Category: Urban Issues

Daschle And State-by-State Healthcare Mistakes

Tom Daschle appears before the Senate this week for confirmation as Secretary of Health and Human Services. While Daschle knows his stuff on health care (see his book, Critical: What We Can Do About the Health-Care Crisis), the discussion is likely to be sidetracked by those who champion a reliance on insurance companies, or on piecemeal reform starting with children. Or, as I’ll discuss here, on a wrong-headed impulse to depend on the states to create new health care models.

Justice Louis Brandeis famously said, “It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

Brandeis’ elegant language has been distilled to the phrase, “laboratories of democracy,” and used as if that’s a good thing. However, the converse also holds: bad ideas can be legislated at the state level and spread nationwide. One idea that continues to threaten to boil over the boundaries of a single state is “universal health insurance” achieved one state at a time. Oregon, Tennessee, California, and most famously Massachusetts have all experimented with versions, and other states have tried variations, particularly with children.

I’ll get to the more general notion of why I think states can’t go it alone. But for now, I’ll give a quick rundown on how states have tried and failed.

Critical Mass: Despite recent claims of a 97-percent coverage rate, Commonwealth Care, the Massachusetts plan, is struggling. You remember the Massachusetts plan: Mitt Romney was for it as governor before he was against it as a presidential candidate.

The plan is a patchwork of good intentions, political and practical exceptions, and as-yet deferred but heavy-handed enforcement. There’s an appeals system, waivers, and “creditability” (this has to do with the comprehensiveness of the policy and the out-of-network charges).

The crux of the Massachusetts law is a model of administrative clarity. The goal of insuring the uninsured was to be achieved in a couple of ways. One was that if health insurance was “offered by” an employer, the employee had to take it.

The problem is that “offered by” the employer isn’t a clean standard. Employers might have an insurance plan that’s technically available to employees, but it might be too expensive for them, or for their families. To square this circle, Massachusetts subsidized employment-based coverage if it cost more than a certain percent of the person’s income, and raised the eligibility limits for public insurance. Those without employers were required to buy private insurance, and insurers were regulated to make the policies “affordable.”

And then there are the penalties: “To enforce the mandate, [Massachusetts will] establish state income tax penalties for adults who do not purchase affordable health insurance….”

These stipulations raise obvious questions. What is “affordable”? Will residents be penalized for buying a policy too expensive for their family budget? Will insurance companies be punished for selling them such policies (do I hear the words “sub-prime mortgage”?). Will premium arrearages be counted as medical debt in bankruptcy court?

Alan Sager and Deborah Socolar, directors of the Health Reform Program at the Boston University School of Public Health, damned the Massachusetts legislation with faint praise in the Boston Globe last July: “the best law that could be passed.”

Calling it “a blessing to 350,000 newly insured people,” they pointed out that a similar number remained uninsured, and that the law often “can’t work” largely for reasons of cost. The mandates, they said, required huge subsidies, boosted payments to providers without controls, and redistributed funds committed to the most vulnerable.

Not surprisingly, by summer 2008, the lousy economy had begun to take its toll. To shore up the “coverage” rate, Massachusetts has reduced funding to safety-net hospitals, and has even cut millions of dollars from subsidized immunization programs. Patients wait six months for a physical.

With no plan for reducing medical costs, the state is effectively obligated to bankrupt itself.

The Oregon Lucky Number:

Oregon in March – for the first time in more than three years – will begin accepting new beneficiaries in its Oregon Health Plan […] The state will use a lottery system to enroll 2,000 eligible applicants per month for 11 months. Kaisernetwork.org, Jan. 10, 2008

The Oregon plan had lost two-thirds of its participants since freezing enrollment in 2004 and a lottery was deemed to be the fairest way to apportion openings.

Government lotteries have been used for everything from real estate in tax foreclosure to placement in magnet schools or, showing my age, the chance to serve in Vietnam.

Still, why should anyone have to depend on a lucky number to be treated for diabetes or cancer without going broke? If the plan is funded for 32,000 participants out of a total of 100,000 eligible residents, why didn’t they keep topping up as the numbers diminished? Or was there a theoretical break-even point somewhere?

California Pipe Dream: In early 2007, Governor Arnold Schwarzenegger announced a $14 billion program that supposedly mirrored the Massachusetts plan. The plan would have extended Medi-Cal, the state’s Medicaid program, to adults earning up to twice the federal poverty line, and to children, regardless of immigration status, who lived in homes with family incomes up to 300 percent above – about $60,000 a year for a family of four.

One controversial element called for employers without health plans to contribute to a fund to help cover the working uninsured. Doctors were to pay two percent and hospitals four percent of their revenues to help cover higher reimbursements for those who treat patients enrolled in Medi-Cal.

The ambitious program died in committee a year later, with legislators from both parties agreeing that it was unaffordable.

Florida No Frills: A 2008 Florida package would allow insurers to offer “no-frills coverage to the state’s 3.8 million uninsured” residents. Residents ages 19 to 64 could purchase limited health coverage for as little as $150 per month; the policies would cover preventive care and office visits, but not care from specialists or long-term hospitalizations.

“No frills” works better in airline travel than in health care. You can do without hot meals and pay extra for a headset or a Bloody Mary, but what Floridians will ultimately get for their $1800 a year and up are office visits and preventive care. It would probably be cheaper served à la carte and paid for in cash.

Hawaii’s Keiki Care In October, 2008, Hawaii dissolved the only state universal child health care program in the nation after only seven months. Dr. Kenny Fink, the administrator at the Department of Human Services, told a reporter, “People who were already able to afford health care began to stop paying for it so they could get it for free. I don’t believe that was the intent of the program.”

I should say not, but this disconnect between the intent of the program and its result makes perfect sense. Consumer behavior is supposed to be based on rational choices, and those parents who switched seem pretty rational. Hawaii’s solution seems simple and elegant, until you apply some basic laws of economics and behavior. Aloha, Keiki Care.

Why States Can’t Do It Alone

Why haven’t any of these state “universal health care” plans succeeded? Probably for the same reason that states can’t be self-sufficient in fossil fuels, or in banking. Most don’t produce their own fuels, and those that do can’t require their use within the state. They don’t print their own currencies. They have to compete with the rest of the world, public sector and private, for energy and capital.

These are not minor issues with localized consequences. The decision-making alone requires resources that might not be available at the state level. We need national bodies to determine standards, to evaluate technology, and – remembering that Medicaid, Medicare, the VA, and the government employee system amount to around half of health care spending – to decide on the appropriate use of federal dollars.

A final thought: Each additional set of rules, level of supervision, and geographic boundary may make sense initially. But when the lines drawn become indelible, and the bureaucracies created to enforce them calcify, we move further from the goal of providing health care. Jobs, and their budgets, become ends in themselves. We have to return to our original purpose and ask, “How can we get there?” One thing you can be sure of: it won’t be one state at a time. When it comes to health care, we need more unum and less e pluribus.

Georganne Chapin is President and CEO of Hudson Health Plan, a not-for-profit Medicaid managed care organization, and the Hudson Center for Health Equity & Quality, an independent not-for-profit that promotes universal access and quality in health care through streamlining. Both organizations are based in Tarrytown, New York.

