The bankruptcy-sprawl connection

The recent bankruptcies of Stockton and San Bernardino have again highlighted the fragility of many California cities’ finances. In each case, the burden of public pensions has been blamed for the financial problems. However true that may be in the short run, the pension blame game masks another, deeper problem for the state’s taxpayers: the hidden but crushing cost of sprawl.

It’s true that pensions are an increasingly visible strain on city budgets. As a former mayor of Ventura — a city that is not going bankrupt — I can attest that rapidly rising pension costs are a huge problem that must be dealt with aggressively. But there are other, more fundamental factors driving cities to bankruptcy: namely, whether those cities grow smartly or sprawl.

Prosperity and solvency — or a lack thereof — are woven into the very fabric of our cities. Where houses go, where businesses go, where roads go, where sidewalks go, where farms and open space go are all things that collectively affect a community’s economic performance and the cost of providing services there. Put things closer together and providing services costs less. Put things farther apart and providing services costs more — for the jurisdiction and its taxpayers. California cities haven’t always planned and built in this fiscally responsible way, and that’s one of the biggest reasons why cities are struggling financially today.

It’s easy to mistake a sprawling new development for prosperity. New buildings and wide new roads look great at first. But over time, the cost of serving such developments gradually bleeds taxpayers dry. More firetrucks have to travel longer distances to serve fewer people. So do police cars. And ambulances. And school buses. And dial-a-ride buses. And, up in the mountains at least, snowplows too.

Ultimately, taxpayers must also foot the bill for maintaining and eventually replacing all those roads that all those taxpayer-supported vehicles have to traverse. With California’s Proposition 13 property tax system, there’s no way that tax revenue can ever keep up with the cost of sprawl.

One California planning director calls this a cycle of addiction. Each new development project generates huge new revenues — impact fees upfront and greatly increased property taxes once the project is built. But the impact fees never cover the cost of the infrastructure and, because of Proposition 13, the buying power of property taxes declines dramatically over time. Sooner or later the new project is running a deficit instead of a surplus for taxpayers.

The only way to forestall a financial problem is to approve another sprawling development. And another. And another. Sooner or later, however, the real estate market crashes, this development Ponzi scheme collapses and taxpayers are left holding the bag. That’s what happened in California starting in 2008.

By contrast, responsible “smart growth” development — in both urban and green-field areas — can offer cities a way out of this financial box. By placing things closer together, smart growth reduces the amount, and cost, of roads and other infrastructure. By reducing the miles all those public vehicles have to travel, compact development lightens the load on taxpayers to provide those neighborhoods with public services. And by using land more efficiently, compact development generates more tax revenue — in some cases more than 100 times more tax revenue per acre than suburban sprawl.

Of course, this does not mean that all urban redevelopment makes sense — or will pay off. Both Stockton and San Bernardino are gritty older cities with struggling downtowns and dreams of urban revitalization. They have sometimes overreached in their zeal to achieve those dreams. Stockton in particular kept trying to rescue the city with grandiose redevelopment projects, none of which were within walking distance of one another and, not surprisingly, none of which succeeded.

But both cities also continuously sought to bail themselves out with more and more suburban development, only to confront the slow bleed on taxpayers that sprawl inevitably causes.

No city in California will survive financially without aggressive reform of public employee pensions. But even that won’t be enough, unless cities also abandon sprawl and adopt fiscally responsible smart-growth policies that maximize tax revenue and minimize cost.

William Fulton is vice president of Smart Growth America and a senior fellow at the Price School of Public Policy at USC.