Limits to growth?

October 22, 2007 11:54 AM

If cities (or the pressure on city services) grow faster than the wealth held by individuals grows, how does the bottom not fall out given that municipal growth is largely funded by taxes?

Business tax doesn't seem like a satisfying answer, since they tend to not pull their weight, and since many cities seem to have placed most of the tax burden on residential.

Unlimited urban growth in our current economic system seems impossible. Doesn't it? How has it managed to work so far? What dangers lie ahead?

posted by regicide is good for you to society & culture (34 comments total)

Unless I'm misreading the first question, isn't the answer by raising tax rates (leaving aside declining service levels, improvements in efficiency, and economies of scale)? Cities, at least those I'm familiar with, gather revenue by charging taxes based on the value of the properties in them. If the total value of these properties doesn't grow as fast as the cost of services the city provides to them, then the city has to increase the tax rate.

For the final question, urban growth means more houses, whose owners pay taxes, thus increasing the revenue for the city to balance the increased cost of servicing those houses, at least in theory.
posted by ssg at 12:05 PM on October 22, 2007

California solves this problem with a new tier of taxes added to the costs of new houses. Mello-Roos is essentially a surcharge added to the purchase price of newer homes to fund municipal services and infrastructure.

Unlimited urban growth in our current economic system seems impossible. Doesn't it? How has it managed to work so far?

You're forgetting sales taxes, hotel taxes, restaurant taxes, municipal bonds, toll roads, fines for infractions (e.g. parking tickets), etc, and any of the innumerable other ways cities can tax their citizens and visitors.
posted by Cool Papa Bell at 12:18 PM on October 22, 2007

Unless I'm misreading the first question, isn't the answer by raising tax rates

Yes and no... the reason I asked is that municipal taxes often rise faster than inflation, while real wages are generally falling.

Is the only solution, then, continued population growth? And won't that put pressure on services that grows faster than tax revenues? I'm asking why we haven't or won't reach a point where people simply won't be able to afford their cities.
posted by regicide is good for you at 12:20 PM on October 22, 2007

The short answer is that the bottom doesn't fall out all at once. Remember that cities often cut back on services when they face deficits, because raising taxes is so politically abhorrent. Two recent examples that hit close to home for me: the Chicago Transit Authority cutbacks, and the park cutbacks in Milwaukee.

Cities will also raise revenue by leasing public property: Privatizing America's Roads
posted by desjardins at 12:20 PM on October 22, 2007

You're forgetting sales taxes, hotel taxes, restaurant taxes, municipal bonds, toll roads, fines for infractions (e.g. parking tickets), etc, and any of the innumerable other ways cities can tax their citizens and visitors.

Which all still come from the same source... people's pockets.

I'm trying to get at whether cities can only be funded under the current system through infinite growth - and if so, how can they be made sustainable in the context of finite resources/wealth?
posted by regicide is good for you at 12:21 PM on October 22, 2007

why we haven't or won't reach a point where people simply won't be able to afford their cities

Well, we have. I certainly couldn't afford the cost of living in San Francisco at what I could make in Milwaukee, but wages in SF are commensurate. I'd still take a hit in my standard of living, and like many others in that area, I'd probably end up living in the suburbs and commuting into the city for work. [Substitute NYC for SF as desired, etc.]
posted by desjardins at 12:24 PM on October 22, 2007

CBC Radio's The Current discussed some of these issues this morning, actually. It probably isn't as deep an exploration as you'd like, but I found it interesting.

Hopefully, it's not what prompted you to post this question.
posted by Alvy Ampersand at 12:25 PM on October 22, 2007

Cities (and regions, and countries) are made economically sustainable by exporting goods. People from other areas buy the goods/services made/created in that city, thus bringing money into the city, but not significantly impacting the infrastructure.
posted by desjardins at 12:26 PM on October 22, 2007

Cities (and regions, and countries) are made economically sustainable by exporting goods.

But cities don't export anything - corporations do, and keep most of the wealth.
posted by regicide is good for you at 12:28 PM on October 22, 2007

There are a lot of cities that aren't in a sustainable situation with revenue/expenses. Municipal bonds are increasingly being abused which will result in taxes and loss of services mentioned above as well as the possibility of Chapter 9 bankruptcy in some places.
posted by Durin's Bane at 12:56 PM on October 22, 2007

A lot of California cities have realized that, due to Prop 13, which limits increased in property tax, the easiest way to gain income is through sales tax. An emphasis on retail sales has been the economic development strategy for many California cities (see: Emeryville, Colma). The wisdom of that strategy is quite controversial.
posted by otherwordlyglow at 1:12 PM on October 22, 2007

...If one assumes that wealth is finite (EX: Money is 1:1 directly related to a physical resource{Gold, Oil, whatever}, which is in finite supply.), then ideas, being in near infinite supply, are practically worthless( As in, (finite/infinite)= approaching zero).

