New Geography

Category: Politics

  • Kauai, Hawaii: Local Merchants Make Waves

    Many have by now heard or read the story of the plucky group of Hawaiians on the island of Kauai who, when faced with the loss of their businesses due to the state government’s inability to open park roads to a popular beach and camping area, took care of it themselves for a fraction of the cost and in a fraction of the time. How very Tocquevellian. Or, better, how very American. The story brings a reflexive smile to everyone who hears it, but the events cast a spotlight on the way governments at all levels interact with their communities, and how, in light of significant budget cutbacks, roles are changing.

    In his magisterial commentary on 19th century democratic culture, Democracy in America, Alexis de Tocqueville compared the initial sources of public action in European countries with the United States: “Everywhere that, at the head of a new undertaking, you see the government in France and a great lord in England, count on it that you will perceive an association in the United States.”

    De Tocqueville was overwhelmed at this penchant of Americans to collaborate in common effort. The Frenchman attributed this unique, awe-inspiring American quality to the absence of a large government or aristocratic structure. “They can do almost nothing by themselves,” he wrote, “and none of them can oblige those like themselves to lend them their cooperation. They therefore all fall into impotence if they do not learn to aid each other freely.”

    After December floods washed out the park roads, bridges, and facilities at the Polihale State Park, Hawaii’s Department of Land and Natural Resources (DLNR) studied the damage and released a statement two months later, declaring, “We know that people are anxious to get to the beach. However, the preliminary cost estimate of repairs is $4 million.” An original timeline for the work was set for late summer, but, commented local resident and surfer, Bruce Pleas, “It would not have been open this summer, and it probably wouldn’t be open next summer.”

    The DLNR’s natural response to this natural disaster was to go inward (look to its own capabilities) and upward (look for more State or Federal funds). The public’s role – if there was to be any – was to leave them alone to do the first task, and help them achieve the second; specifically, the main objective was to grab a fee-generated windfall for the department, ironically entitled the “Recreational Renaissance” fund. In February, DLNR’s Chair, Laura Thielen, pleaded, “We are asking for the public’s patience and cooperation to help protect the park’s resources during this closure, and for their support of the ‘Recreational Renaissance’ so we can better serve them and better care for these important places.” The department convened an “information meeting” in March to discuss… how residents could work with the department to open the roads? No, only to provide information on how to lobby the state for more funding.

    This approach did not sit well with area residents who depend on the park for their livelihood. It was reported that Ivan Slack, owner of Na Pali Kayaks, which operates from the beach in Polihale, summed up the community’s frustration: “We can wait around for the state or federal government to make this move, or we can go out and do our part.” Beginning in late March, business leaders and local residents organized — “associated” — to take the situation into their own hands. From food donated by local restaurants to heavy machinery offered by local construction companies, a project that was originally forecast to cost millions and take months (if not years) was nearly completed in a matter of weeks, all with donated funds, manpower, and equipment. As Troy Martin from Martin Steel, which provided machinery and five tons of steel at no charge, put it, “We shouldn’t have to do this, but when it gets to a state level, it just gets so bureaucratic; something that took us eight days would have taken them years. So we got together — the community — and we got it done.”

    This was not just a park clean-up, but a significant undertaking involving bridge-building, reconstructing rest rooms, and use of heavy equipment to clear miles of flood-damaged roadways.

    While unique in its scope, what is happening on the southwestern coast of Kauai is not completely anomalous. Due to the national budget crisis, states and cities around the country are having to take a hard look at the services they offer and find new ways to involve civil society. The organization I head up, California Common Sense, is working with cities and school districts that have to chart this new course. The failure of several revenue-raising ballot initiatives here in the Golden State has provided even more impetus to practice this outward-focused governance.

    In some respects, governments themselves are to blame for setting the service expectations of the past decades. Beginning in the mid-1980s, the “TQM” (Total Quality Management) craze in private industry found its way into the public sector, and a new language of “service provider” (government) and “customer” (citizen) followed. Government no longer was something to participate in, but something to pay for. Later in this transition, scholars like Northwestern University’s John McKnight could see that the results of this new relationship were heading towards a precipice. In an essay for The Essential Civil Society Reader, McKnight commented on this situation in terms reminiscent of de Tocqueville’s fears almost two centuries earlier: “The service ideology [in governments] will be consummated when citizens believe that they cannot know whether they have a need, cannot know what that remedy is, [and] cannot understand the process that purports to meet the need.” This, thankfully, is not the situation in Kauai.

    But we, as citizens, don’t get off the hook that easily. Certainly, we have too often taken on this role as “customer,” believing our taxes are just the prices we pay for the services we desire, from filling potholes to teaching our children. When government does not perform up to our expectations the usual response is either to decry its wastefulness or to acquiesce to higher taxes. These often unproductive reactions come from both the left and right on the ideological spectrum.

    The story in Kauai, and others bubbling up around the country, demonstrate that there is a “third way”: get some friends and pick up a shovel when the government can’t or won’t. Governments on the other side of this equation need to be open to this kind of direct participation; in fact, they should encourage it. What is happening in Polihale is not a syrupy, Rockwellian portrait. It is doubtful that this dramatic participation would have occurred without the dire financial consequences that loomed for many of the residents and businesses involved. It is a manifestation of de Tocqueville’s “self-interest rightly understood”.

    “All feel themselves to be subject to the same weakness and the same dangers,” De Tocqueville wrote, “and their interest as well as their sympathy makes it a law for them to lend each other mutual assistance when in need.” Ray Ishihara, manager of the local Ishihara Market, which has donated food for the volunteers, puts this in more concrete terms: “I think it’s great. Everybody needs help these days in this economy.”

    It is ironic that this should all be taking place in President Obama’s home state. The usually articulate Obama has sounded uncomfortable when attempting to define how he expects Americans to “sacrifice” during this financial crisis. From a policy perspective, the Administration’s only responses appear to be raising taxes on our wealthiest 5%, and, interestingly, increasing Federal funding for volunteer programs.

    One thing the President could do is travel out Kauai’s Route 50 to Polihale State Park during his next trip to Hawaii. There, he could see and celebrate what everyday Americans do when they gather in common purpose. Thanks to their hard work and sacrifice, surf’s up.

    Pete Peterson is executive director of Common Sense California, a multi-partisan organization that supports citizen participation in policymaking (his views do not necessarily represent those of CSC). He also lectures on State & Local Governance at Pepperdine’s School of Public Policy. An earlier version of this article appeared in City Journal.

  • Federal Highway Trust Fund: Problem Solving, Government Style

    News Flash: The Federal Highway Trust Fund will go broke in August.

    It went broke last year, and Congress needed an emergency transfer of $8 billion to keep it solvent. There was very little concern last year, but this year we find ourselves in a post-modernist political environment where managing a crisis is good politics, although actually all we do is talk about it.

    According to Senator Barbara Boxer (D. CA), the fund will need $7 billion this year and another $10 billion next year to remain solvent through September 30, 2010. Even with this crisis verified and time running out, Congress seems reticent to pull the trigger on a solution anytime soon. It’s just too heavy a lift politically.

