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MORE THAN DUCTS AND WIRES: POST-FORDISM, CITIES AND UTILITY NETWORKS
Stephen Graham and Simon Marvin
in HEALEY, P. ET AL (eds), (1994) Managing Cities: The New Urban Context, London- John Wiley
1 INTRODUCTION
Utility networks - gas, electricity, water and telecommunications - provide the basic infrastructural foundations to the operation of modern economic and social systems. Utilities distribute access to energy, water and communications and remove waste through extensive physical networks of pipes, ducts, pylons, cables and radio links . All firms, organisations, and households rely on utility networks at the most fundamental level. Utilities are the conduits or 'technological systems' (Hughes, 1983; Preston, 1991) which support the rapid movement of the energy, water, waste and information upon which their integration together into economic and social structures depend. As distributed networks, utilities - along with transportation networks - are the very 'glue' that holds together modern society. Cities and urban systems, in particular, are today intensely dependent on dense and interwoven lattices of utility networks. Indeed, without them, virtually all aspects of the functioning of the modern 'networked' city or integrated urban system would be impossible (Tarr and Dupuy, 1988; Tarr, 1984).
This pervasive role of utility networks means that they are important both to the economic development of capitalist production and to the reproduction of social relations. Utilities span the production-consumption nexus within cities (Swyndegouw, 1989). Utility networks, as large technical and institutional systems, are therefore closely related to the wider society within which they evolve (G”kalp, 1992). To adopt regulationist terms, utility networks are key components underpinning both the particular accumulation system employed by firms within prevailing productive arrangements, and the associated mode of social regulation necessary to stabilise capitalist society into a coherent and 'mode of accumulation' (Tickell and Peck, 1992). It follows that utility infrastructures are important factors in the economic, social and spatial development of cities, regions and space economies. The cost, quality, availability and reliability of these network services ; how these vary over space ; the technologies they employ; and how their development is regulated are all factors that have important influences upon the development and restructuring of cities and regions. Because of this, the governance and politics of urban utility regulation are key elements of the wider process of urban management and governance.
The recent renaissance of political-economic analysis of cities has, however, all but ignored the importance of utility infrastructures and their regulation. Extremely influential recent 'regulationist' perspectives, for example, have failed to recognise the crucial relationships between cities and utilities or try and analyse the rapid reorientation of utilities which is currently underway (see, for example, Moulaert et al, 1988; Tickell and Peck, 1992). Dominating this work has been a concern with local economic restructuring within cities in an increasingly global era and its political ramifications (Cox, 1993; see Chapters...). Urban utility networks tend to be largely ignored or taken for granted in urban political economy. At most, they are incorporated within brief statements about 'urban infrastructure' (see Moulaert et al, 1988). By contrast, urban transportation has been accorded intensive recent research (Nijkamp, 1993; Hepworth and Ducatel, 1992; Giannopoulos and Gillespie, 1993). The urban policy literature similarly tends to ignore urban utilities (Marvin, 1992).
The small amount of analysis of the urban implications of utilities tends to adopt narrow econometric () or simply descriptive approaches of isolated utility developments in specific cities (Tarr, 1984). Often these studies focus in isolation on single utility networks rather than adopting a cross-cutting and integrated perspective over periods of time which attempt the link the development of utilities with wider political and economic trends. As a consequence, understanding of the changing links between utilities and urban development remains extremely underdeveloped.
The assumption within urban political economy seems to be that urban utilities are a largely unseen, relatively unchanging and given infrastructural underpinning for the restructuring and development of cities - little more than a set of ducts and wires that lie beneath and support the urban fabric. They are not accorded the status of an important element of the economic, social and institutional development of cities worthy in themselves to be the subject of more detailed scrutiny.
This chapter argues that utility networks are too important to be dismissed in this way. The contention here is that it is now more necessary than ever to begin incorporating utilities into our treatments of the changing political economy of cities. Because of their crucial symbiotic role in the economic, social and geographical restructuring of cities and urban systems, and because of their increasingly significant role as actors within the urban political arena, we argue here that the explicit treatment of utility systems within urban political economy is long overdue. Moreover, the profound transformation currently overcoming the regulation, technology and development of utilities makes this all the more important (Cornford and Marvin, 1993; Graham and Marvin, 1994). Enormous current changes in the
political economy and technology of utilities are currently underway which change radically the accepted 'taken for granted' assumptions about the relationships between urban utility infrastructure and the development and management of cities. These processes are important elements within the wider restructuring of capitalist society. We argue here that they have important but ill-understood implications for the governance and management of cities.
This chapter develops an initial perspective on the dynamic relationships between utilities and the political economy of cities. It briefly analyses the current restructuring of utilities and the implications of this process for cities and urban governance from a historical perspective. In it we don't pretend to fully rectify the glaring deficit in the treatment of utilities within urban political economy. Rather, we tentatively try to begin inserting utilities into the debate about cities and restructuring. This is done by attempting to understand, at a broad and general level, the ways in which utilities have been involved in the movement from 'Fordism' to a 'Post Fordist' era and the ways in which utility regulation and development has been related to urban development during the period from the 1920s to the present day. We also analyse the political economic and technological trends behind the current reorientation of utilities in the present era and speculate on the significance of these trends for contemporary urban management and governance. We focus in particular on the trend towards the more proactive involvement of utilities in the urban development and policy process as 'covert' urban mangers. Before developing our perspective, however, it is necessary to explore the fundamental relations between utility networks and the spaces and places within which they operate.
2 UTILITY NETWORKS, SPATIALITY AND URBAN GOVERNANCE
Utilities networks inevitably require the investment over relatively long periods of large amounts of sunk capital within territorially-bounded areas. Usually this capital is quite literally sunk into the vast hidden lattices of ductwork, pipes, wires and cables that lie beneath modern cities and fill the corridors between them. Because of this, utilities represent classic examples of locally dependent capital (Cox and Mair, 1988). This makes them intensely dependent on the economic and political fortunes of the localities, cities and regions within which they operate - to an extent which exceeds conventional firms. As Cox and Mair put it : "public utilities are highly capital intensive, and realizing the values locked up in fixed gas lines, power stations etc requires the reproduction of a particular spatial pattern of customers who will provide the utility's value inputs" (Cox and Mair, 1988; 2). The capital intensity and local dependence of utility networks are centrally important in understanding their relationship with cities and urban governance.
The geographical scale and extent of utility operations is therefore of key significance in understanding the relationships between utilities and urban governance. This stipulates the degree to which utilities can overcome the vulnerabilities created by their dependencies on local economic and political conditions within single localities. A wider geographical scale of operation, or operation within multiple locations, reduces the dependency of utilities on the governance and development of particular localities.
It follows that utilities which are dependent on individual cities or localities are likely to more actively engage in promoting the development of that market area, acting as "growth "statesmen" (Logan and Molotch, 1987; 74) eager to become involved in the growth politics and policies of their host cities or localities (Cox, 1993). Conversely, nationalised or multilocational utilities will tend to be more insulated from the economic fortunes of single areas. Whilst not a complete solution to local dependence, such multilocationality "reconstitutes local dependence at some broader geographical scale" (Cox and Mair, 1988; 3). National public ownership reduces such locational dependence even further by centralising the management and financing of utility infrastructure development to the level of the nation state, so effectively divorcing the management and development of utilities from the local political process altogether. Evidence suggest that where utilities are private and local, as is common in the United States, they are much more prone to engage in the promotional growth politics of place - through intimate involvement in local business coalitions and marketing agencies - than they are in nations where utilities operate at the national level or are in public ownership (Cox, 1993).
3 UTILITIES AND THE 'FORDIST' CITY
The first processes of 'extensive' industrialisation before World War I were symbiotically related to the construction of a myriad of small utility systems that co-evolved with the initial industrialisation process. These were often intimately related to the specialised and densely-interconnected urban economies of the period. For example, in the North East of England, the NESCO company in the early 1900s was geared overwhelmingly towards providing modern electricity services and also serviced
industrial sites to Tynesides shipbuilding, heavy engineering and defence industries (Hughes, 1983). Often, those small utility systems that weren't in municipal control were incorporated into municipal ownership at the beginnings of the twentieth century as they became more important to local development (Berrie and Berrie 1993; Tarr, 1984). The extreme local dependence of such utilities on their particular local economies often made these utilities intensely competitive, and intimately involved within the urban and regional politics of their territories. This was supported by competitive regulation at the national level (Tickell and Peck, 1992) . This period can be characterised broadly as one of the localisation of urban utilities and its characteristics are outlined in Figure 1.
The movement towards 'intensive accumulation' in the interwar period, characterised by the elaboration of mass-production and mass-consumption society (the so-called 'Fordist' era), saw an increase in the scale at which utility networks were operated from the local to the regional or national. It also saw a radical improvement in the technological sophistication of utility networks (see Hall and Preston, 1988). In this period, competitive regulation at the national level tended to give way to monopolistic regulation, as national government intervention grew to dominate national economies. Often this process was paralleled by the nationalisation and integration of many localised utility networks - both private and municipal - as in the U.K.. We can therefore characterise the Fordist period as a period of nationalisation in the development of urban utilities (Figure 1).
Where this was the case, integrated 'national grids' for the wide distribution of standardised energy, communications and water services were developed. These were necessary to support the integration of cities into national urban systems and markets, to help underpin the parallel growth of Keynesian regional policies, and to stimulate the widespread modernisation of economic and social conditions in a standardised manner (Hughes, 1983). In federal states or where private firms continued to dominate utility provision, the trend in this period was still towards the development of coherent national utility systems within which local systems were integrated (Tarr, 1984). The centrality of modern, ubiquitous utility services to economic and social regulation at the time meant that national utility regulation emerged in all nations as a central pillar of the Keynesian economic policies of the period (Tarr and Dupuy, 1988).
In the nations where the nationalisation of utilities was pursued most vigorously, as in the UK, this tended to divorce utility operators in cities from the processes of local politics and government within particular cities in which they had previously been intensely active (Hart, 1983). Municipalities were no longer the operators of a large variety of small utility networks within their areas. Indeed, national political control over the vital 'nervous systems' of social and economic life was generally seen to be superior to fragmented municipal control, as a quote from S. Insull, a US politician in 1908, suggests: "municipal ownership is demanded largely because of the absence of proper regulation and control. [National] Public regulation and control, if efficient, removes the necessity or excuse for securing fair treatment for the public [through municipal intervention]" (Quoted in Simon, 1993).
As nationalisation became more common, and the nation state became the dominant level of utility regulation, municipalities were less and less able to able to offer cheap utility services as inducements to inward investment from the burgeoning multilocational enterprises through promotion exercises - as they did in the 1920s (Ward, 1990). In the electricity sector in the UK, for example, regulatory changes in the 1930s meant that "the important local variations in electrical supply which had underpinned the incentives of the pre-1914 period were being dramatically reduced in the interwar years" (Ward, 1990; 109).
As private regional companies and local municipal boards gave way to centralised (and often publicly-owned) national utility corporations pushing towards the equalisation of infrastructure provision, utilities therefore became less locally-dependent. They also became less of a factor in urban and regional differentiation and local growth politics. This was because the monopolies were specifically set up to help even out geographical inequalities in infrastructure provision, so overcoming the chaos of fragmented utility development which was increasingly being seen as undermining the drive toward modernisation (Preston, 1991).
Out of the complex 'patchwork' of local utility systems there emerged enormous, monopolistic and centralised utilities and developing institutions. The huge capital investments necessary to construct these infrastructures required both a protected monopoly status for utility operators and the economies of scale that accrued from the operation at national rather than local levels. As nationally-integrated gas, water, electricity and telecommunications networks were 'rolled out' across national space economies, a welfarist emphasis on universal service and tariffing also developed. National public utility corporations were regulated to try and balance the competing needs of industry and production
and the growing demands of consumers, in line with the wider elaboration of welfare-Keynesian policies. This occurred through cross subsidisation between lucrative business markets and consumer/domestic markets. This process supported the emergence of basic utility services as quasi- collective goods available to all on a universal service-universal tariff basis (Graham and Marvin, 1993). Increasingly, domestic access to telephone, mains water, gas and electricity services became seen as an accepted norm and social right - a part of the social contract of the time between state, citizen and capital. This drive towards social ubiquity of access was matched by Keynesian regional policies to support spatial cohesion f nation states and the full productive employment of spare regional capacity (Swyngedouw, 1989). The advanced provision of subsidised utility infrastructures, as politically-induced stimuli to regional development, was a central element in many of the Keynesian regional economic development plans that developed within the period, for example the Regional Economic Planning Councils within the UK. Rather than politically active within such strategies, however, the utilities tend merely to supply the facilitating infrastructure for the wider development programmes.
These processes took away much of the previous variegation in the costs and quality of utility services between cities - the source of much previous competition, uneven development and urban political intervention during the localisation era. As the larger networks were gradually elaborated, many of the the infrastructural supports that were necessary to support the development of the 'Fordist' city and urban system - near-universal access to electricity, widening access to telephones and gas and cheap, plentiful and efficient water and waste services - were gradually rolled out across national space economies from the cores of the the old metropolitan cities (Fishman, 1990).
Of course it would be simplistic to interpret this process functionally in an 'infrastructure push' manner : the cause and effect relationships between infrastructural development and urban and societal change during the Fordist era were complex and symbiotic (Hughes, 1983). It is also important to stress that there was a great deal of diversity and national specificity in the various national histories of utilities and how they relate to urban development (see Hughes, 1983; Hall and Preston, 1988; and de Gournay, 1988 for examples). In France for example, many utilities have never been nationalised. Finally, there is also considerable variations between the development of telecommunications, gas, electricity and water networks (Fishman, 1990). Utilities and urban infrastructure provision does not therefore fit cleanly into some universal and homogeneous model of the transition between Fordism and post-Fordism (Preteceille, 1990; 33).
Nevertheless, it is possible to argue that - in broad terms - whilst utility networks played a central role underpinning the development of 'Fordist' urban society, utilities generally tended to become more distanced from urban management and politics during the post war Fordist era. They were less locally reliant and more centralised than previously and geared to the national rather than local political agenda. National and Federal regulation came to dominate and utilities became incorporated into the Keynesian and Welfarist institutions of the nation state (Tarr, 1984).
During the post war period, this process supported the pervasive application of mains-electricity, mains water and gas and telephones by both industry and consumers. This in turn underpinned many elements of the spatial and social transformations that came with Fordism. The movement towards the mass production and the consumption of standardised consumer goods (Dunford and Perrons, 1993; 326) ; the integration of disparate cities and localities into functionally integrated national urban systems ; the development of multilocational firms ; general trends towards time-space convergence and the reduction of spatial variation ; and the suburbanisation of cities were all reliant on the new capabilities offered by nationally integrated utility networks (Capello and Gillespie, 1993; 26). The Fordist city, as a relatively integrated economic, social and political system spread across a wide urban region, developed an intense reliance on the largely hidden facilitating lattices of utility networks that underpinned it - quite literally. So, whilst many of the urban changes of the period were intimately related to the widening application of large-scale utility networks, often the regulation and development of these networks was often insulated from the local political process within cities altogether.
4 'POST-FORDISM', CITIES AND THE REORIENTATION OF UTILITIES: THE EXAMPLE OF THE UNITED KINGDOM
It increasingly evident that the regulation and development of utilities are now undergoing a second profound transformation. Although it remains unproven, it seems likely that this change is embedded within the wider trends towards a globalising and flexible 'post Fordist' mode of accumulation within western society. This, however, can only be speculated upon in the absence of more detailed empirical
work. What is clear is that the structural crisis of Fordism and the discrediting of monopolistic and Keynesian forms of national policy seems to be pushing utilities across the western world to be reorientated as privatised and increasingly globalised utility firms. National monopolies are rapidly being replaced by regulated market forces operating at local, regional, national and international scales. This is shifting once again the patterns of locational dependence of utilities and reorienting the relationships between utilities, urban development and urban politics. It is a central argument of this chapter that this process has potentially important implications for urban governance and regulation. We can characterise the emerging era of utility development politically as one of privatisation - its dominant characteristic is a movement of utilities from the public or quasi-public domain to the private domain (Fig 3). To characterise this phase spatially, we can adopt the phase of Cooke et al (1992) and term it an era of global -localisation.
The UK provides a good illustrative example of this current reorientation. In the past decade the regulatory regime which governs the development of utilities in the UK has been totally transformed. The 1980s saw the privatisation of all the UK state utility monopolies which had been in place since the inter-war or early post-war periods : British Telecom (1984), British Gas (1986), the water and sewerage industry (1980-1990), and the electricity supply industry (1990-1991). The Thatcherite neo- liberal proponents of this policy argued that competitive utility marketplaces were needed in the place of slow-moving public monopolies in order that the UK space economy were to have the utility infrastructures necessary to compete globally as a centre of investment. As the social democratic consensus was swept away, the institutional infrastructure of nationalised utility monopolies was dismantled, the bonanza fro privatisation being used to subsidised the hard-pressed national public sector budget.
In the place of nationalised public monopolies, new private models for utility development have been brought in, based on the encouragement of new market entrants competing in re-regulated markets. This process of regulatory change is inextricably linked up with the application of new technologies to utility development. It also involves a reorientation of utility providers away from the delivery of standardised services on a monopolistic, universal basis, towards the 'cherry picking' of lucrative customers from prime competitive and diversified markets.
This process of 're-regulation' has involved profound geographical change. During the nationalisation phase, the national utility monopolies geared themselves towards standardised tariffs and services and geographical equalisation between the cities and regions that make up the space-economy. This was based on the notion that they were 'natural monopolies' addressing market failures in the interests of national economic development. Emerging now, however, following privatisation, is a much more complex and fragmented range of international, national, and, most commonly, regionalised utility networks providers. These operate as private firms in search of capital return. The result is a new series of 'patchwork quilts' of different utility organisations developing their infrastructures and services with an extremely complex 'layering' of spatial dynamics. Intricate patterns of the relocalisation of utilities are emerging- with the reemergence and strengthening of the regional and local-dependency of many utility providers and the emergence of new local infrastructures such as cable TV and combined heat and power. Theses are combining with globalisation - as major utility organisations also try and restructure themselves to compete in increasingly global utility markets to service the burgeoning and highly lucrative utility needs of multinational corporations.
This process is underpinning the emergence of global utility networks and a wide range of mergers, acquisitions and cross-investments within the utility sectors, as newly-private utility capital attempts to 'uproot' from its locational dependence to diversify into global and highly-profitable markets. It is increasingly common, for example, for national telecommunications operators to compete in each others - previously monopolistic - territories and to set up strategic alliances that allow world wide coverage of advanced services to be developed (Cooke, 1992) - a key strength in bidding for the custom of multinationals. International financial capital is increasingly the source of utility investments. In addition, an emerging tier of supranational regulatory institutions such as GATT and the European Commission are attempting to support the nascent globalised competitive marketplaces for utilities- backed by the powerful interests of multinationals. The European Commission's current emphasis on the need for improved transeuropean infrastructural networks needs to be seen as the dual side of its policies to establish a Single European market for utility services (CEC, 1992). Increasingly, then, the hegemony of the national level in utility politics is being challenged by the supranational and, increasingly, global level. This is eroding further the already tenuous hold of many national and regional public utility monopolies and encouraging he ascendancy of the new neo-liberal utility politics across the western world.
5 UTILITIES AND URBAN GOVERNANCE IN THE CONTEMPORARY CITY
These changes are extremely rapid, complex and poorly understood. As a consequence, understanding the linkages between utilities and processes of urban development is becoming much more difficult. It remains far too early to define precisely the implications of this type of reorientation of utilities for urban development and governance. Also, despite some evidence that liberalisation and privatisation are generic, global trends in the utility sector, little is known about the generalisability and diversity of these trends, let alone their implications for cities. We know little, as yet, about the varying national tracks been taken by utility liberalisation and privatisation, or how this relates to the initial positions of each country. It is clear, however, that four broad emerging aspects of the reorientation of utilities can be highlighted as being particularly relevant to current debates about the management and development of cities. These are : the intensification of social and spatial inequalities in the development of utilities ; the (re)strengthening of the engagement between local and regional utilities with urban politics ; the application of new technologies to telematics; and the convergence of urban utility infrastructures. This paper will now explore these four trends , once again from the specific point of view of the U.K.
The Intensification of Spatial and Social Inequalities in Access to Utilities
First, the reorientation process has been associated with a renewed intensification of the social and spatial inequalities in access to utilities, both within and between cities. The reorientation of utilities is a component in the general trend towards the exacerbation of spatial and social inequalities that characterises the current processes of restructuring (Peck and Tickell, 1992). The movement from national utility monopolies geared towards equalisation and public planing to utility marketplaces inevitably supports geographical and social polarisation in the cost and quality of utility infrastructures.
The most profitable 'hot spots' of the utility marketplace - such as the City of London for telecommunications - are the centres of increasingly frenetic competition between globally-oriented utility companies from many nations. These are the localities which are the centres of globalised utility activity. Upwards of a dozen telecommunications providers from all over the world now service the financial services firms in the City of London, for example (Graham, 1993). The profits to be made within such 'hotspots' from high value added utility services such as advanced international telecommunications are extremely attractive. Such 'hot spots' are invariably the centres of multinational capital activity or the 'Neo-Marshallian' nodes on global networks documented by Ash Amin and Nigel Thrift (Amin and Thrift, 1992).
At the same time, however, newly privatised utility companies remain as de facto private monopolies in the least lucrative markets - the rural areas, inner cities and the peripheral cities. Here the entrance of competitive market entrants is deterred by high costs and/or low returns. As newly-privatised utility companies become more concerned with the profitability of their investments, and less-geared to long term 'sunk' investments, their investments are likely to become more mobile and fickle. The danger is that they will disinvest from declining or peripheral localities, so withdrawing or at least damaging the vital infrastructural support systems for development within those laces. Importantly, this potentially undermines the ability of these localities to compete within the globalising 'place marketplace' for inward investment because they will fail to have in place the most up-to-date, efficient and cost- effective urban utility infrastructures which are increasingly necessary to attract mobile multinational capital.
This is potentially very significant when the current trend towards the economic fragmentation of cities and the globalisation of the economy are considered (see Chapter Amin and thrift ). This is because it makes such an infrastructural competitive disadvantage of a declining or peripheral city all the more significant. As Luigi Maza suggests "the city has become a fragment in a mosaic of strategies and production functions of international proportions [...] Cities have become places where the large corporations chooses to locate segments of its operation" (Mazza, 1988).
The increased variegation of utility development therefore both reflects and supports the fragmentation of cities. As cities become transformed from integrated economic systems to fragmented local nodes in a globalised economy, so their utility demands are change also. At the same time, the utility demands of cities are also being changed by the movement towards service and information-based urban economies and the growth of new out-of-centre urban developments spread way beyond the old metropolitan cores (see Garreau, 1992). Increasingly, urban telecommunications, energy and water service providers are being forced to reorientate themselves to meet the new roles of cities as
locations for the nodal connections to wider networks rather than as integrated and coherent localities (see Amin and thrift).
To meet this challenge, and to reflect the movement toward privatisation, the technological systems of locally-rooted utility networks are now being reconfigured to interconnect seemlessly on a global basis. This interconnection involves both the physical connection of local networks and the financial and institutional cooperation of utility companies. This is the fundamental nature of global localisation in the utility arena. This process is necessary to parallel the increasingly global nature of the dominating economic and institutional power networks of multinational capital and the emergence of global production filieres (Amin and Thrift, 1992; Amin and Robins, 1991 ). Utility networks, particularly telecommunications, are therefore both reflecting and supporting the growing dominance of global corporate networks, within which city authorities struggle to attain nodal status for their territories through place marketing and local economic development policies (Graham, 1994). And as utilities become increasingly privatised and globalised, they are themselves emerging as a key component of multinational capital, roaming the globe in such of return on investment (both within and outside the utility sector). The increasingly global investment portfolios of many telecommunications, water and energy companies reflects both the search for greater profitability, and the desire to reduce the vulnerabilities to the fortunes of single localities within which localities are, quite literally, rooted.
Because of their importance in allowing piecing together global corporate networks, multinational are now intensely aware of the varying utility capacities of different cities. The particular centrality of the information infrastructures of global corporations (Bakis et al, 1993) means that the telecommunications and telematics infrastructures of cities and regions is coming under particularly intense scrutiny as location factor in investment decision making. Other utilities, however - gas, electricity, water and waste services - are of key importance in particular economic subsectors.
This process also threatens the competitiveness of indigenous firms and sectors, as the importance of competing internationally grows through the internationalisation of markets. The competitiveness of indigenous firms within cities and regions that are disadvantaged by the reorientation of utilities will be seriously undermined. Finally, this re-regulation and increasing variegation of utility networks threatens the universality of social access to basic utility services. Because the cross-subsidies of the monopoly era are now being eroded, areas and social groups at the margins of profitability threaten to be 'socially dumped' from utility networks, as as their costs are increased to meet the new demands for profitability by utility suppliers.
The (Re) Engagement of Utilities and Urban Politics
The second key feature of the reorientation of utilities for cities is the reemergence of regionalised and localised utility infrastructures. Where utilities were nationalised, as in the UK, the localisation part of the process has considerable implications for the urban politics of economic development because it means that utilities are, once again, reengaining with local politics to support the economic development of their areas. The newly-privatised utilities are now often the largest and most profitable private firms within their areas, at a time when local public fiances to develop policy initiatives are under severe pressure. And with business involvement in urban politics growing everywhere, utilities are potentially very significant actors within the formation and funding of the new generation of entrepreneurial urban economic policies, simply because it is good for both their long term economic interests and their local public image (Graham and Marvin, 1992). In the UK there is considerable evidence that u tilities are already increasingly their activities within the many growth agencies, inward investment promotion bodies, arts and cultural development organisations, and 'partnership' initiatives that have sprung up across the country in the wake of the application of neoliberal principles to urban policy. Alan Bruce, in a recent review of the prospects for local economic development policies in the UK, argued that "the potential role of utilities in the promotion of local economic development is important. Following privatisation, there are signs that many electricity, gas and water companies are once again seeing that they have stake in economic expansion. It is easy to see why utilities should again develop such a role. Most are engaged on development programmes that will show a poor return unless their areas expand. Some have significant PR problems. Most are also involved in job-shedding. For these reasons utilities promise to be at the heart of much local economic development at the local and regional levels. Where they are not, the fact that they are now the largest and most profitable private enterprises, means that public bodies will encourage such an involvement" (Bruce, 1993; 329).
Examples of this renewed involvement of utility operators in urban economic policies include the involvement of BT in urban telematics initiatives in Edinburgh, London and Manchester ; the
development of many partnership initiatives between cable companies and local authorities (Cornford and Gillespie, 1993); the setting up of a specific inward investment bureau within Northern Electric; and the widespread sponsorship of place marketing and urban development agencies by the regionalised water, electricity and gas companies.
The Application of Telematics Technologies to Utilities
The third key element of the reorientation of urban utilities is the application of new 'telematics' technologies to utility networks (see Laterasse, Chapter). Currently a new era of control technologies are being harnessed by infrastructure managers in the shape of microelectronics based computer networks or 'telematics' systems (Miles at al, 1988). The previously-separate technologies of telecommunication, computing and broadcasting are now converging into an integrated set of 'telematics' technologies and services - based on a core group of 'digital technologies'. Central to these are communications, information and transactions flows between microcomputers and computerised equipment. The new capabilities of telematics are helping to support the liberalisation and globalisation of utility markets by making possible a revolution in the degree to which global infrastructure networks and their management can be controlled in detail. Telematics help to undermine the 'natural monopoly' characteristics of urban infrastructures, so allowing private firms to operate them profitably (Robins and Hepworth, 1988). What were previously public goods - because it was difficult to monitor and measure the exact consumption of specialised services - are now made private because of the new control techniques of telematics. So, combined with the political movement towards liberalisation, the movement from public monopoly to private marketplace can be seen to have both a technological and a political dimension.
In the search for higher profits in newly competitive markets, telematics provide essential tools when dealing with the massive and complex nature of infrastructure networks. A technological revolution in urban infrastructures is therefore paralleling the political, economic and spatial revolution outlined above. The new capabilities of converging sets of computer and telecommunications technologies for supporting information processing and communications are being applied pervasively across the urban utilities. All aspects of the management, development and control of urban infrastructure networks are becoming increasingly reliant on parallel systems of computer networks (Madden, 1992; Dupuy, 1992). Telematics can be used to help keep energy and water production more in-line with demand; they allow much a more sophisticated control of plant to occur; they support the automation of meter- reading through telemetry; and they support faster and more responsive customer services - particularly to large, lucrative customers (Miles et al, 1988). As Gabriel Dupuy argues, because of these capabilities, 'virtual' systems of computer networks are now beginning to match very closely the 'real' hard networks upon transport, information, energy and water flow (Dupuy, 1992; 67). The result is a movement toward the 'real time' management and development of urban infrastructure networks: decisions can be made on up-to-the-second information based on the real demands, flows and supply operating on a network. This can be used to support revolutionary changes in the management of infrastructures.
Figure 2 gives a range of examples of the application of telematics across the range of urban infrastructures in the UK. In the UK, newly privatised utilities are expecting telematics systems to give them a competitive edge and so maintain profitability in increasingly competitive and uncertain markets (Madden, 1992). Telematics are being used to cut costs, improve the speed and responsiveness of large organisations and, above all, improve the degree to which enormous networks infrastructures can be controlled and organised in competitive ways. They are also being used to extend the capacity of urban infrastructures by allowing the more efficient use of network space. A good example of this is the application of telematics to road transport in such areas as electronic guidance, real time road monitoring and electronic road pricing. Importantly, these technologies bring pressures for further privatisation of transport systems because they make possible the transference of road space, network information and telematics services themselves into private goods to be offered by firms in a marketplace for profit. Through telematics it becomes possible to exclude non-payers from networks much more easily and to monitor exactly the use of services to allow precise payment from individual consumers. And the information gleaned from all of this monitoring and processing itself becomes a valuable commodity in the burgeoning information services markets (Hepworth and Ducatel, 1992).
To reflect the centrality of telematics to the reorientation of urban utilities, the budgets devoted by UK utilities to telematics went up by 147% in one year between 1989 and 1990 - five times the average for all economic sectors (Madden, 1992). This makes utilities the fastest growing sector for telematics investment in the UK. Dave Madden highlights "the vast scale of IT investments in the newly
privatised water and electricity industries - and the pivotal role that investment is playing in creating a competing, and competitive, utilities sector" (Madden, 1992). Typically, the fragmented IT 'islands' inherited from public utility monopolies are being transformed into sophisticated and integrated computer network infrastructures. These are emerging as the basis for all information, communications and transactions flows within the organisation and for supporting its relations with customers and suppliers. For example, National Power, the UK's largest electricity generator, is developing one of the largest computing and telecommunication projects even undertaken by a European company. Eventually 3000 personal computers will have 'single screen access' to all company information via this private, integrated telematics network. This will be used to improve customer service, flexibility, control and as the basis for developing the "creative service products and complex tariffs" (Madden, 1992) now necessary to maintain competitive after the urban utility revolution. The view behind the investment was that it "would transform the generators' business by improving efficiency, changing the way it worked with customers and providing revenues in its own right" (Wilson, 1992).
The Convergence of Urban Utility Infrastructures
The final important element in the reorientation of urban utilities is the convergence between previously-separated infrastructure operators and networks. In the emerging infrastructure and utility marketplaces, cross-investment between utility and infrastructure operators is burgeoning. The new pressure to secure profitability is leading investors to investigate new complementary arrangements between infrastructures that previously were completely divorced in their development within separate public monopolies. This cross-investment is part of a wider trend toward diversification away from core businesses, a process driven by the aim to improve and/or stabilize financial performance in utility and infrastructure companies (Brewer, 1989). This is a response to the vulnerabilities imposed on utilities by their local dependence.
Once again, telecommunication and telematics are playing a dominant role in this trend. With all infrastructure operators now developing such strong interests in telecommunications and telematics to secure competitiveness, many energy, water and transport operators are going a step further. In the post-liberalisation world of British telecommunications, energy, transport and water utilities are amongst the first to invest in new public telecommunications systems to compete for custom with the established operators such as British Telecom and Mercury. The market for advance telecommunications and telematics services is growing at between 20-30% per annum, and a proliferating range of technologies allow niche markets to be entered: cable, personal communication, trunk networks, value added services, mobile communications, and satellite services.
Existing utility and transport companies are ideally placed to cross-invest into these new utility markets. They posses the necessary large amounts of capital. They already own or control strips the land, ducts and leeways between the most lucrative business centres that can be used quickly and cheaply to construct new telecommunications networks. In many cases - such as the example of National Power mentioned above - their own sophisticated internal telecommunications networks already have spare capacity that can now be simply resold to outsiders. Finally, they also posses established computer systems to handle billing and customer service as well as expertise in the construction of networks within urban areas.
As we saw above, as liberalisation spreads to be a global phenomenon, this process of cross-investment is taking on a global scale. For example, the current building of urban cable networks in Britain is fuelled overwhelmingly by investment from North American cable and telecommunications investors and French municipal service companies. Increasingly, privatised infrastructure companies face competition at home as well as engaging in competition abroad.
The complex ways in which this dual process of cross-investment and involvement of non-telecoms infrastructures in telecommunications is developing in the UK is summarised in Figure 3. This shows graphically how the boundaries between infrastructures are blurring, with the involvement of energy, water and transport companies in telecommunications markets growing particularly quickly. As can be seen from Figure 3, this cross investment and convergence is being paralleled by rapid convergence between computer, telecommunications and broadcasting companies, as the industrial repercussions of technological convergence between these technologies gather pace.
6 CONCLUSIONS
In this chapter we have argued that utility networks need to be incorporated more fully into current debates about urban restructuring, development and politics. Utilities are more than the simple ducts and wires that underpin modern cities. Utilities are the complex and changing technological systems that provide crucial underpinnings to both production and consumption, the development of which relates symbiotically to the wider development and regulation of society. Utilities are centrally involved in the prevailing regime of accumulation for capitalist production as a key input into all eceonomix processes. But they are slos essential for social reproduction and so straddle also the mode of social regulation. Finally, as powerful elements of place-based capital, utilities are key elements within the institutional fabric of urban governance. This involvemnet becomes particulalrly pronounced when their local depnednce and search for profitability become accentuated. Utility networks are currently undergoing an important reorientation which, we argue, relates to the wider transformation from a Fordist to a Post Fordist society, and the emergnec eof new local-global dynamics. This complex process is poorly unedrstood but it is clear that it has major implications for the political, economic and technological development of cities.
The current reorientation of utlities, we argue, involves five inter-linked processes : the privatisation of utilities, the development of utility marketplaces, cross-investment between previously separate utilities and geographical areas, the application of telematics technology to utilities, and the emergence of a complex set of spatial dynamics which mixes localisation with globalisation. These processes both support and reflect the wider trends towards the fragmentation of city economies as they become restructured from coherent and integrated 'Fordist' centres into internally-fragmented nodal points situated on global networks. Associated with this change is the emergence of an increasingly complex and variegated 'utility patchwork' - a landscape made up of 'hot spots' and 'cold spots', centres of frenzied competition coexisting with adjacent centres where even basic social access to utilities seems threatened. Trends towards globalisation and deterritorialisation - as utilities gear themselves up to the profitable global marketplaces - are mixed with trends towards localisation and reterritorialisation - as newly regional and local utilities re-engage with the urban political process to fight for the development of their 'patch'. Thus utilities are key actors underpinning the the social, spatial and economic trends that dominate the Post Fordist and neo-liberal urban arena.
The scale and speed of these processes mean that their implications for the management and governance of cities remain far from clear. Whilst three is a need to begin cross-cutting utilities in urban anaysisi, we must work to avoid reductionism and over-simplification. The persistence of wide international and inter-utility variations in the development and regulation of utilities makes generalisation decidedly hazardous. What is clear, however, is that the sheer local economic weight being exercised by incraesingly privately-oriented and sub-national utilities is having a greater influence upon urban governance, as utility capital 're-embeds' itself into dependence on particular localities and cities at the same time as developing an increasingly global orientation.
This situation in some ways seems to parallel the pre-Fordist case, but this time the global-local dynamics of utilities are more marked. In Britain, certainly, utilities are now proactively beginning to (re)engage in local growth promotion and boosterism, as elements within the booming array of growth coalitions, as businesses adopt the rhetoric of locality (Peck and Tickell, 1993) to an extent which hasn't been seen since the interwar period. Certainly, it appears that utilities are of growing importance within the urban political process of alliance and partnerships formation (Dicken, 1988; 193), and that they have an important role to play in the construction of the local-global dynamics within which the economic and social fortunes of cities are increasingly wedded. As evidence accumulates that new 'modes of social regulation' (Peck and Tickell, 1992b) are beginning to emerge at the local level in the restructuring that has come with the demise of Fordism, local and regional utility providers may start to attain the high degree of local political power that they had in many localities during the pre-Fordist era. The processes of privatisation and global-localisation of utilities raises significant questions about how the relationships between utilities and the social, economic and environmental development of cities should be regulated and by whom. These issues of accountability and power relations in the new era of global-localisation and privatisation have barely begun to be explored (see Berrie and Berrie, 1993).
This analysis has been, inevitably, highly preliminary and largely anecdotal. The almost-complete neglect of utilities within recent theorisations and studies of urban development mean that an important 'missing link' has been left within current understanding of the city. But it is no longer possible to ignore utilities as actors within the urban arena. A research agenda needs to be constructed so that we can begin to fully incorporate these vital infrastructural, technological and political actors into our theorisation of the management, development and politics of contemporary urban life.
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Amin, A. and Robins, K. (1991), "These are not Marshallian times", In R. Camagni (ed) Innovation Networks, London: Belhaven, 104-118.
Bakis, H., Abler, R., and Roche, E. (1993), Corporate Networks, International Telecommunications and Interdependence, London: Belhaven.
Berrie, T. and Berrie, T. (1993), "Utility management, ownership and accountability in the 1990s", Utilities Policy, January, 81-85.
Brewer, H. (1989) Diversification attempts by electric utilities: A comparison of potential vs. achieved diversification, pp. 228 - 234, Energy Policy, June.
Bruce, (1993), "Prospects for local economic development: a practitioners view", Local Government Studies, 19(3), 319-340.