I think phenomena like ($200 of parts + Ideas + I.P. = $400 iPhone) imply that wealth, or at least money, is not finite.

As for how cities manage to promise to cut taxes, give out large abatements to industries and still keep the lights on during a time of dwindling population... Well, the term "Infrastructure crisis" might point to where the money's coming from.
Why do so many articles going 'What infrastructr crisis???' point to sites like CATO and 'Reason'? Do these people get paid by the word?
posted by Orb2069 at 1:13 PM on October 22, 2007

I'm trying to get at whether cities can only be funded under the current system through infinite growth - and if so, how can they be made sustainable in the context of finite resources/wealth?
For cities where growth has funded operating expenses, i.e. the revenue from new development exceeds the costs of expanding services to those new developments, once new development slows significantly, either services are going to be cut back or taxes are going to rise (or the city is going to run an operating deficit). I don't think that means they are unsustainable, it just means that those cities' residents are going to have to pay the full cost of their city's services, which they weren't doing before. They might have to reduce their expenditures elsewhere and/or accept a lower level of service from their city, but I don't think North Americans are going to be totally unable to afford water, sewers, roads, etc. in the near future.

However, it may be that I'm being too literal and that the question you are asking is more about the sustainability of constant economic growth where there are limited natural resources and slowing (or even zero) population growth.
posted by ssg at 1:23 PM on October 22, 2007

see New York City in the 70's bankruptcy scare
posted by kanemano at 1:26 PM on October 22, 2007

I think the answer is based more on long term sustained growth. Mostly because poor people don't buy new houses. They occupy existing houses, and in some cases apartments vacated by those moving into new houses...reverse gentrification? So in the short term new money buys new houses, pays new taxes all while the existing tax base still lives in and uses existing services. It is only after a number of years when some city areas become slums (like Flint or Detroit or Pittsburgh etc., when jobs leave the city), and become a drag on city resources using more than they pay for in devalued property taxes. Luckily at the same time those people who moved to the suburbs will turn back to the city, seeing economic opportunity in re-gentrifying those old neighborhoods...so in effect closing the circle of urban life.
posted by Gungho at 1:49 PM on October 22, 2007

But cities don't export anything - corporations do, and keep most of the wealth.

I'm using "cities" to include residents and businesses located therein, not just the government. Yes, businesses who export goods do make a profit, but they also have to pay their (local) workers. Their workers use their wages to buy housing, clothes, food, gas, etc. - usually in the cities/region in which they work. This secondary economy in turn keeps the food service workers and gas station attendants working. All of these people pay taxes, and if there were no exports, there would be no economic growth, and thus no reason for all these workers to stick around (fewer jobs).
posted by desjardins at 1:55 PM on October 22, 2007

I'm not sure I understand your question. What do you mean by growth of a city? If population grows, the city's economy can grow with it. A new resident doesn't just make the city parks more crowded, he also becomes a new employee and a new customer for local businesses. If I'm missing the point of your question, could you help me better understand?
posted by reeddavid at 2:10 PM on October 22, 2007

Cities are not, I don't think, inherently sustainable. The ones that thrive do so because there is a constant influx of human capital. They grow because people want to go there because people want to go where there's growth- kind of a self-fulfilling prophecy. When the perceived growth tops out, the cities start to shrink.

There is no sustainment. There is growth and there is decline. People and corporations are willing to invest in a growing city but not a declining one. Both sides, though, are really self-fulfilling prophecies driven by popular perceptions.
posted by Doohickie at 2:15 PM on October 22, 2007

Cities generally have finite growth due to borders. It isn't like a city can grow at a constant rate indefinitely. Older cities have less growth than newer cities. Cities always find ways to create new funding sources or they limit services.

Really you don't get continuing growth in an American city unless it is for reasons of jobs or cheaper land. Either way it revolves around the employment rate.
posted by JJ86 at 2:22 PM on October 22, 2007

reeddavid - Everything you say is true, but given that an increasing number of cities are having a hard time maintaining that pattern- owing partially to things people have mentioned here and partially, I think, to a growing economic divide- and in light of growing ecological problems, I'm just kind wondering out loud at which point there are diminishing returns, and whether the model is a sustainable one.
posted by regicide is good for you at 2:26 PM on October 22, 2007

I really should learn to preview..
JJ86- As urban regions become at least as important as specific cities, I'm not so sure finitude is always a given.
Also, I'm appreciating the thoughts and links so far.
posted by regicide is good for you at 2:28 PM on October 22, 2007

Once a business is established in an area, the incremental cost of expanding that business in the same area is cheaper than to do so somewhere else. Increased taxes reduce that advantage somewhat depending on the tax rate.