    It should not surprise anyone that the trust fund is broke. The federal tax on gasoline has not been increased since 1994, but this did not stop politicians from spinning the issue. State and federal data show that gas tax collections are way down. In Pennsylvania for example revenues are running about $100 million below budget. There is also the recession, price of gasoline and more fuel efficient cars contributing to the crisis. But one factor often overlooked is that with the passage of the last federal highway bill (SAFETEA-LU) spending simply outstripped revenues, and even without changes in driving habits and the economic downturn the fund was slated to be depleted.

    Now for the really tough part: Congress needs to find money, not simply print it. The trust fund has a dedicated source of funding that has lost about half its purchasing power to inflation over the past 15 years. During that period, politicians have avoided raising taxes for roads and bridges like the plague, so now a crisis looms and our political leaders are finding out that it is much easier to spend than adequately fund.

    An Associated Press report stated, “A study by the Transportation Research Board of the National Academies estimated that the annual gap between revenues and the investment needed to improve highway and transit systems was about $105 billion in 2007, and will increase to $134 billion in 2017 under current trends.”

    The usual bag of tricks used to obfuscate this issue is no longer available. Not one but two “blue ribbon” commissions have already reported that gas taxes need to be increased. In January, The National Commission on Surface Transportation Infrastructure Financing called for a ten cent per gallon increase. A two year study by National Surface Transportation Policy and Revenue Study Commission called for an increase of 40 cents per gallon. Both studies recommended that gas tax be indexed to inflation. The second recommendation had no chance since it would in effect take this issue out of the hands of politicians who would much rather do nothing about an issue than lose control over it.

    Meanwhile, Congress has been busy at work expanding mandates for biofuels and increasing CAFÉ standards to more than 35 miles per gallon. These two combined decimate gas tax and make it an almost unworkable solution to this crisis going forward.

    Problem solving often requires taking a long term view of things. It demands answering tough questions and a willingness to implement difficult solutions. Elected leaders find it very difficult to take a long term view, because they live in a two-year election cycle. It’s one reason why the founders wanted limited government. They knew the limits of government to make tough choices to solve difficult problems.

    The day after the Department of Transportation reported the trust fund is reaching depletion it issued another press release announcing the Vice President Biden and Secretary of Transportation Ray LaHood were “challenging governors to think boldly when designing high-speed rail plans…” The Obama Administration has committed $13 billion to high-speed trains to jump start a “world class passenger rail system” in America.

    The release states that “President Obama’s vision for high-speed rail mirrors that of President Eisenhower (who gave us the Interstate Highway System.)” High-speed rail was positioned as a solution to lower dependence on oil, provide for a cleaner environment, and drive economic growth. All may be true, but what about the $17 billion hole in the highway trust fund?

    There is a lesson and a caution here about putting matters into the hands of politicians. They know that they won’t get as much credit for fixing something that is broken as they will for giving the people something new.

    Maybe this explains why government budgets keep growing and so do the deficits for many of our legacy programs.

    Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.

  • The Fate of America’s Homebuilders: The Changing Landscape of America

    During the first ten days of October 2008, the Dow Jones dropped 2,399.47 points, losing 22.11% of its value and trillions of investor equity. The Federal Government pushed a $700 billion bail-out through Congress to rescue the beleaguered financial institutions. The collapse of the financial system in the fall of 2008 was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

    History will record that the tectonic plates of our financial world began to drift apart in the fall of 2008. The scale of this change may be most evident in housing.

    PART TWO – THE HOME BUILDERS

    For decades, home ownership epitomized the American dream. For years, Americans saved their money for the required 20% down payment to purchase their dream home and become part of the great American Middle Class. They saved their money in a special account at the local savings & loan that paid a little more interest than the banks. Interest rates were fixed by law. A typical mortgage was written at a fixed rate for 30 years. Most American home owners stayed in their homes and celebrated the pay-off with a mortgage burning party.

    In this arrangement, it was understood that the savings & loans were allowed to pay more interest because they provided long term home mortgages. They paid depositors 4 – 5% and lent money at 6% making a little profit on the arbitrage for their risk. With a 20% down payment, there was little risk. Mortgage bankers knew the homes they lent money on and more importantly, they knew their clients. The mortgage stayed on the books at the local savings & loan until paid.

    In this time, home builders were mostly small local shops known by their customers and the lenders. For decades the industry was quite stable. Homes averaged 1,400 square feet in 1970 according to the National Association of Homebuilders. A quality home could be purchased for under $20,000. Not everyone could afford to buy a home but almost everyone aspired to this. Savings & loans provided 60% of all home mortgages.

    The first crack in the dam appeared in the late 1970s. Under President Jimmy Carter, America suffered double-digit inflation. As the value of the dollar eroded, Americans sought investments that could protect their dollars from the ravages of inflation. Regulation D prohibited banks from paying interest on checking accounts. A tiny bank in Massachusetts, the Consumers Savings Bank of Worcester, Massachusetts introduced the NOW Account (Negotiable Order of Withdrawal) and began paying a higher rate of interest than the savings & loans. Money flooded into the bank.

    The Depository Institutions Deregulation and Monetary Control Act of 1980 began the six-year process of phasing out limits on interest rate. Money flowed out of savings & loans and into NOW accounts and MMDA accounts (Money Market Depository Accounts). The S&Ls, with long term fixed loans on their books and short term money leaving for higher rates at the banks, never fully recovered. The primary source of funding for America’s home building industry was changed forever.

    In the late 1980s the S&L industry attempt to recapture market share by entering the equity side of real estate development with disastrous consequences. The government was forced to seize most of the S&Ls and sell off their assets through the Resolution Trust Company (RTC). In 1989, Congress passed TEFRA, the Tax Equity and Fiscal Responsibility Act that effectively outlawed direct ownership of property by S&Ls. It was a death blow to the industry and the end of the 30-year home mortgage as we knew it.

    This is where the seeds of the current housing disaster and financial meltdown were sown. Wall Street and politics entered the financial vacuum left by the demise of the savings & loan industry. The Garn-St Germain Depository Institutions Act of 1982 introduced the ARM (adjustable rate mortgage) which allowed rates paid to depositors to balance rates charged to borrowers. Our politicians, filled with good intentions, began down an irreversible path of using the home mortgage for social engineering.

    Seeking to increase homeownership, Congress began to unwind the financial safety net that protected the American dream for nearly 100 years. An ugly brew was concocted with the marriage of too much money and too much power. Congress began to consider housing as a right instead of a privilege.

    Over the ensuing quarter century, Wall Street and Congress conspired to turn the traditional 20% down, fixed 30 year mortgage on its ear. In 1977, they passed the Community Reinvestment Act that outlawed red-lining and forced lenders to make loans to poor neighborhoods. In 1982, they passed the Alternative Mortgage Transactions Parity Act (AMTPA) that expanded the funding and powers of Fannie Mae and Freddie Mac by lifting the restrictions on adjustable rate mortgages (ARM), balloon payment mortgages and the Option ARM (negative amortization loan). When a savings & loan made a mortgage in the past, they held it for 30 years or until paid. Freddie and Fannie became the new absentee owner of the majority of mortgages by purchasing them from the originators in the secondary market.

