The Trillion Dollar Question Facing Every Major American City

Santa Clara (foreground) and San Jose (background). Image credit: Wikimedia Commons

For more than a decade, we’ve been asserting that cities have built more infrastructure than they have the tax base to sustain, that federal and state programs for funding infrastructure induce local governments to add more stuff instead of maintaining what they have, because building more is important for next quarter’s growth and unemployment statistics while maintaining stuff is, well, not all that exciting.

A new frontage road means a new big box store, a new gas station and a new Cheesecake Factory. Maintaining an existing frontage road just means you have the same stuff you always had, only slightly less junky (for a while).

A new cul-de-sac means new homes along with all the construction jobs and added tax base. Maintaining an existing cul-de-sac means fighting with residents over damage maintenance equipment did to their flower bed.

And even when we get a focus on a “fix it first” approach, what we discover is that maintenance can look a whole lot like expansion when safety “improvements” are made. Who among us would object to taking reasonable steps to address safety concerns? Not any decent person, so when you maintain that intersection go ahead and widen it out for safety reasons. When you repair that arterial, go ahead and add that extra lane in the name of safety.

As we, at Strong Towns, have diagnosed the core problem, it’s not a lack of funding or too much funding—the intellectual ground our culture usually argues over. It’s not even good intentions versus bad intentions—our new favorite battlefield. The core problem is the separation between the rote and clumsy way we fund (and thus, deliver) transportation, and the complex, nuanced, and responsive way we would like to use it.

Which brings us to the current moment and an interesting conundrum when it comes to transportation. In the Ponzi scheme that is community finance, local governments—and the places they serve—need new growth to keep things going. They need new big box stores, tract homes, and Cheesecake Factories. They need transportation spending that induces new investment.

This is also what our country needs. The reason we are so frantically bailing out large corporations and franchises, and doing the bare minimum to credibly suggest we also care about small business, is because the former are the quickest way to get back to building. Your local burger joint is in the business of making burgers, and they can adapt to whatever space you have available. Cheesecake Factory is in the business of expanding Cheesecake Factory; selling food is ancillary.

So, it’s not enough for our economy to have us merely maintain our infrastructure, especially since we currently have no coherent strategy (outside of a Strong Towns approach) to mature our existing development pattern at scale and get more productivity out of the transportation investments we’ve already made. Unless we’re going to completely overhaul our approach to economic growth, in the middle of a crisis, upending established power centers and capital flows, then we need to get back to building.

What if that is impossible?

Case Study: San Jose, California

Image Credit: City of San Jose

Some interesting data on San Jose, California crossed my feed this month, information that connected to stuff I had read earlier in the pandemic. Apparently, San Jose has the second worst roads in the nation, ahead of only the San Francisco/Oakland area.

While the interstates and freeways in San Jose—roadways not under their control—are generally in good shape, over half of their arterials and nearly 90% of their minor arterials are in “poor” condition. That is the worst rating in the federal guidelines. What a mess.

From a Strong Towns perspective, we understand that arterials are mostly synonymous with stroads, the transportation investment that is most expensive to build and maintain and least financially productive. Stroads have the worst return-on-investment, especially over multiple lifecycles as the buildings along them are most often of the single-use, single-generation variety. These are the kind of sugar-high investments that boost growth in the next quarter but cripple a city in a couple of decades. There is a reason these are the lowest maintenance priority.

The progressive reaction in California is to raise taxes with promises that new money be used to address the problem, albeit without a lot of reflection as to how cities across the state found themselves in this predicament and what perhaps should change about their systems to stop it from worsening. Raise taxes is what California did in 2017 with the Road Accountability and Repair Act, which increased a bunch of transportation-related taxes and fees, including the gas tax, with all of the money dedicated to transportation.

California now has the highest gas tax in the nation.

San Jose added some local taxes and debt through some ballot measures. Here is how the mayor’s office announced their major maintenance initiative last year:

Voter support of Measure B and Measure T (passed with 61% and 71% of the vote respectively) along with the funds from SB 1 will provide approximately $87 million per year, on average, over ten years for pavement maintenance.  This funding will allow the City to resume regular maintenance of its local and neighborhood roads while maintaining its efforts on major roadways.

I find the idea of a local government needing new revenue to “resume regular maintenance” to be the most damning of indictments, but I don’t live in San Jose and so am merely an observer. Nonetheless, plans in place and new funding secured, San Jose was poised to invest in new growth, sustain their transportation-related debt payments, and now catch up on its maintenance obligations.

Then 2020, and all bets are off.

My point is not to pile on San Jose—obviously they put themselves in a very fragile situation and now are almost certain to experience great hardship as a result—but more to ask some questions about what comes next. All those new transportation taxes were supposed to provide $87 million per year in new money, but last May the city announced a $72 million dollar budget deficit. Things have not improved since, with COVID-19 case counts failing to abate all summer.

While the new revenue San Jose was expecting for transportation may be reduced somewhat due to lower than expected gas tax revenue, all that money is dedicated to transportation. It’s not clear whether the fine print requires it to go to maintenance or if that was merely the non-binding sales brochure. Either way, with 90% of minor arterials in poor shape, there is a lot of pressure to make good on those promises.

Cuts that have been identified seem insignificant in comparison to the size of the problem. As reported in the Mercury News:

Some of the biggest proposed budget reductions include a $1.4 million cut to aquatics programs and family camps at community centers, a $1.5 million savings for reducing library programming and operating hours and a $7.2 million cutback to the city’s Sworn Hire Ahead Program, which allows the police department to hire officers in advance of future vacancies.

I’ll repeat now what I wrote at the beginning of this article: In the Ponzi scheme that is community finance, local governments—and the places they serve—need new growth to keep things going. They need new big box stores, tract homes, and Cheesecake Factories. They need transportation spending that induces new investment.

The Trillion Dollar Question

Image Credit: Wikimedia Commons

San Jose doesn’t have the money for new transportation investments. If they could get the money, they don’t have the credibility to spend it on expansion. If they went ahead anyway, continued to put off basic maintenance, and built new stuff to pursue new growth, could they induce the new big box stores, tract homes, and Cheesecake Factories they need to make it cash flow?

That’s the trillion dollar question facing San Jose and every major city in the United States. This has to happen—we have to get back to building this stuff—or the whole thing implodes. There’s no backup plan. Forget the banks—this growth machine is what is too big to fail.

So when you see the stock market going up for no coherent reason, interest rates at all-time lows despite demand for borrowing at all-time highs, and the Federal Reserve desperately trying to create levels of inflation to reduce debt loads, what you are witnessing is all the chips on the table to induce new big box stores, tract homes, and Cheesecake Factories. All the chips are being used to prop this thing up. There is no fallback strategy.

We should have shifted from system expansion to increasing the productivity of our existing investments, from building more to getting more out of what we have already built. We should have taken maintenance seriously; it’s shameful that we didn’t. We should have grown our own local economic ecosystems instead of being so eager to dismantle them. And we should be positioned to defend them now in a time of distress.

We should have made the switch to a Strong Towns approach decades ago, but we didn’t.

It’s too late to avoid hardship, but it’s not too late to get started.

---

---