But you can have situations where the tax burden is so great that it's worthwhile for businesses to relocate. When that happens, the city starts dying if it doesn't change policies. See, for instance, Detroit MI for an example of a metro area caught in a high-tax death spiral.
posted by Steven C. Den Beste at 2:28 PM on October 22, 2007

When declining cities can't raise taxes on their citizens any more, they inevitably try to use lawyers and politicians to raid the suburbs.

Interestingly enough, cities' long term interests are almost always better served when those raids fail then when they succeed.

Failure forces the city to look inward to reforms, whereas "success" just lets the problem linger and deepen, think Newark. Sad exception: Detroit, where years of failed raids on the suburbs simply redoubles the desire to raid again.
posted by MattD at 2:33 PM on October 22, 2007

I don't think you're appreciating the importance municipal bonds, which are regularly use to fund longer-term capital improvement projects (i.e. growth). Of course, a city's bond rating can be impacted by its financial health, just like a company's. But cities do have the ability to go into debt.

As for sustainability, a city, like a company, has revenues and expenses. To balance the equation, it can either increase revenues (with higher tax rates or municipal bonds) or decrease expenses (by cutting services). If it can't balance the equation, it runs the risk of going bankrupt. But if it knows that its revenues are declining, its services may have to decline as well. Just because revenues are declining doesn't mean they'll go to zero.
posted by pardonyou? at 2:40 PM on October 22, 2007

...If one assumes that wealth is finite (EX: Money is 1:1 directly related to a physical resource{Gold, Oil, whatever}, which is in finite supply.), then ideas, being in near infinite supply, are practically worthless

This only follows if one assumes that all ideas are equally valuable.

Alternately, one might conclude that an infinite number of ideas are practically worthless, and a finite number of ideas have some non-negligible value.
posted by DevilsAdvocate at 2:44 PM on October 22, 2007

I think you need to examine your original premise:

the reason I asked is that municipal taxes often rise faster than inflation, while real wages are generally falling.

Real wages may be decreasing on average for the nation but in urban areas, it continues to grow. Wealth and wages is increasingly concentrated in cities and surrounding suburban areas. In a growing city, rising housing and property prices often outpace real wage growth as well. Combined with new sources of revenue, I think the incremental cost to add new services is more than covered.

Or what everyone else has collectively said.
posted by junesix at 3:09 PM on October 22, 2007

One small thing to keep in mind is that a city's growth is, more often than not, brought about by direct development on the part of the private sector itself. Quite often, cities are put in the position of playing catch-up (expanding fire and police services, infrastructure, etc.) with the expansion brought about by private development.
posted by Thorzdad at 3:34 PM on October 22, 2007

Cities generally have finite growth due to borders.

True of many cities, but a few U.S. sunbelt cities still have the option of absorbing neighboring developments like amoebas.

Consolidation of some services, or whole governments, can happen. (Compare Nashville or Toronto.) Many U.S. conurbations have metro-wide service areas for things like sewers or transit, too.
posted by gimonca at 4:24 PM on October 22, 2007

The Minnesota Miracle in 1971 was a solution that worked by funneling money through the state and redistributing it to local governments according to need. (That's a bit of a simplification.) The consensus at the time was that it was in nobody's interest for there to be pockets or parts of the state with substandard schools, or policing, or water, and so on. The process and concept worked well right up until our current Republican governor made it a priority to dismantle it, since then local governments have dealt with crisis for the last 4-5 years.
posted by gimonca at 4:33 PM on October 22, 2007

Report from 2003, more, and more.
posted by gimonca at 4:38 PM on October 22, 2007

You're forgetting sales taxes, hotel taxes, restaurant taxes, municipal bonds, toll roads, fines for infractions (e.g. parking tickets), etc, and any of the innumerable other ways cities can tax their citizens and visitors.

Which all still come from the same source... people's pockets.

You're kinda wrong there by assuming that all money generated by these taxes is merely money diverted from its own citizens, which would've otherwise be given to the city.

Sales taxes, hotel taxes and restaurant taxes are often aimed at city visitors, especially if the city welcomes convention business (and the city often runs the convention halls, too). New Jersey does the opposite -- it lowers sales taxes on some items (e.g. clothing) in order to draw shopping traffic from New York (with the hope that that shopping traffic spends money elsewhere, such as on restaurants).