Tom Daschle photo by: aaronmentele

January 9, 2009
Moving to Flyover Country

As the international financial crisis and the US economy have worsened, there have been various reports about more people “staying put,” not moving from one part of the country to another. There is some truth in this, but the latest US Bureau of the Census estimates indicate the people are still moving, and in big numbers.

In the year ended June 30, 2008, 670,000 people moved between states. This is down substantially from the peak years of 2005 to 2007, when housing prices in California and its suburbs of Nevada and Arizona, Florida, the Northeast and the Northwest reached record heights never seen before. In those years, people could elicit considerable and unprecedented financial gain by moving to parts of the country where the housing bubble had not visited or had done less damage. A household could buy in Indianapolis, Dallas-Fort Worth or Atlanta and save more than $1,000,000 in purchase price and mortgage payments compared to a comparable house in San Diego, Los Angeles or the San Francisco Bay area. In 2006, net domestic migration between states peaked at 1,200,000.

Still, despite the reduction from the most extreme bubble years, last year’s interstate migration numbers still exceeded those of 2001, 2002 and 2003 and nearly equaled 2004. Lost in the discussions of the decline has been the continuation of a seemingly inexorable secular trend: the continued migration to the “Flyover County” that many of the coastal urban elites tend to dismiss as insignificant and even unlivable. What residents of Elitia reject, millions are embracing.

Can 3,500,000 Movers be Wrong? The new data shows a strong trend of domestic migration to Flyover Country. Between 2000 and 2008, 3,500,000 residents moved to Flyover Country. This is roughly equal to the movement of the entire population of the City of Los Angeles. Moreover, the trend has been accelerating. In the last four years, the number of people relative to the population leaving Elitia’s promised lands has increased by 60 percent.

The Lost Empire: New York has lost residents at a rate exceeding that of any other state or the District of Columbia. Not even the destructive winds of Katrina and Rita, the malfeasance of the Army Corps of Engineers or even mis-governance – from Washington to Baton Rouge and New Orleans itself – could drive people out as effectively as the Empire State. New York has lost 1,575,000 domestic migrants since 2000, nearly equal to the population of Manhattan.

New York’s net domestic migration loss is equal to 8.1 percent of its 2000 population, compared to Louisiana’s 7.1 percent loss. New York has even outdone that perpetual exporter of residents, the District of Columbia, which lost a mere 7.6 percent through domestic migration.

From Golden State to Fool’s Gold State: Then there is California, which has added more people over the past 50 years than live in Australia. How things have changed. Early in the decade, the Golden State was suffering somewhat modest domestic migration losses. But by 2005, with house prices escalating wildly relative to incomes, California won the race to the bottom. Each year since then, California has driven away more people than any other state.

What’s Right with Pennsylvania: There are anomalies, however. One of the leading parlor games is “what’s wrong with Pennsylvania” stories. From the Philadelphia Inquirer to Washington’s Brookings Institution, there has probably been more hand wringing about Pennsylvania than about all other states combined. Yet things have changed materially, and largely for the better. Although Pennsylvania continues to lose domestic migrants, the rate has been far less than elsewhere in the Northeast. Between 2000 and 2008, Pennsylvania lost less than 50,000 domestic migrants. Its neighboring states – New York, New Jersey, Maryland and Ohio (Delaware and West Virginia have had small gains) – have lost more than 2,300,000 domestic migrants or nearly 50 domestic migrants for every one leaving Pennsylvania. Among states with more than 10,000,000 population, only Florida and Texas have done better in domestic migration than Pennsylvania.

That’s pretty good company for a state so many have declared to be on life support. Indeed, it is time to ask “what’s right about Pennsylvania?” One answer might be that Pennsylvania home prices did not explode relative to incomes (a distortion avoided because of Pennsylvania’s generally more liberal land use regulations). The American Dream – at least for those who are aspiring to achieve it – has shifted from New York, New Jersey and Maryland to Pennsylvania. This is evident from the housing construction on the west bank of the Delaware River and just over the Maryland line in York, Adams and Franklin counties.

Florida: A Changing Story: Flyover Country’s gains are impressive. Florida has attracted the largest number of residents from other states, at 1,250,000 since 2000. This amounts to a 7.6 percent increase compared to the state’s 2000 population. However, things are changing. As the state’s housing became unaffordable, domestic migration dropped and then stopped. By 2007, domestic migration fell more than 80 percent from average of earlier years. Then, Florida slipped into a loss of 9,000 domestic migrants in 2008.

Southern Gains: The rest of the South generally avoided the worst of the housing bubble. Texas has added 700,000 domestic migrants since 2000. The state displaced Florida as the leading destination for domestic migrants and has held that position since 2006. North Carolina has added 580,000 domestic migrants; Georgia added 525,000, South Carolina 270,000 and Tennessee 240,000. Even Arkansas and Alabama, although held in low esteem on the coasts, gained more domestic migrants than any state in the Northeast.

Escaping from California: Nevada has been a big draw for domestic migration, adding 365,000 new residents. This is 18.3 percent of its 2000 population, the highest rate in the nation. Arizona added 700,000, or 13.7 percent of its population. Much of this growth has been driven by Californians fleeing out of control housing prices, though their own more recently developing bubbles have probably contributed to somewhat reduced domestic migration gains In recent years.

Basket Cases in Flyover Country: However, not all is well in Flyover Country. Michigan lost 109,000 residents to other states in 2008 alone, for the deepest percentage loss in the nation (1.1 percent). Since 2000, Michigan experienced a 4.7 percent domestic migration loss, equal to the decline in Massachusetts. Further, based upon current rates, Michigan next year will probably be the first state to ever drop from above to below 10,000,000 residents. Illinois and Ohio have also suffered substantial domestic migration losses, at 4.6 percent and 3.0 percent respectively.

Where from Here? It is, of course, impossible to tell whether these trends will continue. Domestic migration could fall even more precipitously if economic times continue to worsen.

We cannot predict whether seemingly unlikely trends, such as net in-migration to South Dakota and West Virginia, will continue in the longer run. Will Florida’s losses continue or intensify, or will it resume its position as a magnet for residents of other states? Has the magnet of California truly lost its attraction? Will the improving trends in the Midwest begin to make up for half a century of migration losses? Only time will tell.

Resource: State Population & Migration: 2000-2008 (http://www.demographia.com/db-statemigra2008.pdf)

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.”

January 7, 2009
Current Policy Overlooks the New Homeless

San Francisco: A Chevron employee is forced to move his family of four into their Mitsubishi Gallant after being laid off…

Atlanta: Jeniece Richards moved from Michigan to Atlanta a year ago, but despite her best efforts, and two college degrees, remains homeless. She is living in temporary housing with her two children and younger brother…

Denver: As Carrie Hinkle’s hours dwindled, she was forced to choose between paying rent or buying food for her daughter. The two are now working with local agencies towards permanent housing, again…

These stories, plucked from the headlines of the past months are more than the typical holiday coverage. They show faces of the newly homeless, growing as the economy crumbles and opportunities fade.

Facing layoffs and deep cuts in working hours, many in fragile circumstances could no longer afford their mortgage. More commonly, they were renting from a landlord who foreclosed on their residence. Healthy, hardworking and addiction-free, the new homeless are closer in demeanor and behavior to our neighbors than the overly-typified street drunk.