Capello, R. and Gillespie, A. (1993), "Transport, communication and spatial organisation: future trends an conceptual frameworks". In Giannopoulos, G. and Gillespie, A. (1993) Transport and Communications in the New Europe, Belhaven: London. 24-58.
Commission of the European Communities (1992) Europe 2000: Outlook for the Development of the Community's Territory, CEC, Luxembourg.
Cooke, P. (1992)
Cooke, P., Moulaert, F., Swyngedouw, E., Weinstein, O., and Wells, P. (1992), Towards global Localization, London: UCL Press.
Cox, K. and Mair, A. (1988), "Locality and community in the politics of local eceonomic development", Annals of the Association of American geographers, 78(2), 307-325.
Cox, K (1993), "The locala nd the global in the new urban politics: a critical view", Environement and Planning D: Society and Space, 11, 433-448.
Cornford, J. and Gillespie, A. (1993), "The regionalisation of cable infrastructure in Britain".
Dicken, P. (1988), One Nation ? Social Change and the Politics of Locality, London: Pluto.
Dupuy, G. (1992) New Information Technologies and Utility Management, pp. 51 - 76, in OECD, Cities and New Technologies, OECD, Paris.
Dunford, M. and Perrons, D. (1983) The Arena of Capital, Macmillan: London.
Fishman, R. (1990), "Metropolis unbound: The new city of the twentieth century', Flux, 1, 43-56.
Garreau, (1992) Edge Cities
Giannopoulos, G. and Gillespie, A. (1993) Transport and Communications in the New Europe, Belhaven: London.
G”kalp, I. (1988) Global Networks: Space and Time, pp.186 - 210 in Muskens, G. & Gruppelaar, J. (Eds) Global Telecommunications: Strategic Considerations, Kluewer, Dordecht.
G”kalp, I. (1992), "On the analysis of large technical systems", Science , technology and Human Values, 17(1), 587-78.
deGournay, C.(1988), "Telephone networks in France and Great Britain". In Tarr, J.A. and Dupuy, G. (Eds) (1988) Technology and the Rise of the Networked City in Europe and America, Temple University Press, Philadelphia. 322-336.
Graham, S. (1993)
Graham and Marvin, S. (1993), "Cherry Picking and social dumping:British utilities in the 1990s".
Hall, P. and Preston, P. (1988) The Carrier Wave: New Information Technology and the Geography of Innovation, 1846-2003, London: Unwin.
Hart, D. (1983), "Urban eceonomic development measures in West Germany and the Unites States". In N. Young and C. Mason (eds) Urban Ecinomic Development: New Roles and Relationhsips, London: Macmillan, 9-33.
Hepworth and Ducatel, K. (1992)
Hughes, T. (1983) Networks of Power: Electrification in Western Society, 1880-1930, Baltimore: John Hopkins.
Logan, J. and Molotch , H. (1987) Urban Fortunes, London: California University Press.
Madden, D. (1992) "Light at the end of the tunnel", Financial Times, 30th January.
Marvin, S. (1992)
Marvin, S. & Cornford, J. (1993) Regional Policy Implications of Utility Regionalization, pp. 159 - 165, Regional Policy, Vol. 27, No. 2.
Mazza, L. (1988), "Introduction". In World Cities and the Future of the Metropolis. L. Mazza (ed), Milan: Electra, 13-19.
Miles, I., Rush, H., Turner, K. & Bessant, J. (1988) Information Horizon: The Long Term Social Implications of New Information Technology, Elgar, Aldershot.
Moulaert, F., Swyngedouw, E., and Wilson, P. (1988), "Spatial responses to Fordist and Post Fordist accumulation and regulation", papers of the Regional Science Association, 64, 11-23.
Nijkamp, P. (1993), "Towards a network of regions: The United States of Europe", European Planning Studies, 1(2), 149-167.
Peck, J. and Tickell, A. (1992a), "Accumulation, regulation and the geographies of Post-Fordism: missing links in regulationist research, Progress in Human geography, 16(2), 190-218.
Peck, J. and Tickell, A. (1992), "Local modes of social regulation ? regulation theory, Thatcherism and Uneven development", Geoforum, 23(3), 347-363.
Peck, J. and Tickell, J. (1993), "Business goes local: dissecting the 'business agenda' in post-democratic Manchester". Mimeo.
Preston, P. (1990) History Lessons: Some Themes in the History of Technology Systems and Networks, PICT Paper, 1st - 2nd March.
Preteceille, E. (1990), "Political paradoxes of urban restructuring: Globalization of the economy and Localization of politics". In J. Logan and T. Swanstrom (eds) Beyond the City Limits, Philedephia: Temple University Press.
Robins, K. & Hepworth, M. (1988) Electronic Space: New Technologies and the Future of Cities, pp. 155 - 176, Futures, April.
Simon, J. (1993), 'The origins of US public utilities regulation: elements for a social history of networks, Flux, 11, 33-41.
Swyngedouw, E. (1989), "The heart of the place: the resurrection of locality in the age of hypersapce", Geografiska Annaler 71(B), 31-42.
Tarr, J.A. and Dupuy, G. (Eds) (1988) Technology and the Rise of the Networked City in Europe and America, Temple University Press, Philadelphia.
Tarr, J.A. (1984) The Evolution of Urban Infrastructure in the Nineteenth and Twentieth Centuries, pp. 4 - 66, in Hanson, R. (Ed) Perspectives on Urban Infrastructure, National Academy Press, Washington D.C.
Ward, S. (1990), "Local industrial promotion and development policies 1899-1940", Local Economy, 2 August, 100-118.
Wilson, R. (1992) Communications and power struggle, Financial Times, 30th January.
JP/101315 Financing Cities Reading List Aug 19 2013.docx
( 101315) Financing Cities in the Global Economy
Reading List 2013
SESSIONS 1, 2 AND 3
The city as a set of flows
Amin, A. & Graham, S., 1997, The ordinary city, Transactions of the Institute of British Geographers, 22, 411-429
Castells, M., 1999, Grassrooting the space of flows, Urban Geography, 20, 294-302
Castells, M., 2002, Local and global: cities in the network society, Tijdschrift voor Economische en Sociale Geografie, 93, 548-558
Fulton, W. et al, 2006, The shape of metropolitan growth: how policy tools affect growth patterns in Seattle and Orlando. A discussion paper prepared for The Brookings Institution Metropolitan Policy Program, Brookings: Washington
Gertler, M., 2001, Flows of people, capital and ideas, Policy Research, Autumn, 119-130
Graham, S. & Marvin, M., 1994, More than ducts and wires, in Healey, P., et al (eds), Managing Cities: The New Urban Context, Wiley: London
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197.5136&rep=rep1&type=pdf
Infrastructure in cities
Neuman, M. & Smith, S., 2010, City planning and infrastructure: once and future partners, Journal of Planning History, 9, 21-41
O’Neill, P.M., 2010, Infrastructure financing and operation in the contemporary city, Geographical Research, 48, 3-12
O’Neill, P.M., 2013, The financialisation of infrastructure: the role of categorisation and property relations, Cambridge Journal of Regions, Economy and Society, (advance access online).
Ernst and Young, 2013, Infrastructure Financing Solution for Australia’s Capital Cities, for Council of Capital City Lord Mayors (esp. chapters 2 and 3) http://lordmayors.org/wp-content/uploads/2013/08/Infrastructure-financing-solutions-for-Australias-capital-cities.pdf
Allen Consulting, 2013, Nation Building Projects for Australia's Capital Cities, for Council of Capital City Lord Mayors (esp. chapters 2 and 3) http://lordmayors.org/wp-content/uploads/2013/07/Final_Report_2_July_2013.pdf
Public and private goods; externalities
Webster, C.J., 1998, Public choice, Pigouvian and Coasian planning theory, Urban Studies, 35, 53-75.
The city as a set of financial flows
O'Neill, P.M., 2009, Infrastructure Investment and the Management of Risk, in Clark, G.L., Dixon A.D., & Monk A.H.B., eds, Managing Financial Risks: from Global to Local, Oxford University Press, Oxford, 163-188 (available as direct download from vUWS).
Parameters for paying for infrastructure in a city
Anderson, J., 2008, Cities debate privatizing public infrastructure, New York Times, 27 August 2008.
http://www.nytimes.com/2008/08/27/business/27fund.html?_r=0&pagewanted=print
Bogart, W.T., 2003, Civic infrastructure and the financing of community development. A discussion paper prepared for The Brookings Institution Center on Urban and Metropolitan Policy, Brookings: Washington
Brueckner, J.K., Infrastructure financing and urban development: the economics of impact fees, Journal of Public Economics, 66, 383-407
Istrate, E., & Puentes, R., 2009, Investing for Success: Examining a Federal Capital Budget and a National Infrastructure Bank. Brookings: Washington
OECD, 2008, Privatisation and Regulation of Urban Transit Systems, Round Table 141, OECD: Paris
http://www.internationaltransportforum.org/Pub/pdf/08rt141.pdf
O’Neill, P.M., 2009, Economic geography: Privatization, International Encyclopaedia of Human Geography, Elsevier, London, 442-447 (following url works only from University of Western Sydney site; alternate access via University of Western Sydney Library search)
Pagano M. & Perry, D., 2008, Financing infrastructure in the 21st century city, Public Works Management Policy, 13, 22-38
SESSION 4
Comparative case studies
TBA
SESSION 5
Models and techniques for evaluating financing options
TBA
SESSION 6
Financing transport
Puenets, R. & Thompson, J., 2012, Banking on Infrastructure: Enhancing State Revolving Funds for Transportation, Brookings-Rockefeller Project on State and Metropolitan Innovation, September.
SESSION 7
Financing public goods
Association of Idaho Cities, n.d., A Guide to Public Finance Strategies. Mimeo.
https://www.idahocities.org/DocumentCenter/Home/View/121
SESSION 8
Harvesting and taxing options
TBA
SESSION 9
Comparing project options
TBA
Phillip O’Neill
3
JP/1210_infrastructure_puentes.pdf
BROOKINGS | December 2009 1
M E T R O P O L I TA N I N F R A ST R U C T U R E I N I T I AT I V E S E R I E S
Investing for Success Examining a Federal Capital Budget and a National Infrastructure Bank Emilia Istrate and Robert Puentes “ While an NIB is
no silver bullet,
if appropriately
designed it could
improve both the
efficiency and
effectiveness of
future federal
infrastructure
projects of
national
significance.”
Today’s fiscally constrained environment demands a new approach to infrastructure policy, allow- ing us to upgrade our existing infrastructure, expand choices in moving people and goods (and ideas), ease the burden on household budgets, and help us attain energy independence. Spending must produce real gains in productivity, inclusion, and environmental sustainability—the founda- tion of short- and long-term prosperity. In this time of limited resources, improving the federal investment process should be prioritized over finding ways to merely increase the amount infra- structure spending. This brief examines the current federal investment process and the extent to which a federal capital budget or a national infrastructure bank (NIB) would improve it. It finds that creating a federal capital budget would provide little improvement for the federal decision- making process on infrastructure financing. However, while the more modest NIB is no silver bullet, if appropriately designed and with sufficient political autonomy, it could improve both the efficiency and effectiveness of future federal infrastructure projects of national significance.
I. Introduction
F rom time to time, collapsed bridges, failed dams, and ruptured water pipes remind us of the need for increased investment in the maintenance of U.S. infrastructure. Overall, we know that infrastructure quality is generally declining, especially in metropolitan areas. And many are concerned that our extant infrastructure is woefully obsolete, geared more toward prior
generations than for the challenges of the 21st century.1 This is especially true for surface transportation (roads, rails, transit), where two national commis-
sions, major congressional committees, and numerous interested parties have maintained a steady drumbeat for greater federal engagement—mostly through increased spending. Today, with U.S. unem- ployment at 10 percent, calls for increased funding, this time in order to create and retain jobs, have only gotten louder.2
However, while most of the attention has been on increasing funding for infrastructure projects, there are also renewed pleas for ways to improve the federal government’s investment process. In this context, two ideas that have come up over the years are the creation of a federal capital budget and a new federal entity for funding and financing infrastructure projects of national or metropolitan significance.
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES2
In its most basic form, a federal capital budget would separate federal expenditures into outlays for current operations and capital expenses. In this way, the federal government could separately finance and manage capital investment according to its long-term nature. Plus, the public would be able to see exactly how much the federal government is investing in the long-term growth of the national economy. For more than half a century, a federal capital budget has been proposed as a solution to the woes of the federal investment process. While bold and transformative, the idea is opposed by the bud- geting community and has difficulty mustering political support from Congress or the administration.
A national infrastructure bank (NIB) is a more modest yet still potentially important reform for new federal investment. While it may take different forms, it generally refers to an entity able to select and finance multi-modal, multi-jurisdictional, and multi-sectoral infrastructure projects on a merit basis.
This paper examines the major questions surrounding the federal investment process and the extent to which a federal capital budget or a national infrastructure bank would improve it.
In the end our analysis shows that the federal capital budget would provide little improvement for the federal decision-making process on infrastructure financing. While an NIB is not a panacea, if appropriately designed and with sufficient political autonomy, it could improve both the efficiency and effectiveness of future federal infrastructure projects of national significance.
II. Background: How Does the Federal Government Budget for Infrastructure Today?
B udgeting terms and definitions can be rather arcane and ambiguous. Nevertheless, they are critical for any discussion of federal spending. The Office of Management and Budget’s (OMB) annual analysis of the federal budget has included a chapter on “federal investment” for almost sixty years. OMB defines federal investment as federal outlays that produce long-term
benefits to the national economy. The spending is split into three major categories: major public physical capital investment, investment in research and development, and investment in education and training.3
In each of these categories, the analysis differentiates between defense and non-defense spending and between direct federal spending and grants to state and local governments. The analysis shows actual values for the previous fiscal year and estimates for the current and following fiscal years (Table 1).
It is important to note that the categorization of federal investment from current spending is a mat- ter of discretionary judgment. In fact, it is a political choice, depending on the priorities of different administrations. The Reagan administration equated federal investment with defense expenditures. The first Bush administration included non-defense expenditures on R&D, infrastructure, child immu- nization, drugs, the environment and energy, and programs aimed at preserving America’s heritage (such as those for the arts, humanities, and museums).4
Even prior to the recent federal spending as part of the American Recovery and Reinvestment Act, federal investment has been growing for the last ten years (despite registering a small decline in 2007).5 Defense investment has grown almost 7 percent annually over the same period, double the rate of the non-defense category. In addition, non-defense investment has been declining in the last two years, with a 9 percent reduction between fiscal years 2006 and 2007.6
However, as a share of gross domestic product (GDP), federal investment has been on a general downward trend since 1962 and has stagnated at 3.2 percent since fiscal year 2003, partly due to the expansion of mandatory programs such as Medicare and Social Security (See Figure 1). Over the last thirty years, defense investment represented a greater share than non-defense investment between fiscal years 1983 to 1992.7 However, the difference between non-defense and defense investment has narrowed tremendously over the last two years.
It is also important to discuss the difference between discretionary and mandatory spending as articulated by the Budget Enforcement Act (BEA) of 1990.8
Mandatory spending is that part of the federal ledger set in authorizing laws and not open to yearly modification. Overall, about 60 percent of annual federal spending is mandatory spending currently ($1.85 trillion in 2008) mostly in the form of social expenditures such as Medicare and Social Security. The net interest of the federal debt is also included in mandatory spending.
BROOKINGS | December 2009 3
Table 1. Federal Investment, 2008
Actual Estimate
FEDERAL INVESTMENT 2008 2009 2010
MAJOR PUBLIC PHYSICAL CAPITAL INVESTMENT
Direct federal: National defense 126.3 155.7 156.6
Direct federal: Nondefense 34.8 53.9 50.6
Grants to state and local governments 72.7 88.3 100.5
Subtotal, major public physical capital investment $233.80 $297.80 $307.70
CONDUCT OF RESEARCH AND DEVELOPMENT
Direct federal: National defense 79.6 82.3 83.5
Direct federal: Nondefense 55.3 62.2 65.7
Subtotal, conduct of research and development $134.90 $144.50 $149.30
CONDUCT OF EDUCATION AND TRAINING
Direct federal 36.4 14.9 40.7
Grants to state and local governments 54.6 65.3 98.6
Subtotal, conduct of education and training $91.00 $80.20 $139.30
TOTAL, MAJOR FEDERAL INVESTMENT OUTLAYS $459.70 $522.50 $596.30
Note: In billions of current dollars. The major federal investment outlays exclude miscellaneous physical investments, such as
the outlays for commodity inventories or conservation programs, because they are neither increasing the federal capital stock
nor improving the growth prospects of the national economy. In 2008, they totaled $2.9 billion, 0.6 percent of all federal
investment.
Source: Based on OMB, 2010: Analytical Perspectives, p. 34, table 6-1.
Figure 1. Real Federal Investment- Non-Defense and Defense and Federal Investment as a Share of GDP, 1962–2008
Note: In billions of constant (FY 2000) dollars. The transitional quarter amount between 1976 and 1977 is excluded, due to
outlier properties. The transitional quarter adjusts for the U.S. fiscal year change from June to September.
Source: OMB, Budget of the United States Government, Fiscal Year 2010: Historical Tables, table 9.1.
0
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150
200
250
19 62
19 64
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Fiscal Year
B il li on
s of
C o n
st a n
t (F
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D o ll a rs
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P er
ce n
t of
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Nondefense Federal Investment Defense Federal Investment
Federal Investment as Percentage of GDP
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES4
Discretionary spending, on the other hand, is controlled through annual appropriations acts so Congress can change the budget authorization every year. Almost 40 percent of the federal spend- ing is discretionary ($1.13 trillion), which represents the funding for the majority of federal agencies. Federal investment is 40 percent of discretionary spending ($460 billion), receiving new budget authority every year.9
Breaking it down further, federal investment may be in defense capital assets ($205.9 billion in 2008) or in non-defense capital ($253.8 billion). Non-defense federal physical investment represents about 42 percent of the non-defense investment ($107.5 billion). Federal spending on infrastructure— transportation, energy, water and environmental protection—was only $65 billion in 2008 (Figure 2).10
While the figures presented are not negligible, they show that federal investment is only 15 percent of the total federal spending. And only 14 percent of federal investment (2 percent of the total federal spending) was directed to transportation, energy, water, and environmental protection in 2008.
Complicating matters further, within the infrastructure category, more than three-quarters of the federal investment in infrastructure consists of transportation grants to state and local governments ($50.4 billion). These grants have “contract authority,” which is a budget authority that allows the U.S. Department of Transportation to obligate funds from the Highway Trust Fund and Airport and Airway Trust Fund in advance of appropriations. Although this federal spending on highways, mass transit and airports is considered discretionary, Congress has little power to change it because its “budget author- ity,” established in multi-year legislation, is considered mandatory. Congress controls this spending through obligation limitations.
The latest surface transportation authorization law, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), guarantees the funding for highway and mass transit through budgetary firewalls and a point of order included in the Rules of the House of Representatives.11 The guaranteed funding is based on estimated future receipts into the highway trust fund when SAFETEA-LU was passed in 2005, mostly in the form of gas tax proceeds.
For transportation spending with contract authority, there are two ways in which budget author- ity may be changed. One is Revenue Aligned Budget Authority that is an adjustment of the budget authority and obligation limitations for the highway spending based on revenue projections of the Highway Account of the Highway Trust Fund. The other, rescissions, is the cancelled unused balances of budget authority, and they are specified in legislation.
Figure 2. Federal Investment in Infrastructure, as a Component of Federal Spending, 2008
Note: In billions current dollars. The federal investment in infrastructure uses the Executive Order 12893 definition, including
outlays on transportation, energy, water and environmental protection.
Source: Calculated based on data provided in the fiscal year 2010 budget analysis. OMB, 2010: Analytical Perspectives.
Federal spending, 100.0% ($2,983)
Discretionary spending, 38.0% ($1,135)
Federal investment, 15.4% ($459)
Nondefense federal investment, 8.5% ($253)
Nondefense federal physical investment, 3.6% ($107)
Federal investment in infrastructure, 2.2% ($65)
BROOKINGS | December 2009 5
Transportation is also interesting in budget debates because it represents a case where the federal government invests in capital assets it does not own such as state and local roads. More than three quarters of the federal transportation investment goes to state and local assets (Figure 3).12
While the annual level of federal investment is usually the subject of contention, the identification of the object of investment is crucial for an effective federal investment process.13 The federal govern- ment is a special case, because it invests in capital assets that does not own, such as state and locally- owned assets. The discussion around the object of investment focuses on the distinction between federal and national capital.14
Federal capital is the sum of physical assets owned by the federal government. The investment in this type of capital primarily contributes to the federal government’s ability to provide governmental services to the public in the future. This excludes both human capital such as research and education as well as capital not owned by federal government. Examples of federal capital assets are office build- ings, computers, and weapons systems. OMB defines federal capital as “land, structures, equipment, intellectual property (e.g., software), and information technology (including IT service contracts) used by the federal government and having an estimated useful life of two years.”15
The narrow definition of federal capital is a potential target for a federal capital budget.16 Not only is the capital owned by the federal government, but it is also comprised of physical assets that are easy to account for. The federal government already keeps account of these investments in the National Income and Product Accounts (NIPA), produced by the Bureau of Economic Analysis and the Financial Report of the United States Government, prepared by the Treasury. Countries such as New Zealand use a federal capital budget focused on these investments.17
National capital is the federally-financed capital that contributes more directly to the economic growth of the private sector. Most of the capital in this category is not owned by the federal govern- ment and includes highways, federally-funded research and development, and education.
Such investments target the growth of the U.S. economy, the goal of a federal budget. The majority of the federal investments in transportation, energy, and natural resources would be counted towards the national capital.
However, accounting for national capital is riddled with problems, such as the inclusion of capi- tal that is not owned by the federal government. For example, federal transportation grants to the states grow the capital stock belonging to states, not the federal government. Currently, the federal
Figure 3. Federal Spending on Transportation Infrastructure, 1956 to 2006
Note: In billions of 2006 dollars. The transitional quarter amount between 1976 and 1977 was excluded, due to outlier proper-
ties. The transitional quarter adjusts for the U.S. fiscal year change from June to September. Source: Based on CBO, Issues
and Options in Infrastructure, table W-8 and table W-9.
-
10
20
30
40
50
60
70
80
19 56
19 58
19 60
19 62
19 64
19 66
19 68
19 70
19 72
19 74
19 76
19 78
19 80
19 82
19 84
19 86
19 88
19 90
19 92
19 94
19 96
19 98
20 00
20 02
20 04
20 06
Fiscal Year
B il li on
s of
C o n
st a n
t (F
Y 2
0 0
6 )
D o ll a rs
Federal Grants
Federal Spending on Federal Assets
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES6
Accounting Standards Advisory Board treats these grants as current expenses for the federal govern- ment and does not include them in the accumulation of capital stock of the federal government.18 The National Income and Product Accounts excludes these grants from federal expenditures and records them as state investment.19
Beyond the accounting problem, for some grants, the federal government has control only when it decides to make the grant, but the grantees decide on the precise target of the spending.20 For example, Community Development Block Grants (CDBG) are classified as physical investment, although part of the grants may be spent for salaries or administrative operations.21 General purpose fiscal assistance to the states is considered current spending by the federal government, while states may choose to spend some of the money on capital.
The inclusion of human capital in a federal capital budget would create further problems. For one, it is difficult to estimate the amount and timing of the benefits from investments in these assets.22 In addition, some spending on research and development could be classified in more than one category of investment. For example, outlays for construction of research facilities finance the acquisition of buildings, but contribute also to research and development. The accounting for depreciation of these items complicates the issue. It is unclear if basic research should be depreciated and what deprecia- tion rate should be applicable to applied research.23
Some federal investment is not classified as financing either federal or national capital, being neither in federal assets or not directly contributing to the growth of the private sector. Housing assistance and a large portion of the community and regional development grants are examples of the items excluded from both types of federally financed capital.24
While convoluted, the distinctions around federal investment are important for any discussion on improving the federal investment process for infrastructure. Currently, OMB considers federal invest- ment as the sum of major public physical capital investment, investment in research and development, and investment in education and training. Overall, federal investment in infrastructure is a very small share of the total federal spending and is comprised mostly of transportation grants with contract authority. This type of budget authority insulates significantly most of the federal investment in infra- structure from the annual appropriation process. In addition, the state and local grants represent federal investment that does not add to the federal capital stock. All these issues complicate the debate around the federal investment process.
III. Does the Current Federal Investment Process Appropriately Allocate Resources for Infrastructure?
T he federal investment process is concerned with both federal assets and the federally- financed assets not owned by the federal government. Federal investment in infrastructure deals with both elements. Investment in dams and water controls, done through the U.S. Army Corps of Engineers, fits into the category of federal investment in its own assets.
However, most of the federal investment in infrastructure is not under the aegis of the federal capital process. More than three quarters of the federal investment in infrastructure is transportation grants to state and local governments.
To understand the federal investment process for infrastructure today we need to examine both how the federal government plans and manages for the assets it owns and also for those in which it invests, but are owned by states, municipalities, and others.
For the former, OMB provides detailed guidance to federal agencies on the capital process.25 While it is true that there is no unified federal capital plan, OMB helps federal agencies budget, plan, and priori- tize their capital projects.26 The goal is to make sure that the capital assets in each agency contribute to the fulfillment of agency objectives. OMB’s capital process guide, first released in 1997 and expanded in 2006, integrates the executive and legislative initiatives that affect the federal capital process.27
OMB recommends frequent use of cost-effectiveness or benefit-cost analysis (BCA) in deciding whether investment in a new capital asset is the best way to fulfill an agency’s needs. In addition, a BCA is considered the fundamental method of selecting a capital asset, by ranking the net pres- ent benefit of several options available.28 Both benefits and costs should be estimated in a lifecycle
BROOKINGS | December 2009 7
manner and benefits should be estimated in relationship with the goals and needs of the agency. While OMB recommends monetary quantification of both benefits and costs, it does acknowledge that qualitative considerations—explicit regulatory requirements, considerations of business strategy, or unquantifiable social benefits or costs—may be important in the final evaluation.29
The result of the planning and budgeting phase should be the Agency Capital Plan. This document includes an analysis of current assets, the performance gap and what is necessary to fill it, and justi- fication for new acquisitions proposed for funding. It would help the agency to inform the next step: budgeting. The agency formally requests budget authority for a new asset in its budget submission to OMB which decides whether or not to include the request in the administration’s budget proposal. Ultimately, Congress decides the enacting of budget authority for the new asset.
Over the years, GAO examined how selected federal agencies plan and budget for capital assets and to what degree they follow OMB’s guidelines.30 The agencies implement the main principles of capital planning and budgeting, but the results vary. While linking the proposed investments with the strate- gic goals of the agency is common, several agencies had problems with conducting asset inventories and assessments of the condition of their assets (i.e. the Department of Veterans Affairs and the U.S. Customs and Border Protection).31
One of the major criticisms of the current federal capital process is of the full funding requirement. The current rule requires that budget authority for the full costs of the asset be enacted in advance of any commitment by the federal agency.32 This rule results in spikes in spending, especially for small agencies. In an era of tight budgets and soaring deficits, there is a concern that federal agencies might forego capital spending due to this requirement.
However, full funding is also one of the few existing mechanisms to ensure long-term accountabil- ity of the federal government for its investment decisions.33 It is a fiscal control mechanism, because a lack of upfront fully committed funding can lead to higher delivery costs if a project is halted and re-started several times, or worse, half-finished projects—or so-called white elephants—that run out of money entirely.34 This type of budgeting eliminates the crowd out effect of multiple contingent appro- priations associated with an earlier project on the funding of future projects. Also, Congress will not have to be in the situation to continue funding a project that is no longer wanted.
Upfront full funding is a federal budget scorekeeping rule, enforced by OMB, and not a rule by statute. In fact, the laws are more lenient. The statutes require federal agencies, such as the Army Corps of Engineers, to have adequate budget authority for individual contracts.35 In contrast, full fund- ing regulation asks the federal agency to get upfront funding for an entire project, even if it includes several contracts.
But as discussed, most federal investments in transportation are grants to state and local govern- ments. The federal surface transportation programs are jointly administered by the federal, state, and local governments, but the federal government has little involvement in the selection or management of the assets in which it invests. The federal government deals with its investment in surface transpor- tation on a program basis, without direct control over the vast majority of individual projects like high- ways. Once funds are appropriated (largely by formula), the states can distribute them among projects within various program categories as they see fit. In fact, the U.S. code neuters the federal role and specifically says that the appropriation of highway funds “shall in no way infringe on the sovereign rights of the states to determine which projects shall be federally financed.”36
Over the years, the federal government has increasingly delegated the oversight responsibility over its investment in state and local transportation assets to the grantees. For example, federal govern- ment oversight in transit occurs only for major capital projects that cost over $100 million. For the rest of the federal transit investment, the grant recipients self-certify their compliance with the federal laws and regulations. This self-verification of compliance with federal requirements has also increased in the field of planning and project selection, which are requirements for receiving federal assistance.37
There is limited linkage between federal investments in state assets and the goals of the federal programs. The surface transportation program goals are sometimes unclear or contradictory.38 Even when goals are related to specific performance outcomes (i.e. congestion, highway fatalities), they are not included in funding formulas. The states do not have any incentive to increase the performance of the federal investments, as long as the formulas are agnostic to rewarding this type of behavior.39 In addition, the flexibility of the states in allocating federal funds complicates the ability of the federal
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES8
government to target certain goals. The federal investment in state and local assets does not necessarily result in a correspondingly
higher level of public investment overall. As GAO found, the structure of federal highway grants is fundamentally flawed: “The federal grant system does not encourage states to use federal grants to supplement their own spending but rather results in states using federal grants to substitute for their own spending.”40 In a recent study using latest data (1983–2000), GAO finds this “substitution rate” to be as high as 50 percent.41 This means that for every dollar of federal spending, states have withdrawn 50 cents of their own spending. These results are supported by numerous studies that confirm the federal aid displacement of state investment.42
In short, the federal budgeting community agrees that federal government does not treat federal investment appropriately.43 While both the federal capital process and the federal grants to states have their own problems, there are three main problems plaguing the federal investment process as a whole:
1. Bias against maintenance. While federal investment allows maintenance funding, most of the investment is geared towards new capital assets. To the extent federal investment supports main- tenance, state and local grantees use their transportation grants to cover major maintenance, such as major rehabilitation and repair of capital assets. However, without the funding of appropriate preventive maintenance, the useful service life of infrastructure assets is shortened unnecessarily.
Analyzing data provided by the Federal Highway Administration (FHWA), the Congressional Budget Office (CBO) found that maintenance of existing road infrastructure has higher net ben- efit than new construction, beyond a certain point.44 Efficient resurfacing projects had an average benefit-cost ratio double that of new lane projects.45
Through the federal capital process, federal agencies are required to conduct asset invento- ries that would assess the capital assets’ condition and need of maintenance. In addition, Federal Financial Accounting Standards require the agencies to report deferred maintenance.46 The federal agencies vary in the implementation of these conditions.47
Federal transportation grants to states for new capital assets do not have adequate maintenance clauses. Given that the grant programs allow for the inclusion of major repair and rehabilitation projects, states do not have a strong incentive to spend on preventive maintenance but rather let assets degenerate until they can qualify for more federal money.48 This result has been reinforced by the fact that state and local governments cannot use the money resulting from a tax exempt bond issue to cover maintenance.49 However, deferred maintenance should affect the creditworthi- ness of state and local governments due to its impact on the condition of the borrowers’ assets.50
2. Flawed selection process. In general, government investment is justified if the targeted capital asset is associated with a market failure and produces a net welfare benefit to society. While the market failure is usually easily identifiable, the costs and benefits of federal government financing for a project are harder to estimate. Many have called for investment in a capital asset to be justi- fied based on economic analysis, such as a BCA or wider BCA that would intertwine quantitative and qualitative factors. While there are legal requirements for BCA based approaches, there is no uniform implementation or estimation for a wide range of projects.
The Federal Capital Investment Program Information Act of 1984 requires the federal budget to include projections of public civilian capital spending and recent assessments of public civilian phys- ical capital needs.51 Also, an Executive Order from 1994 clearly specifies the requirements of BCA for federal investment in infrastructure, in all federally-financed assets.52 It refers to the estimation of market and nonmarket costs and benefits over the full life cycle of a project. Further, it directly addresses the issues of demand management, implementation of better management practices to improve the return of current projects, and involvement of states, as recipients of federal grants. Federal agencies are supposed to use these principles to justify major infrastructure investment and grant programs, those in excess of $50 million annually.
With all the legal requirements in place, BCA is not done consistently by federal agencies.53 The states themselves often do not use formal BCA in deciding among alternative projects and regular evaluations of outcomes are typically not conducted.54
BROOKINGS | December 2009 9
3. Insufficient long-term planning. A major complaint is the “short sightedness” of the federal investment process. The federal budget is released and updated annually, but there is little atten- tion to long-term plans, and there are no mechanisms to hold policymakers accountable for the long-run effects of annual budgetary implementation.
Overall, federal agencies lack comprehensive long-term capital plans.55 While not providing a uni- fied view at the federal government level, a federal agency’s long-term capital plan would show an agency-wide perspective to inform congressional appropriations committees.56 Some congressional staff responsible for resource allocation and oversight of federal agencies expressed interest in receiving this type of information.57
The federal transportation grants have contract authority that allows states to do multiyear plan- ning and contracting. The federal surface transportation program provides an 80 percent matching grant to states to conduct statewide planning and to develop long-range statewide plans. These plans “should include capital, operations and management strategies, investments, procedures, and other measures to ensure the preservation and most efficient use of the existing transportation system.”58
While both the federal agencies and the grantees have to develop long-term capital plans, there is no comprehensive long-term strategic view for the capital assets financed by the federal govern- ment. There is no incentive for decisionmakers to push for better long-range planning, because there is no accountability mechanism to assess the long-term results of federal investment.
The federal investment process does not appropriately allocate resources either through federal agencies or state and local recipients. Bias against maintenance, a flawed selection method and insufficient long-term planning plague the federal investment process. Overall, these problems result from both the incentives provided by the legal or regulatory framework and their implementation. For example, while operating leases score lower in the federal budget, they also lead to underinvestment in federal capital.59
Besides the shortages of the OMB capital guide and the existing statutes, the administrative discre- tion of the federal agencies and the grantees contribute to the deficiencies in the federal investment process. The federal agencies do it because of inability to follow a multitude of regulations and execu- tive orders, in the context of ever changing policy objectives. This issue is complicated in the case of the U.S. Department of Transportation that mostly assists state-run transportation programs.60 The local and state grantees drive the capital planning and management of the transportation assets funded by the federal government. A clear and direct link between investment decisions and outcomes would help both federal agencies and grantees in managing the federal investment process.
IV. What Has Been Proposed For Better Federal Investment in Infrastructure?
G eneral recognition of the problems discussed in the previous section has given rise to calls for reforms to allow for better—and greater—federal investment in infrastructure. While not necessarily new or singular, two ideas have garnered considerable attention lately.
A. Federal Capital Budget- Definition and Historical Background One idea is to create a federal capital budget by separating capital expenditures from other expenses (referred to as “current” or “consumption” expenditures).61 However, this description is a bit simplis- tic. The federal capital budget proposals extend to changing the financing and accounting of federal capital expenditures.
While the private sector and most U.S. states employ some version of a capital budget, the U.S. fed- eral budget currently functions on a consolidated basis where capital and consumption expenditures are comingled.62
Over the years, a wide range of capital budgets have been proposed to modify the federal budget. Depending on the goal of the proposal, a federal capital budget could re-arrange federal spending in
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES10
the budget, or else may come with actual changes in fiscal policies, or it could spread capital expendi- tures over a number of years.63 While the budget literature does not provide explicit differentiations among these federal capital budget proposals, we specify four categories for an easier understanding of the disseminated concepts.
• Basic segmentation model. The basic segmentation format would include an operating budget and a capital budget. The operating budget would show the current expenditures, in terms of revenues and expenses. The capital budget would present federal spending on capital projects and revenues allocated for these expenditures. The simple separation of federal capital spending from current expenditures may be justified by the desire to improve the public’s understanding of fiscal policies and gain acceptance for federal investment.
• Capital debt budget model. Other proposals target changes in fiscal and federal debt policies. For example, a version of capital budget proposes capital spending be financed, in part or in total, by borrowing.64 The capital budget deficit would not be recorded in the federal budget towards the total federal deficit. Some claim that the operating budget should be balanced in this case and only capital investments be financed by debt.65 This is similar with the capital budget version employed by the states. This proposal would shield federal investment from growing current expenditures.
• Depreciation model. Taking the private sector practice as a model, another proposal shows the depreciation of capital as an expense in the operating budget and as income in the capital budget, balancing out in the consolidated budget.66 In this way, the cost of capital is spread over the useful life of an asset. Only a portion of federal spending on capital, the depreciation, would appear in the annual federal spending. This would eliminate the problem of spikes in federal investment, due to current upfront budgeting of the full cost of capital projects.67
• Fusion model. Most of the capital budget proposals do not limit themselves to just one model, but include accounting for depreciation, a cap on federal investment, and exclude federal investment from the federal deficit. The rationale is to reach multiple goals, from increased transparency of the budget- ing process and public acceptance, to government spending and borrowing, to more federal invest- ment in infrastructure.
These and other federal capital budget proposals have been debated for more than half a century. In 1949, the Hoover Commission recommended the separation of current consumption and capital
expenditures, based on the example of government corporations under the Government Corporation Control Act of 1945.68 While not adopted as such, it formed the basis of the Special Analysis D of the budget, which is an annual review of “investment, operating, and other outlays,” still in use today.69
In 1967 the Budget Concepts Commission strongly rejected a capital budget and decided to use the current consolidated format.70 The commission considered the model in which capital spending would be excluded from the calculation of federal deficit and only capital spending would be financed by borrowing. The arguments used included the non-economic budgetary considerations of the federal government, resulting spending bias towards “brick and mortar” investments, and accounting and definition issues in the implementation of a capital budget.71
The issue resurfaced in the 1980s, when President Reagan’s Treasury Secretary Donald Regan and Martin Feldstein, chairman of the Council of Economic Advisers, tried to get the administration to back a federal capital budget.72 OMB was against the proposal, citing similar arguments with the 1967 Commission.73 Interest waned when Regan—the biggest advocate of the proposal—left the administra- tion in 1987.74
The second Clinton administration revived the debate in 1996 when a Commission to Study Capital Budgeting was set up in connection with the congressional debate around a balanced budget. This Commission also rejected the use of a capital budget. Their arguments were similar with the previous cases and emphasized the unique character of the federal government and its role in changing the allocation of resources, needed especially during recession times. Further, the Clinton Commission could not agree on a single definition of capital or determine whether the current budget format cre- ates a deficit or a surplus in federal investment. 75
These experiences illustrate that the issue of moving to a federal capital budget is not a partisan one as it was proposed, and rejected, during both Republican and Democratic administrations. The main problem was that the idea never gained intellectual support.76 In the budget literature, it is con- sidered a “budget reform perennial”—an idea reoccurring over time with no major improvements from
BROOKINGS | December 2009 11
one proposal to the next and with little chance of passage in Congress.77 Capital budget proposals have failed over the years due to political opposition from Congress or from inside the administration, and technical opposition from federal budgeteers.