Municipal bonds are virtually always invested in by outside parties (which are often tax-free investments).

Besides ... who cares where the money comes from? We're talking about money generated by cities for infrastructure. These "use" taxes -- sales taxes, etc -- are a means to divide the payment burden among the widest possible pool, and to make them appear to be paid by choice (after all, you don't have to stay at a hotel, and only the people that use the toll road pay for it) which makes it more palatable to the populace to support.
posted by Cool Papa Bell at 4:43 PM on October 22, 2007

"I'm trying to get at whether cities can only be funded under the current system through infinite growth - and if so, how can they be made sustainable in the context of finite resources/wealth?"

um… ps: Capitalism. Capitalism works because of "infinite" growth.

Oh, and the folks nattering on about Detroit? That's not exactly what's happened there. In this context, the most germane comment might be that Detroit is prohibited by state constitution from annexing nearby autonomous cities (like Hamtramck and Highland Park), which would allow them the capital to reform.

However, the problem they face is that infrastructure has fairly fixed costs (economies of scale are one way that cities can be more efficient in the providing of services than townships/what have you), but the demand for those services has fallen significantly (and continues to fall, though not as rapidly). For example, one of the big political controversies was over the water growing more and more expensive in Detroit, which has a big trickle down (sorry) effect on surrounding areas that purchase water. The problem was that a bunch of water processing plants were built during the '70s to supply water to a growing city and to the manufacturing plants in the surrounding area. Without that manufacturing, they've got a supply that hugely outstrips demand, yet a fairly fixed cost. They've been forced to cut back on maintenance and staffing, and have shifted as much of the cost as possible to other surrounding municipalities (which are almost all just as cash-strapped, due to Engler's retarded Prop A about 15 years ago, which capped property taxes below the rate of inflation on many homes).

But for the most part, your answer is that they cut expansion and services, they focus on rebuilding the city core, and they let a lot of the city collapse around the edges. Having had several decades of a corrupt racist mayor and currently having a corrupt inept mayor (Kwame sometimes makes me think of a black GW Bush) hasn't helped.
posted by klangklangston at 5:07 PM on October 22, 2007

Well, if you're Los Angeles, you might institute an illegal phone tax (10%!) for cell and land lines, and then try to con voters into approving a permanent version on a special ballot.

For instance.
posted by Bella Sebastian at 8:54 PM on October 22, 2007

I really don't understand why you're limiting your question to "urban" growth. It seems that the same questions apply whether you're talking about a village, a city, or a country. The scale differs considerably, of course.

Obviously growth can be used to finance growth. But most mature municipalities have long since passed any period of accelerated growth and have had to deal with stagnant or even declining tax bases. One of the factors you don't seem to consider is the considerable capital investment -- sunk costs, if you will -- that already underlies any community. Streets and sewers may need maintenance, but that doesn't cost as much as building new.

The acute problems of landlocked cities are closer to your scenario. They can't get any increase in the tax base without displacing some of their electoral base. There have been some court cases about this, notably Kelo v. New London. It's a desperate tactic, and one not all communities can resort to.

Most of them deal by trying to manage themselves in a superior fashion and keeping a AAA bond rating so they can borrow at the cheapest rates for any investment they do in fact need. My city -- with a city manager/council government -- actually does pretty well. We have slow but consistent growth, yet we're home to the oldest operating GM plant, newly semi-guaranteed to remain online through 2012. There are few who expect GM to keep investing in the plant indefinitely, so the city has worked hard to diversify the manufacturing sector, even as GM has slowly trimmed its workforce using just-in-time logistics and robots. The inevitable loss of the plant won't be a death knell but it may still be a body blow that the city will take years to recover from. (There are some who claim that it depressed home prices for almost a decade after GM moved just a truck line to Fort Wayne.)

But I don't see that your premise is universal. Truly there are municipalities who don't bank wisely and depend on growth to keep expanding the tax base as you suggest. But I believe the whole idea of city management is to be able to survive as a city even if that isn't happening.

What you're describing is also an apt description of the world economy. We're in a semi-boom time largely because of economic drivers like China, which is industrializing at a frightening rate. But to do so means accelerating the use of mined (i.e. finite) resources from raw materials like steel to energy sources from fossil fuel. This is clearly unsustainable and if China trips the world will at least hiccup. More broadly, we are only slightly learning how to manage modern society using sustainable methods.

Most definitely if we hit some kind of wall, like actually running out of oil, the global economy is going to suffer because the tax base will be unable to increase through industrial and commercial growth.

So there's merit to your question. But I think you're making unreasonable assumptions about the similarity of all communities to your model.
posted by dhartung at 10:37 PM on October 22, 2007