    Thus the die was cast. Mortgage bankers and brokers became salesman and paper pushers packaging applications for the secondary market and financial investors who never saw the asset they lent money against or met the borrowers for whom they made the loan. But this was not enough to satisfy the greed of Wall Street which invented the CMBS (commercial mortgage backed security) in 1991. This was nothing more than a private label pool of mortgages that they sold off to equally unconnected financial investors in their own secondary market. Home mortgage lending by commercial banks went from nothing to 40% of the market in a matter of years.

    The market could have possibly tolerated this bastardization of the conventional mortgage but neither Congress nor Wall Street could control themselves. There was simply too much money to be made. Congress determined that the credit score was discriminatory and violated the rights of the poor and minorities. In 1994, Congress approved the formation of the Home Loan Secondary Market Program by a group called the Self-Help Credit Union. They asked for and received the right to offer loans to first time homebuyers who did not have credit or assets to qualify for conventional loans. Conventional 80% financing was replaced with 90% loans and then 95% and finally 100% financing that allowed a home buyer to purchase a home with no down payment. The frenzy climaxed with negative amortization loans that actually allowed homes to be purchased with 105% financing.

    In June of 1995, President Clinton, Vice President Gore, and Secretary Cisneros announced a new strategy to raise home-ownership to an all-time high. Clinton stated: “Our homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation.” Clinton intended to use an informal partnership between Fannie and Freddie and community activist groups like ACORN to make mortgages available to those “who have historically been excluded from homeownership.”

    Historically, a good credit score was essential to receive a conventional mortgage. Under pressure from the politicians, lenders created a new class of lending called “sub-prime” and as these new borrowers flooded the market, housing prices rose. Lenders used “teaser rates”, a form of loss leader, to help the least credit worthy to qualify for loans.

    Congress instructed Fannie and Freddie to purchase mortgages even though there was no down payment and no proof of earnings by the applicant. An applicant could “state” his or her income and provide no proof of employment. Stated income loans eventually became known as “liar loans”. Sub-prime loans grew from 41% to 76% of the market between 2003 and 2005.

    This devilish brew caused a record 7,000,000 home sales in 2005, including more than 2,000,000 new homes and condominiums. Mortgage lending jumped from $150 billion in 2000 to $650 billion in 2005. Prices rose relentlessly, pushed by more and more buyers entering the market. The top 10 builders in the United States in 2005 were:

    1. D.R. Horton – 51,383 Homes Built
    2. Pulte Homes – 45,630 Homes Built
    3. Lennar Corp. – 42,359 Homes Built
    4. Centex Corp. – 37,022 Homes Built
    5. KB Homes – 31,009 Homes Built
    6. Beazer Homes – 18,401 Homes Built
    7. Hovnanian Enterprises –17,783 Homes Built
    8. Ryland Group – 16,673 Homes Built
    9. M.D.C. Holdings – 15,307 Homes Built
    10. NVR – 13,787 Homes Built

    Economists and pundits eventually began to identify the phenomenon as the housing bubble. And, bubbles burst. But Congress was not ready to confront reality. Rep. Barney Frank testified he “saw nothing that questioned the safety and soundness of Fannie and Freddie”. Fannie Mae Chairman Franklin Raines was paid $91.1 million in salary and bonuses between 1998 and 2004. In 1998 Fannie’s stock was $75/share. Today it is 67 cents.

    In 2007 as prices stopped rising, the flood of buyers entering the market ceased putting market values into a free-fall. Home building is not a nimble industry. It takes years of planning and development to bring a project to market. America’s homebuilders had hundreds of thousands of homes and condos under construction when the housing market came to a crashing halt in the fall of 2008. New home sales, which topped 2,000,000 units per year in 2005, fell to an annual level of under 400,000 units in early 2009. Prices have retreated to 2003 levels and in some markets even lower.


    What happens to America’s home builders? Do they follow General Motors and Chrysler into bankruptcy? Can they survive? New home sales are down 80% since 2005 – doing worse even than automobile sales. The tectonic plates of the housing industry are shifting rapidly and have not settled into any discernible pattern.

    Residential land has dropped precipitously in value but a case can be made that raw residential land now has a “negative residual value”. There are hundreds of thousands of completed but unsold, foreclosed, and vacant, homes littering the countryside. The chart above demonstrates how dramatically sales have fallen since their peak in 2005. This “overhand” inventory must be cleared out before any recovery can ensue. The prices of these units must be cut by draconian margins to attract the bottom fishers and speculators who will take the risk from the home builders and purchase the outstanding inventory. This will not happen quickly. This is not a market that can generate an early rebound.

    Has Congress learned from its mistakes? Apparently not. In March 2009, Democratic Representatives Green, Wexler and Waters introduced HR600 entitled “Seller Assisted Down Payments” that instructs FHA to accept 100% financing from those who cannot fund the required 3.5% down payment.

    A year from now the landscape of America will be forever changed. Five years from now, will American ingenuity have revolutionized the home building industry? The imperative is to find homebuilders who can speed production and lower costs. And government needs to learn from its own mistakes and realize that a successful housing sector depends on solid market fundamentals as opposed to pursuing an agenda of social engineering.

    ***********************************

    This is the second in a series on The Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society. Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.
    PART ONE – THE AUTOMOBILE INDUSTRY (May 2009)

  • State of the Economy June 2009

    Nobel Prize-winning economist Paul Krugman was quoted widely for saying that the official recession will end this summer. Before you get overly excited, keep in mind that the recession he’s calling the end of started officially in December 2007. Now ask yourself this: when did you notice that the economy was in recession? Six months after it started? One year? Most people didn’t even realize the financial markets were in crisis until the value of their 401k crashed in September 2008. Count the number of months from December 2007 until you realized the economy was in recession, add that to September 2009 and you’ll have an idea of when you should expect to actually see improvements in the economy.

    Douglas Elmendorf, Director of the Congressional Budget Office (CBO), testified on “The State of the Economy” before the House Committee on the Budget U.S. House of Representatives at the end of May. CBO sees several years before unemployment falls back to around 5 percent, after climbing to about 10 percent later this year. Remember this phrase: Jobless Recovery; it happens every time we have a recession. Employment historically does not increase until 6 to 12 months AFTER GDP starts to improve. Even Krugman admits that unemployment will keep going up for “a long time” after the recession officially ends.

    While some of us are worrying about stagflation – a stagnant economy with rising prices – the CBO report does a good job of describing why deflation is worse than inflation. Deflation would slow the recovery by causing consumers to put off spending in expectation of lower prices in the future. The risk associated with high inflation is primarily that the Federal Reserve would raise interest rates too fast, stalling the economy – similar to what Greenspan did to prolong the recession in the early 1990s. We think the real conundrum is this: how do you deal with an asset bubble without deflating prices? Preventing deflation now simply passes the bubble on to some other asset class at some future time.

    CBO calculates that output in the U.S. is $1 trillion below potential, a shortfall that won’t be corrected until at least 2013. New GDP forecasts are coming in August from CBO. They say the August forecast will likely paint an even gloomier picture than this already gloomy report. Hard to imagine!