While the opposition from federal budgeting executives is likely to remain unchanged, today there is once again raising political interest in the idea.78 The lessons from prior efforts show that the passage of any type of capital budget proposal requires support from both the White House and Congress.79
B. National Infrastructure Bank- Definition and Historical Background While not as a far-reaching change as a federal capital budget, a national infrastructure bank (NIB) is a targeted mechanism for financing infrastructure. A development bank in essence, an NIB would have to balance the rate-of-return priorities of a bank with the policy goals of a federal agency.
A new bill, the National Infrastructure Development Bank Act (NIBDA) was introduced in May 2009 by Representatives DeLauro, Ellison, Israel, and Weiner. In addition, the 2010 budget proposal includes appropriations for a National Infrastructure Bank.
These NIB proposals envisage an entity that improves the federal investment process in infrastruc- ture assets of national importance and accelerates the investments in this type of infrastructure.80 The focus is on multi-jurisdictional or multi-modal projects with regional or national impact. Emphasis would be placed on projects that cut across stove-piped federal infrastructure programs. It is unclear whether the bank would be limited to certain sectors, such as transportation, or if it would allow for applications from a variety of infrastructure areas.
For these types of infrastructure projects, an NIB could provide federal funding in terms of grants, loans, and loans guarantees. Under the NIDBA and the FY2010 budget proposal, the federal govern- ment would provide $25 billion over five years in terms of appropriations.81 In the case of NIBDA, this would be 10 percent of all the subscribed capital.82 Under the House bill, an NIB would be able to lever- age the paid in capital by issuing bonds. The proceeds from the bonds would be used to finance major infrastructure projects proposed by public entities (states, municipalities, and agencies), public private partnerships, and firms.
As presented in the 2010 budget proposal or the current bill in the House, an NIB would be a federal special purpose entity. Its grants would score as any other federal grants, with no requirement of full funding. Its budget authority would include the subsidy cost of its loans. In the FY 2010 budget pro- posal, NIB funding is direct federal investment, similar to the funding for the Corps of Engineers.83
An NIB for the U.S. is frequently compared to the European Investment Bank (EIB), as suggested by NIDBA 2009. The EIB has been functioning successfully for the last 50 years, playing a major role in connecting the European Union across national borders. Starting as a development bank focused on infrastructure, the EIB widened its operations, financing projects on innovation, small and medium businesses, and environment, in line with current European Union economic objectives.
The EIB has over 164.8 billion Euros in subscribed capital by all the 27 European Union member countries. Only 5 percent of the amount is actually paid in. The amount of loans and guarantees that it can provide is 2.5 times the subscribed capital. In 2008, the EIB contracted to fund 57.6 billion Euros, mainly on transportation, energy and global loans.84 The EIB posted a net profit of 1.6 billion Euros for 2008.85
While not trying to maximize profit, EIB functions as bank, not as a grant-making mechanism. The EIB raises funds from capital markets and lends them at higher rates, keeping its operations financially sustainable. It offers debt instruments, such as loans and debt guarantees, and technical assistance. In order to maintain efficiency and serve projects of different sizes, EIB deals directly only with loans larger than 25 million Euros. For projects below this threshold, EIB provides intermediary loans, which are credit lines granted to commercial banks to lend to Small and Medium Enterprises and local authorities. The EIB finances up to half of the cost of a project which may be initiated either by public or private entities.86
The budgetary impact of federal investment through an NIB depends heavily on its governance structure. Its investment would be included in the federal budget and the federal budget deficit, if it is designed as a federal financing entity. A shareholder–owned corporation would remove an NIB and its debt from the federal budget, but it would increase its borrowing cost and the concerns about implicit federal liabilities resulting in another Fannie Mae crisis.
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES12
Though it has not been discussed as long as the federal capital budget idea, the creation of a special financing entity for infrastructure has been around in the policy circles for at least 20 years.
The early Clinton administration considered the subject in a number of unofficial concept papers.87 An NIB focused on transportation was discussed during the reauthorization of the federal transpor- tation program in 1998.88 The transportation reauthorization process around SAFETEA-LU saw a proposal for an NIB for transportation as a government chartered corporation.89
In 2007 the United States witnessed the introduction of a number of bills proposing the estab- lishment of some type of special purpose entity to finance infrastructure, including: National Infrastructure Bank Act of 2007 (S. 1926, introduced by Senators Dodd and Hagel on August 1 and H.R. 3401, introduced by Representatives Ellison and Frank on August 3); the Build America Bonds Act of 2007 (S. 2021 introduced by Senators Wyden and Thune on September 6); and the National Infrastructure Development Act of 2007 (H.R. 3896 introduced by Representative DeLauro on October 18). While not passed in the 110th Congress, they provide historical background to the discussions around an NIB.
• The National Infrastructure Bank of 2007 designed the NIB as an independent federal entity, with a five-member board of directors appointed by the President and confirmed by the Senate. Its scope was to evaluate and fund infrastructure projects “of substantial regional and national significance.” For this type of major infrastructure projects, the NIB would provide federal funding in terms of grants, loans, loans guarantees to projects requiring federal investment of at least $75 million. The federal government would provide initial capital of $60 billion that NIB would use to issue bonds. The Treasury would pay the interest on the bonds and it would act as a guarantor for the principal of the loans of an NIB. The proceeds from the bonds would be used to finance major projects proposed by public entities (states, municipalities, agencies).
• The National Infrastructure Development Corporation intended the entity to be a federal corporation. The bill proposed a five year transition for the Corporation towards a Government Sponsored Enterprise (GSE) like Fannie Mae or Freddie Mac. The Corporation would be capital- ized with up to $9 billion in appropriations over three years. These appropriations would be used to make loans or buy securities issued by others to finance infrastructure. A subsidiary of the Corporation, the National Infrastructure Investment Corporation, would act as an insurer of loans and debt towards financing infrastructure. The hope was that the Corporation would become self- financed through business income and sale of public stock (when it became a GSE).
• The Build America Bonds Act would authorize the establishment of a Transportation Finance Corporation (TFC) as an entity formed by two or more state infrastructure banks. In comparison with the other two special purpose entities proposed in 2007, this corporation would be under the control of the participating states, not the federal government. However, similar with the other two entities, it would receive authority to issue up to$50 billion of special purpose bonds. The TFC would use this capital to issue bonds and dedicate the proceeds to finance eligible transportation projects. The TFC would be liable for the payment of the bonds, which would not be guaranteed by the federal government. However, the federal government would effectively pay the interest, because the bonds are designed as tax credit bonds.
VI. Would the Federal Investment Process Be Improved by the Intro- duction of a Federal Capital Budget or a National Infrastructure Bank?
T he current federal investment process presents a series of regulatory and implementation limitations. In theory, both a federal capital budget and a National Infrastructure Bank would provide a series of improvements. However, the design and the implementation of these mechanisms may vary widely and result in more problems.
A. The potential of a federal capital budget One key role of a federal capital budget is its potential to function as a management tool, helping the planning process for federal investment.90 Learning from states and municipalities, a capital budget usually comes with a capital improvement plan (CIP). A CIP includes the construction and maintenance
BROOKINGS | December 2009 13
plans for capital assets for a five or six year period and is implemented over several phases. The first phase in implementing a capital budget is an inventory of assets and capital investment
needs. At the state level, a mixed group of engineers, economists, demographers and financiers assess the condition of the capital assets, the current and future needs and the associated costs. Without a doubt, expanding this practice to the federal level would improve the current federal assessments of public civilian physical capital needs. In addition, a federal capital budget would benefit from a com- parison and integration of the needs assessments across infrastructure systems.
Based on the needs and inventory analysis, state representatives from the responsible department, budget office, governor’s office, and third-party advisors prioritize a list of proposed projects. This list includes projects suggested by the legislative body, government agencies, advocacy groups, or the public.
This prioritization may be done by identifying multiple selection criteria and attaching appropriate weighting factors.91 If the criteria considered are rather standard (i.e. benefits and costs in terms of number of jobs created, public safety, generation of revenues), the weights are decided among the stakeholders.92
After the list of capital projects is finalized, the government needs to identify funding sources for each project. If state and localities rely heavily on federal support for their capital spending, the federal government uses revenue from taxes (earmarked, such as gas tax, or general) and debt, backed by general taxes. Given the long-term use of the capital assets, it may be argued that a federal capital budget be financed with long-term debt. In this way, the life of the asset is matched with the bond term. In addition, the use of long-term debt addresses the intergenerational equity for the use of capital, because funding the construction or maintenance of capital assets benefits current and future users.
The capital budget is usually the first year of the CIP. It should include detailed information for each project selected: description of the project, purpose, financing method and schedule of completion for multi-year projects. Once the capital budget and the CIP are prepared, they need legislative approval. Therefore, a federal capital budget would be under the same political pressure as the current budget.
There is no guarantee that a federal capital budget would improve the selection process of federal investment. The state and local experience suggests that the prioritization of projects is an intense political process. The federal agencies, Congress, states, businesses, and advocacy groups will continue to push their priorities. If the poor condition of the U.S. infrastructure provides evidence for high prior- ity of the maintenance of capital assets, it is not clear that a stakeholder driven prioritization process would result in this choice.
A federal capital budget does not address the maintenance bias specifically. While it requires an assessment of the condition of the capital assets, it does not ask for maintenance clauses with new capital assets purchase or construction. There is already a statutory requirement at the federal level for the needs assessment of the condition of the capital assets—The Federal Capital Investment Program Information Act of 1984. Also, the backlog of maintenance at the state level shows that even if 42 states have adopted capital budgets, the design does not necessarily translate into full implementation.93
Over the years the budgeting community and various commissions organized by different adminis- trations pointed to several budgeting and accounting problems related to the introduction of a federal capital budget:
Object of investment. The choice of one type of capital over another as the object of the federal capital budget would have a major impact on the budget and activity of many federal agencies. For the National Science Foundation (NSF), under the federal capital definition, only the outlays on physical capital (buildings, computers) would count as federal investment. The rest would qualify as current expenditures. Under the national capital definition, all the federal funding for NSF would be federal investment, because it contributes to the growth of the economy.94
A federal capital budget would include the federal funding for transportation only if the object of investment is the national capital. Under the federal capital definition, the Department of Transportation would have a fraction of its funding included in the capital budget, due to the exclusion of the state and local grants.
The budget deficit and borrowing. One of the suggestions of the proponents of a federal capital budget is to take into account only the consumption expenditures for the calculation of the federal
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES14
budget deficit, given that capital expenditures are intended for long-term growth. Because there is no agreed upon definition of federal investment and federally financed capital, this would leave at the discretion of each administration what type of expenditures is considered investment in this scenario.
In addition, this federal capital budget proposal would make it more difficult for the federal budget to help the federal government to fulfill its functions. The federal budget treats consumption and capi- tal outlays together, because the federal government focuses on the output it delivers and less on the mix on inputs that it uses. Capital is only one of the factors used by the federal government to deliver services to the public. In addition, it restricts the flexibility of the federal budget and impedes the federal government’s provision of automatic stabilizers in times of economic recession (i.e. unemploy- ment aid, food stamps).
Another suggestion is to finance capital expenditures only by debt. Taking the states’ capital budgets as a model, this might be argued in the case of a balanced operating budget. Otherwise, if it is financed through borrowing, a capital budget will result in higher debt, on top of an unbalanced operating budget. In addition, the higher federal debt would be fueled by the virtually unlimited debt raising power of the federal government. While states and the private sector often finance their capital expenditures through borrowing, the financial markets penalize them with higher interest rates and lower ratings in case of unbalanced debt loads. Moreover, most state and local governments have legal debt limits by constitution or by statute.95
Increasing the federal debt during these times of challenging budget deficits is a difficult strategy.96 The federal government already has problems with funding its large budget deficit. CBO estimates the federal budget deficit will reach $1.6 trillion in 2009. At 11.2 percent of gross domestic product (GDP), it will be the highest since World War II. With no change to current laws and policies, it will remain above $500 billion per year, or more than 3 percent of GDP, throughout the 2010–2019 period. To fund this deficit, the federal debt would reach an estimated 54 percent of GDP this year and grow to 68 percent of GDP by 2019, more than double in terms of share of GDP from 2001.97
Beyond the size effects, more debt-financed federal investment crowds out private investment dur- ing normal economic periods. Federal government would compete with the private sector in securing debt from the public.98
Depreciation. The advocates in favor of a federal capital budget argue for the use of depreciation as a way to deal with budget spikes resulting from upfront full funding of project costs. Following the private sector model, a federal capital budget would spread the cost of capital over the useful service life of an asset and annually finance only the depreciation of capital, as the part of capital consumed during a year. This would result in smaller annual capital expenses versus the current full funding recommended by OMB.
However, it would obligate the federal government for the entire cost of a capital project, while the annual appropriation would be only for depreciation. In the case of a construction of a capital project, the federal agency would have to pay for the construction but wait until the project starts to be used in order to ask for appropriations for the depreciation of the project. The use of depreciation leaves the federal agencies asking Congress for funding every year for projects for which they are already obligated. There is also no agreement on a federal method of depreciation or the definition of the capital to be depreciated.
Political and bureaucratic issues. Despite the attention given to a capital budget over the years, there is little discussion about the implementation problems that federal agencies and Congress would face in case of its adoption.99 For example, for each capital budget model proposed over the years, it is unclear how the appropriation process would function if the proposal is enacted.100 Further, the ensu- ing power play among federal agencies and different Congress committees on the decisions upon the accounting and budgeting issues might consume more effort and time than necessary.
In sum it appears that a federal capital budget provides little improvement for the current federal investment process. Most of the provisions for the upgrading of the planning process are already in place, but they are not implemented in full—and a federal capital budget would not necessarily guar- antee any better implementation of these rules. In addition, it opens the possibility of maneuvering the capital expenses, manipulating the size of the budget deficit, increasing the public debt, and long battles over the establishment of new accounting rules and procedures.101
BROOKINGS | December 2009 15
B. The potential of a national infrastructure bank A properly designed NIB is an attractive alternative for a new type of federal investment policy. In theory, an independent entity, insulated from congressional influence, would be able to select infra- structure projects on a merit basis. The federal investment through this entity would be distributed through criteria-based competition. It would be able to focus on projects neglected in the current system, such as multi-jurisdictional projects of regional or national significance. An NIB may introduce a federal investment process that requires and rewards performance, with clear accountability from both recipients and the federal government. These advantages are described below.
Better selection process. At its heart, an NIB is about better selection of infrastructure projects. The bank would lend or grant money on a project basis, after some type of a BCA. In addition, the projects would be of national or regional significance, transcending state and local boundaries. The bank would consider different types of infrastructure projects, breaking down the modal barriers. This would be a giant step from the current federal funding for infrastructure, most of which is disbursed as federal aid transportation grants to states in a siloed manner.
Multi-jurisdictional projects are neglected in the current federal investment process in surface trans- portation, due to the insufficient institutional coordination among state and local governments that are the main decisionmakers in transportation.102 The NIB would provide a mechanism to catalyze local and state government cooperation and could result in higher rates of return compared to the localized infrastructure projects.
An NIB would need to articulate a clear set of metropolitan and national impact criteria for project selection. Impact may be assessed based on estimated metropolitan multipliers of the project. This criterion would allow the bank to focus on the outcomes of the projects and not get entangled in sec- tor specific standards.
Clear evaluation criteria would go a long way, forcing the applicants, be it states, metros or other entities, to have a baseline of performance. This change, by itself, would be a major improvement for the federal investment process, given that a major share of the federal infrastructure money goes to the states on a formula basis, without performance criteria.
Keeping the recipients accountable. An NIB would have more control over the selection and execu- tion of projects than the current transportation grants within broad program structures. It would be able to enforce its selection criteria, make sure that the projects are more in line with its objectives and have oversight of the outcomes of the projects.
The new infrastructure entity should require repayment of principal and interest from applicants. This would bring more fiscal discipline and commitment from the recipients to the outcomes of the project. The extensive use of loans by an NIB contributes to the distinction between a bank and another federal agency. The interest rates charged to the state and local recipients of NIB loans might be set to repay slowly the initial injections of federal capital, while still maintaining a sufficient capital base.103 Some experts argue that an NIB would be able to be sustainable and effective only if it is truly a “bank”.104
Correcting the maintenance bias. The mere establishment of an NIB would not correct for the problem of deferred maintenance.105 However, through the selection process, the bank could address the current maintenance bias in the federal investment process. For example, the bank could impose maintenance requirements to recipients including adequately funded maintenance reserve accounts and periodic inspections of asset integrity.
Better delivery of infrastructure projects. An NIB could require that projects be delivered with the delivery mechanism offering best-value to the taxpayer and end user. The design-bid-build public finance model has been the most commonly used project delivery method in the transportation sector in the United States.106 Until very recently, there has been little experimentation with other delivery contracting types. Evidence from other federal states, such as Australia, shows that private delivery saves money on infrastructure projects.107
Filling the capital structure of infrastructure projects. Although the United States has the deepest capital markets in the world, they are not always providing the full array of investment capital needed —especially for large infrastructure projects with certain credit profiles.108This has been even more obvious during the current recession, with the disruptions in the capital markets. An NIB could help by providing more flexible subordinate debt for big infrastructure projects. Generally
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES16
bonds get investment-grade ratings, and have ready market access, only if they are senior obliga- tions with secure repayment sources. For more complicated project financings that go beyond senior debt, there is a need for additional capital, such as equity capital or subordinated debt. However, this market gap is relatively small relatively to federal investment.109 An NIB would build upon the current Transportation Infrastructure Finance and Innovation Act (TIFIA) by providing subordinated debt to public or private entities in leveraging private co-investment.110
However, an NIB is not a silver bullet for the problems of the federal investment. An entity that is not self-sufficient over time and relies on Congress appropriations, by definition, will be under Congress’ influence. In this case, it will be hard to entirely remove the political criterion from the selection pro- cess. If NIB is a shareholder-owned corporation, its cost of borrowing would be higher and the entity might experience similar problems to those of Fannie Mae and Freddie Mac. Lack of a clear federal role, performance based selection criteria, and a lack of emphasis on loan repayment, may render an NIB into another federal earmarks program. These issues are discussed below.
Political interference in the selection process. An NIB, as envisaged by recent proposals, would be under congressional influence. It would receive annual appropriations from Congress and the board would have to submit a report to the president and the Congress at the end of each fiscal year. Evidence from the federal transportation program shows that congressional directives some- times choose projects which are not a priority and that would not have been chosen in a competitive selection process.111 Talking about changing the U.S. transportation policy into performance driven decisionmaking, former U.S. Department of Transportation official Tyler Duvall articulated the prob- lem: “The objective of depoliticizing transportation decisions by using the political process is a tough challenge.”112
Debt and cost of borrowing. The NIB would add to the federal debt and budget deficit if it were to use debt to finance its activities and if there were not cuts in federal spending taken elsewhere. There is also a trade-off between independence from political influence and cost of borrowing. If an NIB is a federal agency, it may draw upon Treasury’s low interest rates to finance its activities. If it is a shareholder–owned entity, it would incur higher costs of borrowing than Treasury, so the loans going to recipients would have to be at higher interest rates.113
Loan repayment. An issue of discussion is the revenue source required to repay an NIB loan. There is a concern is that only revenue producing projects, such as toll roads, would be able to obtain fund- ing from an NIB. The TIFIA awards track record shows that while tolls are the main revenue source, there are alternatives. Awardees may use other sources of funding to reimburse the loan or secure the loan guarantee, such as availability payments. The Washington Metropolitan Area Transit Authority secured a loan guarantee with its gross revenues as well as payments provided by the local area gov- ernments to support its Capital Improvement Program.114
Size of projects. Although the 2007 Dodd-Hagel bill referred to a $75 million threshold for awards, the current proposals do not mention any size. The size of projects is often considered as a proxy for the expected effect. A low threshold size might signal that the money is intended to be spread around to satisfy as many projects as possible. If that’s the case, some entities might not consider applying for the funding, given the large cost to prepare the application for a project. Ultimately, the size of proj- ects will depend on the funding available to an NIB and the perceived federal role in directly funding infrastructure projects.
Sectors. There is also a concern that an NIB would favor transportation over other infrastructure modes, due to potentially larger projects and associated revenue streams. The wastewater and drink- ing water advocates are worried that water projects would not be able to compete with transportation, because the water projects have a localized effect and usually do not reach the size of transportation construction projects.
Overlap with other federal programs. The mandate of an NIB in practice would overlap with the mandates of other existing programs. There are two major issues arising from this problem: how would an NIB use the existing agency expertise and how would other federal agencies relate to this new entity? If the sharing-of-expertise is accomplished through detailing personnel from other agencies, the other federal agencies may have indirect control over NIB.115 The issue of coordination with other agencies is a thornier one. Even current federal agencies do not have a great record at coordinating their programs.
BROOKINGS | December 2009 17
What it is not. Independent of any proposal design, an NIB is no panacea for the problems of the federal investment process. It is not a solution for the current federal investment programs. An NIB would be focused only on its own projects, which would be financed through new federal investment. It is not a revenue source, but a financing mechanism. It is not a replacement of the current formula- based grants or direct federal funding in infrastructure.
If it could be established, a politically-independent and appropriately-designed NIB would imple- ment a better type of federal investment process. While supplementing the current federal investment programs, an NIB would have a better selection process and project delivery. This would require clear articulation of its goals and sufficient political autonomy to exercise analytical decisionmaking in choosing projects. A competitive selection process for projects of regional and national significance would provide a basis for a performance driven infrastructure process.
VII. Conclusion
A more competitive U.S. economy needs a better infrastructure system. In a time of limited resources, improving the federal investment process should be prioritized over finding ways to merely increase the amount of funding for infrastructure. Among other ideas, a federal capital budget and a national infrastructure bank have been proposed as solutions to the
reform of the federal investment process. While a federal capital budget is an ambitious and comprehensive change to federal budget, it would
provide little improvement to the federal investment process. A federal capital budget promises a bet- ter management of capital projects, but it comes with intractable accounting and budgeting problems. The use of depreciation would leave federal agencies asking Congress for money annually for projects already obligated. In terms of funding, the introduction of a federal capital budget would not provide significant additional revenues or protection for federal investment in infrastructure.
If designed and implemented appropriately, a national infrastructure bank would be a targeted mechanism to deal with new federal infrastructure spending. An NIB would provide a better project selection process for neglected federal investment in infrastructure, such as capital projects across jurisdictions and state borders, but also there would be more rigorous evaluation of projects across different types of infrastructure. Yet an NIB is not a silver bullet for dealing with infrastructure reform, either. It would not overhaul the current federal investment, but be limited only to new projects it funded.
More immediately, the OMB and Congress should improve and enforce the current regulations and statutes related to the federal investment process. Also, the debate around the federal capital budget shows that it is essential to have political support from both Congress and the administration. An NIB manages currently to draw more attention from both of them than the capital budget ever did. Indeed, for the first time the budget put forward by the administration has an NIB as a spending item. This is a major milestone and a unique political opportunity to reform federal investment in infrastructure.
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Endnotes
1. Robert Puentes, “A Bridge to Somewhere- Rethinking American Transportation for the 21st Century,” Washington: Brookings
Institution, 2008. U.S. Government Accountability Office, “Challenges and Investment Options for the Nation’s Infrastructure,”
GAO-08-763T, 2008.
2. The U.S. unemployment rate was 10 percent in November 2009. U.S. Bureau of Labor, “The Employment Situation- November
2009,” December 4, 2009.
3. U.S. Office of Management and Budget, “Budget of the United States Government, Fiscal Year 2010: Analytical Perspectives,”
2009, pp. 33.
4. President’s Commission to Study Capital Budgeting, Report of the Commission, 1999.
5. We estimate that roughly $126 billion in the recovery package is focused on infrastructure. See Mark Muro and others, “Metro
Potential in ARRA: An Early Assessment of the American Recovery and Reinvestment Act,” Washington: Brookings Institution,
2009.
6. Analysis based on U.S. Office of Management and Budget, Budget of the United States Government, Fiscal Year 2010, Table 9.1—
Total Investment Outlays for Major Public Physical Capital, Research and Development, and Education and Training: 1962–2010,”
2009.
7. Proponents of greater federal spending –particularly in infrastructure—frequently cite the share of GDP statistics. However, the
question of the impact of federal investment on the economy does not have a clear answer in economic literature For more
information, see: U.S. Congressional Budget Office, “The Economic Effects of Federal Spending on Infrastructure and Other
Investments,” 1998; U.S. CBO, “How Federal Spending for Infrastructure and Other Public Investments Affects the Economy,”
1991; Edward M. Gramlich, “Infrastructure Investment: A Review Essay,” Journal of Economic Literature, Vol. 32(3): 1994, pp.
1176-1196; Ronald C. Fisher, “The Effects of State and Local Public Services on Economic Development,” New England Economic
Review, March/April 1997, pp. 53-67; and Marlon G. Boarnet, “Highways and Economic Productivity: Interpreting Recent
Evidence,” Journal of Planning Literature, Vol. 11(4 ): 1997, pp. 476-486.
8. The BEA expired in 2002, but one of the BEA provisions—a pay-as-you go rule for tax and mandatory spending legislation—is
part of House and Senate rules in a modified form and continues to govern congressional consideration of such legislation. The
separation of spending remains in use currently. U.S. OMB, Budget of the United States Government, Fiscal Year 2010: Analytical
Perspectives, 2009, pp.398.
9. A few surface transportation programs, such as the annual $100 million in Emergency Relief and $639 million of the Equity
Bonus program are mandatory.
10. This estimation is based on the 1994 Executive Order 12893, “Principles for Federal Infrastructure Investments” definition of
federal investment in infrastructure that includes direct spending and grants for transportation, water resources, energy, and
environmental protection. These rough estimates are based on the major items from the detailed table on federal investment
published in U.S. OMB, 2010: Analytical Perspectives, 2009, pp. 36, table 6-2. They do not include spending on community and
regional development, because this spending requires finer separation of expenses. The Community Development Block Grant
(CDBG) program provides funding for some infrastructure projects, such as water/sewer, streets improvements, flood and
drainage facilities, parking, and sidewalks. This spending was about 20 percent of all the CBDG disbursements for 2008. U.S.
Department of Housing and Urban Development, “CBDG Disbursements FY 2008,” June 2009.
11. The U.S. House of Representatives considers contract authority a type of “backdoor spending” that allows authorizing commit-
tees to circumvent appropriations committees’ control. U.S. House of Representatives, History of the United States House of
Representatives, “Chapter 9: The Power of The Purse”, 2004, pp. 20.
12. CBO, “Issues and Options in Infrastructure Investment,” 2008.
13. A distinction should be made between investment, which is a flow measure, and capital, which is a stock measure. Investment
adds value annually to the capital stock. The values of investment and capital used in this paper are gross, unless noted
otherwise.
14. This classification has been conducted by both the U.S. Office of Management and Budget, in an exercise in the analysis of
the 2004 budget, and the 1999 President’s Commission to Study Capital Budgeting. The discussion on the distinction between
federal and national capital is based on: U.S. Office of Management and Budget, Budget of the United States Government,
Fiscal Year 2004: Analytical Perspectives, 2003, pp.157- 164; President’s Commission to Study Capital Budgeting, Report of the
Commission, 1999.
15. U.S. Office of Management and Budget, “Circular A-11, Part 7- Planning, Budgeting, Acquisition, and Management of Capital
Assets”, June 2008, pp.2.
16. Personal communication from Michael Pagano, Department of Public Administration, University of Illinois at Chicago,
August 25, 2009.
BROOKINGS | December 2009 19
17. President’s Commission to Study Capital Budgeting, Report of the Commission, 1999.
18. U.S. Congressional Budget Office, Capital Budgeting, 2008, pp.8.
19. Ibid, p. 3-4.
20. U.S. OMB, 2010: Analytical Perspectives, 2009, pp.33.
21. The Generally Accepted Accounting Principles allow salaries and administrative costs associated with capital investment be
capitalized. Personal communication from David Seltzer, Principal, Mercator Advisors LLC, November 23, 2009.
22. David Mosso, Chairman, Federal Accounting Standards Advisory Board, testimony before the President’s Commission to Study
Capital Budgeting, May 8, 1998.
23. U.S. OMB, 2004: Analytical Perspectives, 2003, pp.157.
24. Ibid, pp.158.
25. U.S. Office of Management and Budget, “Capital Programming Guide: Supplement to the Circular A-11, Part 7- Planning,
Budgeting, Acquisition, and Management of Capital Assets,” 2006.
26. Personal communication from Paul Posner, Department of Public and International Affairs, George Mason University,
August 26, 2009.
27. OMB’s Capital Programming Guide incorporates the Government Performance and Results Act (Pub. L. No. 103–62), the
Clinger-Cohen Act (Divisions D and E of Pub. L. No. 104–106, the Federal Acquisition Reform Act and the Information Technology
Management Reform Act of 1996, as amended; popularly known as the Clinger-Cohen Act), and Federal Acquisition Streamlining
Act of 1994 (Pub. L. No. 103–355). See U.S. Office of Management and Budget, “Capital Programming Guide,” 2006.
28. The net present benefit of an asset is the difference between the discounted values of expected benefits and costs.
29. U.S. OMB, “Capital Programming Guide,” 2006.
30. The U.S. Government Accountability Office examined the capital planning practices of seven agencies in fiscal year 2002
and 2005: the Department of Veterans Affairs, the National Park Service, the Bureau of Prisons, the National Oceanic and
Atmospheric Administration (first report) and the Offices of Science and Environmental Management within the Department
of Energy and U.S. Customs and Border Protection within the Department of Homeland Security (second report). The U.S.
Government Accountability Office, “Budget Issues: Agency Implementation of Capital Planning Principles Is Mixed,” GAO-04-138,
2004. U.S. GAO, “Federal Capital: Three Entities’ Implementation of Capital Planning Principles Is Mixed,” GAO-07-274, 2007.
31. U.S. GAO, “Federal Capital,” 2007.
32. U.S. GAO, “Budget Issues,” 2003.
33. U.S. GAO and OMB are in favor of this principle. The U.S. GAO, “Budget Issues: Incremental Funding of Capital Asset
Acquisitions,” GAO-01-432R, 2001.
34. U.S. GAO, “Department of Energy: Opportunity to Improve Management of Major System Acquisitions,” GAO/RCED-97-17, 1996.
35. Adequacy of Appropriations Act, 41 U.S.C. § 11 Public Contracts, and the Anti Deficiency Act, 31 U.S.C. § 1341 Limitations on
expending and obligating amounts.
36. Title 23 of the US Code, Sec. 145. Federal-State relationship, U.S. Code, Section 145, Title 23.
37. For example, in 1983, state and local agencies were allowed to self-certify their compliance with federal planning requirements
in the case of urban transportation planning. GAO, “Surface Transportation,” 2008.
38. U.S. GAO, “Highlights of a Forum: Transforming Transportation Policy for the 21st Century,” GAO-07-1210SP, 2007.
39. U.S. GAO, “Performance and Accountability: Transportation Challenges Facing Congress and the Department of Transportation,”
GAO-07-545T, 2007; The U.S. GAO, “Federal-Aid Highways: FHWA Needs a Comprehensive Approach to Improving Project
Oversight,” GAO-05-173, 2005.
40. U. S. GAO, “Federal Grants: Design Improvements Could Help Federal Resources Go Further,” GAO/AIMD-97-7, 1996.
41. GAO, “Federal-Aid Highways,” 2004.
42. For the theoretical explanation of the shortcomings of federal matching grants, see Edward M. Gramlich, A Guide to Benefit-
Cost Analysis, Waveland Press: Prospect Heights, Illinois, 1990. For empirical evidence, see Shama Gamkhar, “Is the Response of
State and Local Highway Spending Symmetric to Increases and Decreases in Federal Highway Grants?” Public Finance Review,
Vol. 28(1), pp. 3-25, 2000; Shama Gamkhar, “The Role of Federal Budget and Trust Fund Institutions in Measuring the Effect of
Federal Highway Grants on State and Local Government Highway Expenditure,” Public Budgeting and Finance, Vol 23(1), 2003;
Brian Knight, “Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal
Highway Aid Program,” The American Economic Review, Vol. 92(1), pp. 71-92, 2002; Harry G. Meyers, “Displacement Effects of
Federal Highway Grants,” National Tax Journal, Vol. 40(2), 1987, pp. 221-235.
43. U.S. GAO, “Budget Issues: Incorporating an Investment Component in the Federal Budget,” GAO/AIMD-94-40, 1993; The U.S.
GAO, “Budget Issues: The Role of Depreciation in Budgeting for Certain Federal Investments,” GAO/AIMD-95-34, 1995; U.S. OMB,
2004: Analytical Perspectives, 2003; The U.S. CBO, Capital Budgeting, 2008.
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES20
44. The CBO does not give a value for this threshold. U.S. CBO, “The Economic Effects of Federal Spending on Infrastructure,” 1998,
p. 21.
45. U.S. CBO, “The Economic Effects of Federal Spending on Infrastructure,” 1998.
46. The Statement of Federal Financial Accounting Standards (SFFAS) No. 6, Accounting for Property, Plant, and Equipment
(PP&E), revised by SFFAS No. 23, Eliminating the Category of National Defense Property, Plant and Equipment, and SFFAS 29
Heritage Assets and Stewardship Land establishes standards for capital assets. U.S. Office of Management and Budget, Capital
Programming Guide, “Appendix 4, Accounting for Capital Assets,” 2006.
47. For example, GAO found out that the National Oceanic and Atmospheric Administration implements this by asking the line and
program offices if there is any deferred maintenance on their equipment and other assets. Most often, the answer is “no.” GAO,
“Budget Issues,” 2004.
48. David Burwell, Capital Budget and National Infrastructure Bank roundtable, Brookings, June 10, 2009.
49. Carol O’Cleireacain, Capital Budget and National Infrastructure Bank roundtable, Brookings, June 10, 2009.
50. Personal communication from Ryan Orr, the Collaboratory for Research on Global Projects, Stanford University, November 12,
2009.
51. Title II of Public Law 98–501.
52. Executive Order 12893 of January 26, 1994, Principles for Federal Infrastructure Investments. It is still in force, as of November
24, 2009.
53. CBO did an analysis of BCA data from the Federal Aviation Administration (FAA) and the FHWA in 1998. Because of the limited
BCA conducted by the FAA, the agency could provide only estimates on 18 proposed projects. U.S. CBO, “The Economic Effects
of Federal Spending on Infrastructure,” 1998.
54. U.S. GAO, “Options for Improving Information on Projects’ Benefits and Costs and Increasing Accountability for Results,” GAO-
05-172, 2005. Also see Puentes, “A Bridge to Somewhere,” 2008 for a detailed critique.
55. The U.S. Government Accountability Office, “Budget Issues,” 2004. U.S. GAO, “Federal Capital” 2007.
56. U.S. OMB, “Capital Programming Guide,” 2006.
57. This includes those with oversight of the Offices of Science and Environmental Management within the Department of Energy
and the U.S. Customs and Border Protection within the Department of Homeland Security. U.S. GAO, “Federal Capital,” 2007.
58. Title 23 of the US Code, Sec. 135. Statewide Transportation Planning,
59. Personal communication from David Seltzer, Principal, Mercator Advisors LLC, November 23, 2009.
60. Personal communication from Bryan Grote, Principal, Mercator Advisors LLC, November 23, 2009.
61. Often, the distinction is posed as between “capital” and “operating” expenditures. However, “operating” expenses are usually
administrative costs and there is spending other than investment and administrative expenses. The more appropriate difference
is between investment and consumption. Personal communication from Paul Posner, Department of Public and International
Affairs, George Mason University, August 26, 2009.
62. National Association of State Budget Officers, “Capital Budgeting in the States,” 1999, pp. 11, table 2.
63. Sidney L. Jones, “The Capital Budget Alternative.” In Albert T. Sommers, ed. Reconstructing the Federal Budget, New York:
Praeger Publishers, 1984.
64. President’s Commission to Study Capital Budgeting, Report of the Commission, 1999.
65 . Rudolph Penner, “Budgeting for Capital Investment”, testimony before the U. S. House of Representatives Committee on
Transportation and Infrastructure, June 10, 2008.
66. This format was presented by Robert Eisner in his testimony before the President’s Commission to Study Capital Budgeting
(1999) and employed by the U.S. OMB in an example in the supplementary budget materials of the 1997-2004 budgets.
67. This is the proposal analyzed by Congressional Budget Office, Capital Budgeting, 1998.
68. “Summary of Reports of the Hoover Commission,” Public Administration Review, Vol. 9(2), 1949, pp. 73-99. Ferrel Heady, “The
Reports of the Hoover Commission,” The Review of Politics, Vol. 11(3), 1949, pp. 355-378.
69. Jones, “The Capital Budget Alternative.,” 1984.
70. The same Commission decided the creation of the “unified budget”, by the inclusion of the Social Security Trust Fund in the
federal budget. Personal communication from Alice Rivlin, Senior Fellow, the Brookings Institution, July 14, 2009.
71. President’s Commission on Budget Concepts, Report of the President’s Commission on Budget Concepts, 1967, pp.33-34.
72. President Reagan was not opposed to the idea and directed OMB director David Stockman to deal with the issue. President
Reagan’s reply to Martin Feldstein, September 24, 1982. In Kiron K. Skinner and others, Reagan: A Life in Letters, Simon and
Shuster, 2004.