Homeless resource programs across the country have been reporting record requests for assistance. A recent report from the U.S. Conference of Mayors found that, of 21 cities surveyed, 20 reported an increase in requests for food, with 59 percent coming from families. Nationwide, increased food stamps claims – a clear indicator of rising poverty – reached a record 31.6 million in September, up more than four million in a year according to the New York Times.

California, which has had a homeless problem for decades, has become the epicenter for the newly homeless. The state’s unemployment rate rose to 8.4 percent in November from 5.4 percent in 2007, making it the third highest in the nation. Compounding the homeless problem is the state’s high foreclosure rates (third in the country, according to RealtyTrac data). Homeless programs from San Francisco to San Diego are reporting record numbers, mostly from newly homeless residents impacted by the housing crises or falling economy.

Sadly this surge in homelessness comes just after a period when the problem was finally getting under control. One study by the Interagency Council on Homelessness found a 12 percent decrease in overall homelessness when comparing 2005 to 2007 data. That same time period also reveals a staggering 30 percent decrease in chronic homelessness (defined as being homeless for either over a year or for multiple stints).

In 2000, the National Alliance to End Homelessness crafted their landmark Ten Year Plan to End Homelessness. With successful bipartisan funding, 355 Ten Year Plans have been put into action nationwide.

Such plans, and a strong economy, accelerated the recent gains in the fight against homelessness. But the surge in newly homeless and shrinking budgets now threatens to reverse the progress.

New York City’s municipal shelter systems have seen record-setting increases over the past three months, according to the City’s Department of Homeless Services, but deep cuts loom ahead. Already, the city’s current budget includes a 3 million dollar decrease in outreach funding.

Denver plans to slash nearly a fourth of its funding for homeless initiatives at a time when the city reports a 38-percent increase in homelessness over the past year (Denver Post).

This situation will get much worse. A 20 percent increase of urban homelessness has been projected by the Interagency Council on Homelessness for 2009. Escalating homelessness and looming funding cuts create conditions for a renewed homeless crisis.

In the past debate has focused on the mentally ill and substance abusers, but the new homeless represent different phenomena. President-elect Obama has the responsibility to increase assistance to the degree that reflects the expanding problem. Washington seems all too willing to prop up the corporate players of the American economy, but let us not forget about the hardest hit by these times. Swift action must be taken to assure that the problem of the new homeless becomes no more than a historical footnote – to assure that we as Americans can look back with pride knowing that even during our hardest hour, all were cared for.

Ilie Mitaru is the founder and director of WebRoots Campaigns, based in Portland, OR, the company offers web and New Media strategy solutions to non-profits, political campaigns and market-driven clients.

January 5, 2009
Class and the Future of Planning

Economic segregation may be a foregone conclusion, as studies have long suggested. For one thing, our first tendency is to buy the best place we can afford, intentionally locating to those parts of a region that appeal to others with similar buying power. Secondly, we tend to buy something most suitable to our tastes, which steers us into areas populated by those with similar viewpoints.

The implications for contemporary planning processes are profound, especially since current best practices revolve so much around form and style and take so little measure of economics, choice, and consequence. It troubles me that my own decisions purchasing houses in the past – made after careful scrutiny of what evidence I could gather about the people living in the neighborhood – showed me that even a planner aware of attempts to integrate could choose segregation.

But if planning is anything, surely it is the idea that what seemed inevitable can be bypassed with careful consideration, sequencing, and reorganization of inputs. Why plan for a different future if the results are the same as when you started? The idea of inevitable segregation narrows the planning options considerably.

As a result, planners and community developers have focused not on enlarging the pie, but on figuring out how to appeal to those residents who show up for meetings. Whether these groups are affluent NIMBYs or poor advocates for low-cost housing, the status quo remains completely undisturbed.

There are two main ways I’ve seen this occur. First is through the comprehensive planning process. The comprehensive planning process attempts to bring together connected but distinct elements – housing, transportation, the environment, the economy – and reassemble them into a cohesive, publicly vetted whole. But what really happens during such efforts?

Planning staff assembles data. The contours of the process get articulation. Citizens get to describe their vision of their community. Flavor of the day ingredients dominate the discussion – pedestrian malls, node development, open space, wetlands preservation, smart growth, and now green collar jobs, sustainability, and social equity (whatever that is).

The strong neighborhoods show up in force, working the system to their advantage. They often transform any land use or zoning issue into a referendum on the impacts on property values. The water treatment facility gets sited far away from such neighborhoods. Low-income housing becomes an articulated virtue, so long as its located elsewhere. This occurs in supposedly enlightened and ‘progressive’ neighborhoods like mine – Rosemont in Alexandria, Virginia – and places like Kensington near Berkeley, or in Fairfield County, Connecticut, where addressing homelessness is a rising priority – if it’s handled in Bridgeport and not Danbury or Shelton or Norwalk. Planning nearly always yields good results for neighborhoods like mine.

In contrast, residents of struggling areas are skeptical of processes that have not benefited them very much in the past. In places like low-income parts of Norfolk, Virginia, “planning” has come to mean either 1950s style urban renewal or 1990s style gentrification. New Urbanism in Norfolk has often meant the very opposite of practical economic inclusion for low-income working households. The very idea that real change could both come and be beneficial to them is laughable. Their issues are not about landscaping with native plants: their concerns are jobs, crime, services, and housing affordability. Astute (cynical) planners soon discover that “respect” is also in play in these neighborhoods; merely listening with sincerity becomes a stand in for actual change. Listening requires no real work, certainly not compared to the heavy lifting of actually improving these areas for their current residents. Planning rarely adds much to these places.

Middle-class neighborhoods want to preserve what they have. They don’t want their small claim on prosperity threatened by those from the troubled areas in town. They want nothing more than to preserve their safety and the small patch of grass they mow on the weekends. For families in these neighborhoods, the suburbs have for decades been a bastion from a changing urban setting that appears to always grant the rich a pass and provide unearned opportunity to the poor.

Unable to migrate into the ranks of the upper middle class and penetrate the neighborhoods of lawyers and accountants and physicians, middle neighborhood residents often simply leave and form a place of their own. Plumbers and carpenters dislodged from Del Ray (an old blue collar neighborhood in Alexandria, VA) drive their pick-up trucks to Springfield, where they have a mall and plenty of ranch houses, and where they can safely raise their family while holding a job that does not require a college education.

Planners generally dismiss these areas since they often come from the upper echelons and maintain a theoretical concern for the poor. But there are consequences when these middle income residents leave. Indeed the migration of these households out of the urban core and inner ring suburbs may be the most pressing social challenge facing planners. Unsexy as the housing concerns of the plumber may be, they are often the critical ones in terms of maintaining strong neighborhoods.

Take a look at what has happened in the City of Geneva, New York, which is emblematic of so many communities in the middle of a city-county struggle for the middle class. The City’s pre-war manufacturing and agricultural history was sufficient to build a sophisticated infrastructure going into World War II. The arrival of the Depot and Naval Base in nearby Seneca brought overcrowding and congestion and triggered something of a building boom to Geneva. When the base closed, the city’s middle class left for newer housing and retail outside the city.

