Many local government leaders portray new development as the lifeblood necessary to maintain or improve the economic and fiscal health of a community. They argue that the proposed new subdivision, apartment complex, or shopping mall out on the edge of town is not only desirable, but is practically a requirement if the entire community is to stay alive. Chuck Marohn sees things differently. He argues that most new development is instead part of a Ponzi scheme, promoted by developers and landowners who “earn” their returns on each new land deal and absolve themselves of the inevitable service and maintenance costs that arise.
His critical take on growth was first published on the website Grist in 2011 and can be read in its entirety on his Strong Towns webpage. Chuck draws on the basic definition of a Ponzi scheme: a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital that the operators receive from new investors, rather than from real profit. The problem with Ponzi schemes is that they require a growing number of “investors” (also known as “marks”) to generate the money to support both the operator and the old investors’ expectation of income. Inevitably, the fraud comes to light and the scheme collapses, leaving the victims with little recourse as there was never anything of value representing their investment. Bernie Madhoff is a recent example, where phony investment reports were used to fleece his marks of $65 billion over two decades.
Chuck Marohn wants to reveal that post-World War II American urban growth is a similar scheme, one that dwarfs Bernie Madhoff’s in both scale and scope. The operators in this Ponzi arrangement aren’t highly coordinated at the national level, but they share a lingo and culture that make them fairly easy to identify whether your are in Las Vegas, Baltimore, Minneapolis or Plover. Sociologist Harvey Molotch identified these operators as the “Growth Machine”: the land-oriented interests who stand to gain whenever a community grows in population and development.
The Growth Machine is often an elite group: think of people who own large amounts of land, or a bank, or large construction and development corporations. They utilize local governments and other tools to attract growth to their particular community at the expense of others. Local governments aid their efforts through tax incentives, subsidized infrastructure, loan guarantees, or even straight-up transfers of public tax dollars into private development projects to enhance a developer’s bottom line.
Politicians are often encouraged to participate in the scheme by voters, who in turn are goaded into a pro-growth fervor by the local media (who also stand to gain through community growth – think new subscribers, viewers, and advertisers) and are conditioned to support a “we” versus “they” framing when it comes to attracting new development. Here in Point, Skyward is but the latest example – but the notion of community boosterism runs deep. Even the location of the Central Wisconsin Normal School (now the UW Stevens Point campus) was the result of a full-on competition between Point and Wausau over 125 years ago.
Chuck’s analysis points out that automobiles, and the rapid development of peripheral land that they enable, have allowed the Growth Machine to create an unsustainable Ponzi scheme. The costs to maintain the system are not keeping up with the new revenue generated by growth:
“…the public yield from the suburban development pattern – the amount of tax revenue obtained per increment of liability assumed – is ridiculously low. Over a life cycle, a city frequently receives just a dime or two of revenue for each dollar of liability. The engineering profession will argue that we’re simply not making the investments necessary to maintain this infrastructure. This is nonsense. We’ve simply built in a way that is not financially productive. We’ve done this because, as with any Ponzi scheme, new growth provides the illusion of prosperity. In the near term, revenue grows, while the corresponding maintenance obligations – which are not counted on the public balance sheet – are a generation away.”
Engineers estimate that our current unfunded liabilities for major urban infrastructure is somewhere in the range of $5 trillion, and this does not include the “little things” like local streets or neighborhood sidewalks. The Growth Machine would have us believe that the solution can be found in (surprise!) more new growth. Thus we had the situation recently where the City of Stevens Point made the case that we needed to annex the land out at Casimer Road and I-39 so that we could grow our tax base with a fine new gas station and thereby alleviate our financial problem. Some people define insanity as doing the same thing over and over again and expecting different results.
Chuck argues that new growth merely creates the illusion of prosperity and fiscal health: “In the near term, revenue grows, while the corresponding maintenance obligations – which are not counted on the public balance sheet – are a generation away.” This problem is all the more wicked because we, collectively, have tied this suburban land scheme into the bundle of concepts that make up the American Dream. This is part of a more broad and grand spirit of boosterism, and critics like Chuck Marohn are painted as heretics or wet blankets for not happily pushing the boulder up the hill in order to maintain the status quo.
Chuck’s points, however, tie back to Revisioning Point because our community’s early development pattern happened before the automobile-fueled post WWII boom. Our challenge isn’t to simply replicate that early form of development, but rather to examine whether the zoning, development incentives, and particularly the infrastructure subsidy we collectively support to new growth is really in our best interest. Rather than annexing, platting, and paving, we should be spending more time unleashing the potential of land that we already provide services to.
– Eric Olson