73. Jones, “The Capital Budget Alternative,” 1984, pp.188.
74. Peter T. Kilborn, “Regan Departure Spurring Changes In Economic Policy,” The New York Times, March 7, 1987, pp.1.
75. These arguments are based on the President’s Commission to Study Capital Budgeting, Report of the Commission, 1999.
BROOKINGS | December 2009 21
76. Alice Rivlin, the first director of the Congressional Budget Office and OMB Director between 1994 and 1996, and Carol
O’Cleireacain, Commissioner of the President’s Clinton Commission to Study Capital Budgeting, Capital Budget and National
Infrastructure Bank roundtable, Brookings, June 10, 2009.
77. Irene S. Rubin, “Perennial Budget Reform Proposals: Budget Staff versus Elected Officials,” Public Budgeting & Finance, Vol. 22,
2002, pp. 1-16.
78. At the request of the Chairman of the U.S. House Committee on the Budget, the CBO prepared a report on the federal capital
budget in 2008-CBO, Capital Budgeting. It opposed the introduction of a federal capital budget and reiterated the problems
identified by the 1967 Budget Concepts Commission and 1999 President’s Commission to Study Capital Budgeting. The issue of
capital budget reappeared also in hearings on “Financing Infrastructure Investments”, U.S. House Committee on Transportation
and Infrastructure, on June 10, 2008.
79. Pat Choate and Susan Walter cite the support of the President and Congress as the first requisite for a successful creation of
federal capital budget. Pat Choate and Susan Walter, “A Capital Budget for the United States.” In Michael Barker and Robert N.
Wise, eds., Rebuilding America’s Infrastructure- An Agenda for the 1980s, Durham, N.C.: Duke University Press, 1984.
80. National Surface Transportation Infrastructure Financing Commission, “Paying our Way,” 2009.
81. Paid in capital is the capital received from investors in exchange for stock.
82. Subscribed capital is an entity’s capital that is issued to shareholders. If an NIB is created as a whole government owned corpo-
ration, the federal government would be the shareholder.
83. U.S. OMB, 2010: Analytical Perspectives, 2009, pp. 35.
84. In a Global Loan, the Bank lends to a financial intermediary which makes an equivalent amount of funding available for invest-
ment projects which are too small for the Bank to handle directly. Source: European Investment Bank (EIB), “Evaluation Report:
Evaluation of SME Global Loans in the Enlarged European Union,” 2005.
85. European Investment Bank (EIB), “EIB Group: key statutory figures, 2008,” (http://www.eib.org/about/key_figures/index.htm).
86. European Investment Bank, “Loans,” http://www.eib.org/products/loans/index.htm.
87. Stevens Redburn, Capital Budget and National Infrastructure Bank roundtable, Brookings, June 10, 2009.
88. Michael Lexton, Managing Director, J.P. Morgan Securities, remarks at Public-private Ventures in Transportation Conference,
The American Road and Transportation Builders Association, September 24-25, 2009.
89. Aaron Klein, Deputy Assistant Secretary for Economic Policy, The United States Treasury, remarks at NYU/OECD roundtable on
“Reaching Consensus on the Infrastructure Bank”, OECD, September 23, 2009.
90. This section draws heavily on personal communication with Michael A. Pagano, Department of Public Administration, University
of Illinois at Chicago, August 25, 2009, and Michael A. Pagano and David R. Shock, “Capital Budgets: The Building Blocks for
Government Infrastructure,” Government Finance Review, Vol.23(3), 2007, pp. 16-22.
91. Ryan Orr, “Project Viability Screening: A Method for Early-Stage Merit-Based Project Selection,” Stanford University, 2009,
http://crgp.stanford.edu/publications/articles_presentations/Orr_project_viability_screening.pdf.
92. The National Advisory Council on State and Local Budgeting, which created guidelines for state and local budgeting, recom-
mends a certain degree of consensus among stakeholders on the priorities of a jurisdiction. This is included in the notes of prac-
tice 3.1 “Identify Broad Goals.” The National Advisory Council on State and Local Budgeting, “ Recommended Budget Practices:
A Framework for Improved State and Local Government Budgeting,” 1998.
93. In a 1999 National Association of State Budget Officers survey 41 states and Puerto Rico answered affirmative to the question
of doing capital planning in capital budgets. National Association of State Budget Officers, “Capital Budgeting in the States,”
1999.
94. David Mathiasen, “Capital Budget Nixed for Now” Government Executive, June 1, 1999, (http://www.govexec.com/
features/0699/0699mgmt.htm).
95. Personal communication from David Seltzer, Principal, Mercator Advisors LLC, November 23, 2009.
96. Alice Rivlin, the Capital Budget and National Infrastructure Bank roundtable, Brookings, June 10, 2009.
97. U.S. CBO, “The Budget and Economic Outlook: An Update,” August 2009.
98. Charles Schultze, the Capital Budget and National Infrastructure Bank roundtable, Brookings, June 10, 2009.
99. As David Mathiasen, long time budgeteer, stated about the President Clinton’s Commission to Study Capital Budgeting 1999
report: “By focusing on resource allocation, the report has little to offer in the way of suggestions aimed at improving the day-
to-day management, efficiency and productivity of Government operations. The problems of the Federal manager did not seem
to weigh heavily on the minds of the commissioners.” David Mathiasen, “Capital Budget Nixed for Now,” Government Executive,
June 1, 1999.
100. Jones, “The Capital Budget Alternative,” 1984.
101. Charles Schultze, “A Capital Budget for the Federal Government?,” testimony before the President’s Commission to Study
Capital Budgeting, April 24, 1998.
METROPOLITAN INFRASTRUCTURE INITIATIVE SERIES22
102. U.S. GAO, Freight Transportation- Strategies Needed to Address Planning and Financing Limitations, GAO-04-165, 2003.
103. Personal communication from Charlie Schultze, Economic Studies, Brookings Institution, November 19, 2009.
104. Alice Rivlin, Capital Budget and National Infrastructure Bank roundtable, Brookings, June 10, 2009.
105. Personal communication from Ryan Orr, the Collaboratory for Research on Global Projects, Stanford University,
November 12, 2009.
106. The U.S. Federal Highway Administration, ”Design-Build Effectiveness Study,” January 2006.
107. The state of Victoria saved about nine percent, on average, by private contracting of the delivery of certain infrastructure proj-
ects in comparison with public sector procurement. This was assessed by an independent review of the activity of Partnerships
Victoria in 2004. Partnerships Victoria is the Public Private Partnerships program of the state Victoria in Australia. These sav-
ings were calculated in the Value for Money analysis, against a risk adjusted Public Sector Comparator at the beginning of the
project planning. See Peter Fitzgerald, “Review of Partnerships Victoria Provided Infrastructure”, Final Report to the Treasurer,
Melbourne, Growth Solutions Group, p.17
108. John Ma, Capital Budget and National Infrastructure Bank roundtable, Brookings, June 10, 2009.
109. Personal communication from Bryan Grote, Principal, Mercator Advisors LLC, November 23, 2009.
110. The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) created a federal credit program for eligible trans-
portation projects of national or regional significance. The program, managed by the Federal Highway Administration (FHWA),
provides three forms of credit assistance – secured (direct) loans, loan guarantees, and standby lines of credit to public and
private entities.
111. U.S. GAO, “Surface Transportation- Restructured Federal Approach Needed for More Focused, Performance-Based, and
Sustainable Programs,” GAO-08-400, GAO, 2008.
112. Tyler Duvall, remarks at the release event of the Bipartisan Policy Center report “Performance Driven: A New Vision for U.S.
Transportation Policy”, June 9, 2009.
113. The issue of the relative cost-effectiveness to borrowers of the NIB loans being funded through direct federal credit —subject to
the Fair Credit Reporting Act— instead of through external sources of debt capital is a more complicated technical issue, outside
of the scope of this paper. Personal communication from David Seltzer, Principal, Mercator Advisors LLC, November 23, 2009.
114. U.S. Department of Transportation TIFIA, “Fact Sheet: Washington Metropolitan Area Transit Authority Capital Improvement
Program,” available at http://tifia.fhwa.dot.gov/projects/fs5.cfm.
115. Personal communication from Charlie Schultze, Economic Studies, Brookings Institution, November 19, 2009.
BROOKINGS | December 2009 23
Acknowledgements For their substantive and thoughtful comments on earlier drafts and other elements of this paper, we wish to thank all the participants to our expert roundtable on June 10, 2009 and especially to: Carol O’Cleireacain, Ryan Orr, Michael Pagano, Paul Posner, Alice Rivlin, Charles Schultze, for their help and advice while writing this report. We would like to acknowledge also David Burwell, Anthony Downs, Bryan Grote, and David Seltzer who provided valuable comments in the review of this report.
The Metropolitan Policy Program at Brookings thanks the Surdna Foundation and the Rockefeller Foundation for their support of the program’s Metropolitan Infrastructure Initiative and the John D. and Catherine T. MacArthur Foundation, the George Gund Foundation, the Rockefeller Foundation, and the Heinz Endowments, for their general support of the program.
This work builds on a decade of independent and rigorous research and policy development funded through prior support from the Ford Foundation, the Joyce Foundation, MacArthur Foundation, the McKnight Foundation, Charles Stewart Mott Foundation, the William Penn Foundation, and the Rockefeller Foundation.
It is also part of Brookings’ ongoing series of Bernard L. Schwartz Forums on U.S. Competitiveness which focuses on critical economic competitiveness challenges and opportunities, including investments in research and development, innovation, and education, the rise of emerging econo- mies, and the future of the U.S. manufacturing industry.
We also wish to thank the members of the Metropolitan Leadership Council for their support of the Blueprint Initiative, a multi-year initiative to promote an economic agenda for the nation that builds on the assets and centrality of America’s metropolitan areas. Learn more about the Blueprint at www.blueprintprosperity.org.
For More Information Emilia Istrate Senior Research Analyst Metropolitan Policy Program Brookings Institution 202.741.6561 [email protected]
Robert Puentes Senior Fellow and Director, Metropolitan Infrastructure Initiative Metropolitan Policy Program Brookings Institution 202.797.6071 [email protected]
For General Information Metropolitan Policy Program at Brookings 202.797.6139 www.brookings.edu/metro
JP/20030527_Bogart.pdf
_____________________________________________________________________________________________
CIVIC INFRASTRUCTURE AND THE FINANCING OF COMMUNITY DEVELOPMENT
William T. Bogart York College of Pennsylvania
A Discussion Paper Prepared for
The Brookings Institution Center on Urban and Metropolitan Policy
May 2003 _____________________________________________________________________________________________
THE BROOKINGS INSTITUTION CENTER ON URBAN AND METROPOLITAN POLICY SUMMARY OF RECENT PUBLICATIONS *
DISCUSSION PAPERS/RESEARCH BRIEFS 2003
Stunning Progress, Hidden Problems: The Dramatic Decline of Concentrated Poverty in the 1990s The State Role in Urban Land Development City Fiscal Structures and Land Development What the IT Revolution Means for Regional Economic Development Is Home Rule the Answer? Clarifying the Influence of Dillon’s Rule on Growth Management
2002
Growth in the Heartland: Challenges and Opportunities for Missouri Seizing City Assets: Ten Steps to Urban Land Reform Vacant-Property Policy and Practice: Baltimore and Philadelphia Calling 211: Enhancing the Washington Region’s Safety Net After 9/11 Holding the Line: Urban Containment in the United States Beyond Merger: A Competitive Vision for the Regional City of Louisville The Importance of Place in Welfare Reform: Common Challenges for Central Cities and Remote Rural Areas Banking on Technology: Expanding Financial Markets and Economic Opportunity Transportation Oriented Development: Moving from Rhetoric to Reality Signs of Life: The Growth of the Biotechnology Centers in the U.S. Transitional Jobs: A Next Step in Welfare to Work Policy Valuing America’s First Suburbs: A Policy Agenda for Older Suburbs in the Midwest Open Space Protection: Conservation Meets Growth Management Housing Strategies to Strengthen Welfare Policy and Support Working Families Creating a Scorecard for the CRA Service Test: Strengthening Banking Services Under the Community Reinvestment Act The Link Between Growth Management and Housing Affordability: The Academic Evidence What Cities Need from Welfare Reform Reauthorization Growth Without Growth: An Alternative Economic Development Goal for Metropolitan Areas
The Potential Impacts of Recession and Terrorism on U.S.Cities
TREND SURVEYS 2003
Welfare, Working Families and Reauthorization: Mayor’s Views Beyond Edge City: Office Sprawl in South Florida Boomers and Seniors in the Suburbs: Aging Patterns in Census 2000 Rewarding Work Through the Tax Code: The Power and Potential of the Earned Income Tax Credit in 27 Cities and Rural Areas
2002
Modest Progress: The Narrowing Spatial Mismatch Between Blacks and Jobs in the 1990s Smart Growth: The Future of the American Metropolis Living on the Edge: Decentralization Within Cities in the 1990s Timing Out: Long-Term Welfare Caseloads in Large Cities and Counties A Decade of Mixed Blessings: Urban and Suburban Poverty in Census 2000 Latino Growth in Metropolitan America: Changing Patterns, New Locations Demographic Change in Medium-Sized Cities: Evidence from the 2000 Census The Price of Paying Taxes: How Tax Preparation and Refund Loan Fees Erode the Benefits of the EITC The Importance of Housing Benefits to Housing Success Left Behind in the Labor Market: Recent Employment Trends Among Young Black Men City Families and Suburban Singles: An Emerging Household Story from Census 2000
TRANSPORTATION REFORM SERIES
Improving Efficiency and Equity in Transportation Finance
Fueling Transportation Finance: A Primer on the Gas Tax SLANTED PAVEMENT: HOW OHIO ’S HIGHWAY SPENDING SHORTCHANGES CITIES AND SUBURBS
TEA-21 Reauthorization: Getting Transportation Right for Metropolitan America
FORTHCOMING
At Home in the Nation’s Capital: Immigration Trends in the Washington Metropolitan Area
* Copies of these and previous Brookings urban center publications are available on the web site, www.brookings.edu/urban, or by calling the center at (202) 797-6270.
ACKNOWLEDGMENTS The author would like to thank Matthew Dellibovi, Matt Kozink, and Steve Leider for their
substantial contributions to this paper. I am grateful to Jeff Barnett, Peter Benoist, Russell Berusch, Kristin Blakly, Mary Campbell, Ed Davis, Kathleen Engel, Jen Eppich, Bill Ferry, Deb Janik, India Lee, Estelle Loar, Kirk McClure, Mark McDermott, Nan McIntyre, Bill Ressegger, Brian Schneiderman, Sherry Seiwert, Steve Strnisha, and Jean Wojtowicz for providing helpful suggestions and access to data. Paul Gottlieb, Bruce Katz, the late Richard Shatten, Jennifer Vey, Sean Zielenbach, and several anonymous reviewers provided helpful comments on an earlier version of the report. All opinions, conclusions, and errors are solely the responsibility of the author and not any other individual or institution.
The Brookings Institution Center on Urban and Metropolitan Policy would like to thank the
Ford Foundation for their continued support of our work on community reinvestment.
ABOUT THE AUTHOR William T. (Tom) Bogart is dean of academic affairs at York College of Pennsylvania. His
research focuses on the location of economic activity within metropolitan areas and the impact of government policy on real estate markets and business location decisions. He is the author of The Economics of Cities and Suburbs (Prentice Hall, 1998). Before moving to York College, he was an economics professor at Case Western Reserve University.
The views expressed in this discussion paper are those of the author and are not necessarily those of the trustees, officers, or staff members of The Brookings Institution.
Copyright © 2003 The Brookings Institution
EXECUTIVE SUMMARY The strength and diversity of non-profit community development organizations heavily
influence how community development projects are funded and to what extent private sector financial institutions participate.
Variations in the number and geographic reach of lenders and intermediaries for capital,
such as community development corporations (CDCs) and development-focused foundations, can significantly tailor national policy, such as the Low Income Housing Tax Credit, to local circumstance.
This paper examines how relationships between public, for-profit, and non-profit community
development entities affect the capacity for financing urban neighborhood projects by examining networks among such groups in three citiesCleveland, Indianapolis, and St. Louis.
To illustrate the impact of these relationships, the paper analyzes representative housing
projects in each city, quantifying the net amount of subsidy that public agencies and non-profit organizations provide to urban development.
Taken together, these case studies reveal that while the financial instruments for urban
developmentfirst mortgages, subordinated debt, grants, tax abatements, and tax creditsremain the same in all three cities, the varying structure and strength of their respective community building institutions directly influence what gets built and how it’s financed.
On a city-by-city basis, the case studies find that:
• In Cleveland, a multifaceted and overlapping network of CDCs, urban development funds, and foundations fosters a vibrant marketplace for community development projects. Overall, about $2.4 billion flows annually to urban development activitiesmore than in the other cities. Cleveland is the only city in the country, other than New York, where both the Local Initiative Support Corporation (LISC) and the Enterprise Foundation coexist in the same market. It is also the city with the highest amount of private sector participation among the three, resulting in a lower level of subsidy in its representative project. City support for urban development, including a tax abatement program and aggressive enforcement of the Community Reinvestment Act, also exceeds that of the other three. Over time it appears that the level of subsidy in Cleveland has declined, resulting in more bang for the community development buck.
• In contrast, a single non-profit groupthe Lilly Foundation, which provides 75 percent
of non-profit sector funding in its regiondominates community development activity in Indianapolis, where a somewhat smaller pool of development money and community groups exist. Each year, a total of $1.1 billion is available for community development, but the city has a limited network of only 16 CDCs (compared to over 100 in
Cleveland). Moreover, the activities of the CDCs, coordinated by the city, are limited to defined neighborhoods so they don’t overlap. However, the near failure of one of the CDCs caused commercial banks to become hesitant about participating in Indianapolis projects, harming the entire city. For its part, the Lilly Foundation works both independently and in conjunction with LISC and the Indianapolis Housing Partnership. Lilly’s weight is such that a perceived foundation preference for housing renovation rather than new construction is said to dampen commercial lending interest in new projects.
• In St. Louis the public sector is the dominant player, because the city has an overall
weak community development infrastructure. Only about $850 million can be applied to urban development each year. Government largely plays the role CDCs do in other cities by providing secondary financing. Beside city efforts, the state of Missouri matches the federal Low Income Housing Tax Credit Program. There are few CDCs, but there is a large amount of non-profit participationmore than twice that of Cleveland or Indianapolisin the form of pass through money from firms and banks. This spending, however, is not well coordinated in the absence of a robust network of CDCs. To be sure, more information is needed from all parties to better understand the relative
efficacy of different institutional networks and financial models. In the interim, however, it does seem that a more layered and diverse universe of public and
non-profit community development efforts leads to more opportunities for risk mitigation and hence more private sector participation. Further, with a robust institutional network in place, private sector participation in community development appears to increase over time as banks and other financial institutions grow more comfortable with such projects.
TABLE OF CONTENTS
I. INTRODUCTION ..............................................................................................1
II. THE INSTITUTIONAL INFRASTRUCTURE IN THREE CITIES:
CLEVELAND, INDIANAPOLIS, AND ST. LOUIS ....................................................3
III. MOVING THE MARGIN: MEASURING THE SIZE OF SUBSIDIES .........................19
IV. CONCLUSION ...............................................................................................28
APPENDIX 1 .............................................................................................................29
APPENDIX 2 .............................................................................................................33
REFERENCES...........................................................................................................38
1
CIVIC INFRASTRUCTURE AND THE FINANCING OF COMMUNITY DEVELOPMENT
I. INTRODUCTION In discussions of real estate development, a distinction is often made between investments
that are “market-driven” and those that are “subsidized.” Yet this dichotomy is increasingly inappropriate for describing development activities in the central cities of metropolitan areas. Underlying the distinction is an implicit notion that market-driven investments are desirable and subsidized investments are undesirable.1 To the contrary, the more successful market-driven investments often include some dimension of subsidy, whether from public or private sources.
Beyond subsidies themselves, the partnerships between private for-profit firms, private
nonprofit firms and foundations, and public agencies that often help make these subsidies work are an important dimension of development in urban areas. Karen Phillips, president of Abyssinian Development Corporation in New York, provides a good summary of these relationships: “The public sector works with nonprofit groups to set the stage for the private sector to operate effectively at a profit.”
It is possible that one of the hidden ingredients in the relative success of metropolitan areas
is the extent to which such partnerships have been created and funded. Even if the amount of money is equal in two cities, the way that capital is organized and allocated in one city might lead to better results than in another. Furthermore, because each city has a unique set of institutions and policies in place, even common national policies, such as the Community Reinvestment Act or Low Income Housing Tax Credits, can have widely varying application.
This paper chronicles urban development in three metropolitan areas—Cleveland,
Indianapolis, and St. Louis—to describe the broader investment framework that has emerged for urban development. Its primary purpose is to explore how the strength and structure of an area’s institutional networks can influence local development deals. Of particular importance is how the institutional capacities of different cities—and the subsidies they contribute—ultimately influence the level of engagement among private, market-rate investors in urban development projects.
The first section of the paper examines the intricate web of capital sources (civically inclined
investors, development-focused foundations, corporations, and government programs) that exist in these three cities, and offers some insight into the amount of capital they provide for community development and affordable housing. The paper also analyzes the broader market in which these “nontraditional lenders” operate, describing the intermediary networks (community-owned banks,
1 For example, an editorial in the Baltimore Sun (April 21, 2001, p. 13-A) asks rhetorically, “When will those who enjoy taking taxpayers’ hard-earned money and wasting it over and over again in the name of supplying low- income housing realize that unless those who live there have a financial stake in the area, the area will not survive? … Subsidized housing never made anyone respect and care for his or her environment.”
2
credit unions, real estate funds, mortgage and investment firms, and community development corporations) that act as conduits for development funds.2
The second section of the paper compares the impact of these varying institutional
frameworks by quantifying the net amount of subsidy that public agencies and private nonprofit organizations provide to private-sector, for-profit urban development. Because I do not have sufficient data for a statistical analysis of the complete extent and impact of these subsidies, I instead examine a “typical” affordable, single-family housing project in each of the three cities.3 Through these case studies, I am able to illustrate how nontraditional sources of capital are used to complement and attract traditional public and private capital to create new opportunities.
2 “Nontraditional lenders” are defined here as for-profit and nonprofit entities that pursue an objective in addition to or instead of maximizing profits. 3 “Single family” housing units are defined here as those that consist of one to four family units (in contrast to multi-family housing units for five or more families).
3
II. THE INSTITUTIONAL INFRASTRUCTURE IN THREE CITIES: CLEVELAND, INDIANAPOLIS, AND ST. LOUIS
Because of the difficult questions of interpretation that arise when examining the various institutional arrangements in different cities, the task of gathering and analyzing the data is labor intensive. For that reason, I have chosen an approach that begins with a few selected metropolitan areas to gauge the incidence and scale of the various activities. This approach has the advantage of allowing a more in-depth analysis of the links among various organizations within the chosen cities. However, it does not allow for statistical analysis to understand differences in the efficacy of alternative organizational structures.
To hold as much constant as possible when comparing the organization of nontraditional
capital, I selected three cities that have similar metropolitan economies— Cleveland, Indianapolis, and St. Louis. The similarities can be whimsically summarized by three “M’s”: each of these cities is medium-sized, Midwestern, and has a substantial manufacturing base. Their metropolitan structure, in terms of the relative strength of the central city and the rest of the metropolitan area, is also comparable.4
Although their underlying metropolitan economic structures are similar, the institutions that
have evolved in the three cities are substantially different, as are the amounts of capital these institutions provide for urban development activities. Table 1 provides a summary of the capital available annually in each city. (Table 1 summarizes information detailed in Figures 3, 5, and 8.) Cleveland generates more money per year than either St. Louis or Indianapolis; about $2.4 billion annually is available in Cleveland compared with $1.1 billion in Indianapolis and $850 million in St. Louis. Most of the difference among cities reflects the differences in the level of activity of commercial lenders. Whether this is the result of aggressive enforcement of the Community Reinvestment Act or differences in the attractiveness of investment opportunities remains an open question.
Table 1. Annual Amount of Capital Available for
Community Development and Affordable Housing
Type of Capital Cleveland Indianapolis St. Louis
Government $72,117,584 $20,680,109 $38,817,000 Tax Credit $20,375,011 $1,848,679 $4,993,640 Not-for-Profit $14,193,636 $12,513,560 $30,000,000 Commercial Bank $2,260,570,000 $1,043,832,000 $766,340,681 Total $2,367,280,931 $1,078,874,348 $850,151,321
Source: Author’s calculations from multiple sources.
4 Nathan Anderson and William T. Bogart, “The Structure of Sprawl: Identifying and Characterizing Employment Centers in Polycentric Metropolitan Areas,” American Journal of Economics and Sociology 60 (2001): 147–169.
4
A. General Framework In determining the impact of nontraditional sources of capital on urban development,
the allocation and target of such funds may be as important as the total amount available. There are a number of actors in this relationship. Although their roles are not explicitly defined, they can be organized based on their activities. Two groups are quite well-defined: the end-users of such capital, and the ultimate sources of nontraditional capital. The end-users include, for example, single- and multi-family groups who want to mortgage or rent a house, residents who wish to renovate their home, and development groups who wish to invest in the central city. The sources of nontraditional capital include civically inclined investors and the government. A third set of actors includes those who receive capital from the sources and lend it to the end-users, entities such as community-owned banks, real estate funds that target investments to low-income neighborhoods, and specialized mortgage and finance firms. A fourth set of actors includes intermediaries between these groups who direct funds from the investors to the lenders, and from the lenders to the end- users. Thus, the relationship could be organized as in Figure 1.
Figure 1. A Structural Model of Nontraditional Investment
Sources of Capital:
Source-Lender
Intermediaries:
Lenders:
Lender-User
Intermediaries:
End Users:
Civically Inclined Investors
Government Programs
Development Focused Foundations
LISC Empowerment Zones
Community Focused Banks
Resident Owned Financial Institutions/Credit Unions
Low-Income Targeted Real Estate Funds
Community Development Corporations (CDCs)
Single Family Mortgages
Multi-Family Mortgages
Housing Renovation & Improvement
Retail Development & Redevelopment
Capital Flow
Civically Inclined Corporations
5
Admittedly, some capital flows skip over certain groups of actors—for example investors may bypass the source-lender intermediaries and directly contribute to a community-owned bank, or a real estate fund may directly finance a development project. However, it will still be useful to explore the links among these different groups. I begin with a detailed discussion of the organizations in Cleveland, Indianapolis, and St. Louis. Each city has unique features, but approximately conforms to the theoretical model sketched in Figure 1.5
B. Cleveland: A Network
The complex network of linked organizations in Cleveland is sketched in Figure 2, and a
detailed list of the various sources of investment capital is provided in Figure 3. (See Appendix 1 for the derivation of the numbers in Figure 3.) The large set of intermediary organizations in Figure 2 is a distinguishing feature of Cleveland. Below, I explore the relationships of a few of these organizations in more detail. Although Figure 3 suggests the extent of interaction among these various organizations, it does not do justice to the way in which they have identified and specialized in providing services to various market niches in ways that complement one another.
5 Because of the multiple roles played by some organizations, it is not always possible to neatly pigeonhole an organization into one of the roles in the model.
6
Figure 2. Cleveland Organizations
Cleveland Foundation
LISC NPI
100+ CDCs
End Users
Commercial Banks
Government
Gap Financing / Tax Credits
Below Market-Rate Market-Rate
Other Foundations: Ford, Geisse,
Kellogg, MacArthur
Gund Foundation
Enterprise Foundation Shore Bank
SEG
ShoreBridge ShoreGrowth
VCC
NVC CDP CVHF CNDC
T2K and other CDC
support
CHN
NDIF
Notes: # includes multi-family ! MSA-level data 7
Figure 3. Community Development and Affordable Housing Funds in Cleveland Government $72,117,584 Nonprofits $14,193,636
Source Value Source Value
Tax Abatement (1995 – 2001) # $23,070,584 Cleveland Foundation (2000) general grants $2,127,780 CDBG (2001) $30,794,000 Gund Foundation (2000) general grants $778,240 HOME (2001) $8,908,000 Civic Vision Housing (2000-2001) real estate development $625,000
ESG (2001) $1,060,000 NPI CNPP (1999) $3,100,000 HOPWA (2001) $765,000 NPI VCC (1991 – 2001) $1,785,714
Revolving Loan Funds NDIF (1995- 2001) $2,000,000 NPI NVC (1991 – 2001) $150,000 HTF (2000) $5,000,000 ShoreBridge (1998 – 2001) CDP II $83,333
CDFI (1996 – 2001) $670,000 ShoreBridge (1998 – 2001) National City CDC $25,000 ShoreBridge (1998 – 2001) Cleveland Foundation $17,500
Debits ShoreBridge (1998 – 2001) Gund Foundation $17,500 NPI (CDFI) -$75,000 ShoreBridge (1998 – 2001) First Merit CDC $12,500
ShoreBridge (CDFI) -$75,000 ShoreBridge (1998 – 2001) Key CDC $12,500 ShoreBridge (1998 – 2001) Keybank NA $12,500 ShoreBridge (1998 – 2001) Huntington CDC $25,000 ShoreBridge (1998 – 2001) Met Life Insurance $12,500 ShoreBridge (1998 – 2001) Banc One CDC $25,000 ShoreBridge (1998 – 2001) CDFI $75,000 ShoreBridge (1998 – 2001) SEG $55,000 ShoreBridge (1998 – 2001) Geisse Foundation $2,500 ShoreBridge (1998 – 2001) Kellogg Foundation $25,000
Commercial Banks $2,260,570,000 ShoreGrowth (2000 – 2001) Ford Foundation $100,000
ShoreGrowth (2000 – 2001) Source Value ShoreGrowth (2000 – 2001) HHS RLFund $25,000
LISC National City (1996) # ! $37,323,000 Enterprise Foundation loan loss reserve $17,500
Huntington (1998) # ! $241,516,000 CDP II (1995-2000) Cleveland Office (2000) $3,213,700 Keybank (1999) # ! $414,792,000 DEBITS loans (2000) $649,036
Fifth Third (1998) # ! $167,014,000 ShoreBridge real estate development $1,720,833 Charter One (1998) # ! $1,400,000,000 NPI VCC
CDP II -$83,333 CDP II -$416,667 Tax Credits $20,375,011
Debits Syndicator ShoreBridge (National City CDC) -$25,000 LISC ShoreBridge (Keybank) -$25,000 Enterprise Foundation Value ShoreBridge (Huntington CDC) -$25,000 NEF $9,802,088
ESIC $10,572,923
8
1. Commercial lenders Although the dollar amounts in Figure 3 are not entirely comparable, they are nevertheless
instructive about the relative roles of the various sectors. The most important point is the overwhelming dominance of commercial banks. Their more than $2 billion in lending includes all affordable housing and community development lending reported by the banks under the CRA.6 Although this total includes lending throughout the metropolitan area (and not just in the city of Cleveland), it is nonetheless impressive. Because a successful community development exercise must engage the private sector, the level of commercial bank lending suggests the impact of nontraditional investment in Cleveland development.
2. The City of Cleveland
In addition to their role as providers of tax credits and other assistance, some local governments have become directly involved in providing loans to spur urban development.7 The city of Cleveland, for example, administers the Neighborhood Development Investment Fund (NDIF), a $40 million revolving loan fund that has effectively replaced Urban Development Action Grants (UDAG) in Cleveland. The fund focuses on small-business lending, but has also helped finance both single-family and multi-family housing renovation and construction. The $40 million for NDIF came from a settlement from First Energy, as part of the deregulation of electrical supply in Ohio.
In addition to administering the NDIF, the city plays another important role in urban
development. Every housing unit newly constructed or substantially renovated in Cleveland since 1989 has enjoyed property tax abatement on the increased value of the structure. As shown in Figure 3, these abatements were worth $23 million from 1995 to 2001.
3. Cleveland Development Partnership/Cleveland Civic Vision Housing Fund
These two funds provide support for investments that create “catalytic development” in Cleveland. Cleveland Development Partnership I was created in 1989, Cleveland Development Partnership II in 1993, and the funds (CDP) were consolidated in 1999. The CDP was one of the first funds of its type in the country. Its strengths include its connection to leading corporations in
6 Estelle Loar, a Cleveland city official, cites $4.4 billion in loans for the city’s marginalized neighborhoods as a result of “forced” credit agreements with local lenders during the administration of Mayor Michael White (1990– 2002). 7 I am aware of only one scholar-practitioner study of the goals and metrics of such a public-sector fund. Dunlap and coauthors (“Reshaping the Local Economy through a Revolving Loan Fund Program in an Entrepreneurial City,” Economic Development Quarterly 9: 74–79), describe the goals of the Revolving Loan Fund of the city of Auburn, Alabama. (Dunlap is the director of economic development for the city of Auburn.) This fund was created using Urban Development Action Grant (UDAG) money from the federal government. There are five criteria: jobs created and retained, economic viability, tax benefits, leverage ratio, and availability of funds. They find that the leverage ratio ranges from 1:3.18 to 1:5.36, indicating that the city typically invests about 25 percent of the value of a fixed asset loan. This is consistent with their emphasis (p. 77) that the city not be the sole investor and that there should be substantial private-sector investment. It is also consistent with the role that several of the nontraditional lenders see for themselves. In Cleveland, for example, none of the nontraditional lenders provides lending in the absence of a partner who is providing primary financing.
9
Cleveland. Cleveland Tomorrow, an organization of CEOs from the largest manufacturing and service firms in the region, staffs it.8 However, the investors have an indefinite payout structure (zero coupon, approximately 25 year term), which restricts the scale at which CDP can operate because it relies on donations from corporate and community foundations rather than investments by the corporations. The CDP invested more than $80 million between 1990 and 2000, of which $22 million has already been repaid and reinvested.
Cleveland Tomorrow created the Cleveland Civic Vision Housing Fund in 2000 to provide a
more market-rate investment vehicle that continued to focus on catalytic development in neighborhoods near downtown. This fund is organized as a for-profit corporation and closed in September 2000 with a capitalization of $12.5 million obtained from two classes of investors. Class A investors are corporations that receive a regular payout based on the interest rate on U.S. Treasury bills, with the payout as of summer 2001 at about 8 percent. Class B investors are foundations that receive a lower rate of about 3 percent and who are subordinate to the Class A investors. The Civic Vision Housing Fund usually participates in projects by offering mezzanine- subordinated financing that is relatively patient and charges interest of about 7 to 7.5 percent. The fund’s payout of 8 percent to its Class A investors is lower than the 10 to 15 percent return by real estate funds making comparable investments. (“It sounds like this is civic duty to me,” said one person quoted in Crain’s Cleveland Business.)9 It is nevertheless a reasonable return to Class A investors based on their reduced risk since the subordinated nature of the lower return Class B investors means that the fund would have to make disastrous investments for the Class A investors not to get paid. As Steve Strnisha, vice president of the fund, says in that same Crain’s article, “This is not a philanthropic institution, this is—kick the tires—an investment fund.”
4. Community Development Corporations
There are more than 100 Community Development Corporations (CDC) in the
Cleveland area, many of which overlap in geographic area covered, and in the activities and services they provide. Complementing the large number of CDCs are more than 25 support organizations. These supporting groups coordinate and connect the CDCs, provide guidance and training to the CDCs, give technological assistance, and advertise their presence to interested parties. The activities of the support organizations are critical in helping a neighborhood or project find partners among the many active CDCs.
5. LISC–Cleveland
Cleveland’s source-lender intermediaries function as part of an orchestrated symbiosis
among Neighborhood Progress, Inc. (NPI), the Enterprise Foundation, and the Local Initiative Support Corporation–Cleveland (LISC–Clv). Originally managed from the New York regional LISC office, LISC–Clv was established in 1981, about the same time as Cleveland Tomorrow, through a
8 Cleveland Tomorrow led the syndication of the first six waves of tax credits for Cleveland Housing Network, illustrating the long-standing relation between for-profit, not-for-profit, and public-sector activity in Cleveland. 9 Stan Bullard, “A Jump Start for City Housing,” Crain’s Cleveland Business, August 28, 2000, p. 1.
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grant from the Cleveland Foundation.10 Subsequently, in 1988, the Enterprise Foundation entered Cleveland and Cleveland Tomorrow formed NPI, also with the support of the Cleveland Foundation. Although it is unusual for both the Enterprise Foundation and LISC to coexist within the same market (only New York shares this distinction), the institutions avoid duplication of efforts and redundancy by carefully coordinating activities.
For example, in 1998, LISC–Clv and Enterprise established a collaborative effort to provide
technical assistance and support services to eight of the nine CDCs receiving tax credit assistance in Cleveland, resulting from a 10-year, $38 million Low-Income Housing Tax Credit (LIHTC) investment.11 In addition to providing LIHTC investments to local CDCs, LISC–Clv provides loans at below market rates (cost of capital to LISC–Clv is 4 percent with a 12-year term; money is lent at 6 percent with a 3–7-year term) to local CDCs. Via a memorandum of understanding with NPI that codifies the nature of cooperation between NPI and LISC–Clv, NPI, through its wholly owned subsidiary Village Capital Corporation (VCC), serves as the local loan oversight committee for LISC– Clv, qualifying loans before they are submitted to the national LISC office for approval.
Mark McDermott, executive director of Enterprise Foundation–Cleveland, is a member of the
board of trustees of VCC. Prior to joining the Enterprise Foundation, McDermott was the executive director of the Cleveland Housing Network (CHN), an umbrella nonprofit organization that provides financing, construction, and management support to 14 community-based development corporations and that developed the innovative tax credit syndication vehicle described earlier.12 During the same period that McDermott was with CHN, India Lee, program director, LISC–Clv, worked as the director of Cleveland’s newly formed Empowerment Zone.13 In addition, LISC–Clv has made $4.5 million in loans to New Village Corporation (NVC) for housing and retail projects. The NVC is NPI’s real estate development subsidiary, and NVC works directly with CDCs and private developers to secure the resources of other local and national programs that help CDCs handle complex real estate development.
C. Indianapolis: A Hierarchy
Figure 4 illustrates the main actors in community development in Indianapolis, and Figure 5
shows the amount of capital available from each source. (See Appendix 1 for the derivation of the numbers in Figure 5.) The contrast to Cleveland is immediately apparent. The Lilly Endowment is clearly the dominant force in Indianapolis, providing about 75 percent of the total funds for the not- for-profit sector. In fact, the Lilly Endowment is almost one-half the size of the combined activities of the federal and local governments in Indianapolis.
