Half Past the Month

December 10, 2019

I AM SUSPICIOUS of downtown economic development plans and their related public-private partnerships. That’s not because I know much about economics or even business generally. They simply don’t pass my grandfather test. 

That is, my grandfather would be asking a question: If all you have to do to create a wealthy downtown is slap together a package of government grants, loan guarantees and revenue-secured bonds, plus some spare change from a municipal fund or two and an accommodating TIF district, then construct the deal so developers, contractors, professionals and vendors all get paid up front with minimal risk, why isn’t every downtown wealthy?

Now I have two expert answers to bolster my grandfatherly suspicions. 

Richard Maybury of the Henry Madison Research group supplies the first. When such new money is poured into a community, whether the result of local eco-devo machinations or courtesy of the Federal Reserve, a similar thing happens: Unequal fiscal “cones” are created, some large, some smaller and some not at all.

“Areas that receive a lot become hot spots, or cones of dollars,” Maybury wrote earlier this month. “Chasing these dollars, businesses, investors and workers abandon what they are doing and move into the cones, becoming dependent on the pours.”

But what is poured into these cones, Maybury stresses, is not investment but malinvestment. And a city so tempted is setting itself up for a hard fall come the next recession or depression, a harder fall than competing cities that did things more the old-fashioned way, i.e., attracting risk capital with reduced regulation, increased productivity and profit potential.

“When the pouring slows, the firms and investments go broke, and the workers lose their jobs,” Maybury concludes. “Times are tough until the pouring resumes and the cones are revived — or better, but rare, until firms and workers shift to the types, amounts and locations of production that would have existed if the pouring had not distorted the economy.”

In my Indiana city, the pouring is unabated. Indeed, plans for subsidized hotels, sports venues, convention centers, recreation or entertainment attractions seem to be announced daily. But how much longer?

This brings us to the second answer to the grandfather’s question. It comes in the form of a comprehensive study published earlier this year by Harvard University.

Please know that the appeal of every downtown public-private project is that “if you build it they will come,” they being millennial yuppies and DINKS (two incomes, no kids).

But researcher Whitney Airgood-Obrycki warns that they may not. The suburbs continue to outperform urban neighborhoods on multiple economic and demographic variables.

Her study examines in impressive detail the nation’s 100 most populous metropolitan areas, classifying census tracks within each area as either urban, inner-ring suburb or outer-ring suburb. It also subdivides suburban communities based on when they were developed. It then grades each neighborhood on income levels, education, occupations of resident and housing values, and then tracks communities’ progress over time. Every Indiana county commissioner should have a copy.

Steve Malanga, writing in this fall’s issue of City Journal, summarizes the data, and in doing so explains why developers were not lined up earlier to risk their own money on downtown development:

“It seems at odds with the typical media narrative. Gentrification of some city neighborhoods by young hipsters fostered an idea that educated millennials were rejecting their suburban upbringings to reclaim the city. But as they age, millennials are turning out more like their parents than previously thought. As demographer Wendell Cox has shown, even when these young people gravitate toward major metropolitan regions, they’ve been more likely to live in outlying areas than in central cities. Similarly, anecdotal stories of retirees ditching the ’burbs for city living exaggerate the trend. When considering the fates of cities and suburbs over the last half-century, it’s wise to keep in mind the adage that anecdote and data are two different kinds of evidence.”

Where will that leave us? If we follow the rent-seekers and public-private “partners” in the distortion of our local economies, we can look forward to a) a recession more severe in our town than in others; and b) a downtown market exhausting itself.

Well, that’s pretty much where any grandfather would have predicted, and without the paddle.

— Craig Ladwig


Leave a Reply