    There are plenty of reasons that Krugman and others are seeing encouraging signs in the economy. Social Security recipients received a large cost-of-living adjustment, payroll taxes were lowered so that employees are taking home bigger paychecks, larger tax refunds, lower energy prices – all of these lead to an uptick in consumer spending in the first quarter of 2009. I checked in with Omaha-area Realtor Rod Sadofsky last week. He has seen an improvement in sales in the range of median-priced homes which he attributes to the $8,000 tax credit available to first-time homebuyers (or those who have not owned for at least three years). Along with an up-tick in that segment of the market, those sellers are able to move up to higher priced homes a little further up the range, further improving home sales. However, the tax incentive is scheduled to expire at the end of 2009. When the stimulus winds down…well, there will be no more up-ticks. CBO agrees with Rod and warns of a possible re-slump in 2010 when the effects of the stimulus money begin to wane.

    CBO’s Dr. Elmendorf has a way to solve this problem: to keep up consumer spending, he suggests that people should work more hours and make more money. Duh! We think we hear Harvard calling – they want their PhD back! CBO seems undecided about which came first in the credit markets: problems in supply or problems in demand?

    “Growth in lending has certainly been weak, but a large part of the contraction probably is due to the effect of the recession on the demand for credit, not to the problems experienced by financial institutions.”

    “Indeed, economic recovery may be necessary for the full recovery of the financial system, rather than the other way around.”

    We shouldn’t be so hard on Elmendorf. The report makes it clear just how difficult it has been to figure out 1) what happened 2) why it happened 3) what do we do about it and 4) what happens next. CBO seems to be reaching for answers while to us it is obvious they are missing the point by not even considering that manipulation has wrecked havoc on the markets. Whenever things don’t make sense to someone like the Director of the CBO, experience tells us there’s a rat somewhere.

    Regardless of how overly-complicated financial products may become, the economy really shouldn’t be that hard to figure out. Still, no one seems to know how far down the banks can go – if banks don’t lend to businesses, businesses close, people lose their jobs, unemployed people default on loans, banks have less to lend, and banks can’t lend to businesses…Seems we are damned if we do and damned if we don’t: too much borrowing caused the crisis; too little spending worsens it. Do they want us to keep spending money we don’t have?

    While Krugman is admitting that the world economy will “stay depressed for an extended period” CBO is reporting that “in China, South Korea, and India, manufacturing activity has expanded in recent months.” The other members of the G8, however, aren’t faring any better than we are: GDP is down 10.4 percent in the European Union, 7.4 percent in the UK and 15.2 percent in Japan. Canada – whose banks are doing just fine without a bailout, thank you very much – saw GDP decline by just 3.4 percent in the last quarter of 2008.

    Undaunted by nearly 10 percent unemployment – after predicting it would rise no higher than 8 percent – President Obama announced today that the White House opened a website for Americans to submit their photos and stories about how the stimulus spending is helping them. If they can’t manage the economy, they can still try to manage our expectations about the economy.

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

  • Britain’s Labour Lessons For Obama

    LONDON – The thrashing of Britain’s New Labour Party – which came in a weak third in local and European Parliament elections this week – may seem a minor event compared to Barack Obama’s triumphal overseas tour. Yet in many ways the humiliation of New Labour should send some potential warning shots across the bow of the good ship Obama.

    Labour’s defeat, of course, stemmed in part from local conditions, notably a cascading Parliamentary expense scandal that appears most damaging to the party in power. Yet beyond those sordid details lies a more grave tale – of the possible decline of the phenomenon I describe as gentry liberalism.

    Gentry liberalism – which reached its height in Britain earlier this decade and is currently peaking in the U.S. – melded traditional left-of-center constituencies, such as organized labor and ethnic minorities, with an expanding class of upper-class professionals from field like media, finance and technology.

    Under the telegenic Tony Blair, an Obama before his time, this coalition extended well into the middle-class suburbs. It made for an unbeatable electoral juggernaut.

    But today, this broad coalition lies in ruins. An urban expert at the London School of Economics, Tony Travers, suggests that New Labour’s biggest loss is due to the erosion of middle-class suburban support. The party also appears to be shedding significant parts of its historic working-class base, particularly those constituents who aren’t members of the public employee unions.

    Even some longstanding ethnic minorities, most notably the highly entrepreneurial South Asians, also show signs of drifting away from Labour. The only Labour supporters left, then, are the liberal gentry, the government apparatus and the most aggrieved minorities.

    This process started before the Parliamentary scandals, Travers adds. Last year a Conservative, Boris Johnson, was able to unseat the sitting Labour-ite mayor of London, Ken Livingstone, largely due to votes from the outer boroughs of the city.

    The shift reveals the weakening hold of gentry liberalism. At its core, gentry liberalism depends on massive profits in key sectors – largely finance and real estate – to maintain its affluence while servicing both its environmentally friendly priorities and redistributing wealth to the long-term poor.

    This has also allowed for a massive expansion of both the scope and size of government. Today government-funded projects account for close to half of Britain’s gross domestic product (GDP), and this share is heading toward its highest level since the late 1940s. In some depressed parts of country, like in the north of England, it stands at over 60%.

    As long as the City of London was minting money – much of it recycled from abroad – the government could afford to pay its bills. But with the economy in a deep recession, Labour can no longer count on the same sources to finance expanding government.

    Although the liberal gentry are not much affected by diminished job opportunities, higher taxes or reduced services, those problems do afflict the tax-paying working and lower middle classes who dominate suburban areas. “We are not [just] dealing with upward mobility,” notes Shamit Saggar, a University of Sussex social scientist with close ties to the Labour Party, “but also the prospect of downward mobility.”

    Both in Britain and America, these middle-income suburban voters remain by far the largest electoral bloc. Last year they divided their votes about evenly between Obama and John McCain, which helped the Democrats, along with the huge supermajorities Obama racked up in the urban core, forge an easy victory.

    In Britain, however, now these suburban as well as small-town voters are tilting to the right, notes Sarah Castells of the Ipsos-Mori survey organization. This is in large part because they no longer believe the Labour Party supports their aspirations. “This is where we see a shift to the Tories,” Castells explains.

    The now-diminished Labour base of public employees, minorities and these gentry liberals is not a sustainable electoral coalition. In total, Labour can’t count for more than one-quarter of the electorate.

    Although vastly different in their class status, these groups share a common interest in an ever-more-expansive state. For public sector workers and the welfare-dependent poor, there is the reasonable motive of self-interest. In contrast, the liberal gentry’s enthusiasm for expanded government stems increasingly from their embrace of environmental regulation, which has become something of a religion among this set.

    You have to wonder what average Brits must make of the likes of Jonathon Porritt, the head of the government’s Sustainable Development Commission – a member of the gentry in both attitude and lineage. The Eton-educated Porritt’s recent pronouncements include such gems as a call to restrict the number of children per family to two to reduce Britain’s population from 60 to 30 million. He also has scolded overweight people for causing climate change.

    These do not seem like sure electoral winners. Today extreme green policies that were once merely odd or eccentric are becoming increasingly oppressive, leading to even more actions that disadvantage suburban lifestyles. Environmental activists’ solution for the country’s severe housing shortage – particularly in the London region – is to cram the working and middle classes into dense urban units resembling sardine cans and force even more suburbanites off the road.