10 Conversation with India Lee, LISC–Clv program director, based on remarks from Steve Minter, president, Cleveland Foundation. 11 Enterprise Foundation, “Cleveland Receives $38 Million for Affordable Housing,” June 17, 1998, available at www.enterprisefoundation.org/infofor/media/archives/pressarch.asp?ID=12 (March 2003). 12 “CHN Lease Purchase Program,” available at www.chnnet.com/lp2.htm (May 2003) 13 “City Partnerships Revive Neighborhoods,” June 28, 1996, available at www.clev.frb.org/ccca/frm961/citypart.htm, (March 2003).
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As in Cleveland, the amount of capital lent by commercial banks for affordable housing and community development outweighs the amount lent by the government and not-for-profit sectors by a factor of more than ten. Again, if truly catalytic change is desired, it is necessary to mobilize this vast supply of private capital to build on the activities of government and not-for-profits.
Figure 4. Indianapolis Organizations
1. Community Development Corporations (CDCs)
Although Cleveland and Indianapolis are both active in the field of urban redevelopment, the
organization of their development groups is strikingly different. Both cities have several CDCs, which provide funding and guidance to urban redevelopment projects either directly or by leveraging lenders such as banks and credit unions, as well as a number of support organizations and government programs.
Lilly Endowment Indianapolis Foundation
LISC INHP
16 CDCs
End Users
Community and Economic
Development / Rental
Development
Home Ownership
Commercial Banks
Government
Gap Financing / Tax Credits
Below Market-Rate Market-Rate
12
Figure 5. Community Development and Affordable Housing Funds in Indianapolis
Government $20,680,109 Nonprofits $12,513,560
Source Value Source Value Local programs (2000) $100,000 Lilly Endowment (1998-2000) $9,354,824
Tax Abatement (1996) $1,404,109 LISC $3,153,459 CDBG (FY 2001) $12,321,000 INHP $6,773,217 HOME (FY 2001) $5,026,000 ESG (FY 2001) $415,000 Debits HOPWA (FY 2001) $654,000 INHP from Lilly ($6,267,940) Revolving Loan Funds
LISC from Lilly ($500,000)
CDFI (1999) $1,760,000
Debits CDFI (1999) (INHP) ($1,000,000)
Commercial Banks
$1,043,832,000 Tax Credits $1,848,679
Source Value Source Value NBD Bank (1996) # ! $216,634,000 LIHTC (2000–
2010) $181,056
National City Bank (1996) # ! $17,985,000 LIHTC (1997– 2007)
$405,500
Bank One (1999) # ! $732,331,000 Historic Tax Credits:
KeyBank (1999) # ! $76,882,000 Federal (1996) $312,123 Federal (1998) $797,000 State (1996) $90,000 State (1998) $63,000
Notes: # includes multifamily ! Denotes MSA-level data
Indianapolis, however, has a stricter hierarchical structure. There are only 16 CDCs in the
city, each with a defined neighborhood to serve. (The service areas are mapped in Figure 6.) Thus, each neighborhood has only a single active CDC. The Community Development and Financial Services division of the Department of Metropolitan Development oversees the activities of the development corporations and coordinates their programs to ensure there is no redundancy. The Lilly Endowment, through its partnership with LISC–Indianapolis and the Indianapolis Housing
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Partnership (INHP), provides the majority of the funding and leadership in the private nonprofit sector.14
Figure 6. CDC Geographical Coverage in Indianapolis
2. East Side Community Investment15 Under the leadership of Dennis West, Eastside Community Investments (ECI) in Indianapolis
grew to be among the five largest CDCs in the country. (The ECI service area is labeled number 3 in Figure 6.) At its height in 1995, ECI had 80 employees and an annual budget of $9 million. However, by September of 1997, ECI collapsed, unable even to cover its payroll. The rise and fall of ECI is a demonstration of the problems that can arise when a CDC grows too large and attempts to vertically integrate the entire process of urban development.
As president of ECI, West used a government subsidy program that offered one-time
development fees to organizations that would renovate buildings into homes and apartments for low- income housing. In a few years ECI had renovated more than 500 units, earning millions in 14 Conversation with Sherry Seiwert, LISC–Indianapolis, May 2001. 15 This case study is based on Ellen Retting, “ECI Emerges from Fallout; Leadership Ready to Leave Past Behind,” Indianapolis Business Journal, October 1999, p. 3; and Norm Heikens, “ECI Collapse Leaves Scars; Tangled Legacy Unfolds at Community Development Group,” Indianapolis Business Journal, May 1998, p. 1.
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development fees. West then used this to leverage additional funding for other programs: employment training, day care facilities, venture capital for urban entrepreneurs, and a savings- matching program. Eastside Community Investments was the most successful CDC in Indianapolis and received local and national awards. It was identified as an example of urban redevelopment done right.
West, however, wanted to expand ECI’s activities by starting for-profit subsidiaries that would
feed profits into ECI and provide training for local residents. West created a construction company that ECI would use for its projects and a manufacturing company to make roof trusses. The for-profit motives of the subsidiaries quickly clashed with the desires of ECI. Managers were asked by ECI to rehire unproductive workers because it helped the neighborhood. The subsidiaries consumed a significant portion of ECI’s cash resources and failed to generate significant revenues. Within a year, the manufacturing company collapsed, losing $800,000. The companies were not competitive because they had no network of contacts and had no experience. They tried to enter an extremely competitive industry and were restricted to focusing on the near east side. The ECI’s subsidiaries could not keep up with specialized, independent firms.
Poor management further hampered ECI. By 1996, the development fees were becoming
harder to earn as for-profit developers began to take advantage of the program. (Ironically, the involvement of for-profit developers is often a goal of nontraditional lenders.) This created a cash shortage in ECI, exacerbated by the resources tied up in the subsidiaries. The scope of ECI’s operations made it difficult for the organization to follow through on important details. Forms to collect tax abatements were not filed, funds were wasted, projects were unfinished, and rents were not collected. By expanding too far and too fast, ECI was unable to fulfill its original mission. The ECI is smaller now, consisting of four employees and a budget of $350,000. It has learned to remain narrowly focused on providing funding to development projects, and to rely on contractors to carry out the rest.
The difficulties at ECI are alleged by some in Indianapolis’ community development sector to
have had a spillover effect on other CDCs. Commercial banks are said to be less willing to extend credits for projects in Indianapolis, both because of the negative signal sent by the ECI experience and because of the financial losses experienced by investors in ECI. Because of the single-layer approach in Indianapolis, there is no alternative to the existing set of institutions. Hence, problems in one CDC become an albatross for other CDCs. The area served by ECI is most affected by the absence of any backup organization that could replace, in part, the activities of ECI while ECI rebuilds.
D. St. Louis: Public Sector Dominance
The nonprofit sector in St. Louis has neither the rich network observed in Cleveland nor a
dominant presence as in Indianapolis. Rather, the city and the state of Missouri have been extremely active in developing a set of tax credit programs that are the main source of capital for affordable housing investment. For example, the state of Missouri (through the Missouri Housing
15
Development Corporation, or MHDC) operates a low-income housing tax credit program that matches the amount of tax credits from the federal LIHTC. Figure 7 illustrates the connections among the main organizations, and Figure 8 lists the dollars in each sector. (See Appendix 1 for the derivation of the numbers in Figure 8.)
Unlike Cleveland and Indianapolis, no major national nonprofit housing and community
development organizations operate in St. Louis. Enterprise Foundation provides the bulk of the funding to the Regional Housing Community Development Association (RHCDA), but has no local staff. Hence, it is incumbent on local organizations to develop both credibility and critical mass, and to date, none has been able to do so. It is possible that the extensive state and local government activities have worked to crowd out local nonprofit entrepreneurs.
Figure 7. St. Louis
20 CDCs
End Users
Community and Economic
Development
Home Ownership
Block Grants
Commercial Banks
Tax Credits/ Block Grants
Below Market-Rate
Market-Rate
Danforth Foundation
Community Development
Agency
St. Louis Development Corporation
Government
Enterprise Foundation
St. Louis Equity Fund
RHCDA
MHDC
16
Community Development Corporations The CDCs are only an adjunct to the low-income housing market in St. Louis. A combination
of for-profit developers, commercial banks, and government organizations fill the role occupied in other cities by CDCs. For example, more than one-half of the funding in nonprofit spending in Figure 8 represents pass-through money from firms and banks that are not well coordinated with CDCs. Even though there is more money in this sector in St. Louis than in Indianapolis or Cleveland, coordination and leadership are lacking among the nonprofit organizations. Thus, the money is less able to catalyze neighborhood development.
This more limited role for CDCs dates to decisions in the late 1980s. St. Louis focused at
that time on private, for-profit developers to drive its low-income housing stock creation. Therefore, the city faced a strategic decision when confronted with a regional economic recession: continue to support the private, for-profit developers, or put its efforts behind neighborhood CDCs. St. Louis supported the for-profit organizations, most of which were undercapitalized and undiversified, and therefore could not survive an extended downturn in the economy. The 1990s saw many loan restructurings, which had a sustained impact similar to the failure of ECI in Indianapolis.
Commercial banks continue to be instrumental in leading the low-income housing markets
throughout this period. Bank of America (BoA), First Star/US Bank Corp., and Mercantile invested considerably in St. Louis. The BoA formed its own CDC and started “writing checks.” The goal of the BoACDC is not to compete with local entities, but to be a catalyst and to make investments that could not go forward without BoA assuming the risk. Ultimately, BoA wants the BoACDC to be so successful that it puts itself out of business and the bank can focus on lending money to the neighborhoods. Many projects with which BoACDC is involved are financed using only unsecured cash equity investments (grants). First Star/US Bank Corp. handles most of the syndicated low- income housing tax credit investment along with National Equity Fund (a part of LISC), and, to a lesser extent, the Enterprise Social Investment Corporation, a part of Enterprise Foundation.16
16 I am grateful to Mary Campbell, senior vice president in the Community Development Banking Group at Bank of America, for her willingness to share information.
17
Figure 8. Community Development and Affordable Housing Funds in St. Louis
Government $38,817,000 Nonprofits $30,000,000 Source Value Source Value Local programs N/A RHCDA (Enterprise
Foundation) $14,000,000
Tax Abatement N/A St. Louis Equity Fund (firms) $10,000,000 CDBG (FY 2001) $28,348,000 Greater St. Louis Land
Development Fund (banks) $6,000,000
HOME (FY 2001) $5,612,000 ESG (FY 2001) $969,000 HOPWA (FY 2001) $1,062,000 Revolving Loan Funds N/A
CDFI (FY 2000) $660,000 MHDC (State gov't.) 2000- 2001
$2,166,000
Note; MHDC figures above include only
non-tax credit related financing
Commercial Banks $766,340,681 Tax Credits $4,993,640
Source Value Source Value Mercantile Bank (1997) # ! $533,277,134 LIHTC (2000) $2,496,820 First National Bank (1999) # ! $78,614,680 MHDC State LIHTC (2000) $2,496,820 South Side National Bank # ! $23,182,200 Bank of America (1998-2000) # ! $131,266,667
Notes: # includes multi -family ! MSA-level data
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E. Summary The late 1980s was a watershed time for the community development field, particularly
affordable housing developers. The wholesale changes in the federal tax treatment of housing in the Tax Reform Act of 1986, coupled with the introduction of the LIHTC, forced organizations and regions to rapidly adapt to a different environment. In Cleveland, for example, this time period saw the creation of NPI and the opening of an Enterprise Foundation office. By contrast, the 1980s brought the end of an era in St. Louis, without the creation of a new set of strong institutions.
Because the measures of activity in each city include dollar figures from various years,
comparing the total amount of capital available remains difficult. Some conclusions, however, suugest themselves:
• The Cleveland metropolitan area saw much more commercial bank lending for affordable
housing and economic development than in the other two metropolitan areas, which suggests that the aggressive posture taken by Mayor White toward encouraging CRA enforcement has affected local investment.
• Cleveland’s tax abatement program represents a tremendous investment in the housing
market, and it dwarfs local government activity in the other two cities. • The Lilly Endowment dominates private nonprofit sources of funds in Indianapolis to a far
greater extent than the largest funders in other cities (Cleveland Foundation in Cleveland, Enterprise Foundation funding RHCDA in St. Louis). However, Indianapolis generates less total investment in the nonprofit sector than do either of the other two cities. In sum, community development involves a wide range of institutional players, and the way
in which they are organized varies substantially across cities. The following section demonstrates how the organization and capacity of these groups, in turn, influence how development deals are structured and the extent of commercial investors’ engagement in community development activities.
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III. MOVING THE MARGIN: MEASURING THE SIZE OF SUBSIDIES As indicated above, most development projects involve many different organizations.
Although the nature of real estate investments is unique for every project, it is nevertheless possible to make some general statements about the activities of the various actors.17 A typical deal for affordable housing construction, for example, involves a commercial bank as the lead lender, usually with a senior debt position. There is also participation from the public sector in the form of tax credits and, in some cases, tax abatements, HOME, and Community Development Block Grant funds. Finally, a private nontraditional lender provides some predevelopment, bridge or mezzanine capital. The nontraditional lender provides this capital at a usually lower cost, earlier in the development process, at a higher level of risk, and on more flexible (patient) terms than would a commercial bank.
One of the difficulties in quantifying the amount of money contributed for development,
however, is that some of the contributions appear as arm’s-length market transactions. For example, when a firm invests in a for-profit real estate investment fund, it is tempting to not count that investment as a contribution. However, suppose that the fund intentionally pays a return that is lower than the return paid by other funds with comparably risky investments. Further, suppose that this lower return is due, in part, to the fund’s management, which targets investments to revitalize urban areas rather than to maximize profit. In that case, the opportunity cost of the investment is correctly counted as a contribution. Similarly, linked deposit programs, where local governments or foundations deposit funds in a bank in return for the bank making below-market-rate loans for home improvements, are appropriately thought of as a public-private partnership subsidizing urban development activities of private individuals.18
The analysis below attempts to bring some transparency to the amount of subsidy found in
urban development projects, using representative examples of affordable housing projects in each of the three cities. The different subsidy structures calculated for the projects illustrate the relative impacts of these cities’ varying institutional structures on how development deals are constructed.
A. The Value of the Subsidy Provided by Nontraditional Lenders
In partnerships established between private for-profit firms, private not-for-profit firms and
foundations, and public agencies, risk is mitigated for first mortgage holders (senior debt holders such as commercial banks or private investors) first, by passing through the collateralized value of
17 A detailed set of case studies on housing finance for low-income and moderate-income households is found in Sally Merrill and coauthors, Housing Finance for Low and Moderate Income Households: Innovations in the United States and around the World (Washington: Urban Institute, 2000). They focus on the activities of individual groups, emphasizing specific innovations rather than the general structure of finance for nontraditional lenders in cities. 18 This report can be thought of as a contribution to the analysis of social capital. See Jed Emerson, “The Nature of Returns: A Social Capital Markets Inquiry into Elements of Investment and the Blended Value Proposition.” Social Enterprise Series 17 (Roberts Enterprise Development Fund, 2000) for a general discussion of social capital and a bibliography of research on the topic.
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the physical assets and unused tax shields to the senior debt holders, and second, by allocating the remaining risk to no recourse subordinated debt (sub-debt). Sub-debt holders use aggressive below-market loan rates and flexible repayment terms to optimize the ability of the borrower to satisfy the terms and conditions of the debt, and are often willing to restructure terms and conditions should the borrower experience difficulty in complying.19 Flexible terms and the willingness to restructure sub-debt repayment to relieve financial distress for the borrower can be viewed as no- cost hedges for risk that benefit the senior debt holders. The early-stage intermediary lenders also reduce transaction costs for commercial lenders by gathering and packaging information.
Using an appropriate valuation method can help quantify the net amount of the subsidy
provided to private sector, for-profit investment by public and private nonprofit investment in urban development. Based on the assumption that markets price debt efficiently, rendering the net present value (NPV) of debt equal to zero, one can treat the investment as if it were all equity financed.20 In a financial context, NPV allows investors to evaluate the worthiness of investment in a risky project based on the ability of the project to generate future cash flows. The NPV provides a relatively straightforward and standardized method to gauge the level of risk associated with the project in question, permitting the selection of discount rates consistent with expected return on investments in projects possessing similar risk. The ability to use comparable expected returns makes NPV a good proxy for estimating subsidy rates given that market rate returns for unsubsidized real estate development are widely known and accessible.
In addition, NPV allows for sensitivity analysis to be applied to the discount rate (expected
return) selected for the project in a consistent and concise manner. This helps the observer to understand the impact of fluctuations in the discount rate as well as the project cash flows in a variety of iterations. Therefore, numerous scenarios can be played out to assist in validating the choices for the variables (discount rate and cash flow) as well as the impact of changes in the capital structure (senior debt/sub-debt/equity) on a project-by-project basis.
Measuring Subsidies: An Example A typical housing development project is financed using four general sources of funds: (1)
cash equity provided by the developer; (2) a first mortgage typically provided by a commercial bank; (3) subsidized equity in the form of syndicated low-income housing tax credits, property tax abatements, or grants, or below-market loans from public or private nonprofit sources; and (4) subordinated debt typically provided by local intermediaries such as LISC. My approach assumes that the cash equity and the first mortgage are provided at market rates.21
19 This also has the advantage of reducing the percentage of technically nonperforming loans that the lender must report. Given the hostile public perception of nontraditional lenders as money sinks, maintaining a portfolio with minimal defaults can be a prerequisite for survival. 20 This assumption is not necessarily appropriate in the markets for debt that we study. If there are informational or other transactions cost hurdles that prevent efficient pricing of debt, then we cannot completely eliminate the risk of the debt from the calculation. 21 This is consistent with the evidence provided by Karl Case (“Investors, Developers, and Supply-Side Subsidies: How Much is Enough?” Housing Policy Debate 2 (1991): 341–356) on rates of return to developers,
21
I selected a discount rate for subordinated debt (14 percent) as a plausible expected return for a similar investment in a market-rate real estate fund with comparable risk.22 Subordinated debt in these transactions behaves much like equity in that all assets capable of being secured are devoted to the first mortgage. In this regard, the sub-debt is truly a residual claim on par with equity, especially given the flexible repayment terms common in these transactions. This does not account for the value to the commercial lender of the no-cost hedge included with the sub-debt. I chose the discount rate for equity (16.3 percent in the analysis that follows) based on data provided by Karl Case.23 Although the discount rates are high relative to current market conditions, the impact of changing them is straightforward to calculate. Further, the relative magnitudes of the discount rates for equity and subordinated debt are important; because the equity is riskier, it should have a higher discount rate.24
By standardizing the process for valuing nontraditional capital investment in urban
development as well as the process by which terms, conditions, and the restructuring of subordinated debt is handled, a model for pricing the hedge option could be established. For example, the willingness of a nontraditional lender to renegotiate the timing of a debt payment could be considered as a series of put options provided to the borrower and priced accordingly. A standard approach could also facilitate developing secondary markets for nontraditional debt, although such a development currently seems impractical. This could allow the nontraditional lenders to reduce their risk by separating underwriting and portfolio investment as is standard in commercial loan markets.25
Table 2 describes the capital structure and subsidy level, by component and in total, for a
transaction that closed in Cleveland in 1990. The project, CHN VI (Cleveland Housing Network Limited Partnership VI), built 80 units on 53 separate properties. The finance package included one conventional first mortgage, five separate linked deposits from four different sources, two “soft”
and Robert Van Order and Peter Zorn (“Income, Location, and Default: Some Implications for Community Lending,” Real Estate Economics 3 (2000): 385–404) on the riskiness of mortgage lending for community development. 22 It is likely that the rate will vary over time and from city to city. Our qualitative results are robust to these sorts of changes, and the impact of any alternative assumptions about interest rates on the subsidy calculations is straightforward to determine. This is also true of the discount rates for the other forms of finance discussed. The spreadsheet used to calculate the subsidies is available from the author by request. 23 Case, “Investors, Developers, and Supply-Side Subsidies.” 24 Arguably, both the subsidized loans and tax abatements should be discounted at a lower rate because they are much less risky to the developer. Doing so would increase the calculated amount of subsidy. 25 Michael Klausner (“Market Failure and Community Investment: A Market-Oriented Alternative to the Community Reinvestment Act.” University of Pennsylvania Law Review 143 (1995):1561–1593) is an advocate of such an approach. Robert Avery and coauthors (“Neighborhood Information and Home Mortgage Lending,” Journal of Urban Economics 45 (1999): 287–310) provide evidence that such an approach is efficient. They find evidence that efficiencies in loan origination are concentrated within individual banks rather than spilled over across banks. Hence, there is little marginal benefit to increasing the number of banks originating loans in a given area, while there are fixed costs of doing so. A more efficient approach is to have some banks specialize in originating loans and allow others to hold the loans in a portfolio. Jean Cummings and Denise DiPasquale (“Developing a Secondary Market for Affordable Rental Housing: Lessons from the LIMAC/Freddie MAC and EMI/Fannie Mae Programs,” Cityscape 4 (1998): 19–41) analyze the challenges of developing a secondary market for affordable rental housing and conclude that it is vital to undertake such operations at sufficient scale to be viable.
22
second mortgages, one grant, and two interim loans in addition to the $910,080 equity investment made by the limited partnership and secured by investment tax credits.26 (Details on Table 2 calculations are provided in Appendix 2.)
There was no cash equity invested. However, Cleveland provided a $139,000 grant through its Home Weatherproofing Assistance program. Because this grant was not to be repaid, I include it as equity and include the entire amount as a subsidy to the project.
I calculated the subordinated debt subsidy as the NPV of the difference between the interest
payments at the 4.93 percent average rate of the subordinated debt and the estimated 14 percent market rate. The term is assumed to be 15 years for all of the debt, and all of the NPVs are calculated over 15 years. Some of the interest payments on the subordinated debt are deferred, and I calculate the NPV of those deferred payments and include them as a separate line item in Table 2.
I assumed the return on equity required for a market-rate investor to be 16.3 percent. In
other words, a market-rate investor would expect an annual return of $148,343 (16.3 percent of $910,080), while the actual annual cost to the developer of CHN VI is zero.27 I calculate the NPV assuming a 16.3 percent discount rate and a 15-year period.
The final component of the subsidy is property tax abatement by Cleveland. In practice, the
tax abatement is only on the value of the structure, while land continues to be taxed. Because I was unable to extract the difference between land value and structure value for every transaction, I make the assumption that the tax abatement applies to the entire project cost. All else being equal, this will tend to overstate the amount of subsidy provided by tax abatement. I do not allow for any
26 Details of the financing are found in Chris Warren, “Housing: New Lessons, New Models.” In W. Dennis Keating, Norman Krumholz, and David C. Perry, eds., Cleveland: A Metropolitan Reader (Kent, OH:Kent State University Press). 27 The tax credits clearly cost the government something, but I am performing all of the calculations from the point of view of the developer (often a CDC). The question is how much the developer would have to pay an investor whose funds would replace the syndicated tax credits.
Table 2. Finance Structure and Subsidy to CHN VI (Total Project Cost = $2,261,621)
Source (% of Cost) Subsidy as % of Project Cost Cash Equity: $0 (0%) 0.0% (Grant): $139,000 (6.2%) 6.2% First Mortgage: $350,000 (15.5%) 0.0% Subordinated Debt: $862,541 (38.1 %) 13.2% Syndicated Tax Credits: $910,080 (40.2%) 36.1% (Deferred Interest) 0.6% (Tax Abatement) 12.4% Total: 68.5%
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increase in property value, however, which tends to understate the amount of abatement.28 The overall results are robust to reasonable changes in these assumptions. Because the tax abatement is a form of equity, I assume that a developer would need to raise equity finance at 16.3 percent to replace it.29 Because the tax abatement term is for 15 years, I calculate a 15-year NPV using a 16.3 percent discount rate.
The total subsidy to this project was 68.5 percent of the project cost, or more than two-
thirds.30 This is not an atypical finding for this type of project. It is comparable with an average subsidy of 68 percent for a nationwide sample of projects and 64.4 percent for a Cleveland metropolitan area sample of projects analyzed.31
I use a subsidy calculator to compare the size and composition of subsidies in the three
cities. One important question is the extent to which the different institutional structures lead to both a different capital structure for projects and a different level of subsidy for the typical project. Although each project is unique, there are nevertheless systematic differences in the activities in each city, reflecting the different institutional structures already examined.32
B. Subsidy in Cleveland: A Representative Project
I use recent projects (2001) approved by the Civic Vision Housing Fund (CVH) as
representative of the way that nontraditional lending projects are currently funded in Cleveland.33 The first project is one that consists of owner-occupied and lease-purchase single family affordable housing being constructed in a neighborhood near downtown Cleveland. The financing consists of a first mortgage for 50 percent of the total costs. The first mortgage is held by a commercial bank that lends at market rates. A subordinated mortgage provided by CVH at about a 7.5 percent interest
28 Robert Simons and David Sharkey (“Jump-Starting Cleveland’s New Urban Housing Markets: Do the Potential Fiscal Benefits Justify the Public Subsidy Costs?” Housing Policy Debate 8 (1997): 143–171) use a 2 percent annual increase in property values in their analysis of the costs of subsidizing new housing in Cleveland. 29 Because property taxes are assessed as a fraction of market value, the government collecting property taxes is essentially a silent partner in the real estate investment. Hence, the choice by the government to give up tax collections for a period of time is equivalent to an equity investment in the company. The no recourse and unsecured nature of most tax abatements reinforces their nature as equity rather than debt. 30 It is worth emphasizing that I am considering the value of the subsidy from the point of view of the developer. The opportunity cost of providing some of the subsidy might be lower, especially to governments, which causes the amount of subsidy received to be less than the value of the subsidy given. See Michael Stegman (“The Excessive Costs of Creative Finance: Growing Inefficiencies in the Production of Low-Income Housing.” Housing Policy Debate 2 (1991): 357–373) for an early and influential criticism of housing subsidies on these grounds. 31 Jean Cummings and Denise DiPasquale, “The Low-Income Housing Tax Credit: An Analysis of the First Ten Years,” Housing Policy Debate (10)(1999): 251−307. 32 Stegman, “The Excessive Costs of Creative Finance,” criticizes as inefficient the ad hoc and complicated nature of financing arrangements for constructing affordable housing. Roberto Quercia, William Rohe, and Diane Levy (“A New Look at Creative Finance,” Housing Policy Debate 11 (2000): 943–972) take a more benign view that these arrangements lead to long-term partnerships, community acceptance, and improved technical skills of staff. 33 I am grateful to Steve Strnisha for his willingness to share this information with us. In order to protect anonymity of projects, we are omitting total project costs and only providing the approximate financial structure.
24
rate accounts for 15 percent of the project costs. The remaining 35 percent of the financing is provided through equity. This includes syndicated low-income housing tax credits and grants from governments and foundations that account for about 30 percent of the costs, with the remaining 5 percent coming in cash from the developer. Table 3 provides the details of the subsidy calculation for this project.
Consider the noticeable difference in the financial structure between the projects in Table 2
and Table 3. The “market” portion of the financing (cash equity and first mortgage) accounts for 55 percent of the costs in the 2001 project but only 15.5 percent of the costs in the 1990 project. Further, the terms on the subordinated debt are less favorable in the current project than in the previous project because none of the interest payments is deferred. These changes in the structure of the project imply a reduction in the total subsidy as a percent of project cost from 70 percent to 42 percent, or a decrease of 40 percent. The reduced subsidy is arguably evidence in favor of the success of the various subsidized projects during the preceding years in generating market rate investment in the neighborhood.
There is an active market for constructing and rehabilitating housing in downtown Cleveland.
Table 4 provides the financial structure of a recent project for owner-occupied and lease purchase single-family affordable housing.
Table 3. Finance Structure and Subsidy to CVH Neighborhood Project Source (% of Cost) Subsidy as % of Project Cost Cash Equity (5%) 0.0% First Mortgage (50%) 0.0% Subordinated Debt (15%) 3.0% Syndicated Tax Credits and Grants (30%) 26.9% (Tax Abatement) 12.4% Total: 42.3%
Table 4. Finance Structure and Subsidy to CVH Downtown Project Source (% of Cost) Subsidy as % of Project Cost Cash Equity (5%) 0.0% First Mortgage (70%) 0.0% Subordinated Debt (10%) 1.8% Syndicated Tax Credits (15%) 13.4% (Tax Abatement) 12.4% Total: 27.6%
25
This transaction resembles a “pure” market-rate project, and in fact it is more like a normal project and less like an affordable housing project than the previous examples. Only 25 percent of the project is financed using subsidized capital, and the fraction of the project subsidized is less than one-half that in the 1990 project, and 35 percent lower than the fraction subsidized in the neighborhood project. More than 40 percent of the subsidy represents tax abatements, which are applied to all new and renovated housing in Cleveland. To reiterate an earlier theme, subsidies are pervasive in the Cleveland housing market, as even housing that is not targeted to low and moderate income households receives favorable tax treatment.
One reason (according to Strnisha) for the large commercial bank presence in the downtown
is that the FHA is willing to insure loans of this type. This suggests a potential area where public policy can encourage commercial lenders by providing a “carrot” to complement the “stick” of the CRA. However, any such incentive would require the loans to meet FHA underwriting standards, which might not be feasible for many affordable housing projects.
C. Subsidy in Indianapolis: A Representative Project
The project used as a prototype in Indianapolis was developed by the Southeast
Neighborhood Development Corporation (SENCORD, within the service area labeled 10 in Figure 6) in 1998. The SENCORD limited partnership produced 54 units of affordable housing on scattered sites, including 32 new town homes, and 22 rehabilitated existing housing units. The total project development cost was $6,565,320.
The SENCORD development is overwhelmingly financed using tax credits (see Table 5). This does not seem to be an anomaly in Indianapolis. In fact, it is the lowest fraction of tax credit finance of the projects examined, with other projects from the same period having between 83 and 88 percent of their development costs covered by syndicated tax credits. The first mortgage percentage in this 1998 project in Indianapolis is the same as the percentage in the 1990 project in Cleveland, and much less than the amounts currently evident in Cleveland or in St. Louis (see the next subsection).
Table 5. Finance Structure and Subsidy to SENCORD (Total Project Cost = $6,565,320)
Source (% of Cost) Subsidy as % of Project Cost Cash Equity: $17,354 (0.3%) 0.0% First Mortgage: $1,020,000 (15.5%) 0.0% Subordinated Debt: $755,000 (11.5 %) 8.6% Syndicated Tax Credits: $4,772,966 (72.7%) 65.2% (Tax Abatement - 6 years) 13.0% Total: 86.8%
26
There are three possible explanations for the low first mortgage contribution. The most likely
is that it is a low-income project in a low-income neighborhood, and rents in the neighborhood only support this much of a first mortgage. A second explanation is that it represents the continuing fallout from the collapse of ECI (described in section II.C above), as commercial lenders are leery of engaging in affordable housing in the area. A third explanation is that it could reflect excess supply in the part of the housing market served by these types of projects. Further, there is an alleged reluctance attributed to the influence of the Lilly Endowment to emphasize renovation of housing over construction. Renovation might better match the current demand and supply but the only subsidized support is for new construction, which is having difficulties attracting private investment.
D. Subsidy in St. Louis: A Representative Project
In St. Louis, I characterize the typical project using a special tabulation of LIHTC
developments with information from the Missouri Housing Development Commission (MHDC).34 There were 34 multi-unit projects sponsored by the commission between 1987 and 1995 in St. Louis. Of these, 29 used a commercial bank as the primary lender and first mortgage holder, and five used the MHDC as the primary lender. There is little difference in the capital structure in the two cases, except that MHDC projects included on average a higher fraction of cash equity (2.7 percent versus 0.9 percent); I combine all of the projects for the analysis. Table 6 presents the capital structure and subsidy for the average of the 34 projects.
The capital structure is different than that in Cleveland (compare Table 3 and Table 6), with a smaller first mortgage and a larger role for subordinated debt. A hidden difference between Cleveland and St. Louis is the source of the subordinated debt. In Cleveland, it is almost entirely from the private sector, while in St. Louis, it is almost entirely from the public sector (23.9 percent of project costs are public subordinated debt, 1.9 percent are private subordinated debt). This is consistent with the findings in Section II on the different structure of nontraditional lending in the cities, with St. Louis dominated by the public sector and Cleveland with a stronger private nonprofit 34 I am grateful to Professor Kirk McClure for providing these data. The data are a subset of those used in use by McClure in “The Low-Income Housing Tax Credit as an Aid to Housing Finance: How Well Has It Worked?” Housing Policy Debate 11 (2000): 91–114, and include only the MHDC-sponsored projects within St. Louis.
Table 6. Finance Structure and Subsidy to a Representative St. Louis Project Source (% of Cost) Subsidy as % of Project Cost Cash Equity (1.2%) 0.0% First Mortgage (38.4%) 0.0% Subordinated Debt (25.8%) 8.9% Syndicated Tax Credits (34.6%) 31.0% (Tax Abatement) 7.6% Total: 47.5%
27
network. However, the lower tax abatement resulting from the lower property tax rate in St. Louis almost completely offsets the higher subsidy from subordinated debt and tax credit equity. This implies that the margin at which projects are profitable after the subsidy is roughly equal in the two cities.
E. Summary
As these examples illustrate, although the basic pieces of finance for affordable housing are
identical—subordinated debt, grants, tax abatement, tax credits—the way in which they are assembled varies across the cities:
• The amount of subsidy provided to affordable housing projects in Cleveland is generally
much less than in Indianapolis and St. Louis owing to the active engagement of market-rate investors in these developments.
• Affordable housing development in Indianapolis is financed primarily by LIHTCs, while first
mortgage contributions by commercial lenders are far less than in both Cleveland and St. Louis.
• Subordinated debt is an important source of capital in St. Louis, and largely consists of
contributions from the public sector, as opposed to nonprofits. Although the results of this analysis are telling, we nonetheless cannot draw broad
conclusions about the impact of subsidies across the three cities based only on these representative projects. None of the cities has collected data in an organized way to enable a comprehensive evaluation of the net benefits of the structures described above. The implicit assumption is that the ongoing operation and financial soundness of the operations is sufficient evidence of their success. It is possible, though, that a truly successful set of operations would be one that “put itself out of business” by drawing in the commercial banks and other private for-profit actors from whom low- income households and neighborhoods are often isolated. Unfortunately, there seems to be little political incentive for the type of careful data gathering and cost-benefit analysis that is needed to truly evaluate these programs.
28
IV. CONCLUSION This study has identified substantial differences in the institutional infrastructure of affordable
housing construction across three cities with similar economic underpinnings. Though it is a cliché to observe that all metropolitan areas are different, examining the differences among these three cities helps to identify three important elements of a successful and durable development system.
First, nonprofit organizations play an important role in not only channeling capital to projects
that need it, but also in giving the market-rate sector faith in the viability of investment in low-income areas. Successful and respected nonprofit corporations lure commercial lending into distressed areas with the carrot of profitable investment. While banks may at first need assurances that the subordinated debt of nonprofit organizations will take all the risk of a project, the progression of projects in Cleveland indicates that as banks gain confidence both in the profitability of such projects and in their nonprofit partners the capital structure of development approaches that of a commercial deal.
Second, entrepreneurship and resiliency of the capital system will help maintain successful
development in the long run. The collapse of ECI in Indianapolis shows that even the most successful organization can fall on hard times. However, the structure of Indianapolis prevents another CDC from stepping in and filling the gap. ECI was the premier CDC in Indianapolis, and its decline has not only left its own area underserved but also chilled investment throughout the city. A number of developers commented that, in the aftermath, banks became reluctant to be as involved in new nonprofit projects. Many developers have had to scale back their activities and rely almost exclusively on grants and equity for funding. Indianapolis’s single-layered system, with one foundation, one rental intermediary, one housing intermediary, and one CDC in each neighborhood means that a breakdown or a cutback in any one area threatens the whole system.
Above all, any policy for development must be cognizant of the unique environment of each
city. Yet in each situation, guiding principles may be of use. The goal of development should be not only to initiate and fund housing projects in poor neighborhoods, but also to attract traditional commercial lending through the success of nontraditional capital. To this end, the grass roots nonprofit organizations should be supported, and strong intermediary organizations should be encouraged. Organizations such as LISC and the Enterprise Foundation can be the keystone of a successful development market by providing expertise and leadership, serving as a focal point in which the commercial sector can place its confidence. A variety of organizations and funding sources ought to be encouraged, including foundations, revolving loan funds, tax credit syndicates, and below-market investment funds. By encouraging an integrated and diversified capital system at each level, cooperation and flexibility can be promoted.
29
APPENDIX 1 Methodology Data collection is a challenge, and any serious effort at program evaluation must first begin
by addressing the absence of available data for the evaluator to use. In order to construct the citywide totals by sector in Figures 3, 5, and 8, it was necessary to combine a wide variety of data sources and to make some assumptions regarding allocation of funds. This appendix provides the sources for the dollar amounts along with a brief explanation of any additional calculations applied to the data before they were reported. In general, we converted any stock of capital into a flow of investment by assuming that 5 percent of the stock was loaned each year. If we observed data that pooled several years, we assumed that the annual flow was the average of the pooled figure (for example, $12 over 3 years was assumed to reflect an annual flow of $4). For HUD programs, the total reported for each program is the amount that went to the city in that year. For nonprofits, we try to identify the annual amount actually invested during a year for affordable housing and community development. In some cases, the data are exceedingly detailed and allow us to do so. In other cases (particularly in the case of nonprofits in St. Louis) we do not have sufficient detail to make such distinctions and we are likely to report higher expenditures than actually occurred. For commercial banks, we rely on CRA lending data. These have the advantage of being readily available, but the disadvantage of including the entire metropolitan area as well as combining multi- family lending with lending for single-family housing and community development.