As middle income residents have fled, the city itself has become a place of many have-nots and a few haves. Rather than invest to engender pride, safety, and a sense of community in the city’s neighborhoods – the small unstylish work of organizing – the doctrine sought to make downtown attractive, livable and appealing by applying the “edifice complex” or the “Field of Dreams theory”: if you build it they will come. Then the planners and developers get to stand around and wonder why downtown still feels empty.

Along the way the city opened its doors to a raft of social service providers, inviting them to locate their business and clients downtown. The middle class watched, grew frustrated, and left for the periphery. Despite some of the most glorious – and reasonably priced – architecture in America, the middle class has left, taking with them much of the urban tax base. This creates a hole out from which few cities emerge.

This is not at all unique to Geneva, as any planner and community developer knows. Its the case in my hometown of Alexandria, Virginia and in neighboring Arlington where programs do an admirable job of enabling some of the working poor to remain, while the middle has found greater comfort in leaving for other counties.

There may be a way out of this dilemma. The central aim of community development should be to work the system in ways that generate wealth-building probabilities – both for individual households and for neighborhoods. The central aim of our work should be to expand the zone of acceptable and livable neighborhoods: to make more places more worthy of affection, not some extremely worthy and others barely so.

Planning efforts must concern themselves less with process and more with outcome. Every block in every city can be objectively scored in terms of livability, as defined locally. In this approach, the community development process may be judged a failure if in service of a few individuals concentrated poverty and economic segregation grows. Marin County would no longer be able to balance its affordable housing ledger on the backs of Marin City and a few parts of San Rafael. Montgomery County, Maryland would no longer be able to use Prince George’s County as its de facto affordable housing policy. And genuinely struggling places like Ontario County, NY would not be able to look to the City of Geneva as their repositories of poor families and the hub of the area’s social service network.

In the last thirty years, planners have reduced our field of vision. We have fostered an exodus of our middle class and focused on creating environments for the rich and poor. If we really want social equity, growing the middle is the best place to start.

This means we have to change our priorities. We should stop trying to reinforce concentrations of wealth. Poor neighborhoods should not be defined solely as places and people who primarily “need” and never exercise choice. Instead our priority should be to help plan for an expanding middle class – even if it ruffles the feathers of some gatekeepers in both poor and affluent neighborhoods.

Charles Buki is principal of czb, a Virginia-based neighborhood planning practice.

January 4, 2009
Scrap Zoning; Legalize Great Places

Crisis offers opportunity. With real estate in a freefall, there is an opportunity to lay the foundation for a more prosperous and sustainable American landscape.

If only there is the vision and political will.

What is the single most significant change that can be made in every town and city in America? One that would aid economic development, reduce greenhouse gas emissions, foster healthier lifestyles, reduce dependence on foreign oil, protect open space and wildlife habitats, and reduce wasteful government spending?

Scrapping zoning codes.

Take any great place that people love to visit. You know, those lively tourist haunts from Nantucket to San Francisco. Those red hot neighborhoods from Seattle’s Capital Hill to Miami Beach’s Art Deco district. Those healthy downtowns from Portland, Oregon to Chicago, Illinois to Charleston, South Carolina. What do they all have in common?

The mix of uses that gives them life are outlawed by zoning in virtually every city and town in all 50 states.

Widespread adoption of zoning is a legacy of Herbert Hoover. As Commerce Secretary, he pushed zoning regulations to cure “the enormous losses in human happiness and in money, which have resulted from lack of city plans which take into account the conditions of modern life.” He championed the “Standard Zoning Enabling Act” to address “the moral and social issues that can only be solved by a new conception of city building.” After the Supreme Court upheld zoning in 1926, zoning — and sprawl — spread from sea to shining sea.

The high court based its decision on the need to protect health and safety by “excluding from residential areas the confusion and danger of fire, contagion and disorder which in greater or less degree attach to the location of store, shops and factories.” The quite sensible idea that people shouldn’t live next to steel mills was used to justify a system of “zones” to isolate uses that had lived in harmony for centuries. Suddenly, new neighborhoods were segregated by income, and commerce was torn asunder from both customers and workers. Timeless ways of creating great places were ruthlessly outlawed.

This coincided neatly with the rise of the car industry, and the systematic dismantling of America’s electric streetcar network. Today, we look back nostalgically on the “streetcar suburbs” and the booming cities of turn-of-the-century America when we sing:

City sidewalks, busy sidewalks
Dressed in holiday style
In the air there’s a feeling of Christmas.
Children laughing, people passing,
Meeting smile after smile
And on every street corner you’ll hear. . .
Silver bells, silver bells
It’s Christmas time in the city.

But zoning, cars, and suburban development put an end to such “contagion and disorder,” replacing busy “city sidewalks” with enclosed malls, parking lots, and traffic congestion.

Today, almost everyone admits the environmental and social devastation caused by sprawl, though some still defend it as a response to the consumer market. But “The American Dream” of single-family tracts, shopping centers and business parks owes more to zoning mandates than to market economics. Zoning was imposed on the American landscape by an unholy alliance between Utopians preaching a “modern” way of life and hard-headed businessmen who profited from supplying that new model, including an auto industry steeped in the ideology that “What’s good for General Motors is good for America.”

Politicians at every level bought into sprawl, playing both sides of the zoning game to harvest votes and campaign cash. It’s no coincidence that the rocket-fueled career of Vice President Spiro Agnew began at a suburban zoning board. He would have succeeded Richard Nixon as president if criminal charges for taking bribes from developers hadn’t caught up to him and forced his resignation first.

For a long time, support for zoning was impregnable. In the only country on earth to organize its urban form around Crayola colors on a map, those who questioned zoning were treated like the lunatics who denounce paper money.

Until now, perhaps. Younger Americans are turned off by the devotion of Baby Boomers to the landscape of “Leave it to Beaver.” Environmentalists are slowly realizing that, in protection of the environment, cities aren’t the problem, they are actually the solution. A movement of post-modern planners, architects, developers, transit advocates and historic preservationists has emerged under the banners of “smart growth,” “new urbanism” and “green building.” And at the local level, citizen activists (and even elected officials) are finally pushing to reverse suburban sprawl. A new vision has emerged around building compact and energy-efficient communities for the future.

What’s been lacking is the tool for producing that outcome, and for supplanting zoning at the local level. If “zoning” is the DNA of sprawl – the coding that endlessly replicates the bleak landscape of autotopia – then what is the DNA of livable communities?

It is found in timeless ways of building, updated for the 21st Century, including the need to accommodate cars. It regulates incompatible uses without the absurdities of conventional zoning. It is calibrated for new buildings to contribute to their context and to the larger goal of making a great place. It does so primarily by regulating the form of buildings, since that is what determines the long-neglected public realm of streets and sidewalks. It does that by regulating setbacks, heights and the physical character of buildings.

It exists, and it’s quietly spreading.

Where it’s been tried, it’s been a success. Seaside, Florida, the poster town for “new urbanism,” was “coded” rather than zoned, and ended up on the cover of Time magazine. In 2003, Petaluma, California scrapped its zoning regulations and adopted a new code for 400 underdeveloped acres in their Downtown, producing more than a quarter billion dollars in new investment. Miami, Florida is the first major city in America to embark on replacing zoning citywide.

Unfortunately, this promising alternative is currently saddled with two competing names, both of them unsatisfactory if the movement is truly to catch fire.