    Even so, large-scale house production over the past decade has lagged behind demand and, as a result, the tidy single-family home with a nice back garden so beloved by the British public may soon be attainable only by the highly affluent – and, ironically, that includes much of the gentry. What an odd posture for a party supposedly built around working-class aspirations.

    “New Labour has brought in ‘New Urbanism,’ and the results are not pretty,” suggests University of Westminster social historian Mark Clapson, as he showed me some particularly tiny, surprisingly expensive new houses outside of London.

    This kind of approach has gained some proponents among the Obama crowd. Recent administration pronouncements endorse such things as “coercing” Americans from their cars, fighting suburban “sprawl” and even imposing restrictions on how much they can drive. It makes you wonder what future they have in mind for our recently bailed-out auto companies.

    It’s possible that America’s middle-income voters will eventually be turned off by such policies, as is the case in Britain. President Obama’s remarkable genius for political theater may insulate him now, but it won’t for eternity. Over time, some of the Democrats’ hard-won, suburban middle-class support could erode.

    The key here may be the quality of the opposition. In Britain, the Conservatives may have found at least an adequate leader in David Cameron. People see him as a viable prime minister. Right now, the Republicans have no such figure, allowing themselves to be led by gargoyles like Rush Limbaugh and Newt Gingrich.

    Yet the president cannot count on Republicans’ continued ineptitude. There’s only so much tolerance in the U.S. – both for cascading public debt and ever-expanding government regulation.

    Of course, Obama still has time to get it right. But if he remains the prisoner of the gentry, he and his party could experience some of the pain now being inflicted upon their ideological counterparts across the pond.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin early next year.

  • The Gambler King of Clark Street, the Origin of Chicago’s Political Machine

    Long before Chicago sold off its assets, made plastic cows parade and outlawed goose guts, there was Michael Cassius McDonald, Big Mike. Where the Chicago Machine now grinds the citizen with Progressive idiocies, Mike McDonald and other Machine Mavericks like the Lords of the Levee appeared to actually help people. Vice and Government have gone hand-in-hand since Solon tried to reason with Croesus – Hesiod tells us that political corruption sparks political thought. The life of Michael Cassius McDonald was active and thought-provoking. Big Mike sleeps with counselors and kings a few hundred yards from my raised ranch along the tracks on Rockwell Street in the Morgan Park neighborhood of Chicago.

    Big Mike’s massive mausoleum dominates the entrance to Mount Olivet Catholic Cemetery on 111th street, situated between the railroad tracks that once served the Chicago Stockyards and the ones that connected to the steel mills of Indiana. Chicago workingmen had their pockets looted by Big Mike during the 19th Century, particularly those who were given to vice gambling, booze and broads. More importantly Michael Cassius McDonald was the architect of the Chicago Democratic Machine.

    Chicago journalist, lecturer, author and frequent guest contributor on the History Channel, Richard C. Lindberg has written a wonderful parallel to our current political situation. The Gambler King of Clark Street: Michael C. McDonald and the Rise of Chicago’s Democratic Machine – Southern Illinois University Press studies the life of this remarkable, energetic, romantic and larcenous Chicagoan.

    The flabby accolades and acclimations directed at Jane Addams by the PC crowd are all too tiresomely trumpeted. Socialist Sapphist has her own expressway, but most of Addams’ storied good works are more flatulence than wholesome air. In reality, her arch-nemesis 19th Ward Alderman John Powers did more for starving Greek, Italian, and Jewish families (while taking more than few spondulix for himself) than crop-haired Addams, whom Powers appointed to public office only to have Addams scream for his indictment. It is amazing, that, once one takes the time to read contemporary accounts from the archives, that iconic Harpies like Jane Addams emerge in the flesh. Likewise, traditional villains seem to have the scales of their sins drop like cotton-wood puffs. While doing some research on 1904 Stockyard Strike, I learned that Addams and her crowd seemed to sell out the strikers. Historians can deal with that, I guess. In the mean time Richard Lindberg casts a cold eye on history.

    Richard Lindberg studies Big Mike McDonald in the cold light of historical reality. This from the Amazon Product description:

    “Twenty-five years before Al Capone’s birth, Michael McDonald was building the foundations of the modern Chicago Democratic machine. By marshaling control of and suborning a complex web of precinct workers, ward and county bosses, justices of the peace, police captains, contractors, suppliers, and spoils-men, the undisputed master of the gambling syndicates could elect mayoral candidates, finagle key appointments for political operatives willing to carry out his mandates, and coerce law enforcement and the judiciary. The resulting machine was dedicated to the supremacy of the city’s gambling, vice, and liquor rackets during the waning years of the Gilded Age.

    McDonald was warmly welcomed into the White House by two sitting presidents who recognized him for what he was: the reigning “boss” of Chicago. In a colorful and often riotous life, McDonald seemed to control everything around him—everything that is, except events in his personal life. His first wife, the fiery Mary Noonan McDonald, ran off with a Catholic priest. The second, Dora Feldman, twenty-five years his junior, murdered her teenaged lover in a sensational 1907 scandal that broke Mike’s heart and drove him to an early grave.”

    I had the pleasure of chatting with Mr. Lindberg about his book that traces Illinois political corruption to the Chicago King of Vice in the 19th Century. Richard Lindberg traces the lineage of the modern machine and “boss rule” back to the 1870s – Big Mike was the uncrowned “boss” of the Democratic Party, controlling patronage, the gambling action, the Cook County Board, the neighborhood saloon bosses he anointed to aldermen and a bewildering array of contractors and spoilsmen not unlike the same kind of folks who cut the inside deals today. Rich moves the story forward to the 1890s and early 1900s when Mike relinquished his rule to younger up-and-comers. As the 19th Century rolled over and we move forward into the Cermak-Kelly-Daley years, the names become more familiar to us. After Mike settled in for a bitter and unhappy retirement having to contend with an unfaithful wife who ultimately drove him into the grave, the “impresarios of Democratic graft, clout and patronage” take over – James “Hot Stove” Quinn and Robert Emmet “Bobby” Burke (indicted); Roger C. Sullivan (who tried to ramrod through the Council the Ogden Gas Monopoly in the 1890s); George “Boss” Brennan, who mentored “Pushcart” Tony Cermak; the Pat Nash-Jake Arvey-Ed Kelly triumvirate through Depression and War; continuing on through the Daley Dynasty, the final destruction of Chicago’s Republican Party and the modern day notions of political correctness foisted on us that disguise a mountain of political malfeasance in good ole’ Crook County.

    There’s never been a book-length biography of McDonald written before – and Rich, the author of 14 books about his ‘ole home town, is contemplating making this Volume One of a three-volume history of Machine graft. The story is an eye-opener, but as Rich reminded me, the lakefront liberals who castigated John McCain and the GOP so savagely last Fall, turn a blind eye and say nothing about the 130 years of non-stop corruption in the City of Chicago – most of it perpetrated by the Lords of the Machine, of which Mike McDonald was its founding father. The shady history of the “Copperhead” Democrats of the Civil War, the 27 aldermen indicted since 1970 – none of that counts in this one-party, one-rule town championed by the Chicago Sun-Times (the Obama Times) when you get down to it, and that is the sad and sordid legacy of our past.