Figure 3 Government
1. Tax abatementsix-year average, 1995−2001, source, City of Cleveland, Department of Community Development, Bill Resseger
2. CDBGFY 2001, source, http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF
3. HOMEFY 2001, source, http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF
4. ESGFY 2001, source, http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF
5. HOPWAFY 2001, source, http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF
6. Revolving Loan Funds a. NDIFfive percent per year loaned of $40,000,000 stock b. HTFFY 2000
7. CDFI—five-year average, 1996−2001, source, http://www.ustreas.gov/cdfi/awardees/pdf/states/ohio.pdf
30
CRA Commercial Bank (Source; Federal Reserve, or Office of the Comptroller of the Currency, or Office of Thrift Supervision, or FDIC)
8. NCBFY 1996 9. Huntington BankFY 1998 10. Key BankFY 1999 11. Fifth Third BankFY 1998 12. Charter One BankFY 1998
Nonprofits
13. Cleveland FoundationFY 2000, source, 2000 Annual Report 14. Gund FoundationFY 2000, source, http://www.gundfdn.org/grants_edcr_00.html 15. Cleveland Civic Vision Housing Fund (CVH)$12,500,000 loaned at 7-year terms imply
$12,500,000/7 = $1,785,714 per year; source: CVH 16. Cleveland Development Partnership II (CDP II): low income investment history (1995–2000)
= $10,325,000 1. Multi-family housing $5,250,000 2. Village Capital Corp. $2,500,000 3. For sale housing $2,075,000 4. ShoreBridge $ 500,000
Annual flow = $10,325,000/6 = $1,720,833 Debits of $416,667 per year to VCC and $83,333 per year to ShoreBridge Source: CDP
17. NPI-CNPP FY 1999 18. NPI-VCC & NVC, capital stock invested at five percent per year 19. ShoreBridgecapital stock invested at five percent per year 20. ShoreGrowthcapital stock invested at five percent per year 21. LISC-Cleveland office FY 2000
Tax Credits
22. LISC—NEF FY 2000 23. Enterprise Foundation
a. ESICFY 2000 b. LoansFY 2000
31
Figure 5 Government
1. Local programs5/2001 conversations with Sherry Siewert, LISC. 2. Tax abatement1996 Sencord, L.P. seven-year tax abatement (year 7, 100% property tax
payment) 3. CDBGFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 4. HOMEFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 5. ESGFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 6. HOPWAFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 7. CDFIFY 1999, source, http://www.ustreas.gov/cdfi/awardees/pdf/states/indiana.pdf
CRA Commercial Bank (Source; Federal Reserve, or Office of the Comptroller of the Currency, or Office of Thrift Supervision, or FDIC)
8. NBD BankFY 1996 9. NCBFY 1996 10. Bank OneFY 1999 11. Key BankFY 1999
Nonprofits
12. Lilly Foundationthree-year average, 1998−2000, source; Annual Reports 13. LISC20-year average, Program activity since 1981; $63,069,178. Source:
http://www.liscnet.org/wherewework/indianapolis , retrieved 7/31/01. 14. INHPFY 2000, source; Annual Report, Financial Statements (FY 2001&2000)
Tax Credits 15. LIHTCSencord, L.P. 15-year average, 1996−2010 16. LIHTCBlue Triangle, L.P. 10-year average, 1999−2008 17. Federal and State Historic Tax CreditsSencord, L.P. 1996 18. Federal and State Historic Tax CreditsBlur Triangle, L.P. 1998
32
Figure 8 Government
1. Local programsinformation currently not available 2. Tax abatementinformation currently not available 3. CDBGFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 4. HOMEFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 5. ESGFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 6. HOPWAFY 2001, source,
http://www.hud.gov/offices/cpd/about/budget/budget01/budget_data/RegAreaAlloc.PDF 7. CDFIFY 2000, source, http://www.ustreas.gov/cdfi/awardees/pdf/states/missouri.pdf 8. MHDC2 year average, 2000−2001, sources,
http://www.mhdc.com/rental_production/Prior_years_1997_2001.pdf CRA Commercial Bank (Source; Federal Reserve, or Office of the Comptroller of the Currency, or Office of Thrift Supervision, or FDIC)
9. Mercantile BankFY 1997 10. First National BankFY 1999 11. South Side National BankFY 2000 12. Bank of Americathree year average, 1998−2000, source,
http://www.bankofamerica.com/community/index.cfm , retrieved July 31, 2001
Nonprofits
13. RHCDA (Enterprise Foundation)FY 2001, source, Peter Benoist, RHCDA 14. St. Louis Equity FundFY 2001, source, Peter Benoist, RHCDA 15. Greater St. Louis Land Development FundFY 2001, source, Peter Benoist, RHCDA
Tax Credits
16. LIHTCFY 2000 17. MHDC (state) LIHTCFY 2000
33
APPENDIX 2
Providing a variety of parameters to a spreadsheet that then generates the final subsidy figures generates the subsidy calculations summarized in Tables 2 through 6. The spreadsheet used to generate Table 2 is illustrated in this appendix. The value of such an approach is that the impact of alternative assumptions and financing structures can be quickly analyzed. The Excel version of the spreadsheet is available on request from the author.
Nontraditional Capital Discounted Cash Flow Subsidy EXAMPLE; CHNLP VI
Project Development Budget $2,261,621Step 1; Insert Project Cost/Budget
Step 2; Insert % of Capital Structure for First Mortgage, SubDebt and Equity.
Project Capital Structure (%) If using numerical values use "Goal Seek" tool to calculate %
First Mortgage 15.48% $350,000 $ % Proj Bd.
Subordinated Debt 38.14% $862,541 SUBDEBT SUBSIDY= $298,229 13.19%
Cash Equity 6.15% $139,000 Equity Subsidy= $815,590 36.06%
Equity (Syndicated Tax Credits, etc.) 40.24% $910,080 Deferred Interest Subsidy= $14,290 0.63%
Total 100.00% Tax Abatement Subsidy= $279,401 12.35%
Subsidy Total= $1,407,511 62.23%
34
Subdebt Subsidy Calculation
NPV Subordinated Debt DCF Subsidized NPV= $443,473 Market Rate NPV= $741,702
Subdebt Loan Rate (%) 4.93% <--
Subdebt Loan Term (yr) 15 <-- Year Cash Flow Year
Cash
Flow
Subdebt Market Rate (%) 14.0%
<--
Subdebt 0 -$862,541 0 -$862,541
Discount 1 $42,523 1 $120,756
Step 3; Insert Subdebt Loan Rate, Rate 2 $42,523 2 $120,756
Term and Market Rate % 3 $42,523 3 $120,756
4 $42,523 4 $120,756
5 $42,523 5 $120,756
6 $42,523 6 $120,756
7 $42,523 7 $120,756
8 $42,523 8 $120,756
9 $42,523 9 $120,756
10 $42,523 10 $120,756
11 $42,523 11 $120,756
12 $42,523 12 $120,756
13 $42,523 13 $120,756
14 $42,523 14 $120,756
15 $42,523 15 $120,756
total $637,849
$1,811,33
6
35
NPV Equity DCF Equity Subsidy Calculation
Equity NPV 0.0% Equity NPV= $0 Market Rate NPV= $815,590
Equity Term (yr) 15
Equity Market Rate Return 16.3% <-- Equity Year Cash Flow Year Cash Flow
Step 4; Insert desired Equity Market Discount 0 -$910,080 0 -$910,080
Rate (%) Return for discount rate of equity Rate 1 $0 1 $148,343
Assumptions- 2 $0 2 $148,343
1- Equity and First Mortgage Term 3 $0 3 $148,343
equals Subdebt Term 4 $0 4 $148,343
2- Discount Rate for Equity 5 $0 5 $148,343
equals Subdebt (Second Mortgage) rate. 6 $0 6 $148,343
3- Equity NPV equals "0" 7 $0 7 $148,343
8 $0 8 $148,343
9 $0 9 $148,343
10 $0 10 $148,343
11 $0 11 $148,343
12 $0 12 $148,343
13 $0 13 $148,343
14 $0 14 $148,343
15 $0 15 $148,343
total $0 $2,225,146
36
Step 5; If Tax Abatement is available
(Cleveland property tax rate equals $64.20/ $1000 of assessed value)
insert abatement period, (Assessed value equals 35% of property value)
tax rate per $1000 assessed
value and property value
NPV Tax Abatements Tax Abatement Subsidy Calculation % of Prop Value
Abatement period (yr.) 15 EPTR (%) Tax Abatement PV= $279,401 12.35%
Tax rate (per $1000 $64.20 2.25%
assessed value) Year Cash Flow
Property value $2,261,621 1 $50,819
Assessed Value= $791,567 2 $50,819
3 $50,819
Assumptions- 4 $50,819
1- Assessed value equals 5 $50,819
35% of market value 6 $50,819
2- Market value equals Property value 7 $50,819
or Project Development Cost 8 $50,819
3- Abatement period equals 15 years 9 $50,819
4- Tax rate is constant for 10 $50,819
abatement period 11 $50,819
12 $50,819
13 $50,819
14 $50,819
15 $50,819
total $762,279
37
Step 6: If Deferred Interest Payments are
available, insert Principle Amount, Nominal
Interest Rate and Deferral period(s) with
effective interest rate. Deferred Deferred
Deferred Payments; Interest Year Interest Rate Interest Cash Flow
1 6% 2.0% $533.33
2 6% 2.0% $533.33 NPV Period 1
Principle Amount with 3 6% 2.0% $533.33 $2,514
Deferred Interest Payments $400,000 4 6% 2.0% $533.33
Nominal Interest Rate 8.0% 5 6% 2.0% $533.33
6 2% 6.0% $1,600.00
Period 1 Deferral term (yrs) 5 7 2% 6.0% $1,600.00
Period 1 Effective Interest Rate 6.0% 8 2% 6.0% $1,600.00
Period 2 Deferral Term (yrs) 10 9 2% 6.0% $1,600.00 NPV Period 2
Period 2 Effective Interest Rate 2.0% 10 2% 6.0% $1,600.00 $11,776
11 2% 6.0% $1,600.00
Assumptions 12 2% 6.0% $1,600.00
13 2% 6.0% $1,600.00
14 2% 6.0% $1,600.00
15 2% 6.0% $1,600.00
38
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JP/20060410_metrogrowth.pdf
____________________________________________________________________________________
THE SHAPE OF METROPOLITAN GROWTH: HOW POLICY TOOLS AFFECT GROWTH PATTERNS
IN SEATTLE AND ORLANDO
William Fulton, Solimar Research Group Linda E. Hollis, Solimar Research Group
Chris Williamson, city of Oxnard, California Erik Kancler
A Discussion Paper Prepared for the
The Brookings Institution Metropolitan Policy Program
April 2006 ______________________________________________________________________________
ii
THE BROOKINGS INSTITUTION METROPOLITAN POLICY PROGRAM SUMMARY OF PUBLICATIONS 2006*
DISCUSSION PAPERS/RESEARCH BRIEFS
Making Sense of Clusters: Regional Competitiveness and Economic Development The Earned Income Tax Credit at Age 30: What We Know
TREND SURVEYS
Upstate School Reform: The Challenge of Regional Geography One-Fifth of America: A Comprehensive Guide to America’s First Suburbs The New Safety Net: How the Tax Code Helped Low-Income Working Families During the Early 2000s
TRANSPORTATION REFORM SERIES
An Inherent Bias? Geographic and Racial-Ethnic Patterns of Metropolitan Planning Organization Boards Principles for a U.S. Public Freight Agenda in a Global Economy
LIVING CITIES CENSUS SERIES
Katrina Index: Tracking Variables of Post-Katrina Reconstruction
* Copies of these and previous Brookings metro program publications are available on the web site, www.brookings.edu/metro, or by calling the program at (202) 797-6414.
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ACKNOWLEDGMENTS The authors would like to thank Mary McCumber (now retired) and Rocky Piro at Puget
Sound Regional Council; Roberta Lewandowski at King County; and Linda Chapin, director, Metropolitan Center for Regional Studies, University of Central Florida.
The Brookings Institution Metropolitan Policy Program would like to thank the Fannie Mae
Foundation, the George Gund Foundation, the Joyce Foundation, the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, and the Charles Stewart Mott Foundation for their support of our work on metropolitan trends. Anthony Downs, Elizabeth Humphrey, Charles Pattison, Gary Pivo, and Rebecca Sohmer provided detailed and thorough reviews of this paper.
ABOUT THE AUTHORS
William Fulton is president of Solimar Research Group, a private research and consulting
firm based in California that focuses on land use issues, and a senior scholar at the School of Planning, Policy, and Development at the University of Southern California. He is the author of The Reluctant Metropolis: The Politics of Urban Growth in Los Angeles and the primary author of several studies on patterns of metropolitan growth in the United States.
Linda E. Hollis, AICP, is a senior research associate with Solimar Research Group based in
Annandale, VA, and a private consultant specializing in growth management and land use issues. Previously she was a senior associate with a fiscal, economic, and planning consulting firm with a national practice.
Chris Williamson, Ph.D., AICP, is the advance planner for the city of Oxnard, California, and
a adjunct associate research professor of Geography at the University of Southern California. He was formerly vice president and director of research at Solimar Research Group.
Erik Kancler is a geographer, journalist, and policy analyst based in Bend, Oregon. He was
formerly a research associate at Solimar Research Group. Comments on the paper can be directed to William Fulton at [email protected] or Linda
Hollis at [email protected].
The views expressed in this discussion paper are those of the authors and are not necessarily those of the trustees, officers, or staff members of The Brookings Institution.
Copyright © 2006 The Brookings Institution
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EXECUTIVE SUMMARY
Land use, infrastructure, and open space policy play an important role in shaping metropolitan growth, and whether or not they are coordinated on the policy level, they do interact with each other in shaping those patterns.
However, the exact interplay of these policies is not well understood. This paper uses two metropolitan areas—Orlando and Seattle—with differing growth
management regimes to explore the effects of conscious growth policy on metropolitan form. In Orlando, growth management is realized largely through open space protection guided by
state law and environmental concerns. Though Florida also has a state growth management law, it is far more concerned with providing concurrent infrastructure with new development than guiding metropolitan form.
The Seattle experience differs in that the state growth management law and its attendant
urban growth boundary were the major policy influence on metropolitan growth. However, additional efforts in agricultural protection and the use of transferable development rights also played a key role.
Overall the paper finds that:
• Urban growth boundaries can help to redirect urban growth, but in and of themselves they cannot encourage a fundamentally different urban form.
• Open space protection efforts can divert growth away from important natural areas, but as a
more defensive, or reactive, approach, they themselves they cannot shape a coherent metropolitan form.
• Neither solution, by itself, solves the problem of the development battleground on the
metropolitan fringe, often the most politically divisive growth area in any region. • Unless they are coordinated, these different types of policies often work at cross-purposes,
boosting the costs of land preservation and/or open space protection.
Though these two metropolitan areas are hardly emblematic of all of the nation’s cities, they do offer insights into the enactment and implementation of conscious strategies to guide metropolitan development. Perhaps the overwhelming lesson is that, in order to best adapt to market forces, especially on the battleground of the metropolitan fringe, growth policies should be conceived and implemented in a holistic fashion.
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TABLE OF CONTENTS
I. INTRODUCTION ................................................................................................................... 1 II. METHODOLOGY .................................................................................................................. 3 III. METROPOLITAN ORLANDO................................................................................................... 6 IV. METROPOLITAN SEATTLE .................................................................................................. 24 V. THE ROLE OF GROWTH POLICY TOOLS IN SHAPING METROPOLITAN GROWTH PATTERNS ... 41 VI. CONCLUSIONS .................................................................................................................. 46 REFERENCES ...............................................................................................................................47
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THE SHAPE OF METROPOLITAN GROWTH: HOW POLICY TOOLS AFFECT GROWTH PATTERNS IN SEATTLE AND ORLANDO
I. INTRODUCTION
Metropolitan growth patterns are shaped by a combination of market forces and public policy
tools and often by the interaction between the two. But the specific dynamics that create metropolitan growth patterns—and, in particular, the precise role that public policy tools play in shaping those patterns on the metropolitan level—are not well understood.
Previous Brookings research has attempted to identify and understand the most important
policy levers that shape metropolitan growth, especially those that deal with land use. For example, research has found that the geographic pattern of urban growth within a metropolitan area is shaped in large part by three public policy tools: land use regulations on both a local and regional level; patterns of infrastructure investment, including roads, water, and sewers; and patterns of open space protection and acquisition programs (Pendall, Martin, and Fulton, 2002).
In some metropolitan areas tools such as urban growth boundaries (land use regulation),
urban service areas (infrastructure investment), and greenbelts (open space protection) are consciously used to shape patterns of development, but generally these tools are not used to shape overall metropolitan growth. But because they are in place nevertheless, they play a role— consciously or not—in shaping the pattern.
Other research looked more specifically at open space protection programs throughout the
United States and attempted to trace the relationship between those programs and conscious efforts to manage and shape metropolitan growth. Although open space programs clearly have an impact on metropolitan growth patterns, they are rarely used consciously or strategically to do so (Hollis and Fulton, 2002).
This paper represents a next step in understanding how these policy tools shape the
patterns of urban growth in American metropolitan areas. The previously cited research drew from national surveys reviewing growth management and land conservation policies throughout the country to identify patterns and connections among different types of policies. This paper, by contrast, seeks to take this analytical framework and apply it to specific metropolitan areas.
In so doing, we seek to use these “pilot” metropolitan areas to examine in closer detail some
of conclusions of the previous papers. Beyond that, we hope to test a method—partly quantitative, partly qualitative—for examining the effect of growth management policies on the pattern of growth in any metropolitan area. It is our hope that this method will be replicable across all metropolitan areas in the United States, whether they have explicit growth management policies or not.
Perhaps most important, however, our goal is to examine “conscious” growth management
policies and, for the first time, seek to assess their impact at the metropolitan level. Our two case
2
study metropolitan areas, Seattle and Orlando, both operate under statewide growth management systems that have received a great deal of attention from policymakers and policy analysts. Although both have been criticized, these growth management systems are generally presumed to be successful in altering the pattern of metropolitan growth. But is this really true? And if so, in what way? And do the growth management systems work with or against other land-related public policies?
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II. METHODOLOGY It is not difficult to conclude that growth management tools, consciously or not, do have an
impact. It is very difficult, however, to measure exactly how these factors affect metropolitan growth. Consistent and reliable information about metropolitan growth patterns is hard to come by,
especially across metropolitan areas. Land-use policy, including the monitoring of growth trends, is typically the province of local governments, so measurement techniques can vary widely even among adjacent jurisdictions. Many regional planning councils do a heroic job of attempting to track metropolitan growth trends, but are hampered by lack of consistent data across jurisdictional boundaries. Large-scale datasets with the potential to provide accurate and consistent information across metropolitan areas, such as satellite imaging, are difficult to interpret accurately and may not be able to provide fine-grained information.
In addition, the task of understanding a metropolitan area's plethora of growth-related policy
tools, determining how they are used, and examining how they have affected overall growth patterns is difficult to accomplish purely quantitatively. Simply put, this task requires a qualitative approach that relies not only on statistical and spatial analysis but also on detailed knowledge of the "on the ground" situation.
For this reason, the paper uses case studies, examining the relationship between growth
policies and actual growth patterns in two important but distinctly different metropolitan areas: Seattle and Orlando.
We have chosen these two metropolitan areas as our “pilot study areas” for several reasons,
including the following:
• They are roughly the same size, at least in terms of population. As we have defined them the two metropolitan areas had a population of close to 3 million people each, according to the 2000 Census.1 They also had a very similar number of housing units (between 1.3 million and 1.5 million) as recorded in the Census.
• They are located in different parts of the country and have different geographical contexts.
Seattle is located in the West, where metropolitan areas are characterized by generally higher densities and topographical constraints. Orlando is located in the South, where metropolitan areas are characterized by generally lower densities and few topographical constraints.
• They operate under strong but somewhat different state growth management laws that have
been in place for a relatively long period of time. Florida's Growth Management Act was
1 For the purposes of this paper we have defined the Orlando metropolitan area more expansively than the federal definition.
4
passed in 1985 and has traditionally focused on infrastructure concurrency; Washington's Growth Management Act was passed in two phases in 1990 and 1991 and focuses on containing urban growth and protecting critical resource land such as farmland.
• Each represents a good example of one of three policy drivers described above. Seattle's
growth is currently being strongly shaped by the boundaries of the Urban Growth Area created as a result of its state law, while Orlando's patterns are currently being strongly shaped by Florida's open space acquisition programs, which are among the most well- funded and active in the nation. We recognize that, especially because of this last point, Seattle and Orlando are atypical
metropolitan areas. Most do not operate under a strong and consistent state growth management regime, as Seattle and Orlando do. The Southern states, in particular, do not have strong growth management laws. In addition, both Seattle and Orlando are entirely contained in one state, while one in three large metropolitan areas in the country straddles state lines.
Nevertheless, we chose to overlook these potential drawbacks for the purposes of this study.
One reason is ease of analysis. Because this policy framework analysis had not been undertaken at the metropolitan level previously, we concluded that a single-state analysis would be the best way to start. In addition, we chose metropolitan areas that operate under ”conscious” growth management systems because we believed it would be easier to assess the impact of growth management policies. Clearly, future analyses using this framework must examine the cumulative impact of “unconscious” growth management systems, but this will require more fine-grained work across many jurisdictions. Finally, we chose Orlando because, like other Southern metropolitan areas, it is fast-growing and has (until recently at least) had abundant land, making it a good contrast to land- constrained Seattle.
Once we selected our case studies, we undertook a four-step assessment that attempted to
weave together policy analysis and interpretation of actual growth patterns. First, we researched and attempted to summarize the existing growth-related policies within
the metropolitan area. We focused especially on the land-use policies as they function under the two state growth management laws and the array of open-space acquisitions programs, again focusing on the state level. Our goal was to depict, for the first time, the urban containment "regime" that is in place in each metropolitan area.
Second, we used all available data to examine the quantity and spatial distribution of recent
growth patterns, with particular emphasis on Census data and on the land urbanization data available in the metropolitan area. In particular, we sought to examine the geographical patterns of urbanization over time, especially in relation to policy tools, such as open space acquisitions and urban growth boundaries that may have had the effect of removing some otherwise developable land from the path of growth.
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Third, we selected one case study in each metropolitan area in order to take a closer look at how the actual use of specific policy tools affected the dynamics of metropolitan growth, especially the geographic pattern. In each case, we selected an example of an open space protection program. We made this choice, in large part, because our previous research suggested that both funding and policy interest for open space protection is on the increase, and that while local open space acquisitions are often made in the context of a specific development threat, regional open space programs are rarely designed or implemented with a conscious goal of shaping urban growth.
Finally, we sought to synthesize our previous analytical steps—the growth policy summary,
the recent growth trends, and the case study—to draw some conclusions about how growth policies actually affected growth patterns in the two metropolitan areas, and about what the impact of these policy tools might be on growth patterns generally in U.S. metropolitan areas. In so doing, we present some recommendations about how these policy tools might be used more consciously in order to shape metropolitan growth patterns.
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III. METROPOLITAN ORLANDO With a population of approximately 3 million people according to Census 2000, the seven-
county area that we used as our metropolitan Orlando study area is one of the largest and fastest- growing urban agglomerations in the United States. It is also rapidly emerging as a major metropolitan area in Florida, a fast-growing state with many metropolitan areas experiencing a great deal of urban expansion. Like the rest of Florida, this region has operated under the Florida Growth Management Act since 1985. As stated above, Orlando is atypical of Southern metropolitan areas because Florida has different growth dynamics and a strong growth management system. It is typical, however, in that growth is fast and the stock of available land has been plentiful.
The seven-county area that Map 1
we have used as our study area involves a more expansive definition than is used is most other analyses of metropolitan Orlando. The seven counties we include are Lake, Orange, Oceola, and Seminole Counties, which are the four counties included in the U.S. Census Bureau definition of the Orlando metropolitan statistical area (MSA); Volusia County, which is the larger of the two counties contained in the Census Bureau's Daytona Beach MSA; Polk County, which is the only county in the Census Bureau's Lakeland-Winterhaven MSA; and Brevard County, which is the only county in the Census Bureau's Melbourne-Titusville-Palm Bay MSA (Map 1).2
Although these seven
counties are divided among four Census MSAs, six of them (all but Brevard) are part of the East Central Florida Regional Planning Council.
2 In the 2000 Census, the four-county Orlando MSA was the 28th-largest metropolitan area in the nation. If the seven counties included in this study were aggregated by the Census, the region would have ranked 14th, between Minneapolis and Phoenix.
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A. Regional Setting: Geography and History The Orlando region is situated in Central Florida, approximately 50 miles west of the Atlantic
Ocean and 80 miles northeast of the City of Tampa and the Gulf Coast. It is located to the north of Lake Tohopekaliga, Lake Okeechobee, and the Everglades. Much of its growth can be attributed to the fact that the Orlando region sits along two major interstates -- I-95, the most important north- south highway in the eastern United States, and I-4, one of the leading east-west highways in Florida.
The region contains many geographical features, but central Orlando is located on what is
known as "the Central Highlands." The land is spotted with lakes and sinkholes from underlying limestone erosion, with more than 50 lakes within the Orlando city limits. The region is home to the Wekiva River, named an “outstanding Florida water.” It is also the site of the headwaters of the Kissimmee River, one of the primary water sources for Florida’s endangered Everglades system. Florida's aquifer is one of the most productive in the world, and prior to human manipulation the region had dry, flat prairies covered with shrubs and grasses. In the decades prior to urbanization, the scrub habitat was replaced by citrus, row crops and tame grass pastures.
Orlando was originally settled as a fortress during the Seminole Indian wars. The city was
incorporated in 1875 as the first city in Central Florida. From that time forward the economy was based on citrus production and cattle ranging, and at its peak in the 1950s the citrus industry spread over 80,000 acres in Orange County, home of Orlando.
Shortly thereafter, however, the forces of postwar prosperity began to accelerate Orlando's
urbanization. One of the earliest engines of urban growth was the opening of the U.S. Missile Test Center at Cape Canaveral, 30 miles to the east on the Atlantic Coast, in 1955. Three years later the National Aeronautics and Space Administration (NASA) was created and headquartered at the Cape. In 1956, the Glenn L. Martin Co. (forerunner of Martin Marietta and Lockheed Martin) opened a missile plant south of Orlando.
But the biggest shift to urbanization came in the 1960s, when Walt Disney announced plans
to build a Florida theme park 10 miles southwest of Orlando. Today, the complex of Disney resorts— built on 12,000 acres purchased by Disney in the1960s—has helped the Orlando area become the leading tourist area in the United States, with 43 million visitors per year (Fogelsong 2001). Today, tourism accounts for 25 percent of the region's economy. Metropolitan Orlando has more than 100,000 hotel rooms, while Orange County's stock of citrus groves has dwindled to less than 10,000 acres.
The 2004 state of Florida population estimates pegged the seven-county region's total
population at approximately 3.4 million. The largest county by far was Orange County with a population of over 1 million. However, Polk, Volusia, and Brevard Counties all had populations of about 500,000, and Seminole County had a population of around 400,000 persons.
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In a region where most people live in unincorporated areas, no one city is dominant. There are more than 80 incorporated cities in the region, but Orlando, the largest at 208,900 persons (2004 estimate) is only about 6 percent of the region's total population (and only about 12 percent of the Orlando CMSA). No other city has even 100,000 persons; cities such as Palm Bay and Melbourne (in Brevard County), Lakeland (in Polk County), and Daytona Beach and Deltona (in Volusia County) have between 60,000 and 90,000 people.
Despite the number of cities, as of 2002 almost 1.8 million people in the region, or 52
percent, lived in unincorporated areas. More than 60 percent of residents live in unincorporated areas in Orange, Osceola, and Polk Counties. Only in the two coastal counties, Volusia (Daytona Beach) and Brevard (Cape Canaveral) do most residents live in incorporated cities. Hence, county governments play an extremely important role in managing growth.
B. Growth Management and Urban Form Policy
Florida has a long history of state-level growth management and open space protection policy that has affected metropolitan Orlando. One of the first pieces of state-level planning legislation was passed in Florida in 1972, out of concern for the water supply. This law, the Environmental Land and Water Management Act (ELMS), gave the state the power to designate "areas of critical state concern," along with the power to prepare local plans and regulations if local governments do not respond to state recommendations. The Orlando region includes one such area, the Green Swamp. (See discussion below.)
Also in 1972 Florida instituted a system for state and regional review of “Developments of
Regional Impact.” DRIs are defined as projects having a substantial impact on more than one county; such projects are reviewed for their impacts on land use patterns, public services and the environment. In the Orlando region the East Central Florida Regional Planning Council (ECFRPC) works with the state Department of Transportation, the local transportation planning organization (MPO), the water management district, and other local, state, and federal agencies.3
The state began requiring local governments to prepare comprehensive plans in 1975.
However, the law had little teeth until the framework for the current growth management system was created between 1984 and 1986. The cornerstone of this system is the Growth Management Act of 1985.
The Growth Management Act (GMA) requires local comprehensive plans to include specific
"elements," or chapters, including future land use, housing, transportation, infrastructure, coastal management, conservation, recreation and open space, intergovernmental coordination, and capital
3 After conducting a regional public hearing, the Regional Planning Council issues an advisory report to the local government with jurisdiction over the DRI project. Because this report is advisory in nature, the local government can approve the development or make other decisions with which reviewing agencies are not in accord. If so, reviewing agencies can appeal to the state Land and Water Adjudicatory Commission, which can override local decisions.
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improvements. The 1985 act also provided that local government should not approve new development unless capital facility capacity would be available “concurrent” with that development. Required facilities include roads, water, wastewater, drainage, solid waste, parks, and transit. The law also gave the state Department of Community Affairs the power to review local comprehensive plans, plan amendments and development regulations, and to approve or reject them.
Under the GMA local governments are encouraged to designate “urban service areas” in the
future land use element and on the future land use map.4 The GMA further advocates more compact growth patterns and less urban sprawl.
From the outset, the concurrency provision has been difficult to meet, due to lack of highway
capacity and inadequate state transportation funding. In 1993, Florida adopted updated ELMS legislation that permits development that does not meet concurrency to move forward if the local government has failed to implement its Capital Improvement Element, and if the developer makes a binding commitment to pay a fair share of the cost of needed facilities. Transportation improvements that have approved funding and are due for construction within three years are considered to meet the concurrency requirements.
In June 2005 the GMA was reformed through a package of legislation called “A Pay as You
Grow Plan for Florida’s Future.” The plan includes billions of dollars of state funds for roads, schools and water projects, and requires school concurrency by December 2008. The new law also streamlines the comprehensive plan amendment process, making it easier to develop within approved urban service boundaries.
The 2005 plan also recognizes the threat to continued growth posed by the state’s shrinking
supply of groundwater by requiring that adequate water supplies be available no later than the date of issuance of the certificate of occupancy for new construction. It also requires local governments to better coordinate their plans with those of the regional water management districts (Florida Department of Community Affairs website).
Most of the Orlando region is served by the St. John's River Water Management District
(SJRWMD), with the South Florida Water Management District covering the southern portions of Orange and Polk and the western portion of Osceola County.
The SJRWMD recently announced that, by 2020, the regional supply of groundwater will not
be sufficient to meet demand. At that point the region will need to tap into alternative sources, such
4 An urban service area (USA) refers to a line beyond which a city has decided that its infrastructure—typically sewer and water—should not extend. In many metro areas, urban service areas support a "tiering" system— that is, a system that directs public infrastructure into new areas in a particular sequence – in order to eliminate "leapfrog" development, encourage orderly urban expansion, and reduce the cost of public infrastructure. USAs resemble urban growth boundaries in the sense that they create geographical limits on urban growth (at least urban growth that requires the extension of public water and sewer systems). But they also tend to be more flexible and easier to move because they tend to be concerned with the geographical sequencing of growth rather than its constraint. See (Pendall, Martin, and Fulton, 2002)
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as the St. Johns River or the Atlantic Ocean. A spokesman for SJRWMD said, “You’re not going to run out of water, but what you might run out of is cheap water,” (Barnes, 2005).
Most counties in the Orlando region adopted comprehensive plans after the Growth
Management Act was adopted in 1985. The plans of four of those counties did not contain any strongly identified urban growth boundary or urban service area, although Florida's concurrency law does force local governments to sometimes address the geographical sequencing of growth through infrastructure policy.
However, Orange, Seminole, and Polk counties did include clearly designated areas of
urbanization in their plans. The first USA was designated in Orange County in 1991 and contained 65,000 acres. Both Seminole and Orange Counties drew lines on their future land use maps designating rural areas to the east. In Seminole, north of Orange County, the line is called the Urban/Rural Boundary. Polk County, located southwest of Orlando, has identified short-term Urban Development Areas and longer-term Urban Growth Areas, based on infrastructure sequencing, in its comprehensive plan.
In addition to growth management implemented by regulation and infrastructure policy, the
Orlando region has also been shaped strongly by Florida's open space acquisition efforts. Floridians have long been conscious of the need to protect natural resources and environmentally sensitive areas. And there is probably no other state where so much open space has been permanently protected through purchase with bond funds. The impact on urban growth patterns has been considerable.
State bonds of $20 million in 1964 and $40 million in 1972 were used to acquire outdoor
recreation lands. In 1979 the Conservation and Recreation Lands (CARL) program was established in the state Department of Environmental Protection (DEP). In 1981 the Save Our Rivers (SOR) program was established, also in DEP. SOR includes the Water Management Lands Trust Fund, which is distributed to the water management districts for land acquisition and protection.
The big move came in 1991, when a 10-year, $3 billion program of land acquisition using
state bonds commenced under the name of Preservation 2000, or P2000. P2000 funds helped acquire over one million acres in 60 counties. P2000 funds were allocated 50 percent to CARL; 30 percent to water management districts; 10 percent for programs including recreation, parks, greenways, trails, forestry, fish and wildlife; and 10 percent to Florida Communities Trust (FCT).
FCT began in 1991 charged with helping local governments implement their comprehensive
plans through land acquisition. The program is administered by DCA, the agency responsible for approving local plans. FCT funds can be used to further the goals of the conservation, recreation and open space, or coastal elements of local plans. Counties and cities over a certain size must provide local funds to partially match their FCT grants. As of June 2001 FCT funds have helped preserve over 40,000 acres statewide (Hollis and Fulton, 2002). Between 1991 and 1999, the seven counties in the greater Orlando region received over $63 million in FCT grants. Matched with almost
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$34 million in local funds, these counties preserved over 6,200 acres during the decade (Florida Communities Trust website).
Because of the popularity of P2000, Florida voters approved continued state funding in 1998.
Florida Forever, as it is known, is funded at $300 million per year. Its allocations are different, however. CARL will receive 35 percent; water management districts 35 percent; 8 percent for other programs; and 22 percent for FCT. This increases FCT funding from $30 million to $66 million per year.
According to the projects on the 2002 Florida Forever list, more than 140,000 acres in the
seven-county region have been preserved using funds from the CARL program, water management districts, and other sources. The total area that could eventually be preserved in these projects is almost 600,000 acres, or 12 percent of the estimated 4.8 million acres in the seven counties, including 147,111 acres in the Green Swamp (Florida Forever web site).
In 2001, the legislature established the Rural Land Stewardship Areas Program. This
permits up to five counties to use conservation easements to maintain designated areas in agricultural or other rural land uses. To date several counties have expressed interest in this program, including Lake in the Orlando region.
Another new development is a partnership between The Nature Conservancy and the U.S.
Department of Agriculture Natural Resources Conservation Service. In East Central Florida this will involve protection of the headwaters of the Kissimmee River in Osceola County. The South Florida Water Management District has targeted for protection almost 34,000 acres in the Kissimmee River’s upper basin, which is located in the greater Orlando region (Newman, 2002).
Some local governments as well have embarked on their own, locally funded land
conservation programs. In 1991 Brevard County voters approved a property tax of $0.25 per $1,000 value for 20 years to issue up to $55 million in bonds. These funds have been used to establish the Environmentally Endangered Lands Program (EEL), and have helped to protect more than 18,000 acres of threatened habitat. In addition, since 1993 Brevard has worked with The Nature Conservancy on land acquisition (Brevard County website).
In 1995, Orange County Commissioners approved $37.9 million in bonds which was used to
purchase some 10,000 acres of environmentally sensitive land. (Jackson, 2002). In 2003 Orange County created a program called Green PLACE—Park Land Acquisition for Conservation and Environmental protection. The program was recently funded with $20 million from the county’s public services tax (Garcia, 2005).
Like Orange County, in 1994 Polk County voters approved a property tax of $0.20 per
$1,000 value for 20 years for green space. Since that time the Environmental Lands Program has acquired 12,230 acres in 13 sites throughout the county (Battels, 2002, and Polk County web site).
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As for Seminole County, in 1990 voters there approved a $20 million bond to establish the Natural Lands Program. Since that time the county has preserved over 5,000 acres in wilderness tracts, nature preserves and ranches throughout the county (Seminole County website).
Volusia County was the first county in Florida to implement a local environmental land
acquisition program, enacting such a program in 1986. Since that time the county has purchased over 18,000 acres. In 2000 county voters approved a property tax of $0.20 per $1,000 value for 20 years. This tax is expected to provide $3 million per year for the new Volusia Forever land acquisition program, and $3 million per year for Volusia ECHO (environmental, cultural, historic and outdoor recreation projects) (Volusia County web site).
C. Recent Growth Patterns
During the 1990s, metropolitan Orlando grew by approximately 650,000 persons, from 2.4
million to 3.05 million persons—a growth rate of 27 percent. This was slightly slower than the 1980s growth rate, both in terms of absolute numbers and in percentage terms.
In assessing metropolitan areas, it is sometimes useful to compare growth rates in a "core"
county, where the central city is located, to those in the outlying counties. The core county in metropolitan Orlando is Orange County, where Orlando itself is located. Orange County has a population of about 900,000 persons, or almost one-third of the metropolitan area population. But comparing Orange to outlying counties is not very useful, because Orange itself is still growing fast and some outlying counties, especially along the coast, are in some ways more mature in their urbanization than Orange County.
However, examining the growth rates for the counties individually does help reveal some
patterns. Most of the growth in the immediate Orlando area occurs in Orange County, Seminole County to the north, and Osceola County to the south. During the 1990s, these three counties added 360,000 people -- 56 percent of the regional total. In raw numbers, Orange County continues to grow much faster than any other county (more than 200,000 persons in the 1990s) and Osceola has by far the highest percentage rate (60 percent in the '90s).
Polk and Lake Counties, to the west and southwest, grew by 19 percent and 27 percent
respectively, with their growth impeded to a certain extent by protection of the Green Swamp, which bisects their county line. The two coastal counties, Volusia (Daytona Beach) and Brevard (Cape Canaveral) grew by 20 percent each.