“Form-based codes” is the cumbersome term popular amongst planners. It is a literal tag that captures the emphasis on regulating the “form” of buildings, rather than the obsession with their “use” that is common to all zoning codes. But Americans suffer collective amnesia about why the form of cities determines their character; so while it addresses the “how” of coding, it fails to convey the “why.”

It clearly lacks the appeal of “No Child Left Behind” or “Homeland Security” as a marketing tool for reform.

Recognizing this, Seaside’s designer, Andres Duany, coined the term “smart codes.” The advantages of replacing a “zoning code” with something called a “smart code” are pretty obvious: “smart” is much better than “dumb,” which is why “smart growth” has caught on as a slogan. The obvious tool for promoting “smart growth” would be “smart codes.”

But the problem with the term “smart codes” is the same as the problem with the slogan “smart growth.” Pretty soon, everybody starts calling their codes “smart,” even if they aren’t. This has actually happened with lots of really atrocious developer schemes that have masqueraded as “smart.”

The magnitude of the problem may trump the limitations of the current names for the solution. While some still claim that the real estate meltdown is only a nasty cyclical slump, that’s just whistling past the graveyard. The model is broken. Building and financing generic products (class A office; suburban housing tract; grocery-anchored strip center; business park, etc.) through globally marketable securities has become radioactive. By the time supply and demand right themselves, the un-sustainability of the whole underlying system will be laid bare.

Of course, one can never underestimate what historian Barbara Tuchman called “the march of folly.” Perhaps in the interest of “stimulus” to the moribund economy, we will be willing to spend trillions more to subsidize sprawl. But in the end, as economist Herbert Stein pointed out, “That which cannot go on forever, won’t.”

Before that day comes, we can save untold environmental, economic and social damage by the widespread adoption of coding that respects human scale, restores the proximity of complimentary uses, and repairs the damage done to the American landscape and our rich (but abandoned) tradition of creating fine neighborhoods, towns and cities.

Scrap zoning. Adopt coding. Legalize the art of making great places that people cherish, that produce economic value, and that leave a lighter environmental footprint on the land.

Rick Cole is the City Manager in Ventura, California, where he has championed smart growth strategies and revitalization of the historic downtown. He previously spent six years as the City Manager of Azusa, where he was credited by the San Gabriel Valley Tribune with helping make it “the most improved city in the San Gabriel Valley.” He earlier served as mayor of Pasadena and has been called “one of Southern California’s most visionary planning thinkers by the LA Times.” He was honored by Governing Magazine as one of their “2006 Public Officials of the Year.”

January 2, 2009
The Future of the Shopping Mall

By Richard Reep

“I had two rules for Christmas this year:
1. Under 13 years old only;
and
2. Internet only.”
–overheard at Stardust Video and Coffee in Orlando, Florida.

One of the most distinctive benchmarks of contemporary American life, the classic indoor shopping mall, is now gasping for survival. The two rules expressed above were commonly heard during this shopping season, calling into question whether the 20th century indoor shopping mall will survive in its present form.

Almost since it was born in the early 1950s, the shopping mall has engendered controversy. Few today recall the enthusiasm which greeted the first malls in the Midwest, giving shoppers something they previously lacked: adequate parking closer to a more varied selection of goods. Malls quickly caught on, and developers repeated this success across the country. The so-called regional mall became a new tourism destination, an economic engine powering local economies, and a cultural marker in which our suburban nation, recently empowered by the mass production of the car, took great pride.

Malls, however, were decried by urban thinkers like Lewis Mumford and Jane Jacobs. For one thing, they turned the traditional building inside out, with the unlovely backs of the stores facing the exterior. For another, they required huge seas of asphalt to accommodate parking, necessitating long, arduous walks from the car to the mall door.

Perhaps more seriously, however, thinkers criticized malls as dealing a lethal blow to the traditional Main Street. To support the development costs of the regional indoor shopping mall, the leasing prices only let large, national chain stores in, wiping out almost any vestige of local identity. Generally speaking, shoppers overlooked this fault in favor of access to a much greater diversity of goods and essentially deserted Main Street in droves.

Architects and developers quickly gathered empirical evidence about people’s shopping patterns and applied these to the design, so by the 1970s the regional indoor shopping mall was perfected down to a reliable formula that could be applied consistently, with reliable and satisfying economic results to the landowner and his bank. Older malls, such as Lenox Square in Atlanta, underwent drastic renovations to adapt to the formula, increasing visitors and sales, and cementing the place of the regional mall in American culture.

Yet the mall also had one largely overlooked advantage: its ability to deliver a safe, secure environment for its inhabitants. Being private property, the landowner could afford to eject suspicious behavior and deal with theft swiftly, in a way that police in a public setting could not. The mall could be secured in a way impossible for the traditional city street.

Malls grew, finally testing the upper limits at over 4 million square feet in Bloomington, Minnesota. However, like dinosaurs, their great size and their slow speed have now limited their ability to adapt to changing times. Malls began to suffer a decline as early as the 1990s. This decline was due to challenges from big-box retailers, and the even more convenient commercial strip mall. Mall developers fought off these challengers by including both boxes and strips within new development tracts, so a new regional mall such as the Brandon Mall in Tampa, Florida opened in 1994 with a brand-new Target store and brick-façade strips flanking its entry. Shoppers parked at the main mall, shopped, and then parked in front of various strips, shopping their way out of the parking lot.

Yet this model could not rescue malls, so developers started reinventing them as lifestyle centers. Retail was subsidized by dining and entertainment venues, and when the residential boom arrived around 2002 and 2003, condos were thrown in the mix. At the same time, consolidation of mall owners was taking place, and one of the single biggest mall owners, General Growth, was faced with the task of stewarding these giants into the new millennium.

Yet even as “lifestyle centers”, malls have continued to suffer. General Growth and others like them found themselves fighting a defensive action, as per-square-foot sales of malls softened. At one time, they entertained the notion of adding hotels to malls, imagining that malls remained destinations. Shoppers, however, were getting scarcer, and except for Black Friday (the day after Thanksgiving) and the day after Christmas, it was becoming easier and easier to find a parking place in front of your favorite national department store.

This year’s Christmas season has further weakened the malls. E-commerce retail, rising since 2000, accounts now for over $34 billion in retail sales, or 3.1% of total retail sales, for the third quarter of 2008 (source: U. S. Census Bureau). This rise continues to penetrate the physical retail environment, and the mall is the most vulnerable to this new form of commerce. Accompanied by a sudden drop of consumer spending, this trend has turned bad times into a veritable rout.

For companies like General Growth, which has flirted with bankruptcy, tough times are ahead. Adaptive reuse strategies – turning malls back into town centers with residential density – remains one possible strategy. Another may be to retune old-line malls into destinations for fast growing consumer populations such as Hispanics. There are clearly many possibilities.

In this sense malls represent a huge opportunity for a forward-thinking investor, and this building type should be analyzed for its positive features. Aside from the good portion of commercial debt it represents, the mall usually boasts a prime location within existing suburban infrastructure, and typically sits on level land that would ease redevelopment. A mall in east Orlando has already been changed into Mainsail, a private higher education facility. Others have been made into municipal service centers. The redeveloper may preserve the building and land whole or, like ancient Roman coliseums, malls may be disintegrated so that only fragments of the mall’s original development pattern will be noticeable.