    This article is courtesy of the Chicago Daily Observer.

    Pat Hickey is an author, blogger, and regular columnist for the Chicago Daily Observer.

    You can buy Rich Lindberg’s book The Gambler King of Clark Street: Michael C. McDonald and the Rise of Chicago’s Democratic Machine here.

  • Painting the Town White: Technology and Greenhouse Gas Emissions

    “Paint the world white to fight global warming” was the astonishing headline from The Times of London. The paper was referring to a presentation made by United States Secretary of Energy, Dr. Stephen Chu at the St. James Palace Nobel Laureate Symposium last week. Chu was reported as saying that that this approach could have a vast impact. By lightening paved surfaces and roofs to the color of cement, it would be possible to cut carbon emissions by as much as taking all the world’s cars off the roads for 11 years. That would be no small accomplishment.

    Chu makes considerable sense and his underlying approach is wise: emphasizing inexpensive, simple and unobtrusive ways to reduce greenhouse gas (GHG) emissions. This is at the same time that Secretary of Transportation Ray LaHood has suggested “coercing” people out of cars and a bill by Senators Jay Rockefeller and Frank Lautenberg would require annual reductions in per capita driving. Strategies such as these are not inexpensive, they are not simple and they are not unobtrusive. Indeed, given the close association between personal mobility, employment and economic growth, such policies could have serious negative effects.

    The biggest problem with coercive strategies is that they are simply unnecessary. As Secretary Chu has indicated, huge reductions can be achieved in GHG emissions, without interfering in people’s lives or threatening the economy. There’s more to this story than paint.

    The Cascade of Technology

    There is a virtual cascade of technological advances that have been spurred by the widely accepted public policy imperative to reduce GHG emissions. Here are just a few.

    Vehicle Technology

    Some of the most impressive advances are in vehicle technology. GHG emissions from cars are directly related to fuel consumption. Thus, as cars require less fuel, GHG emissions go down at the same rate.

    By now, everyone is aware that the Administration has advanced the 2020 vehicle fuel efficiency (CAFE) standards to 2016, matching the California requirements. These requirements apply to the overall fleet, both cars and light trucks (which are predominantly sport-utility vehicles). Recently published research by Robert Puentes of the Brookings Institution finds that per capita automobile use had fallen off even before gasoline prices exploded, so it seems reasonable to suggest that future vehicle travel will rise at approximately the population growth rate, rather than the robust growth rates previously forecast. At the new 35.5 miles per gallon, the nation could be on a course to reduce GHG emissions from cars and light trucks by more than 20 percent by 2030, despite the increase in driving as population increases.

    This is just the beginning. There are advances well beyond the 35.5 mile per gallon standard. The most efficient hybrid cars now achieve 50 miles per gallon. The European parliament has adopted a nearly 70 mile per gallon standard for 2020. The President has often spoke of his commitment for the nation to develop 150 mile per gallon cars, while Volkswagen has already developed a 235 mile per gallon car.

    A French company plans to market a car powered by compressed air at city traffic speeds, producing almost no GHG emissions, while at higher speeds it uses gasoline to get more than 100 miles per gallon.

    Fuel Technology

    Progress is also being made on alternative fuels and on making present fuels cleaner.

    Technologies are being developed to produce gasoline from carbon dioxide.

    There are even substantial advances in air travel emissions. Air New Zealand has announced tests that show the feasibility of using biofuels based upon the jatropha plant. The airline reports that, gallon for gallon, the biofuel reduced GHG emissions 60 to 65 percent relative to jet fuel. Jatropha is a non-food crop, and therefore its use would have little or no impact on food prices.

    Carbon Neutral Housing

    We have previously reported on the development of a carbon neutral, single story 2,150 square foot suburban house in Japan. The resulting 100 percent reduction in GHG emissions means that there is no reason that such housing cannot continue to be available to those who prefer it.

    Electricity Generation

    One of the most intractable challenges will be producing sufficient supplies of electricity while considerably reducing GHG emissions. Obviously, one approach with great potential is nuclear power, which the environmentally conscious French have successfully used to produce approximately three-quarters of their demand.

    Further, substantial advances are coming in solar power. For example a Massachusetts Institute of Technology team has developed a solar concentrator system that increases power production “by a factor of 40.” The process is now under commercial development.

    Even Buck Rogers seems to be getting into the game. California’s Pacific Gas and Electric Company is partnering with a startup firm to produce solar energy in space and to beam it to earth by microwaves. This process could produce as much as 10 times the energy as ground based solar connectors.

    Further, international efforts continue toward developing nuclear fusion power generation. This non-polluting technology, still largely theoretical, could revolutionize power production in decades to come.

    The Color of Paint

    Some of the technological advances above may not in fact make a substantial contribution to reducing GHG emissions in the longer run. However, these developments and others likely to come underscore the fact that technology, that is human ingenuity, can materially reduce GHG emissions, while permitting people and the economy to go about their business. Serious attempts to force behavior modification backwards to the past seem likely to fail.

    So, there is no reason to retreat to an idealized yesterday to meet the thinly disguised social engineering goals of the few while leaving the many worse off. Secretary Chu has caught the spirit of the right approach. We should be painting the town white with innovation and should reject the coercion that has been embraced by those who naively (or perhaps even purposefully) would paint the future a more somber color. As in the past, human ingenuity appears up to the challenge, if we give it the chance.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • The Real Mayor of Chicago

    Most Americans living outside the Chicago area identify the city with Oprah, Obama, or Michael Jordan. When the subject of who really runs Chicago comes up, most people would say Mayor Daley. Chicago’s lack of term limits and persistent political machine have kept Mayor Daley in office for over 20 years.

    Those who know Chicago politics know there’s one man who’s more powerful than Mayor Daley, Alderman Ed Burke. Mayor Daley may be the identifiable public face of Chicago’s political system and act as a lightning rod for criticism, but the lower profile Alderman Burke wields the real power.

    Chicago’s City Council recently celebrated Alderman Burke’s record-breaking 40 years in office. No Chicago Alderman has served so long or accumulated so much power. No man represents Chicago’s political system better and all that is wrong with it. Only in a city that is hostile to checks and balances could a politician achieve what Alderman Burke has done. Since joining City Council in 1969, Alderman Burke has amassed a portfolio of positions to be the Machine’s top boss. Alderman Burke not only represents the 14th Ward but also serves as Chairman of the Finance Committee. The city of Chicago’s own website is quite honest about exactly who’s in charge:

    As Chairman of the City Council’s powerful Committee on Finance, Alderman Burke holds the city’s purse strings and is responsible for all legislative matters pertaining to the city’s finances, including municipal bonds, taxes and revenue matters. Alderman Burke became Chairman for the second time in 1989. He previously served from 1983 to 1987. He also serves as a member of the Chicago Plan Commission.

    One of the Finance Committee’s responsibilities is dealing with workers compensation claims. A few years ago, the Chicago Sun-Times explained Chicago’s system: “When city workers get hurt on the job, they usually turn to a handful of lawyers tied to City Hall. And the city often fights back by hiring lawyers with ties to Ald. Edward M. Burke, chairman of the City Council Finance Committee, which has sole authority to settle workers compensation claims against the city.”