According to the National Resources Inventory (NRI), the urbanized land in the seven-county
Orlando region almost doubled from 1982 to 1997, from 479,000 acres to 925,000 acres. Although all counties grew quickly, Orange (153 percent) and Polk (115 percent) had the highest percentage
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increases, while Lake County (97,000 acres) urbanized the most land. The most rapid urbanization, according to the NRI, occurred between 1987 and 1992.5
In geographical terms, the pattern of growth is occurring along several distinctive corridors
that are shaped largely by open space protection and highways. As the 1990-2000 Census Urbanized Area map reveals, most new urbanization is occurring adjacent to the Orlando urban area. Much of it is occurring along the Interstate 4 corridor—which, in the metropolitan area, stretches from Lakeland and Winter Haven in Polk County through central Orlando and then northeast through Volusia County to Daytona Beach on the coast (Map 2). Much of the remaining growth is moving out of Orlando to the northwest into Lake Map 2 County, clustered around a series of small communities surrounding a series of lakes in the area.
Florida's aggressive efforts at
protecting open space have clearly helped channel growth into the I-4 corridor. Growth near Lakeland and Winter Haven has been re-directed away from the Green Swamp, which is close to the interstate and the major population centers in Polk County. The presence of the Ocala National Forest and the Wekiva-Ocala Connector to the north—mostly in Volusia County—have directed growth eastward along the interstate corridor.
Furthermore, the acquisition of major
chunks of open space along the St. Johns River, located on the border of Orange and Brevard Counties, has created a buffer between the main portion of metropolitan Orlando and the coastal communities such as Titusville, Port St. John, Cocoa, and Cape Canaveral.
5 This report uses both the NRI urban land and the Census Bureau's urbanized areas as reference points. These are different data sets that measure different things. NRI is a measurement, based on a sampling of aerial photographs, that seeks to measure all land converted even to low-density urbanization. The Census Bureau's urbanized area is a measurement of population density. For the seven-county Orlando area, however, the two measurements line up quite closely.
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More than 1.84 million acres are permanently protected in the seven-county area—35 percent of the total area of the region.6 The anchors are large federal holdings such as Ocala National Forest and Merritt Island National Wildlife Refuge, 140,000 acres of federal land adjacent to Cape Canaveral. But during the last decade, the stepped-up efforts of both state and county governments to protect open space in the region have increased reserves considerably.
Since its original inception in 1991 as Preservation 2000, Florida Forever has facilitated the
acquisition of more than 150,000 acres of land in the Orlando region, including 37,000 acres of land for the Wekiva-Ocala Greenway, and about 20,000 acres of the Green Swamp. A total of 500,000 acres has been targeted, including virtually all of the Green Swamp. More than 9,000 acres of land along the Econlockahatchee River has been acquired as well. (More detail on growth dynamics along that river will be discussed in the case study below).
The Green Swamp was designated as Central Florida’s only Area of Critical State Concern
in 1974. Covering 187,000 acres in southern Lake and northern Polk Counties, the Swamp includes the headwaters of several major rivers and has the highest groundwater elevation in the Florida peninsula. It is critical to the recharge of the Floridan Aquifer, the lowest part of the groundwater reservoir in the state. This aquifer is tapped by public water systems in Orlando and other cities, and is also a major supplier of industrial, irrigation and rural use water.
Between 1974 and 1991 Polk and Lake Counties passed three sets of Comprehensive Plans
intended to protect the Swamp, but by the late 1980s large residential developments were being proposed there. In 1991 the counties recommended changing the minimum lot size in the core of the Swamp from five acres to 20 acres. Because of strong opposition to this proposed downzoning, in 1994 the legislature created the Green Swamp Land Authority (GSLA), with $30 million for land protection. The GSLA was authorized to acquire “land protection agreements” (LPAs), similar to conservation easements. The process of crafting LPAs brought together the agricultural landowners and the conservation and environmental communities in the Green Swamp so that in 1996 the Comprehensive Plan with 20 acre zoning was approved by the state. Between 1994 and 1999 the GSLA acquired almost 18,000 acres in the swamp for protection through LPAs.7
Thus, the Green Swamp protection efforts have deflected growth away from certain areas of
Polk and Lake Counties despite their proximity to Interstate 4 and the Walt Disney complex in southwestern Orange County.
6 These figures pertain to surface area and include bodies of water. 7 However, the LPAs are monitored by the water management districts, which have their own easement acquisition programs. In 1999 the GSLA was terminated and its functions transferred to the state Department of Environmental Protection. The Green Swamp is on the 2002 list of approved projects for the Florida Forever land acquisition program. Land there continues to be protected through a combination of sources.
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While the open space acquisition efforts have created firm lines against urbanization in some parts of the region, the urban service areas created by the some of the county governments have not done the same. Perhaps the best example is the Urban Service Area for Orange County.
As it was originally adopted, the Orange County Urban Service Area covered 65,000 acres,
or approximately 100 square miles. Since 1991, however, the Orange County Board of Commissioners has expanded the Urban Service Area on 43 separate occasions, adding approximately 15,000 acres (23 percent)—the maximum amount of land that the Department of Community Affairs will permit the county to allocate to urban growth (McClendon, 2002) (Map 3).
Map 3
Of those 43 expansions, 22 of them—totaling more than 8,200 acres—were located in
County Commission District 4, which covers southeastern Orange County. And most of the land involved (4,500 acres) opened up land along the west bank of the Econlockhatchee River for development. Of the land added on the west bank of the Econ, 1,582 acres was for Avalon Park in 1993. Since that time the only large expansions of the county's Urban Services Area have been for the gigantic Horizons West project in western Orange County, located on the other side of the county (These projects and other issues regarding the Econ will be discussed in the case study below.) (Orange County Planning Division, 2003).
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In 2000 Orange County updated its comprehensive plan, making it more difficult to add rural land to the USA (Orlando Sentinel, December 10, 2000). The county also continues to update the Development Framework posted on its website (www.orangecountyfl.net/Dept/growth/planning). The plan designates two “growth centers,” one adjacent to Osceola County and the city of Kissimmee, and one adjacent to Lake County and the city of Mt. Dora. Under interlocal agreements new development in these growth centers will be served by utilities provided by the cities and not by the county. The plan also designates an activity center on International Drive, site of Sea World and other tourist attractions, as well as the Orange County Convention Center.
Even as Orange County has been expanding its Urban Service Area, the county has had to
deal with the city of Orlando, which increased its land area 30 percent during the 1990s by approving 200 different annexations. Many of them were in the same critical area of southeast Orange County.
In response to the city’s proposal to annex some 12,000 acres in both Lake Nona and the
Vista East area of southeast Orange County, the county began negotiations which led to a Joint Planning Agreement (JPA) between the two entities. The JPA, approved in the spring of 1994, includes a map defining where the city could annex over the next 12 to 24 years. This could potentially double the city’s size. The JPA also set permanent boundaries for the provision of public sewer service, with the service provider not to be changed by annexation. Under the JPA the city also agreed to provide sewer service to enclaves that are within its service area but served by septic tanks (Orlando Sentinel, 1994).
As of Census 2000, the seven-county Orlando metropolitan area had about 1.43 million
housing units, of which 796,000, or about 59 percent, were single-family detached units (Figure 1). What stands out in Orlando's recent patterns is the sheer amount of housing production. The region produced almost 1 million units in the 20-year period between 1980 and 2000 and almost tripled the housing stock in the process. As in many other parts of the nation, the percentage of new housing construction consisting of single-family detached units rose markedly during the 1990s. During the '80s—the peak period for housing production in metropolitan Orlando—only 44 percent of new construction was single-family detached housing (about 169,000 out of 382,000 units). During the '90s, that figure rose to 69 percent (about 189,000 out of 276,000 units) (Figure 2).
Perhaps the most striking aspect of Orlando's housing stock is that 14 percent of the units
(187,000 units in 2000) are mobile homes, and this figure is growing over time. Between 1980 and 2000, the region's housing stock grew by 96 percent, but the number of mobile homes grew by 135 percent. Almost as many people in metropolitan Orlando live in mobile homes as live in multifamily buildings of five units of more.
Unlike many older metropolitan areas, housing in metropolitan Orlando is not concentrated in
a core county. Orange County, where Orlando is located, accounted in 2000 for 400,000 units, or about 30 percent of the region's total. Orange County has approximately the same percentage of the region's population. The regional distribution of housing has been constant since the 1970s, with each county adding housing at about the same rate.
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Source: U.S. Census Bureau
Figure 1. Housing Type, Orange County and Outlying Counties, 2000
209,853
17,311
63,049 85,881
20,425
586,398
22,530
131,660
166,692
40,138
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
1 Unit Detached 1 Unit Attached 2-4 Units 5+ Units Mobile Homes
Orange County Outlying Counties
Figure 2. Housing Type, New Housing Production, Metropolitan Orlando, 1980s and 1990s
169,942
30,927 28,387
76,514 76,984
189,460
8,242 8,539
39,415 30,649
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
1 Unit Detached 1 Unit Attached 2-4 Units 5+ Units Mobile Homes
1980s 1990s
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Source: U.S. Census Bureau Where Orange County does differ from the rest of the region—and in a way that makes it
similar to other core counties—is in housing type. In 2000, only 53 percent of Orange County's housing stock consisted of single-family detached units, compared with 59 percent in the other counties. Orange County also has more multi-family units and fewer mobile homes than other counties. Half the multi-family units in the region are located in Orange County (148,000 out of 303,000), whereas the county was home to only slightly more than 10 percent of the region's mobile home stock (about 20,000 units out of 166,000).
Furthermore, the difference in the housing stock between Orange County and the other
counties increased in the 1990s -- especially in products other than single-family units. During the 1990s, about 71 percent of the housing units added in the outlying counties were single-family detached units, compared with only 62 percent in Orange County. Even though Orange County only added one-quarter of the region's housing units it produced almost two-thirds of the new multifamily units. Furthermore, Orange added fewer than 500 mobile homes, compared with 30,000 for the rest of the region (Figure 3).
In short, traditional multi-family housing units are most prevalent in Orange County,
accounting for almost half the housing stock. Outside of Orange County, almost 80 percent of residents live in either single-family detached units or in mobile homes.
Figure 3. Residential Production by Unit Type, 1990s Orange County and Outlying Counties
53,429
1,667 9,837
20,680
492
136,031
6,575
18,735
30,157
(1,298) (20,000)
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1 Unit Detached 1 Unit Attached 2-4 Units 5+ Units Mobile Homes
Orange County Outlying Counties
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Map 4 D. Orlando Open Space Case Study:
The Econlockhatchee River
Ever since Central Florida began to develop a robust urban economy in the 1950s, east Orange County has been a major battleground of potential development. In large part, this is because of its proximity between Orlando—the region's major urban center—and Cape Canaveral, which was one of the earliest drivers of employment and economic growth in the region. Aggressive efforts to preserve the St. John's River just west of the coast pushed development pressure closer to Orlando, and especially to the banks of The Econlockhatchee River.
The Econlockhatchee River—
commonly known simply as "The Econ"—is located about 15 miles east of Orlando. The Econ is one of the Orlando region's most significant bodies of water. It flows 36 miles north from Osceola County, through Orange County, and then northeast into Seminole
County, where it empties into the St. Johns River. It is one of the few rivers in central Florida that wasn’t “channelized” by the U.S. Army Corps of Engineers, and is an important wildlife and recreation corridor (Spear and Shenot, 2001, and Florida Department of Environmental Protection web site) (Map 4).
Much of the pressure to jump east of the Econ predates Orange County's modern growth
management efforts, which date back to the mid 1980s. The University of Central Florida was first located to the west of the river (as Florida Technological University) in 1963 and has since spun off the Central Florida Research Park. Another significant chunk of land was originally proposed for development in the 1960s as "Rocket City," a housing development for NASA employees working 30 miles to the east at Cape Canaveral. This proposal went bust when NASA's headquarters were moved to Houston, although part of it was eventually developed as a golf club with some 5,000 single-family homes (Brunson, 2002; Phillipps, 1987; Chapin, 2002).
Orange County first began to deal with development along the Econ in its growth
management plan in 1985. This plan designated five growth areas in the county. Three were located south of Orlando, including Disney World and Orlando International Airport. Two were located in east Orange County: the University of Central Florida and its Research Park, both north of State Route
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50; and an area then known as Huckleberry and now called Waterford Lakes, south of State Route 50 -- a few miles west of the Econ (Throne, 1985).
At that time, most of the land on the east side of the Econ was designated as rural, generally
zoned for one house per ten acres. The Wedgefield Golf & Country Club, which has its own wastewater and water treatment plants, was designated as a "rural settlement area". The next year, county commissioners approved the creation of International Corporate Park, east of the Econ and south of State Route 528 (the "Bee Line Expressway"). This 2,900-acre business park was approved in 1986, though it did not get its first tenants until 2000. Nevertheless, as a result of this approval, Orange County paid for many key pieces of infrastructure east of the Econ, including a $21.3 million landfill and a fire station to serve International Corporate Park (Snyder, 2000).
Critics also believe that the industrial park’s existence resulted in the approval of significant
residential development in the formerly rural area, on the grounds that its workers needed places to live. Over the next several years a number of important residential projects were approved in the area. In some cases, the concurrency requirement in the Growth Management Act required the county to install more infrastructure east of the Econ. In 1987, approval of a 1,700-unit housing project east of the Econ, Cypress Lakes, required the county to install $6 million worth of stormwater drainage facilities. Two years later, the East-West Expressway (State Route 408) was extended east to State Route 50 (Colonial Drive) (McBreen, 1987). In 1993, access to the area was further improved when "The Greeneway" was opened, connecting the Beeline Expressway on the east to Interstate 4 on the south. By 1988 runoff from construction had clogged the Econ River system, resulting in the county’s issuing warning letters to several developments in east Orange County (Poe, 1988).
But the flashpoint in the Econ battle began in 1990, when an investment group proposed
development of Avalon Park, a 9,000-acre development that straddled the Econ and was designed by the renowned New Urbanist firm of Duany Plater-Zyberk. By proposing development on both sides of the river, Flag Avalon Associates galvanized interest by the public and by resources agencies in the Econ. The St. Johns River Water Management District created a regional task force that recommended either a temporary building ban along the Econ or emergency safeguards to minimize runoff. Two years later, the district designated a 550-foot buffer zone on either side of the Econ -- a measure eventually adopted by Orange County in its planning policies (Regan, 1990; Regan, 1992).
In this environment, the developers went back to the drawing board to create a revised plan
for Avalon Park. The resulting plan was touted by the developers as the Orlando region's first New Urbanist community, with 4,000 homes and apartments, retail and office space, a golf course, three schools, and warehouse and industrial space. It envisioned attracting high tech jobs complementary to the University of Central Florida and the Central Florida Research Park, both of which are located nearby. The proposal was also advertised by the developers as a model of conservation planning. The proposal called for a 1,100-foot buffer along each side of the Econ—twice the size
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recommended by the Water Management District—and wildlife corridors. It covered only about 20 percent of Flag Avalon's 9,000-acre holdings (Wellons, 1993; Wellons and Lebowitz, 1993).
Even as revised, Avalon Park galvanized public opposition to more development along the
Econ. Orange County Commissioners approved the project in 1993. But to do so, they had to expand the county's Urban Service Area to the west banks of the Econ and alter the zoning from one house per 10 acres to an average residential density of 5 to 6 units per acre (Orlando Sentinel, 1993).
Since the Avalon Park development was first proposed, public agencies have acquired
almost 9,000 acres of land along the Econ for permanent protection. This includes about 2,500 acres sold as conservation land by Flag Avalon and purchased by Orange County and the St. John's River Water Management District between 1992 and 1994, and almost 4,000 acres purchased jointly by the county and the water district in 1996. In 2002, Orange County purchased another 1,280 acres at the headwaters of the Econ, and is working with the landowner to place the remaining 3,920 acres of the Holland Ranch into a mitigation bank (Jackson, 2002).
Even with all this conservation activity, it has been hard for Orange County to "hold the line"
at the Econ. In 1998 Linda Chapin, then Chair of the Orange County Board of Commissioner, proposed establishing a permanent eastern boundary for the USA at the Econ River. She also proposed a moratorium on development in the east County. Neither of those proposals was successful. In fact, in order to serve the Cypress Lakes subdivision originally approved in 1987, the Commissioners in 1998 voted to extend water and sewer lines east of the Econ. That extension has taken place and provides capacity not only for Cypress Lakes but also for the Bithlo, Wedgefield, and Christmas "rural settlements" in the eastern part of Orange County (Orlando Sentinel, 1993; Shenot and Stratton, 2000; Simmons, 2002).
All this activity has meant that development along the Econ has occurred at a rapid pace
even with the conservation efforts. An estimated 40,000 people moved into Orange County west of the Econ between 1990 and 2000. While the entire City of Orlando gained 21,277 residents during the 1990s, a single Census tract along South Alafaya Trail grew by 550 percent, or over 20,000 people. In fact, over the same decade, an estimated 85,000 people moved into the Econ River basin in both Orange and Seminole Counties. The Route 419 corridor, running north from Bithlo in Orange County to Chuluota, Oviedo and Winter Springs in Seminole County, has been a popular spot for residential development since the mid 1980s. And unlike Orange County, Seminole has not limited development to the west banks of the Econ (Shenot, 2001; Shenot, 2002; Golgowski, 2002).
Eastern Orange County remains a land use battlefield. Most recently, the owners of
International Corporate Park (ICP) have proposed development of a high tech corridor on their site east of the Econ. Their proposal is supported by Orange County Mayor Rich Crotty, as a way to link the University of Central Florida to the Orlando International Airport. Opponents point out that development there would endanger the tributaries and headwaters of the Econ River. In the spring of 2005 the County Commissioners put the ICP proposal on hold and approved a $350,000 study to
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“frame a vision for growth in east Orange County.” And a new coalition of environmental, business and government leaders in Central Florida, called “myregion.org,” released a 36-page document describing “seven places that must be saved” to preserve the Orlando region’s quality of life. The places include the Green Swamp, the Wekiva-Ocala Greenway, and the Econlockhatchee River (Orlando Sentinel, April 7, 2005; August 12, 2005; August 13, 2005; and August 14, 2005).
E. Conclusions about Metropolitan Orlando
Over the last 20 years, Orlando has been one of the fastest-growing metropolitan areas in the nation, doubling both its population and its housing stock. It has also expanded outward in dramatic fashion. Given the pace of Orlando's metropolitan growth, such outward expansion was inevitable. However, there is little question that the shape and direction of that outward expansion has been influenced by all the policy tools we described at the beginning of this paper.
Perhaps the most important conclusion from Orlando is that the state’s open space
protection efforts have been more important than the state’s Growth Management Act in shaping metropolitan growth.
This is not surprising when one considers the history and intent of the Growth Management
Act. When it was adopted in 1985, the law was not overtly focused on directing the geographical shape of metropolitan growth. Rather, it was focused largely on coordinating the construction of public infrastructure with the construction of private development.
This approach has had an influence on the metropolitan pattern, of course. But the "big
picture" pattern has been shaped more by open space. Most urban growth has occurred along the Interstate 4 corridor, which runs southwest-
northeast through metropolitan Orlando. It has been blocked by the Green Swamp to the west and the aggressive efforts to protect land along the St. John's River to the east.
Under the Florida system, local government comprehensive plans must be linked to local
plans to spend state open space funds. But this is sometimes a chicken-and-egg proposition. In the case of both the Green Swamp and the St. John’s River, local plans more or less had to conform to these large-scale preservation efforts. Bear in mind as well that most large-scale preservation funded by the state is initiated by special government agencies—principally water districts—that operate outside the realm of local land-use planning.
In battlegrounds such as the Econlockhatchee River, it is clear that preservation efforts and
land use regulation can sometimes work at cross-purposes, just as our previous paper on conservation and growth management suggested. Simply put, the metropolis as a whole does not have a consistent effort to save the Econ, as it has had for the Green Swamp, and this has created a confusing policy situation. Orange County created an Urban Service Area for eastern Orange
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County as called for in the Growth Management Act. But the county altered the urban service line many times in response to developer requests, and county officials were hard-pressed to resist Avalon Park, a large-scale development that was receiving national attention in New Urbanist circles.
As a result, the St. John's Water Management District, private conservation organizations,
and sometimes even the county itself had to expend large sums of money to purchase land along the Econ from the landowners after the county had signaled its willingness to permit development—a signal that inevitably increases the value of the land. This is perhaps the most important point about the lack of coordination between growth management and open space protection—that government agencies often must spend large sums of taxpayer dollars to buy their way out of land-use decisions that conflict with open space policies.
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IV. METROPOLITAN SEATTLE
With a population of well over 3 million Map 5 people, metropolitan Seattle is, according to Census 2000, the 13th-largest metropolitan area in the United States and the largest in the West outside of California. In the last 20 years, it has also become one of the most progressive metropolitan areas in the United States in terms of managing metropolitan growth. The creation of a regional growth "vision" in the late 1980s, followed by the passage of the Washington Growth Management Act in 1990-91, has created a much different environment for the use of growth policy tools in Seattle than prior.
For the purposes of this study, we have defined the metropolitan area as including the four counties (Snohomish [Everett}, King [Seattle], Pierce [Tacoma], and Kitsap [Bremerton]) which cover the bulk of the land ringing the Puget Sound. This four- county area, which includes about 6,000 square miles and had a population of almost 3.3 million persons in 2000, is the same area covered by the Puget Sound Regional Council, metropolitan Seattle's regional planning agency. It is somewhat smaller than the Seattle consolidated metropolitan statistical area identified by the U.S. Census Bureau (Map 5).8
A. Regional Setting: Geography and History
Like many metropolitan areas in the western United States, metropolitan Seattle is sharply
defined by topographical features, and partly for this reason it is geographically separated from other
8 The Census Bureau includes six counties in the Seattle CMSA. In addition to the four we used, the Census Bureau includes Thurston County (where Olympia, the state capital, is located), and Island County (consisting of two islands in the northern part of the Puget Sound). These two additional counties combined have a population of 275,000. Therefore, more than 90% of the population in the Seattle CMSA is contained in our four-county study area.
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metropolitan areas. These geographical features, combined with the region's historical growth patterns, have helped to shape the pattern of metropolitan growth.
Metropolitan Seattle is located largely in the Puget Sound basin—a fertile, coastal plain that
stretches along the east side of the Puget Sound to the Cascade Mountain range, and from the upper bay of Puget Sound to coastal plans to the south of the city. It is punctuated by many bodies of water—principally the Puget Sound itself, which covers approximately 1,020 square miles and separates most of metropolitan Seattle from Kitsap County.9 Two other major bodies of water also help shape Seattle's metropolitan region—Lake Washington and Lake Sammamish, both located east of Seattle. Lake Washington in particular serves to separate Seattle from many of its eastern suburbs.
Metropolitan Seattle averages almost 40 inches of rain per year, mostly in the winter, and for
this reason most of the region was originally heavily forested. Indeed, Seattle began in the mid 19th Century as a "sawmill town," supplying lumber for rapid urban growth in California during and after the Gold Rush. Slivers of forest are still interwoven into the urbanized region outside of metropolitan Seattle along the east coast of Puget Sound. Farther east are the more rugged uplands of the Cascade Mountain Range, most of which is held by the U.S. Forest Service, the National Park Service, and the Washington Department of Natural Resources. In between the urbanized area and the forest is low-lying agricultural land that has served as the locus and sometime battleground for most new urban growth in metropolitan Seattle for the past 20 years.
Over the past century and a half, the Seattle region has repeatedly "reinvented" itself with
new economic activities, most of which remain in the region in some fashion. Timber remains an important part of the region's economic base. Seattle’s deep, ice-free, and protected harbor on Puget Sound provided the basis for a thriving business in international trade, and today the Port of Seattle is the sixth largest container port in the US (City of Seattle 2002). The region was an important shipbuilding center during World War I, and later became a major aviation manufacturing center thanks to Boeing (which recently relocated its headquarters to Chicago). Most recently, Seattle has emerged as a leader in computer software and online marketing, thanks principally to Microsoft (located in the first-ring suburb of Redmond, east of Lake Washington) and online companies such as Amazon.com.
Seattle and King County remain the dominant jurisdictions in the region in terms of
population. With a population of approximately 1.7 million, King County is home to half the people in metropolitan Seattle. With 563,000 people according to the 2000 Census, Seattle is by far the largest city. Indeed, Seattle and King County are the most populous city and county in the Northwest. In population, Seattle is followed by Tacoma (Pierce County, south of Seattle), which has just under 200,000 people; Bellevue (an older suburb east of Lake Washington), with 106,000 people; and Everett (the largest city in Snohomish County, north of Seattle), with 93,000 people. The 9 Measurement estimated at mean high water mark by John Lincoln, University of Washington, Department of Oceanography, for the Pacific Science Center’s Puget Sound Model. http://exhibits.pacsci.org/puget_sound/PSSummary.html.
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leading city in Kitsap County, Bremerton, numbers only 37,000, a figure exceeded by many suburban jurisdictions on the east side of the Puget Sound.
B. Growth Management and Urban Form Policy
Washington's state framework for growth management has been adopted incrementally over the last 30 years. Two important pieces were put into place in the 1970s and the third was adopted in two pieces in 1990 and 1991. This last piece of legislation, the Growth Management Act, was adopted in the context of intense activism during the late 1980s in the Seattle area around the issue of metropolitan growth (Pivo, 1998).
Washington adopted the State Environmental Policy Act in 1971. This law is one of 17 so-
called "mini-NEPAs—that is, state equivalents of the National Environmental Protection Act (Mandelker, 1997). Like NEPA and other mini-NEPAs, Washington's SEPA (as it is commonly called) functions as an environmental review law—that is, plans and projects are reviewed for their environmental impact and, in many cases, significant environmental impacts are minimized through changes in the project and other "mitigation" measures. SEPA is used more expansively than any other mini-NEPA in the country except for the California Environmental Quality Act.10 Because mini- NEPAs represent a parallel process to land-use planning and project approval, it has often been difficult to meld the two effectively (Mandelker, 1997).
The Washington Shoreline Management Act was adopted in 1971 and ratified by state voters
in a 1972 referendum (Washington State Department of Ecology, 1999). The law requires each city and county to adopt a shoreline master plan program dealing with areas adjacent to the ocean, bays and sounds, streams and lakes, upland areas 200 feet landward from the edges of these waters, and wetlands and deltas and to land in the 100-year floodplain. Once the local shoreline plans are in place, permits are required for most projects, although some, such as single-family residences, are exempt. Decisions may be appealed to state hearing boards, which specialize in shoreline cases in some counties but dovetail with the Growth Management Act (described below) in others (Settle, 1998).
The passage of these two laws made environmental protection the pre-eminent growth policy
issue in Washington state during the 1970s and '80s. Also beginning in the 1970s, King County undertook an ambitious farmland protection program. With voter approval in 1979, the county issued $50 million in bonds and purchased the development rights to more than 12,000 acres over the next six years (Druffel and Barkley).
10 In 1992, the last year for which a good account is available; SEPA generated 364 Environmental Impact Statements and 1,862 actions that found no significant impact on the environment (Landis, 1995). (Anecdotal reports suggest that the EIS’ is less frequently used now; instead, “mitigated determinations of non- significance” are used as a less costly and time-consuming alternative, just as “mitigated negative declarations” are used in California.)
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During the 1980s, however, a new wave of urban growth sparked significant growth management activism in metropolitan Seattle and especially in the city of Seattle and King County. The office construction boom of the period affected downtown Seattle significantly. Some of the tallest skyscrapers on the West Coast were constructed there, leading to a successful growth limitation ballot measure in 1989 (California Planning & Development Report, 1989). At the same time, the success of Microsoft and the general trend toward job decentralization dramatically altered older, low-scale suburbs such as Redmond (Microsoft's headquarters), turning them into job centers with large corporate campuses. It was during this period as well that King County adopted its first comprehensive plan that contained an infrastructure-driven urban growth boundary.
The next step in the creation of the Washington Growth Management System turned out not
to be the passage of the law, but the creation of a kind of ad-hoc regional growth management strategy for the Seattle area. In response to the problems of urbanization and citizen unrest about growth, the Puget Sound Council of Governments initiated an effort in 1987 known as "Vision 2020".
Although PSCOG was in many ways a typical regional planning agency -- it had little real
clout and was often hostage to the parochial concerns of the local elected officials on its board -- over a three-year period the Vision 2020 effort did produce a surprisingly strong shared vision for a different urban growth model in the region (Pivo, 1998).
Specifically Vision 2020 called for:
• Containing urban sprawl through the use of regional boundaries and a regional open space system
• Organizing urban development into compact communities, focusing on a hierarchy of
"central places" including urban centers throughout the region • Protecting rural areas by promoting the use of rural lands for farming, forestry, recreation,
and other rural uses • Providing a greater variety of housing choices in all parts of the region, including accessory
units, townhouses, and small-lot single-family houses • And creating a regional transportation strategy that focused on creating a high-frequency,
high- speed bus and rail transit system connecting the urban centers. In an attempt to implement this new vision, the local governments in the Seattle area
disbanded PSCOG and replaced it with a new entity, the Puget Sound Regional Council (PSRC). Unlike PSCOG, the Regional Council included a weighted voting system that favored existing urban areas and also included representation from the Washington Department of Transportation and the region's three major ports. However, the PSRC did not have any implementation power.
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Partly as a result of the Vision 2020 process, the Washington State Legislature began tackling growth management as an issue in 1989 (Other political considerations played a role, but the “bottom line” was that the Seattle region had enough political clout to force the Legislature to move the growth management agenda.) The result was a state Growth Management Act passed in two pieces. The first piece was passed in 1990. The second piece was passed in 1991 after state officials defeated a strong environmental initiative in the fall of 1990 with the promise of further action. As finally adopted, the law includes five core mandates (McCormick, 2002).
These are:
1. Natural resource lands of long-term commercial significance must be designated and
conserved. 2. Environmentally critical areas must be designated and protected. 3. New growth must be directed to Urban Growth Areas, which must be designated by the local
governments. 4. New development must be contingent on transportation and other public facilities
concurrency. 5. Local governments may not exclude essential public facilities or affordable housing from their
jurisdictions
The law created a whole new system, which provides some local flexibility without a statewide framework. The system is not entirely top-down; local governments are responsible for complying with it individually, and the law is enforced largely through three land-use appeals boards, including one that covers just the Seattle area.
Among other things, the law required counties to adopt comprehensive plans; among other
actions, King County revised its existing comprehensive plan in 1994 to add many features as a result of the Growth Management Act, including a new zoning district known as an "Agricultural Protection District," which preserves agricultural zoning in selected areas. Most of these districts surround farmland whose development rights were purchased by King County in the 1980s.
Most significantly, the law required the three urban counties on the east side of the Puget
Sound (King, Snohomish, and Pierce) to work together to create an Urban Growth Area and a regional plan. Eventually, it was agreed that Vision 2020 and the Puget Sound Regional Council would be used as important tools in this effort. (Kitsap, which is also part of the Puget Sound Regional Council, was required to create a separate Urban Growth Area.)
The Urban Growth Area that resulted from the Growth Management Act does not look clean
or pretty on a map (Map 6). Rather, it is the result of much negotiation among local governments in the region, as well as recognition of previous urbanization that was shaped within a regional growth management policy. However, there is little question that it provides an important framing device for future regional growth. The UGA includes about 1,000 of the region's 6,000 square miles (roughly 15 percent) but includes 85 percent of the region's existing population.
29
Map 6 "Seattle's Urban Growth Area
acknowledges that the urban zone is not—and should not be—a continuous 'circle' around the center city. Rather, it is a series of urban places, some connected and some separated by open space," (Calthorpe, 2001).
A complementary component of the
Seattle area's regional growth policy is the "urban centers strategy." Vision 2020 called for the designation of a "hierarchy" of places. In creating a growth strategy, the PSRC has designed 21 "urban" centers of regional significance, including downtown Seattle, four other Seattle neighborhoods, several older suburban downtowns, and several emerging suburban job centers. The strategy also designates dozens of other town centers and industrial and manufacturing centers of regional significance. These centers contain only 2.4 percent of the region's land and 5 percent of the region's population (though population density in the centers is double that of the region as a whole). However, these centers contain 400,000 jobs, or 30 percent of
the region's total. Regional policy calls for a concentration of both new jobs and new housing construction in the future. Furthermore, they are expected to form the spine of an enhanced regional transit system. Seventeen of the 21 centers are designated to serve as major transit centers in the near future. C. Recent Growth Patterns
During the 1990s, the four-county metropolitan Seattle area grew from about 2.75 million people to about 3.28 million people—an increase of slightly over 500,000 people, or about 16 percent. This growth was somewhat less than the growth in previous decades.
King County added the most people (229,000) but had the lowest percentage increase in
population (15.2 percent). The highest percentage increase (30.2 percent) was in Snohomish County.
30
According to the National Resources Map 7 Inventory, metropolitan Seattle increased its urbanized land by about 50 percent between 1982 and 1997, from 410,000 to 627,000 acres (Map 7). King County, which created a precursor to the current urban growth boundary in the mid 1980s, grew much more slowly than the other three counties (36.3 percent). Snohomish and Kitsap increased their urbanized land by more than 70 percent. According to the NRI, land urbanization was much more prevalent during the 1987 to 1992 period than either before or after.11
The Growth Management Act
encouraged the annexation of land and the incorporation of new cities, especially in King County and especially along the "eastern front" of the Urban Growth Area. Covington, Maple Valley, and Sammamish—all of which were communities that protruded into the rural land to the east—incorporated during the mid- to-late 1990s, apparently encouraging more concentration of urban development within their boundaries and, therefore, inside the UGA itself (Map 8).
During the 1990s, most residential growth occurred inside the UGA. Progress was
especially rapid in the outlying counties once the UGA was created. Because King County had created a growth boundary in 1985, even in the early 1990s more than 80 percent of residential permits were issued inside the growth boundary. In the outlying counties, however, only about 53 percent to 56 percent of residential permits each year were being issued inside the growth boundary (Figure 4).
By 2000, however, 70 percent of residential permits in outlying counties were issued inside
the UGA, an increase of 15-20 percent from the early 1990s. For the region as a whole, the percentage of residential permits issued inside the UGA grew from 63 percent in 1992 (the low year) to 77 percent in 2000. In King County the figure approached 90 percent.
11 As explained in Footnote 3, the NRI urban land is a different type of measurement than the Census Bureau's urbanized area. While these two measurements seem to be comparable in Orlando, this is not as true in Seattle. The 2000 Census Urbanized Area contains about 20% more land than the 1997 NRI urban land measurement.
31
Map 8 Furthermore, it does appear that the Agricultural Protection Districts in King County successfully deflected growth during the 1990s. The 1994 Comprehensive Plan identified five APDs in the county—the Sammamish River, the Snoqualmie River, the Lower and Upper Green Rivers, and the Enumclaw Plateau. The core of these areas was the 12,800 acres of farmland on which King County had purchased development rights, but the total amount of land was much greater—41,268 acres. The Enumclaw Plateau is located southeast of Seattle on the "eastern front." The Green River APDs were small units surrounded by mostly urbanized areas around Auburn and Kent. The Sammamish River APD is located just north of Redmond. The Snoqualmie River APD is located in the middle of the eastern front east of Redmond, and it was where the county purchased the most farmland rights in the 1980s. These areas were virtually untouched by residential growth in the 1990s. Not only were the farmland protection properties off- limits for development, but the
larger APDs—protected only by regulation—received very few permits (The Sammamish and Snoqualmie APDs are discussed in more detail in the case study.)
What is remarkable is that this increased geographical concentration of residential growth
occurred at a time when single-family development was actually increasing as a percentage of overall housing growth —and when the traditionally lower-density outlying counties were capturing a greater share. As of the 2000 Census, the four-county Seattle metropolitan area had about 1.28 million housing units, of which about 800,000 (63 percent) were single-family detached units. About 60 percent of these housing units were in King County. Furthermore, multi-family units were very concentrated in King County. Whereas the number of single-family units in King County and the outlying counties was very similar in 2000, King County had twice as many multi-family residences as the outlying counties (Figure 5).
But during the 1990s—the same decade that the UGA was instituted—the percentage of
single-family detached production went up, and housing production in the outlying counties exceeded housing production in King County for the first time.
32
Source: Puget Sound Regional Council
Source: U.S. Census Bureau
Figure 4. % of Residential Permits Located Inside UGA, 1991-2000
82.8% 83.2% 82.5% 83.5% 83.5% 85.7% 85.1%
89.4%
50.7% 53.2%
57.2% 58.0%
62.5% 62.6% 65.3% 66.0%
69.2% 70.4%
88.8%
82.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
King County Outlying Counties
Figure 5. Housing Type, King County and Outlying Counties, 2000
423,328
23,828 41,026
227,735
382,897
23,267 7,043
108,110
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
1 Unit Detached 1 Unit Attached 2-4 Units 5+ Units
King County Outlying Counties
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Regionwide, 57.9 percent of all new housing during the 1990s was single-family detached units (126,000), compared with only 45.9 percent (91,000) during the 1980s. The number of single- family attached units doubled, though it was still a small percentage of overall production. Multi- family production dropped from 81,000 during the 1980s (40.7 percent) to 64,000 (29 percent) (Figure 6).
Source: U.S. Census Bureau Housing production in the outlying counties exceeded production in King County for the first
time ever—and that production was heavily tilted toward single-family development. In the 1980s, King County produced approximately 109,000 housing units, compared to 90,000 in the outlying counties. In the '90s, that relationship was reversed -- the outlying counties produced 119,000 housing units compared to 100,000 for King County. Nearly 68 percent of that production in the outlying counties was single family detached units. Further, the number of single-family units rose by 60 percent in outlying counties from the '80s to the '90s (48,000 to 80,000) and less than 10 percent in King County (42,000 to 45,000).
Multifamily construction was down in the 1990s in King County but it remains concentrated
there. Multifamily construction represented 40 percent of King County housing production and less than 20 percent in the outlying counties.
Figure 6. Residential Production by Housing Type, Metropolitan Seattle, 1980s and 1990s
91,140
9,718 16,519
81,146
126,393
18,668
9,647
64,596
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1 Unit Detached 1 Unit Attached 2-4 Units 5+ Units
1980s 1990s
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But perhaps the most striking difference in housing production is the difference between the city of Seattle and the rest of the region. Whereas 29 percent of housing production regionwide was multifamily in the 1990s, it was 74 percent of the production in Seattle. There is a significant difference between Seattle and the rest of King County and an even more pronounced difference between Seattle and the outlying counties, where the ratio of single-family detached to multifamily is almost a mirror image (about 3.5 to 1).
