your community must redirect its energy to things that will make it financially better off and more prosperous. Don’t get stuck in a cycle of decline, maintaining infrastructure you won’t see a positive return on. If you’d like to understand what a good investment looks like, I wrote an entire book on the topic. Or just stick around here, follow us on your favorite social media platform, and sign up for our newsletter to get a regular dose of Strong Towns thinking.

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