    But, Alderman Burke’s control of Chicago’s financial purse strings isn’t his only lever of power. Cook County has the largest unified court system in America. In heavily Democratic Cook County, 100% of all of the judges are Democrats. The Chairman of the Democratic Party Judicial Slating Committee is none other than Alderman Burke.The Chicago Reader astutely observed Burke’s “Seat on the Democratic Party judicial slate-making committee ensures that Cook County judges owe him their jobs.” Alderman Burke’s influence goes beyond the Cook County level: his wife Anne is a justice on the Illinois Supreme Court.

    Along with all of Alderman Burke’s power to control Chicago’s tax code and Cook County’s judicial system comes campaign contributions. Alderman Burke doesn’t represent a wealthy ward, nor has he ever faced a serious political opponent, but he still has amassed an eye popping campaign fund. The Chicago Tribune explains:

    But the state’s richest political family was Ald. Edward Burke (14th) and his wife, Illinois Supreme Court Justice Anne Burke. Together, their political committees held $8.3 million in cash. The Tribune reported Monday that Anne Burke’s campaign was returning a large portion of her cash to donors because she is running unopposed in the Democratic primary.

    Mayor Richard M. Daley, who traditionally ceases fundraising after elections, raised just $43,000 in the last six months, but had $3.1 million in cash on hand.

    In terms of cash at the very least, Burke is already more potent not only than Daley but has more in his coffers than Daley and all 49 Aldermen combined. But, the ever active Alderman Burke is also a businessman, not surprisingly a rather successful one.

    The state of Illinois has rather lax ethics laws, and since being an Alderman is a “part time” job, Alderman Burke has outside employment. Burke runs a successful property tax appeals business. Burke’s latest ethics form filed with the city of Chicago shows his impressive list of clients. Such big corporations as AT&T, American Airlines, Bank of America, Northern Trust, Harris Bank, T Mobile and many others have done at least $5000 in legal business with Alderman Burke’s law firm in the last year. They also – I am sure readers will be shocked – do business with the city of Chicago. WBBM, the local CBS affiliate, even has Alderman Burke handle some of its legal business.

    Occasionally, Alderman Burke’s conflicts get reported on. When Obama ally and Blagojevich influence peddler Tony Rezko was looking to get his taxes cut on a big land deal the Chicago Sun-Times explained:

    Why did Ald. Edward M. Burke vote to approve Tony Rezko’s plans to develop the South Loop’s biggest piece of vacant land even as he was working for Rezko on that same deal?

    Burke says: I forgot to abstain.

    When Rod Blagojevich first decided to run for Governor in 2001, he got important backing from Burke. Blago’s father in law, by the way, is Alderman Dick Mell, a colleague of Alderman Burke’s who got the ball rolling.The Daily Herald unearthed this revealing statement from Alderman Burke in 2001 concerning Blago:

    “I am with Rod 100% because he has what it takes to win – money, message and an army of supporters,” said Burke, referring to a rousing announcement speech given by Blagojevich to a reported throng of 10,000 people on August 12. Burke also mentioned filings with election officials that show Blagojevich with over $3 million in his campaign fund, double the amount of cash on hand of all of his potential Democratic opponents combined.

    In the coming years, as Chicago style politics seeps into America’s mainstream, remember Alderman Burke. Thirty of Burke’s colleagues on Chicago’s City Council went on to become convicted felons since 1970. But Alderman Burke is still standing, and still dominating in the shadows, atop much of what happens in the Windy City.

    Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

  • San Jose, California: Bustling Metropolis or Bedroom Community?

    Dionne Warwick posed the question more than 40 years ago, yet most Americans still don’t know ‘The way to San Jose’. Possessing neither the international cachet of San Francisco nor the notoriety of Oakland, San Jose continues to fly under the national radar in comparison to its Bay Area compatriots. Even with its self-proclaimed status as the ‘Heart of Silicon Valley’, many would be hard pressed to locate San Jose on a map of California.

    More well-known American cities may try to gain population by branding themselves as interesting places, but San Jose does not struggle to attract newcomers. Sprawling over 178 square miles, San Jose sits at the southern end of the San Francisco Bay. This year the city exceeded the 1 million population mark for the first time.

    So what makes this city, the 10th-largest in the United States, appealing? Unlike its precious neighbor 50 miles to the north, San Francisco, people move to San Jose primarily for jobs – especially those related to the coveted technology sector. Whereas San Francisco balances its role as playground for the independently wealthy and welfare state for the lumpenproletariat, San Jose remains favored among families and those looking for a safe environment in which to raise children – not to mention, the weather is better.

    San Jose does not stimulate a sense of urban exaltation. Aside from a commercial downtown core with a collection of mediocre high-rises (limited in height due to do downtown’s adjacency to the San Jose Airport), the city is unapologetically suburban in a character.

    San Jose’s pattern of development can be traced back to its origins as an agricultural community supporting early Spanish settlers who chose to settle in the fertile Santa Clara Valley. It remained a modest-size agrarian community until the end of World War II when it underwent a period of rapid expansion-not unlike that of Los Angeles to the south. During the 1950s, with the emergence of semiconductor technology derived from silicon, San Jose and the greater Santa Clara Valley exploded into a center for the evolution of computer technology.

    Today, San Jose can best be understood by its ambivalent relationship with neighboring Silicon Valley cities. Mid-size suburbs such as Cupertino, Sunnyvale, Mountain View and Palo Alto, all located west/northwest of San Jose as one travels up the peninsula towards San Francisco, are very distinct and separate entities. Home to some of Silicon Valley’s heaviest hitters (Cupertino has Apple, Sunnyvale has Yahoo!, Mountain View has Google, Palo Alto has Hewlett-Packard, Facebook and Stanford University), these cities largely define the technology-focused region. To be sure, San Jose’s has its share of big players, including eBay and Adobe as well as the ‘Innovation Triangle’, an industrial area of north San Jose, home to the headquarters of large companies like Cisco Systems and Cypress Semiconductor.

    Yet, despite the presence of these firms, San Jose has become ever more a residential community, with among the worst jobs to housing balances in the region. Furthermore, a whopping 59% of the city’s developed land constitutes residential use – 78% of that being single-family detached housing. In this sense, despite being the largest city, San Jose essentially serves as a ‘bedroom community’ for the rest of Silicon Valley.

    This has been a burden for the city, which, unlike its neighbors, lacks enough large information technology companies to help fill their tax coffers. In contrast job rich ‘green’ cities like Palo Alto have remained staunchly ‘anti-growth’ regarding residential development and consequently have very high housing prices.

    This pattern poses fiscal problems for San Jose. City officials have long been aware of the need to stimulate economic development instead of continuing to lose out to its neighbors but the city seems determined to increase further its role as dormitory for its neighbors. Indeed, amazingly the city’s development agenda has in recent years shifted to a relentless focus on high-density, multi-family residential in the downtown core and along transit corridors. In 2007, 79% of all new housing built in San Jose was multi-family – a staggering deviation from its history of low density development.

