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Why American Cities Are Broke - The Growth Ponzi Scheme [ST03] - YouTube
Channel: Not Just Bikes
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[Music]
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welcome to the third video in my strong
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town series if you have no idea what
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strong towns is about you might want to
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watch the first two videos but
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it's not strictly necessary
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american cities are famous for car
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dependent sprawl
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that's probably one of the first things
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most people associate with america after
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apple pie
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baseball and driving and soul crushing
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traffic
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but this wasn't always the case american
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cities don't have to be sprawling
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just because the country itself is big
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and up until the second world war
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they weren't they were just as compact
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as cities found
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almost anywhere else but after the 1940s
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america started on a totally different
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pattern of development and began their
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great suburban experiment
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but herein lies the problem because this
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american pattern of development builds
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places that do not financially support
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themselves
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and the only reason they're still there
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is because american cities
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are a ponzi scheme if you don't know
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what a ponzi scheme is there are many
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videos on youtube but the very quick
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explanation is as follows
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a scammer offers an imaginary investment
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opportunity offering a huge return on
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investment
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investor a comes along and invests now
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the scammer doesn't actually have the
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money
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to pay investor a if he wants his money
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out so he takes on another investor b
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he uses the money from investor b to pay
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investor a
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pocketing a little for himself of course
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but how does he pay investor b
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easy he just brings on investors c d
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e and so on this works out
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great for our scammer but the moment
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that growth stops
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he has a very big problem in the end
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all ponzi schemes fail it's just a
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matter of when
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one of the key insights of strong towns
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is that the way that u.s and canadian
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cities have been built
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since world war ii follows exactly this
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model
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american style suburbia is dependent on
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growth to stay financially solvent
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the moment these cities stop growing
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because of a financial crisis a radical
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change in the job market or any one of a
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number of other factors
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everything starts to fall apart strong
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towns calls this
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the growth ponzi scheme now unlike
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financial fraud
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the generation who started this process
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didn't do it intentionally
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after world war ii america was a
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prosperous country
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and with low-cost automobiles available
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it seemed possible that every american
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could own their own house
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on their own piece of land and the
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american dream was born
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this became so central to american
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psychology
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that the idea that suburban development
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provides prosperity
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is taken as fact by almost everyone in
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the country
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and the same goes for canada too part of
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the problem is how suburban growth is
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financed
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when the suburbs began huge amounts of
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money from federal and state governments
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were given to cities to build out their
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suburbs
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this still goes on today for example
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when a city wants to build a new road or
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freeway
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usually less than a quarter of the
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funding comes from the city itself
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the overwhelming majority comes from the
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department of transportation
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and other higher levels of government so
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cities don't have to pay
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very much to build new infrastructure
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but they do get a big influx of tax
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revenue
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from the new developments that spring up
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this brings us to the first
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problem it encourages cities to build
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lots of new developments
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even if they don't make any financial
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sense
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of course all this new cheap
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infrastructure comes with a very
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important catch
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the city may get it built for cheap but
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the city is ultimately responsible for
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paying to maintain that infrastructure
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forever on the surface this is fine
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governments want to invest in their
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cities because they are the engines of
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economic growth
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and for the city this should be fine too
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they collect taxes from the new
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developments that spring up around that
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infrastructure
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and those taxes go towards future
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maintenance
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the big problem begins if there isn't
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enough tax revenue collected
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to cover the replacement cost of the
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infrastructure and that is exactly what
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has happened with car dependent suburbia
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because car centric sprawl is
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horrendously expensive
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to explain this problem further i'll use
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the example of a quote
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ideal development that is often used as
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an example by strong towns
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imagine a new suburban housing
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development on the edge of town
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in this case the developer completely
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pays for the street
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and turns it over to the city for
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maintenance the residents move in
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and start paying tax revenue this
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couldn't get any better for the suburban
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municipality
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free development free road bunch of new
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tax revenue
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this is awesome now the municipality in
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this case would put a little bit of
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money aside
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for the maintenance of that road so what
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would this look like
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in an american suburb well at first
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streets don't need a lot of maintenance
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they may require some minor repairs such
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as filling cracks but in general
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new streets are pretty cheap so the
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suburban city's cash flow looks
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something like this
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everything looks pretty great until the
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end of the street's life cycle
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because eventually all streets and roads
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need resurfacing
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so suddenly the graph goes like this
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if the city were just this one street it
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would already be bankrupt
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but cities aren't just one street
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they're made up of hundreds of streets
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and individual developments
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so assuming a new development every
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other year a real growing city's cash
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flow would look something like this
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with new developments covering the cost
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of past developments
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as you can see growth covers the problem
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and the city is financially solvent
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again
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yay this is great let's build more lots
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of asphalt and free parking for everyone
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but when you get a couple of generations
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into the suburban experiment
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the maintenance obligations of the past
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start to catch up with you
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suddenly your suburb's finances start to
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look something like this
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because when you lose money on every
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development you don't make it up in
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volume
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now it's important to note that this is
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an ideal case as this model assumes near
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constant growth
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in reality cities have phases of growth
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and phases of decline and this situation
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is made even worse because these growing
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infrastructure liabilities tend to show
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up just as a period of growth
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is over many americans like to brush
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this off by claiming that cities do
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actually collect enough tax revenue but
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it's all lost to corruption or
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inefficiencies or unions or whatever
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but the reality is that most american
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suburbs collect only a fraction of the
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tax revenue required to actually finance
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their sprawling infrastructure
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strong towns has several case studies
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about this such as this example
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of a suburban road that needed
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resurfacing in order for the residents
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to cover just the cost of their own road
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the city would need an immediate 46
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increase in property tax
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and there are so many other costs to a
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city beyond just roads
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such as sewer and water systems
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sidewalks
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treatment systems pumps water towers
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storm water ponds as well as all the
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operational costs of running a city such
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as police or fire departments
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you can't just brush this off by waving
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your hands in the air and saying
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the efficiencies efficiencies
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efficiencies efficiency worst case
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scenario have no problem with parking
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taxes
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no efficiency i'll link to this and
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other cases by strong towns
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in the description and canada is not
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much better
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an analysis done by the halifax regional
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municipality
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found that the cost to maintain and
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service an urban home are well less than
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half that of a suburban home
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but in most north american cities the
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suburban home pays less property tax
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this leads to an effective subsidy for
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car dependent suburbia
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now don't get me wrong our cities need
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affordable housing
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but the solution is not to subsidize the
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least efficient
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least sustainable developments in the
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city but that topic deserves a lot more
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explanation so
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i'll talk about that in more detail in a
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future video
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so it's clear that car dependent suburbs
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are not financially sustainable
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the amount of tax revenue collected by
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the suburb does not cover the
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replacement cost of its infrastructure
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and so suburban cities become addicted
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to growth any kind of growth
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even second-rate taco joints just to
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bring in enough tax revenue
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to cover their maintenance obligations
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but we've had several generations of
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this suburban garbage
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several life cycles of road water and
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sewer replacements
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but somehow suburbia is still there so
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you might be asking yourself
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how are car dependent suburbs still
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around why is this still a thing
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and what has kept it afloat all these
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years well the answer is debt
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lots and lots and lots of debt
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but i'll explore that in the next
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episode of this series on strong towns
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i'd like to thank my supporters on
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patreon who pay me to copy strong town's
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homework
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if you'd like to donate to strong towns
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visit strongtowns.org
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membership or if you'd like to support
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