No doubt some malls will survive in unique pockets – and they could come to represent the new localism – if they have engrained themselves enough into local culture. This may be particularly true in outer suburbs where there was no Main Street and the mall has remained the focal point for local concourse and rendezvous.

One thing is clear. Given the rise of internet commerce, and perhaps a long-term slowdown in consumer spending, the mall seems destined for a major makeover in the coming decade.

Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

December 31, 2008
The Importance of Productivity in National Transportation Policy

For years, transit funding advocates have claimed that national policy favors highways over transit. Consistent with that view, Congressman James Oberstar, chairman of the powerful House Transportation and Infrastructure Committee, wants to change the funding mix. He is looking for 40 percent of the transportation funding from the proposed stimulus package to be spent on transit, which is a substantial increase from present levels.

This raises two important questions: The first question is that of “equity” – “what would be the appropriate level to spend on transit?” The second question relates to “productivity” – “what would be the effect of spending more on transit?”

Equity: Equity consists of spending an amount that is proportionate to need or use. Thus, an equitable distribution would have the federal transportation spending reflect the shares that highways and transit carry of surface travel (highways plus transit). The most commonly used metric is passenger miles. Even with the recent, well publicized increases in transit ridership, transit’s share of surface travel is less than 1 percent. Non-transit highway modes, principally the automobile, account for 99 percent of travel.

So if equity were a principal objective, transit would justify less than 1 percent of federal surface transportation expenditures. Right now, transit does much better than that, accounting for 21 percent of federal surface transportation funded expenditures in 2006. This is what passes for equity in Washington – spending more than 20 percent of the money on something that represents less than one percent of the output. Transit receives 27 times as much funding per passenger mile as highways. It is no wonder that the nation’s urban areas have experienced huge increases in traffic congestion, or that there’s increasing concern about the state of the nation’s highway bridges, the most recent of which occurred in Minneapolis, not far from Congressman Oberstar’s district.

In addition, a substantial amount of federal highway user fees (principally the federal gasoline tax) are used to support transit. These revenues, which are only a part of the federal transit funding program, amounted to nearly $5 billion in 2006. Perhaps most amazingly, the federal government spends 15 times as much in highway user fees per transit passenger mile than it does on highways. Relationships such as these do not even vaguely resemble equity.

Moreover, truckers would rightly argue against using passenger miles as the only measure of equity. Trucks, which also pay federal user fees, account for moving nearly 30 percent of the nation’s freight. Transit moves none. Taking money that would be used to expand and maintain the nation’s highways will lead to more traffic congestion and slower truck operations – which also boosts pollution and energy use. This also means higher product prices.

Productivity: For a quarter of a century, federal funding has favored transit. A principal justification was the assumption that more money for transit would get people out of their cars. It hasn’t happened. Transit’s share of urban travel has declined more than 35 percent in the quarter century since highway user fee funding began. State and local governments have added even more money. Overall spending on transit has doubled (inflation adjusted) since 1982. Ridership is up only one third. This means that the nation’s riders and taxpayers have received just $0.33 in new value for each $1.00 they have paid. This is in stark contrast to the performance of commercial passenger and freight modes, which have generally improved their financial performance over the same period.

It’s clear spending more on transit does not attract material numbers of people out of cars. Major metropolitan area plans are biased toward transit but to little overall effect. At least seven metropolitan areas are spending more than 100 times more on transit per passenger mile than highways and none is spending less than 25 times.

The net effect of all this bias has barely influenced travel trends at all. Since 1982, per capita driving has increased 40 percent in the United States. Moreover, the increases in transit ridership (related to history’s highest gasoline prices) have been modest relative to overall travel demand. Transit captured little (3 percent) of the decline in automobile use, even in urban areas. Most of the decline appears to be a result of other factors like people working at home or simply choosing to drive less. It is notable that none of the transit-favoring metropolitan area plans even projects substantial longer term reductions in the share of travel by car.

The reason for this is simple. Transit is about downtown. The nation’s largest downtown areas, such as New York, Chicago, San Francisco, Boston, Philadelphia, Boston and Washington, contain huge concentrations of employment that can be well served by rapid transit modes. Yet relatively few Americans either live or work downtown. More than 90 percent of trips are to other areas where transit takes, on average, twice as long to make a trip – if there is even service available. Few people are in the market for longer trip times.

These policy distortions are not merely “anti-highway.” They are rather anti-productivity. This means they encourage greater poverty, because whatever retards productivity tends to increase levels of poverty. It would not be in the national interest for people to choose to take twice as much of their time traveling. By definition, wasting time retards productivity and international competitiveness. These are hardly the kinds of objectives appropriate for a nation facing perhaps its greatest financial challenges since the Great Depression.

For years, national transportation policy has been grounded in hopeless fantasy about refashioning our metropolitan areas back to late 19th Century misconceptions. It’s time to turn the corner and start fashioning a transportation strategy – including more flexible forms of transit – that make sense in our contemporary metropolis.

Resources:

Urban Transport Statistics: United States: A Compendium
http://www.publicpurpose.com/ut-usa2007ann.pdf

Regional Plan Spending on Highways and Transit
http://www.publicpurpose.com/ut-rplantransit.pdf

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.”

December 29, 2008

A Housing Boom, but for Whom?

By Susanne Trimbath and Juan Montoya

We just passed an era when the “American Dream” of home ownership was diminished as the growth of home prices outpaced income. From 2001 through 2006, home prices grew at an annual average of 6.85%, more than three times the growth rate for income.

This divergence between income and housing costs has turned out to be a disaster, particularly for buyers at the lower end of the spectrum. In contrast, affluent buyers – those making over $120,000 – the bubble may still have been a boom, even if not quite as large as many had hoped for.

For middle and working class people, the pressure on affordability was offset by historically low mortgage interest rates which fell from over 11 percent around the time of the 1987 Stock Market Crash to 6 percent in 2002. Yet if stable interest rates were beneficial to overall affordability, the artificially low interest rates promoted by the Federal Reserve may have created instability. By allowing people to increase their purchasing power to an extraordinary level, low mortgage interest rates fueled a rapid escalation in housing prices.

Now that prices are falling quicker than incomes, there should be a surge in new buyers. Since 1975, whenever the ratio of mortgage payments to income falls, home sales usually rise. The correlation coefficient indicates that for every 1% improvement in affordability there is a 2% increase in home sales. But now, something is wrong. In 2007, for every 1% improvement in affordability, home sales fell by 2%.

Part of the problem is that prices still are simply too high. Even as recently as August 2008, the median home price was still historically high in comparison to median income – about 4 times. It takes lower rates than in the past for a family with the median income to afford the median priced house. This means that homes are less affordable today than they were 6 years ago.

The last time that home sales fell as they became more affordable was in the 1990s at a time known as a “credit crunch.” At that time, the ratio of home prices to income was actually lower – 3.8 times in September 1990 compared to 4.3 in September 2008. The difference was that between 1990 and 1992 mortgage interest rates averaged a hefty 9.26%. In the last 3 years, the average was 6.14% and while the words “credit crisis” bled in headlines around the world, the regular mortgage interest rate barely budged.