    Though well-intentioned, the slant towards densification has yielded a glut of empty condo units throughout the city. Those that have purchased units in new developments often find themselves with underwater mortgages. During a recent visit to one the flashy new downtown condo buildings, The 88, I entered a desolate sales office and was greeted by a skittish sales agent. When asked how sales were, my question was deferred without a direct answer in an act of not-so-quiet desperation.

    Although it’s clear most people in San Jose prefer lower density living, the city government continues hedging tax dollars against a future in which newcomers will want to live in a high-density setting. Outside of downtown, low to mid-rise multi-family housing has been built along the city’s light-rail lines in what are conceived to be ‘transit villages’. The popularity for such a lifestyle is questionable given the high price point and unreasonable HOA dues of these condo units, particularly when single-family detached houses can be purchased at comparable prices.

    Despite these issues, San Jose seems hell-bent on its path towards densification. The city has major plans to develop the area around its Diridon Train Station, just west of downtown, as California High-Speed Rail and BART are projected to make their way to San Jose. Furthermore, the city government is counting on the Oakland A’s baseball team making a move to San Jose.

    From the Champs-Élysées to Tiananmen Square, grand urban visions are what have defined cities historically. As a product of the Silicon Valley ethos as well as an observer of planning trends, I would argue that this is no longer valid – especially for any city with the hopes of a prosperous future. Rather, in democratic societies, it will be the idiosyncrasies of individual actors and the prospect of upward mobility that will define a sense of place.

    Obsessed with density and urban form, planners don’t seem to grasp the chicken and egg conundrum – the notion that lifestyle amenities follow on the heels of economic opportunity. San Jose needs to cast its future on nurturing its entrepreneurs instead of trying to become something it is not yet ready to become.

    Adam Nathaniel Mayer is a native of the San Francisco Bay Area. Raised in the town of Los Gatos, on the edge of Silicon Valley, Adam developed a keen interest in the importance of place within the framework of a highly globalized economy. He currently lives in San Francisco where he works in the architecture profession.

  • Stimulus Alert Stretches From the Center of L.A. to Suburban Atlanta

    The hundreds of millions of dollars in federal stimulus money are working their way through various systems, en route to a city near you.

    Give President Barack Obama credit for acting boldly to pump the funds into the economy – or take him to task for printing up money on the cuff.

    Either way, the time has come to shift your focus from Washington, D.C., and onto State Houses and City Halls throughout our land.

    You’ll need to keep an eye on your local government officials because our civic culture has grown corrupt, and it’s a cancer that’s widespread. Politicians still don’t quite understand that this is now an open secret – although they’ve at least begun to stir in the wake of the recent and resounding “no” that California voters gave to the latest request for a bailout of a sick system of government.

    Meanwhile, the stimulus money is beginning to flow as pundits slice and dice the results from the Golden State, and the federal funds offer the potential to allow local governments to ignore the clear message from voters who are fed up with corruption and waste. Consider that most local governments across the nation have enjoyed a long run of a strong economy with only a few, brief interruptions over the past 25 years. They’re out of shape, all balled up with bad habits. The stimulus money could serve to finance another year or two of bad behavior if the people don’t watch local government like hawks. And another year or two of bad habits will be too much for all of us.

    Any doubts that these bad habits exist can be dispelled by taking a look at a recent deal that had city officials in Los Angeles ready to spend $5.6 million for a small parcel of land to be turned into a park on the 400 block of S. Spring Street. They eventually cut the offer to $5.1 million – a savings of $500,000 that came only after ongoing coverage by the Los Angeles Garment & Citizen – a weekly community newspaper that covers the Downtown area of the city and surrounding districts – shed light on a number of questionable factors in the deal.

    Those questionable factors indicate that it’s time for everyone who is not a city official – the people, in other words – to take a second look at the situation. The recent coverage amounted to more than stories about a park, or even the price of the land. The stories pointed to systemic corruption in the process that city officials use in spending large sums of the public’s money.

    There are no individuals to single out here – not at this point, anyway. No one got caught with a hand in the cookie jar. That’s the main problem – the corruption of our civic culture is pervasive to the point that it’s tough to catch anyone with their hand in the cookie jar. We don’t even keep our cookies in a jar in Los Angeles anymore – they’re left out around City Hall for the taking by politicians and special interests.

    New rules and ethical standards are needed in Los Angeles – and it’s a safe bet that the same is in order for cities across the country. A good place to start would be a new rule to ensure that taxpayers never again see city officials offer to pay millions of dollars based on an appraisal commissioned on behalf of the seller of a piece of land—the very process originally used in the park deal in Los Angeles. There should be some standard that requires city officials to conduct their own appraisals on major purchases. Many cities have such expertise among their employees. If not, it is surely worth a few thousand dollars to hire an appraiser to work for the city’s interests on deals where a 0.1% savings would cover such extra costs, as was the case on the park land.

    The Garment & Citizen’s recent reporting also shed light on the fact that bureaucrats in City Hall currently have great leeway in such matters. Sometimes they order their own appraisal on land purchases—and sometimes they don’t. The decision seems to be left entirely to the discretion of unelected bureaucrats.

    The problem here is basic because the current set-up begs for abuse. Bureaucrats are human beings, after all, and subject to all of the problems and temptations that life brings. It’s also well known that the career bureaucrats in Los Angeles are subject to political pressure from any number of sources. That includes the 15 members of the Los Angeles City Council, who operate their districts much like personal fiefdoms. The City Council members tend to stay out of one another’s business in a pretense of some sort of legislative courtesy. What they’re really doing is withholding their best efforts at internal oversight, a failure that has helped send the people on a sorrowful journey from engaged participants in our democracy to cynics who don’t even bother to vote.

    The lack of standards on appraisals is only one of the problems that cropped up on the recent park deal. There are many more specific to real estate dealings – and you can just imagine how many additional pitfalls can be found in the way the city purchases motor vehicles, or paper products, or telecommunications services. And so on, and so on.
    It’s enough to make you wonder how many city deals could be trimmed by a half-million here or a couple of million there?

    We’re guessing plenty – and that tightening up on these sweetheart deals would go a long way toward solving the current budget crunch while maintaining many of the jobs and services that might be cut to close a looming $500 million deficit in the city’s budget in Los Angeles.

    You can bet there are plenty of similar savings to be had in State Houses and City Halls across the nation, too. Indicators abound in Gwinnett County, Georgia, just outside of Atlanta. Taxpayers in Gwinnett who want to avoid getting fleeced will apparently have to go a step further than a clear standard on appraisals for land deals. That seems to be the only lesson to take from a recent report in the Atlanta Journal-Constitution, which found that elected officials in Gwinnett County commissioned their own appraisal on a piece of land and still voted to pay twice the price.

    Some of the county commissioners in Gwinnett said that they approved the higher price because land appraisals are “all over the board” these days.

    Commissioner Mike Beaudreau opposed the deal, saying that the wide range of appraisals indicated that the matter should be given more study. He stood alone in his opposition, and the people of Gwinnett County are now set up to pay twice the appraised value for the land.

    So here’s the key question to consider: Will stimulus money paper over such deals in State Houses, County Commissions, and City Halls throughout our land?

    Only the people can say for certain.

    Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)