What we are clearly witnessing is a fundamental slow-down in the gains towards homeownership. Of course, most of the gains in homeownership in the US were made in the 20 years after World War II: owner-occupied housing went from 43% in 1940 to 62% in 1960. In the 40 years that followed ownership crept up a bit, from 62% to 68%.

Boom, yes. But for Whom?

One disturbing aspect of this slow-down has been its effects by class. Overall, ownership has gained only among households making $120,000 or more; for all other groups the ratio of owners to renters is lower today than it was in 1999. (About 80% of American households have income less than $100,000 per year. For Hispanics and African Americans, the number is closer to 90%.)

There have been some exceptions, particularly among minorities targeted by national policy: expanding home ownership opportunities for minorities was a fundamental aim of President Bush’s housing policy. In the early years of this decade Hispanics enjoyed a net 2.6 percentage point gain in home ownership. In the next four years, while most Americans were seeing a decrease in home ownership, the Hispanic population continued to see gains. Although African Americans initially gained more than Whites in home ownership, they gave back more of those gains in the housing collapse

The great irony is that exactly those programs aimed at improving affordability may have been responsible for this recent decline. We first wrote about Housing Affordability in 2002. One of our concerns then proved to be true: buyers would focus on “can I afford this home” instead of “what is this home worth.” Although there were some gains in overall home ownership rates in the US during the early part of the boom, about 40 percent of that was given back during the last four years as home prices surged out of reach.

	Rate	Change in Rate
Location	2008 Q2	1999-2004	2004-2008	1999 – 2008
US	68.1	2.2	-0.9	1.3
Northeast	65.3	1.9	0.3	2.2
Midwest	71.7	2.1	-2.1	0.0
South	70.2	1.8	-0.7	1.1
West	63.0	3.3	-1.2	2.1
City	53.4	2.7	0.3	3.0
Suburb	75.5	2.1	-0.2	1.9
Non-metro*	74.9	0.9	-1.4	-0.5
White	75.2	2.8	-0.8	2.0
Black	48.4	3.0	-1.3	1.7
Other**	60.2	5.5	0.6	6.1
Multi	56.4	NA	-4.0	NA
Hispanic	49.6	2.6	1.5	4.1

Table based on historical data from US Housing Market Conditions, U.S. Department of Housing and Urban Development, Office of Policy Development and Research,
*Non-metro includes all areas outside metropolitan statistical areas (non-urban). Note from Census.gov: For Census 2000, the Census Bureau classifies as “urban” all territory, population, and housing units located within an urbanized area (UA) or an urban cluster (UC). It delineates UA and UC boundaries to encompass densely settled territory, which consists of: core census block groups or blocks that have a population density of at least 1,000 people per square mile and surrounding census blocks that have an overall density of at least 500 people per square mile.
**”Other” includes “Asian”, which reports household incomes about 20% to 30% higher than the Racial/Ethnic category “All” regardless of income level category.

The areas with the biggest losses in home ownership rates in the 2004-2008 period were outside the cities, particularly in the Midwest which encompasses Missouri, Iowa, Kansas, Nebraska, Minnesota and the Dakotas (west north central) plus Wisconsin, Illinois, Indiana, Michigan and Ohio (east north central). Of the geographic segments, non-metropolitan Americans gained the least in home ownership in the 1999-2004 housing boom; and only the Midwest geographic segment gave back more.

What about the future? The Obama-Biden Agenda Plan on Urban Policy mentions housing nine times, including a headline on “Housing” with plans for making the mortgage interest tax deduction available to all homeowners (it currently requires itemization) and an increase in the supply of affordable housing throughout Metropolitan Regions. The former should help middle-class households; the latter will help lower-income households. This is not a continuation of the Bush Administration policy which relied on stimulating the demand for housing by providing mechanisms to bring households into the market. The data shows that low income households barely kept even on ownership (versus renting) under this policy, middle-class households suffered tremendous losses and only the wealthy, those making more than $120,000 in income, had a gain in home ownership.

The last President ignored our advice in 2002: “A more balanced effort to stimulate supply would equilibrate the potential adverse affect on prices” from over stimulating demand. Let’s hope this new President gets the balance right.

Dr. Trimbath is a former manager of depository trust and clearing corporations in San Francisco and New York. She is co-author of Beyond Junk Bonds: Expanding High Yield Markets (Oxford University Press, 2003), a review of the post-Drexel world of non-investment grade bond markets. Dr. Trimbath is also co-editor of and a contributor to The Savings and Loan Crisis: Lessons from a Regulatory Failure (Kluwer Academic Press, 2004)

Mr. Montoya obtained his MBA from Babson College (Wellesley, MA) and is a former research analyst at the Milken Institute (Santa Monica, CA) where he coauthored Housing Affordability in Three Dimensions with Dr. Trimbath. He currently works in the foodservice industry.

December 28, 2008

Will the Bubble Burst Aspen?

Aspen is a great town. Its uniqueness extends beyond its spectacular geography to its amenities, people and community spirit. It’s a world-class, year-round Rocky Mountain resort offering great food, music, skiing, shopping – great everything – right in the middle of a real, functioning, small American community.

It’s no surprise people like it, want to keep it going. And not just the good, smart people who live in Aspen full-time and those who own second homes there (including some of the wealthiest people on Earth), but the thousands of good, smart people who visit every year to address big issues at the Aspen Institute and numerous other forums. These include elites of American arts, sciences, politics and economics with amazing amounts of brainpower and money at their disposal.

But geographic realities plus inexorable economic, demographic, and social trends are conspiring against the best of intentions. The future of Aspen – playground to the smart, rich and famous – may soon become untenable.

The financial crisis dominates thinking now. Could it be the catalyst that signals the beginning of the end of business as usual: the start of a major, long-term and permanent change?

The list of interested parties includes a wide cross section of year-round residents, second homeowners, business and property owners, public officials, visitors, employers and employees, builders and construction companies, managers and personnel at SkiCo (the town’s largest employer).

I have both personal and professional interests in trends in Aspen, and have been fortunate to visit many times and spend considerable time there over the past 35 years. My in-laws have been gracious and generous hosts (how lucky is that?), and in my role as an analyst of economic and demographic trends, I have been invited to speak, make presentations and attend seminars on many occasions (I always accept!).

Over the years I have personally seen the transformation from funky (I think the first time I skied there was in jeans and a sweatshirt) to glam and chic. To me it has always posed the classic development problem: how do you both improve and preserve what you’ve got, without setting forces in motion that undermine what you were trying to protect?

Before the housing and economic meltdown Aspen’s future was considered in State of the Aspen Area 2008, a report commissioned by the Aspen City Council and Pitkin County Board of Commissioners to provide guidance for future decisions on issues ranging from housing to growth management to transportation. The goal was to generate a 10-year community vision for the future, but that future may have to be put on hold.

The report highlighted several trends that seemed to pose serious challenges for Aspen. Most prominently, it suggested that the Aspen economy was becoming dangerously dependent on real estate and construction, as opposed to the original drivers of skiing, lodging and retail/restaurants. There were many new jobs, but a decrease in available housing for workers.

Aspen backs up to the Continental divide (closed all winter)! The Roaring Fork Valley is steep and narrow. Low- and middle-income workers must all live and commute “down valley.” But down-valley communities, where one used to be able to find cheap housing, have themselves become too crowded and expensive.

On top of this the Roaring Fork Valley has moved within sight of being “built out.” Traffic congestion is expanding up and down the valley (there is only one road – Route 82 – to get in or out of town), reaching intolerable levels during rush hours which start earlier and end later. A population of primary and second homeowners increasingly “aging in place” (with large percentages intending to retire in place), taking both their labor and residences off the market, exacerbate existing housing/lodging/worker imbalances.

The only reason the town “works” now is massive cross-subsidization. The fabulously wealthy subsidize the town budget with high property taxes on their mansions (even though some are in residence only a few weeks a year). They also subsidize the many arts, cultural attractions and charities so ubiquitous to Aspen as well as a range of services for year-round residents, from child care to education, health services, senior services, and police and fire departments.

Revenues from the rich and ultra-rich also pay for a town government that has a budget of $100 million plus for a town of 6000 permanent residents. In other words, Aspen could not afford itself if it had to rely on itself. Yet it was assumed the system would continue to work indefinitely because of the belief that “there will always be [a need for] an Aspen,” a playground for the ultra wealthy who spent freely and gave generously.

The burst of the housing bubble, and now the financial and economic crisis, throw that assumption into doubt. Even before the financial meltdown, the usual source of funds – more building to generate more fees, and/or raising taxes on visitors and residents (those both full-time and part-time) – were reaching limits. Now many construction projects have come to a virtual halt; it is no longer certain there will be buyers or a market for the completed structures – developers need to stop bleeding cash immediately. The value of building permits issued in Aspen this year is down 47 percent through Dec. 10.

Meanwhile the all-important non-profit sector has fallen into a tailspin. Contributions to the arts and other charities are primed to plummet. Endowment funds have lost millions. Sales tax revenue, which is the main tax source, will soon crash due to decreased tourism. Visitor reservations are dramatically down this Holiday season; retail stores are posting “Help Not Wanted” signs.

As a result, Aspen, a city unused to troubles, now has about all it can handle. Budget cuts threaten to cause havoc. Cuts in services, both governmental and those subsidized directly by the wealthy patrons, seem inevitable. Conflicts among elected officials, business, full- and part-time citizens could get ugly.

Of course, there is always the possibility that Aspen will weather the storm: after one or two down seasons at most, the number of visitors and dollars collected, spent and donated will resume their inexorable rise. After all, the ultra rich, trendy and connected will always need a playground. The problems listed above are not impervious to solutions; those bridges will be crossed when encountered by lots of brainpower and money.

In addition, not everyone is alarmed by the economic crisis and housing crash; some Aspen residents are indeed rooting for it, welcoming a lull in the constant construction, development and traffic, and hoping a slowdown will ameliorate such problems as the housing and worker shortages. Fiscal constraints will also bring some sanity back to (what they feel has been) the town government’s extravagance.

Long, slow decline is certainly possible: less spending, fewer visits, tax receipts, and charitable contributions could unravel the entire structure of cross-subsidization. Could it mean a reversion to the “old Aspen,” the laid-back, counterculture, easy-going, hippy-dippy, live-off-the-land Aspen?

Maybe so. But perhaps Aspen is facing systemic problems that can not be easily solved. Obviously, there are a great many demands on the area’s land, people, government and businesses. There has never been a consensus in Aspen that growth and development are desirable, even though the town has been dependent upon them. Now that certain limits are within sight of being reached, the already politicized town could become even more polarized.

The city government has always been composed and supported by year-round local residents, of course, who have always had a love/hate relationship with growth and development: the tourists and wealthy second homeowners bring the city great wherewithal, but they also bring great demands on the area’s carrying capacity and inevitably change the character of the place.

Of course, these conflicts have always existed, but as the stakes and money involved have grown, they have become more intense. It’s going to be an interesting next few years. See you at the Nell.

Dr. Roger Selbert is a business futurist and trend guy. He publishes Growth Strategies, a newsletter on economic, social and demographic trends, and is a professional public speaker. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American agent for its US Consumer Demand Index.

December 22, 2008
Postindustrial Strength Brain Drain Policy

In the discussions of the stimulus and infrastructure problem, little attention has yet been paid to addressing brain drain. Yet for many regions – particularly in the old industrial heartland – no issue could be more critical.

Perhaps the most important investment in regional human capital occurs at local schools. Enterprise looks to the secondary and post-secondary institutions within the area for labor. In this regard, it makes sense to fund better learning with local and state taxes as long as that talent remains within that geography.

Older industrial age cities and states are particularly dependent on a parochial labor pool. That’s the political legacy of the industrial economy. Workers tended to put down deep roots and this lack of geographic mobility made unions the only means to fight depressed wages.

But the conventional solution for regional decline has been greater ‘investments’ in education. Yet increasingly high local and state taxes for education no longer make sense. In fact it can be argued that Rust Belt cities such as Pittsburgh have often been victims of their own success. Excellent schools – particularly in the suburban periphery – increased the geographic mobility of the next generation. When tough times hit in the late 70s and early 80s, these young adults were ready to embrace opportunity wherever it may be. When they left for Houston, Phoenix or Tampa, they took all those tax dollars with them.

Out-migration isn’t a problem when your region is benefiting from some other place’s investment in human capital. But if no one is moving to your city or state, then retention of talent becomes a matter of economic survival. This is difficult to accomplish when your graduates are smart enough to know about greater opportunities that exist all the way across the country. It is also made worse when your local businesses are loath to pay the prevailing national market rate for the labor it needs.

In this sense then, plugging brain drain can help depress wages and make a place like Charlotte that much more attractive to Rust Belt graduates. Remember, captains of industry made a lot of money exploiting captive labor markets.

The dependence on local talent also disrupts network migration. Cities that must attract “foreign” workers develop pathways that make it easier for future workers to move there. It also helps connect the local economy to the global one, as has occurred on the west coast, with Asian immigrants opening connections to Pacific Rim economies and in south Florida, where Cuban migration has created a dynamic international business sector.

Furthermore, getting newcomers helps outsource the costs of cultivating human capital. Low tax regimes bank on in-migration. Poor local schools don’t really matter when the best and brightest from the Rust Belt are moving into your brand spanking new crystal palaces. In this sense, the “legacy economy” is subsidizing Sun Belt boomtowns.

The Rust Belt needs to learn from the Sun Belt. The game is all about attraction. The geographic mobility of talent within the Rust Belt would be a good place to start. Instead of squeezing the local labor pool, pave a new path to a fellow postindustrial city with a similar tax burden and effectively starve the boomtowns. Your neighboring legacy economy feels the same pain you do. Talent churning between the two locales beats the futility of fighting brain drain.

Even growth states such as Georgia are overly concerned with who leaves. Sun Belt (i.e. growth) states obsess the out-migration of native graduates as much as Rust Belt (i.e. shrinking) states do. The same policy boondoggle in Ohio exists in Georgia. Across the board, there is a prejudice for homegrown talent.

In contrast, I think older, now shrinking cities must embrace out-migration and focus more on growing the numbers of newcomers. These people will bring the new ideas and connections regions like ours need. Leave the self-destructive nativism to the Sun Belt.

Read Jim Russell’s Rust Belt writings at Burgh Diaspora.

December 21, 2008