Map 9, which depicts mostly King County, shows the difference between the even
distribution of single-family (SF) construction and the extreme concentration of multi-family (MF) construction (mobile homes (MH) are also shown). This trend is likely to continue, especially in King County, as the county pursued such policies as a transferable development rights program which permits transfers of development rights from rural, undeveloped areas to high-density neighborhoods in Seattle (See case study).
Map 9
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It is also worth noting that, in addition to shifting development out of farming areas and inside the UGA, regional policy has focused on driving development inside the 21 designated regional growth centers. These growth centers are all located inside the main UGA east of the Puget Sound except for Bremerton, the largest community in Kitsap County.
These centers were mostly selected because of their employment density and their potential
for high-density housing development. On average, they are 730 acres in size and together they account for only 2.4 percent of the land area inside the UGA. However, they currently contain 5 percent of the region's population, 6.6 percent of its housing, and almost 30 percent of its employment. Altogether these centers contain more than 450,000 jobs on a land area of 24 square miles. They have a population of approximately 140,000 persons living in 77,000 housing units.
A recent analysis by the Puget Sound Regional Council found that these centers did not
grow any faster in terms of population and housing during the 1990s than the region as a whole (Figure 7). Furthermore, the analysis found that most of the housing production occurred in two centers, downtown Seattle and downtown Bellevue. If current housing production levels continue to 2020, then these centers would add between 30,000 and 35,000 new housing units, achieving about 70 percent of the housing target set by the Regional Council (Puget Sound Regional Council, 2002). Thus, while the regional growth policies have driven residential development out of farming areas and inside the UGA, it has not pushed all development into the centers.
Source: U.S. Census Bureau
Figure 7. Population and Housing Growth, Metropolitan Seattle, 1990s
18.8%
20.6%20.7% 20.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Region 21 Centers
Population Growth Housing Growth
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D. Seattle Case Study: The Sammamish and Snoqualmie River Valleys
Much of the recent fights over urban growth in metropolitan Seattle have occurred in the low- lying King County agricultural lands east of Seattle and Lake Washington, in between the developed part of the region and the Mt. Baker-Snoqualmie National Forest to the east. It is in these areas that low-density residential development has occurred and where most land conservation efforts have been focused. Partly for this reason, the Urban Growth Area boundary—which, with a few exceptions, runs mostly north-south through this territory—has become a significant tool in shaping metropolitan growth.
The two valleys, which cover almost 200 square miles, are an excellent location for a case
study on metropolitan growth for many reasons. They are subject to considerable urban growth pressure because of proximity to Redmond and other emerging job centers east of Lake Washington. And in fact, many of the policy tools discussed elsewhere in this paper are in play there, including:
• an urban growth boundary • an agricultural protection district • purchase of development rights on agricultural land • transfer of development rights from natural land • the presence of large chunks of federally owned land.
Altogether, the study area we chose for the Sammamish-Snoqualmie area covers more than
250 square miles, about 4 percent of the region's total land and approximately 12 percent of King County's land.12 Excluding the National Forest, which is a barrier to urban development, the study area includes about 187 square miles. Of this amount, about 50 square miles is located inside the Urban Growth Area—about 5 percent of the regional total and 11 percent of the King County total. Some 23 square miles are located inside King County's Agricultural Protection Districts (APDs), 36 percent of the total area in APDs. In addition, the area contains most of the 12,800 acres of agricultural land whose development rights were purchased by King County in the 1980s. Few major highways traverse this area. State route 202 runs along the southern portion of it, and Interstate 90 runs just to the south of it.
According to the 2000 Census, the Sammamish-Snoqualmie area had about 170,000
residents. This was a 37 percent increase from 1990, but this rate of growth is much slower than in the 1970s and 1980s, when the population doubled each decade.
The Sammamish-Snoqualmie area stretches from Redmond and Lake Sammamish
eastward along the Snoqualmie River and the cities of Duvall and Carnation to the National Forest boundary. The main UGA boundary hugs the developed part of the metropolitan area around 12 In terms of King County's Community Planning Areas, this case study area covers virtually all of Bear Creek and East Sammamish, most of the western portion of Snoqualmie, and some of the northern portion of Tahoma/Raven Heights.
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Redmond, but reaches much further east to accommodate the rapid growth in the newly incorporated city of Sammamish. Most of the land along the Sammamish River and Lake Sammamish is heavily urbanized and located inside the UGA. However, the Sammamish River Agricultural Protection District is located along the river north of Redmond, and the land within that district is almost completely protected by development rights purchases by King County.
The Snoqualmie River Valley lies approximately five miles east of the main UGA boundary,
and is largely contained within King County's two Agricultural Protection Districts covering the Snoqualmie. Two cities with non-contiguous UGAs are located on the east side of the river—Duvall in the north and Carnation in the south. The agricultural areas along the river to the north and west of Duvall—bordering Snohomish County—represent the largest concentration of agricultural land protected through King County's purchase of development rights program in the 1980s. Carnation serves as the divider between the two Agricultural Protection Districts along the river.
The five-mile area in between the main UGA and the Snoqualmie River is mostly rural land
subject to extreme pressure for suburban growth. It is not protected by any agricultural policies, and it is located less than 10 miles from Microsoft's headquarters in Redmond. There is one other freestanding area that has been placed inside the UGA, which is located just west of the river a few miles due east of Redmond.
Similarly, there is considerable land located farther to the east in between the Snoqualmie
River and the National Forest. Although removed from job centers, this land too is subject to pressure for low-density development; although it is outside the UGA, it is not located in the county's agricultural zone and it is not part of the National Forest. Some of this land, especially in between Duvall and Carnation, was categorized by the Census Bureau as part of the urbanized area in 1990.
Up until the passage of the King County Comprehensive Plan in 1985, which contained a
precursor to the Urban Growth Area boundary, most the rural lands in the case study area were zoned for one-acre lots. The 1985 plan downzoned virtually the entire rural area for small-scale agriculture. The Sammamish Valley Agricultural Protection District was zoned mostly for 10-acre lots and was used for sod and truck farms. The Snoqualmie Valley Agricultural Protection District was zoned for many 10-acre lots but also for many 35-acre lots to accommodate dairy farming (Wolf, 2003). The remaining rural areas—in between the UGA and the Agricultural Protection Districts— were zoned mostly for 2.5- and five-acre lots. Urban development was also discouraged in this area by the county's strict infrastructure policy, which limited sewer hookups in rural areas.
When the Urban Growth Area was first introduced in the early 1990s, the Sammamish-
Snoqualmie area was one of King County's ripest for new residential growth. Even though the area represents only 4-to-5 percent of the county's land area and its UGA area, in most years in the early 1990s it accounted for about half of all residential permits issued outside the UGA in King County. As a result, the Sammamish-Snoqualmie area fell far behind the rest of the county in building within the UGA. In the early '90s the rest of King County was issuing 90 percent of its residential permits inside the UGA. In the Sammamish-Snoqualmie area, that figure hovered around 50 percent.
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This trend appeared to be driven largely by two things. First was the boom in high-end jobs
in the area immediately west of the rural zone, especially in Redmond, where Microsoft is headquartered. "We never envisioned there would be that many rich people in Redmond who wanted to buy a 10-acre lot and build a mansion on it," said King County planner Karen Wolf (Wolf, 2003). Second is Washington's vested rights law, which allowed subdividers already in the pipeline to finish their projects in spite of the fact that they were now located outside the UGA. In Washington, vesting occurs when the building permit or application is applied for, not when it is granted (McCumber, 1990).
During the decade of the 1990s, these patterns changed somewhat. But it is important to
note that the Agricultural Protection District designation, buffered of course by the purchase of development rights in the 1980s, effectively "held the line" against the encroachment of urban growth. In the 10-year period from 1991 to 2000, only 68 residential permits were issued inside the APDs contained in the study area, out of a total of 11,071 total permits (0.6 percent of the total). Thus, the combination of the agricultural designation and the purchase of development rights do appear to have preserved the Snoqualmie River Valley as a farming region.
The effects of the UGA, however, were slower to be revealed. The agricultural preservation
effort appears to have had had the effect of pushing fairly low-density suburban growth to either side of the Snoqualmie River Valley but still outside the growth areas. On the east side of the river in particular, residential growth occurred at fairly low densities. Relatively speaking, little growth occurred inside the UGA around Duvall and Carnation.
During the 1990s, however, this pattern changed. Figure 9 shows residential permits broken
down by two time periods—from 1991 to 1995 and from 1996 to 2000. During this period, the number of residential permits issued inside the UGA increased from 55 percent to 69 percent. But because overall building activity was greater during the second half of the 1990s, the number of building permits issued outside the UGA declined only slightly (from 2,100 to 1,900).
What is most obvious is that, over time, fewer low-density permits were issued on the east
side of the river. Much more growth was driven inside the UGA of the two cities along the river, Duvall and Carnation. Considerable growth still occurred in scattered areas west of the river near Redmond and Sammamish, but overall that pattern thinned out. There was also much more concentrated building activity in the UGA around the city of Sammamish, which incorporated in 1998 largely as a byproduct of the Growth Management Act. The Redmond area also clearly saw more building activity inside the UGA during the latter half of the 1990s, and very little activity immediately to the east of the UGA.
The nature of housing in the Sammamish-Snoqualmie area also changed somewhat during
the 1990s. The area was traditionally developed overwhelmingly with single-family detached houses. As of 1990, 81 percent of all housing units in the study area were single-family detached
39
homes, and this proportion had remained more or less constant during the building boom of the 1970s and 1980s, when the number of units grew from 8,600 to 34,000.
In the 1990s, however, only 65 percent of the housing production in the study area consisted
of single-family detached homes (12,300 out of 18,800). This was still higher than the region as a whole and much higher than the rest of King County, but it was lower than the figure for the outlying counties. Furthermore, it ran counter to the trend in the rest of the region, which saw the percentage of single-family units produced increase during the 1990s. Much of the shift in the case study area— as in the region as a whole—was toward single-family attached units. The number of attached units in the case study area quintupled between 1990 and 2000, from about 600 to about 2,500.
About 20 percent of housing production in the case study area consisted of multi-family
projects of five or more units. Virtually all of these projects were built inside the main UGA on the western edge of the study area, especially in Sammamish.13
Thus, it can be reasonably concluded that the combination of growth policy tools in place in
the Sammamish-Snoqualmie study area pushed growth out of the designated farming areas. Over time, they pushed some single-family construction inside the UGA, where those single-family homes were probably built at higher densities. Although anecdotal evidence suggests that single-family lot sizes in Bellevue and Redmond are declining, sometimes to as little as 4,000 square feet (Lewandowski, 2003), single-family densities have remained relatively low compared to the rest of the region. Average permit density in Redmond, for example, was 4.8 units per acre between 1995 and 2000. For Bellevue, the figure was 2.8 units per acre. The rural cities of Carnation and Duvall approved projects at approximately 2 units per acre. This compared with 6.6 units per acre in the western part of King County (Seattle) and 4.2 units per acre in the southern portion of the county (King County Buildable Lands Evaluation Report, 2002).
It could even be argued that the growth policy tools, in combination with market forces, had
moved demand from lower-density rural areas on either side of the Snoqualmie River Valley to attached and multi-family units inside the main UGA to the west. Even if this is a stretch, there is little question that the combination of Agricultural Protection Districts and purchase of development rights has done a much better job of protecting the farming areas in the Snoqualmie River Valley than the UGA has done in protecting other rural areas.
While this geographical shift in demand may be a reasonable conclusion from the data
contained in the case study, it is literally true in at least one case. Yet another policy tool that the King County government has pursued is a program to transfer development rights from sensitive areas to areas designated for urbanization. Most typically, TDRs are transferred from one undeveloped area, which is preserved, to another, which is built more densely. Furthermore, most TDR programs permit transfers only within the same jurisdictions.
13 The map and the statistics are not from the same data. The statistics are derived from the decennial Census. The map is derived from residential permit data provided by the Puget Sound Regional Council.
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But in the one of the most unusual TDR programs in the nation, King County and Seattle
have reached an agreement to permit density transfers from rural areas in eastern King County to urban neighborhoods in Seattle. And the first transfer involved sensitive land in the Snoqualmie River Valley. In 2002, King County created the first transfer by purchasing the development rights on 443 acres of land near Carnation for $2.8 million. The land is located in a flood-prone location at the conjunction of the Snoqualmie and Tolt rivers, and represents part of an effort to save natural as well as agricultural areas in the Snoqualmie Valley.
It is likely that the rural area outside the UGA will be better protected in the future, but not as
well as the farmland is protected inside the agricultural protection districts. There appears to be capacity to build some 5,000 additional units on platted land in the rural area, although no new plats have been approved in the last two years (Lewandowski 2003). Thus, it would appear that the agricultural protection districts have succeeded in keeping urban development out, and the UGA has gradually drawn more growth inside the boundary. The policy tools have slowed, but have not effectively stopped, large-lot residential subdivision in the eastern part of the county. E. Conclusions About Metropolitan Seattle
During the 1980s and '90s, Metropolitan Seattle altered its growth management regime more quickly in a shorter period of time than any other metropolitan region in the country. King County initiated a series of changes, including purchase of agricultural development rights and a comprehensive plan with an urban growth boundary. The region as a whole followed by implementing the Growth Management Act adopted by the state, many of whose provisions were borrowed from the King County effort.
There is little question that the urban growth boundary created as a result of the Growth
Management Act has had a significant impact. The vast majority of residential development permits are now issued inside the Urban Growth Area, even in the outlying counties—a significant change from the early 1990s. An indirect result is that most metropolitan Seattle residents now live in cities, because new annexations and incorporations occurred as a consequence of complying with the state law.
Some of this shift may have occurred because of "pull" factors rather than "push" factors.
Traffic congestion in metropolitan Seattle did increase significantly during the 1990s—partly as a function of the region's job growth and increase in wealth—and the city of Seattle in particular gained a reputation as a good place for high-density urban living. Be that as it may, the maps in this report present strong evidence that the state's growth management regime accomplished its stated goal of containing urban growth within a strongly defined Urban Growth Area.
Interestingly, what the new growth management regime did not do—at least in the
aggregate—was stimulate the construction of high-density housing. The 1990s was a fallow period for multi-family construction everywhere in the nation, and for many reasons. It's true that in certain
41
locations, especially the city of Seattle, multi-family construction became the rule rather than the exception. But this was not true for the region as a whole. The geographical shift in residential development occurred in spite of the fact that the region's housing stock became more tilted to single-family detached units.
Anecdotal evidence would suggest that this seemingly paradoxical outcome was
accomplished in large part by reducing single-family lot sizes. In expensive inner-ring suburbs such as Redmond, lot sizes have dropped to 4,000 square feet in some cases. This would be consistent with the Portland experience. The result is a much more efficient use of land, but not necessarily a fundamental difference in the way the urban area operates. As experience in California suggests, high-density single-family living (i.e., 4,000square-foot lots) can lead to crowded conditions in which residents are still dependent on cars. In other words, this shift in the use of land must be accompanied by other changes—especially in transportation alternatives—in order to create a different set of realistic choices for residents.
At the same time, the agricultural protection efforts in King County seem to be successful as
well, although it is not clear how the different tools worked together and which one was most important. The county initiated its purchase of development rights program in the late 1970s, when most of the rural area of the county was still zoned for one-acre lots. In that sense, the county was buying its way out of its past land-use policy decisions, just as Orange County and other government agencies in Orlando were doing along the Econlockhatchee River. But around the time that the purchase program was completed, King County altered its comprehensive plan and dramatically downzoned the rest of the land in the Agricultural Protection Districts. And even though no more development rights have been purchased, these agricultural areas have continued to be viable and have experienced virtually no urban development. Thus, the purchase program predated a much stronger and more comprehensive growth management regime which eventually served to protect the agricultural areas.
As the case study reveals, however, the most difficult question in metropolitan Seattle is
what to do with the rural areas in between the Urban Growth Area and the Agricultural Protection Districts—the "battleground" areas traditionally designated for large-lot development. The growth management regime—including both the Urban Growth Area and King County's strong sewer policy—has succeeded in slowing development in these areas, but it has not produced a strong alternative vision as to what role these areas should play. They apparently are not viable for agriculture, at least not given the current zoning designations. They have some potential to serve as a "rural residential buffer" between the Urban Growth Area and the agricultural regions, but their development pattern is so scattered and inconsistent that this may not be possible. They could serve as a reserve of land for future urbanization of higher density, but this raises many questions about future urbanization policies and the expectations of landowners in the area. In many ways, these non-agricultural rural areas remain the problem child of metropolitan growth in Seattle and elsewhere.
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V. THE ROLE OF GROWTH POLICY TOOLS IN SHAPING METROPOLITAN GROWTH PATTERNS
The patterns of metropolitan growth are shaped by many sources, including public policies,
large-scale economic forces that drive land and job markets, and small-scale economic forces that help to shape the preferences of individual consumers. The case studies of metropolitan Seattle and Orlando suggest that, while market forces are important, public policy tools do, in fact play an important role—whether they are coordinated or not. These public policy tools come in three primary forms—land-use regulation such as urban growth boundaries, infrastructure policy, and open space protection efforts.
We selected Seattle and Orlando as case study metropolitan areas for several reasons, but
one of the most important was that they provided a good opportunity to examine how strong— though different—growth management and open space policies function in tandem to shape growth patterns. Such insight might assist states and regions in crafting better-coordinated policies in the future. Seattle and Orlando provide different experiences in how these policies work together. Some of these differences are attributable to policy differences. But some are also attributable to the specific characteristics of the metropolitan area—especially topography and maturity—because that has affected how the growth management and open space regimes have "played out" on the landscape.
A. Urban Growth Boundaries and Metropolitan Form
Urban growth boundaries are designed to restrain urban expansion into rural areas. A UGB
policy can have one or both of two goals: first, to conserve rural or open space land; and, second, to encourage development in specifically designated urban areas to reduce infrastructure cost. Previous research suggests that, while UGBs drive some development back inside the urban growth boundary, they also tend to create some “leapfrog” development beyond the rural greenbelt (Pendall, Martin, and Fulton, 2002).
Both Seattle and Orlando have an urban growth boundary, though Seattle’s is stronger.
Orlando’s is an urban service area created by Orange County that has proven more flexible, especially when faced with intense political pressure. In Orlando, the outer counties are growing faster than the core county, and county officials have altered the urban service area—and permitting somewhat higher densities than the metropolitan norm—in hopes of capturing more growth.
Metropolitan Seattle, by contrast, has implemented a strong three-county urban growth
boundary partly as a result of regional consensus but largely because of the edicts of state law. And, at least in quantitative terms, the urban growth boundary has succeeded. Much residential growth has been driven “across the line” into the designated urban growth area; and there is a good argument that this residential development has increased in density as well, which may mean that infrastructure is being more efficiently used.
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However, in and of itself, the urban growth boundary policy in metropolitan Seattle has not led to a complete conservation of rural and open space lands, as land conservationists often hope, nor has it led to a transformation to a less car-dependent urban life, as urbanists often hope. Farmland has been successfully conserved in the Agricultural Production Zones, but this was mostly because of tools other than the urban growth boundary. In the rural areas outside these agricultural zones, single-family residential development has been reduced, but the pressure for low-density suburbanization remains, partly because there appears to be no economically viable alternative outside the agricultural zones.
Meanwhile, while the urban growth boundary policy in Seattle has placed more residential
growth in or near existing urban areas, it has not, in and of itself, led to the construction of more multi-family housing or a transformation of urban life so that it is less automobile-dependent. It is true that these trends were occurring in the city of Seattle during the 1990s and some of this intense urbanization pressure in the core city might have resulted from the urban growth boundary policy. However, to a great extent the effect of the urban growth boundary policy, especially in eastern King County, was to push single-family residential development westward across the growth boundary (and also into small rural cities). The result appears to be a more concentrated pattern of auto- oriented single-family neighborhoods, with the houses sitting on smaller lots.
Thus, while the urban growth boundary policy in Seattle appears to be an important tool in
shaping metropolitan growth on the large-scale, it does not by itself achieve the underlying objectives many of its advocates seek. It must be combined with other strategies and tools, such as farmland protection in rural areas and a transit orientation in urban areas.
B. Open Space Policy and Metropolitan Form
One inevitable conclusion of this paper—especially considering the Orlando experience—is
that open space policy plays a major role in shaping large-scale metropolitan growth patterns. This role, however, can best be described as “defensive,” rather than “offensive.” Open space policy— especially acquisition of land and easements—directs development away from certain places but does not, by itself, direct development toward certain locations. Nor does it dictate a different type of urban form.
Washington State does not have a robustly funded open space acquisition program, as
Florida does. In large part, Seattle’s metropolitan growth is already constrained by topography. However, in those areas where privately-owned rural land does exist, acquisition of land and easements—in combination with other policies—have directed development away from certain locations. This is clearly true with the King County farmland preservation effort. The easements provided a base of conserved farmland, and the Agricultural Production Zone policy built on that base.
In contrast to Seattle, Orlando has abundant land and a well-funded open space acquisition
program. The result has been an even stronger influence on the shape of metropolitan growth.
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Especially in the case of the Green Swamp and the St. John’s River, open space efforts have played a profound role in shaping metropolitan growth patterns—though again this role is defensive. The presence of the Green Swamp has, essentially, directed development to all other locations along the I-4 corridor. Meanwhile, the St. John’s River preservation effort has maintained a greenbelt between inland Orange County—which has been growing fast in the last 20 years—and coastal Brevard County, whose urban growth dated from the space boom of the ‘60s and ‘70s. Without the St. John’s effort, it is likely that Cape Canaveral and the other coastal communities would long ago have been subsumed by the suburban growth of Orlando and Orange County.
It is important to reiterate, however, that open space acquisition is essentially a defensive
measure. It seeks to protect certain sensitive area—or scenic areas that have popular public support—from development. In and of itself, an open space acquisition strategy includes no vision for the how the urban development of a metropolitan region should proceed. Like an urban growth boundary policy, it is just one tool in the arsenal.
C. The Battleground on the Metropolitan Fringe
Interestingly, in both case studies we discovered a “battleground area” located in between
the suburbanizing edge of the metropolitan area and a permanently protected open space area. Coincidentally, both battlegrounds were located in the eastern part of the core county—the Econ River area in eastern Orange County near Orlando and the rural area in eastern King County near Seattle. In each case we found that the policy tools available to the county could not withstand the political and economic pressure pushing for more development.
In eastern Orange County, the Econ was regarded as an important ecological resource and
had been established by the county as the urban growth boundary. However, the path of growth in metropolitan Orlando was moving toward the Econ and the county found it impossible to “hold the line”. In part, this was because of the presence of a politically popular development proposal, Avalon Park, which was gaining national attention in New Urbanist circles. (Now constructed, Avalon Park is a fine example of New Urbanist town planning, but it is not immediately adjacent to other development in eastern Orange County.) And in part, this was because previous land conservation efforts in eastern Orange County had been focused elsewhere—specifically, farther east along the St. John’s, which served as eastern Orange County’s “real” urban growth boundary. Thus, the battle along the Econ was a kind of rear-guard action in which some development had to be accommodated and some land was purchased, albeit at a very expensive price.
In eastern King County, we found a somewhat similar situation. Between the urban growth
boundary and the National Forest, a large agricultural area was threatened by urban development. Beginning in the 1970s, the county had undertaken a successful effort to preserve the core farming areas along the two rivers—first with easements and later with the Agricultural Preservation Zone. This agricultural preservation effort, however, was unable to save all the farmland in the area, and gradually low-density suburban development began encroaching on formerly agricultural areas outside the preservation zones. When the Urban Growth Area was created, these areas were
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placed off-limits for urban growth, but they were not included in the agricultural preservation area. Again, the “real” growth boundary was placed farther east, in the Ag Preservation Zones. No economically sustainable vision for these rural areas was devised and linked to policy; hence here too a rear-guard action has been fought—permitting some low-density suburban development and repelling other development proposals in the absence of strong conservation strategies other than the UGA.
Our conclusion is that any metropolitan growth strategy must recognize where these
battleground areas are likely to be and how to handle them. If urban growth is not desired in these areas—but government agencies are not willing to devote resources to preserving them—then either an economically sustainable rural strategy must be devised or some type of urban or suburban growth must be permitted.
D. Interaction of Urban Growth Policy and Open Space Policy
In our earlier paper on land conservation and growth management, we concluded that these
two policy areas are usually not coordinated and therefore we hypothesized that land acquired for conservation purposes often comes at a very high price (Hollis and Fulton, 2002). The case study of Orlando in particular reinforces this conclusion.
In Orange County, land-use policymakers were moving the urban growth boundary
frequently in response to development pressure, especially from Avalon Park. However, this willingness to be flexible led to a political backlash among conservationists committed to protecting the Econ. Thus, “holding the line” against development along the Econ required the water management agency and private land conservation organizations to buy or negotiate to obtain land after the county’s actions had already increased the price.
This is a common situation in “battleground areas,” where the policy position of local land-
use regulators and the desires of regional, state, and private land conservationists often conflict. It is often said that land conservationists must purchase development rights four, five, or six times over, because the speculative value of the land will always assume the maximum development potential even if the market would not support development on all parcels. This situation is made worse when public land regulators signal their willingness to permit development in areas that are ultimately bought out for conservation.
The particular history of agricultural preservation in eastern King County provides a contrast.
The county stepped in almost 30 years ago to acquire easements on core farmland. It quickly became clear that the county could not afford to buy all the land, but the initial purchases laid a relatively inexpensive foundation of easements, and then the county reinforced that signal with the creation of Agricultural Preservation Zones. In that case, the consonance of land acquisition policy and land use policy has proven effective and—in retrospect, at least—inexpensive. King County was not forced to "buy its way out of the problem."
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VI. CONCLUSIONS In this paper, we have examined only two metropolitan areas—albeit two areas that were
carefully chosen for both their similarities and their differences. Analysis of other metropolitan areas might reveal different patterns and different effects of growth policies. But based on this case study analysis, we can make the following conclusions:
• Land use, infrastructure, and open space policy do play an important role in shaping
metropolitan growth, and whether or not they are coordinated on the policy level, they do interact with each other in shaping those patterns.
• Urban growth boundaries can help to redirect urban growth, but in and of themselves they
cannot encourage a fundamentally different urban form. • Open space protection efforts can divert growth away from important natural areas, but by
themselves they cannot shape a coherent metropolitan form from the point of view of human systems.
• Neither solution, by itself, solves the problem of the battleground on the metropolitan fringe,
which is often the most politically divisive growth area in the region. • Unless they are coordinated, these different types of policies often work at cross-purposes in
a way that is very expensive. Although we deliberately selected two metropolitan areas for study that were unique in many
ways, we believe that many of the lessons and conclusions we have found can inform metropolitan- wide growth debates elsewhere.
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GRASSROOTING THE SPACE OF FLOWS Manuel Castells a a Department of City and Regional Planning and Department of Sociology, University of California at Berkeley, 228 Wurster Hall Berkeley, California 94720-1850 Tel: 510-642-3256 Fax: 510-642-1641 Published online: 15 May 2013.
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GRASSROOTING THE SPACE OF FLOWS
Manuel Castells Department of City and Regional Planning
and Department of Sociology
University of California at Berkeley 228 Wurster Hall
Berkeley, California 94720-1850 Tel: 510-642-3256 Fax: 510-642-1641
Abstract: The "space of flows," the concept I advocated a decade ago, represents the material arrangements that allow for simultaneity of social practices without territorial contiguity. In this article, I refer to a series of dimensions of autonomous expression of social meaning in the space of flows, with emphasis on electronic spaces, but in interaction with the space of places. I argue that a new dynamics is operating, a dynamics of interpenetration of uniformity and autonomy, of domination and resistance, and of instrumentality and experience, within the space of flows. The geography of the new history will not be made of the separation between places and flows, but out of the interface between places and flows and between cultures and social interests, both in the space of flows and in the space of places.
Our historic time is defined fundamentally by the transformation of our geographic space. This is a key dimension of the multilayered social and technological transforma tion that ushers in the so-called "Information Age." Ten years ago, I proposed the concept of space of flows in order to understand such a spatial transformation . At that time, the aim was to acknowledge the reality and the significance of the transformation without yielding to the simplistic notions of futurologists announcing the death of distance and the end of cities.
Empirical evidence continues to show that new information and communication tech nologies fit into the pattern of flexible production and network organization—permitting the simultaneous centralization and decentralization of activities and population settle ments—because different locations can be reunited in their functioning and interaction by means of the new technological system. This system is created from telecommunications, computers, and fast reliable transportation systems, as well as dispatching centers, nodes, and hubs. Therefore, new communication technologies allow for the centralization of cor porate activities in a given space, precisely because they can reach the whole world from the City of London and from Manhattan without losing the dense network of localized, ancillary firms as well as the opportunities of face-to-face interaction created by territorial agglomeration.
At the same time, back offices can decentralize into the suburbs, in newly developed metropolitan areas, or in some other country and be part of the same system. New busi ness centers can be created around the country and around the world that always follow
294 Urban Geography, 1999, 20, 4, pp. 294-302. Copyright © 1999 by V. H. Winston & Son, Inc. All rights reserved.
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GRASSROOTING THE SPACE OF FLOWS 295
the logic of clustering and decentralizing at the same type and of concentrating and net working, thus creating a selective world wide web of business services. The new indus trial space is characterized also by its similar pattern of spatial dispersion of activities, concentration of innovation, and strategic decision-making—around what Peter Hall and I propose to label as "milieux of innovation," following the evidence gathered by a series of studies undertaken in the 1980s at Berkeley by the Institute of Urban and Regional Development. The new media also have become built around the double process of glo balization of capital and customization/networking of information and images that respond to the localization of markets and segmentation of audiences. In territorial terms, the age of information is not just the age of spatial dispersal, it is the age of generalized urbanization. In the next decade, it is likely that most people of the world will be living in the cities for the first time. Yet cities are, and will be, of very different kinds depending on cultures, institutions, histories, and economies, but they will continue to share a spatial logic that is specific to the Information Age. This logic is characterized by the combina tion of territorial sprawl and locational concentration. Thus, intrametropolitan, interre gional, and international networks connect with global networks in a structure of variable geometry that is enacted and modified by flows of information and electronic circuits and fast, information-based, transportation systems. In the last decade, studies by Peter Hall, Peter Daniels, AnnaLee Saxenian, Michael Batty, Jim Wheeler, Barry Wellman, Jeff Henderson, Roberto Camagni, Stephen Graham, Marvin Simon, Amy Glasmeier, and so many other scholars have substantiated, empirically the emergence of a new spatial struc ture. This structure is defined by articulated territorial concentration and decentralization in which the unit is the network. This particular model of spatial organization, which seems to be characteristic of the Information Age, is the model that I tried to conceptual ize 10 years ago as the space of flows.
THE SPACE OF FLOWS
As I understand it, "space of flows" means that the material arrangements allow for simultaneity of social practices without territorial contiguity. It is not a purely electronic space nor what Batty has called a "cyberspace," although cyberspace is a component of the space of flows. First, it is made up of a technological infrastructure of information systems, telecommunications, and transportation lines. The capacity and characteristics of this infrastructure and the location of its elements determine the functions of the space of flows, and its relationship to other spatial forms and processes. The space of flows is also made of networks of interaction, and the goals and task of each network configurate a different space of flows. Thus, financial markets, high-technology manufacturing, busi ness services, entertainment, media news, drug traffic, science and technology, fashion design, art, sports, or religion constitute a specific network with a specific technological system and various territorial profiles. So they all operate on the logic of the space of flows but they specify this logic.
Second, the space of flows is made up of nodes and hubs. These nodes and hubs struc ture the connections, and the key activities in a given locale or locales. For instance, Wall Street or Ginza are such nodes, as well as Cali and Tijuana in their specific trade, or Berkeley, Stanford, and MIT in computer sciences. Hubs are communication sites (e.g., airports, harbors, trains, or bus stations) that organize exchanges of all kinds, as they
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296 MANUEL CASTELLS
increasingly are interconnected and spatially related. However, what characterizes the new role of these hubs and nodes is that they are dependent on the network, that their logic depends on their place in the network, and that they are sites to process signals that do not originate from any specific place but from endless recurrent interactions in the network.
Third, the space of flows is also made of habitats for the social actors that operate the networks, be it residential spaces adjacent to the nodes, protected and secluded spaces of consumption, or global corridors of social segregation separating these corridors from the surrounding places around the globe (e.g., VIP lounges, the virtual office, computing on the run, standardized international hotels).
Fourth, the space of flows comprises electronic spaces such as websites, spaces of interaction, as well as spaces of one-directional communication, be it interactive or not, such as information systems. A growing proportion of activity is from the web and the visual design of websites, as well as the structure of an operation of their content is becoming a fundamental frame for decision making, information making, and communication.
SPACE OF PLACES
I have described the new spatial structure of the Information Age, the space of flows. But we really need to know that not all the space is organized around the space of flows. As was the case in the whole history of humankind, most people live, work, and construct their meaning around places. I define a place as the locale whose form, function, and meaning are self-contained within the boundaries of territorial contiguity. People tend to construct their life in reference to places, such as their home, neighborhood, city, region, or country. This is not to say that the local community is thriving. In fact, all over the world, research shows that there has been a process of individualization and atomization of place-based relationships. The loss of community is the founding theme of urban soci ology, since the Chicago School. Yet you may have no community, but still refer to your place as your main source of experience. Social organization and political representation also are predominately place based. And cultural identity is often built on the basis of sharing historical experience in a given territory.
When analyzing spatial transformation in the Information Age and showing the emer gence of a new spatial form (i.e., the space of flows), I emphasized the persistence of the space of places, as the most usual form of spatial existence for humankind. I also observed that, while most dominant activities were constructed around the space of flows, most experience and social interaction was and still is organized around places. When using the term "dominant activities," I am referring to (1) financial flows, (2) manage ment of major corporations in services and manufacturing, (3) ancillary networks of firms for major corporations, and (4) media, entertainment, professional sports, science and technology, institutionalized religion, military power, and global criminal economy. Thus, I added that the constitution of the space of flows was in itself a form of domina tion, since the space of flows, even in its diversity, is interrelated and can escape the con trol of any locale, while the space of places is fragmented, localized, and thus increasingly powerless vis a vis the versatility of the space of flows. The only chance of resistance for localities is to refuse landing rights for overwhelming flows—only to see that they land in
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GRASSROOTING THE SPACE OF FLOWS 297
the locale nearby, therefore inducing the bypassing and marginalization of rebellious communities.
This was my analysis some time ago, which has been presented in various publications during the last decade. I still sustain most of this analysis, and I think it can be backed up empirically. However, an analysis of transformation of space in a given historical moment—that is, the moment of the dawn of the Information Age—should not be cast in stone as an iron rule of spatial development. Yes, there are two different forms of space, flows and places. Yes, the space of flows is historically new in its overwhelming preva lence because it can deploy its logic through a new technological medium. Yes, dominant activities in our society are organized around the logic of the space of flows, while most, and the most powerful forms of autonomous construction of meaning, and social and political resistance to the powers that be are being constructed, currently are around places. But, two major qualifications may be introduced:
(1) The space of flows includes some places. Indeed, the space of flows is not simply an electronic space. Electronic spaces—such as the internet or global communication media—are but one dimension, however important of the space of flows.
(2) Both electronic spaces, and the space of flows at large, are not organized exclu sively around and by social/economic/cultural domination. Societies are not closed sys tems, they are always open processes, characterized by conflict. History, in fact, is a very tiresome experience. It never ends, against the claims of the neoliberal illusion. Wherever there is domination, there is resistance to domination. Wherever there is imposition of meaning, there are projects of construction of alternative meaning. And the realms of this resistance, and this autonomous meaning are ubiquitous. Which means, concretely, that while the space of flows has been produced by and around dominant activities and social groups, it can be penetrated by resistance, and diversified in its meaning. The grassroots of societies do not cease to exist in the Information Age. And after an initial moment of exclusion and confusion, people and values of all kinds are now penetrating and using the space of flows, the internet and beyond, in the same way that the Parisian Champs Elysees dreamed by Hausman to escape the populace of the rive gauche, have become, in the 1990s, the hang out place for the festive, and multiethnic young lot of the Paris banlieues. While the space of flows remains the space in which dominant activities are spatially operated, it is experiencing at the same time, the growing influence and pressure of the grassroots, and the insertion of personal meaning by social actors, in a process that may alter the cultural and political dynamics of our societies and, ultimately, may alter the space of flows itself. So let me review the main dimensions of this grassrooting of the space of flows.
THE SPACE OF FLOWS AND THE GRASSROOTS
First, I will refer to a series of dimensions of autonomous expression of social meaning in the space of flows, with emphasis in electronic spaces, but in interaction with the space of places. First is personal interaction, people using the net for themselves and electronic mail as recuperating letter writing as a form of communication. And people are finding ways to be together with much more diversity and importance than has been the experi ence before in history: chat groups, multidimensional communication, cultural expres sions of all kind, people building their websites. People build their fantasies, but they also
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experience their needs and exchange their information. They are inhabiting the space of flows and thus transforming it. Am I talking maybe about a small global elite? Well not so small, and not so elite.
A second dimension for autonomous expression is represented by purposive, horizon tal communication, not just personal feelings of casual communication. Horizontal com munication occurs among people and across countries, and establishes information systems that are alternative to the media. They are in fact doubling the media. There is, indeed, much gossip and irresponsible information. As you know, the news that triggered one of the latest scandals relating to President Clinton was first sent from the internet through a news bulletin, which is a one-man operation out of his home office in Los Angeles, while Newsweek was weighing the opportunity of the publication. There are people and institutions very concerned about the lack of control of information in the net. Everywhere, many governments are terrified of losing control of information, a funda mental source of power throughout history. They usually argue in terms of controlling child pornography. I think child pornography is terrible, but what happens in countries like France or Spain for instance is that it is perfectly legal to sell child pornography. It is not legal to produce the images nor to hire or kidnap the children to do it, but selling it is not a problem. But you cannot do it on the internet. Why? Because the internet is a mass media, or so the statist argument goes. The fact is that horizontal communication in the internet by bypassing both the media and governmental controls is becoming a most fun damental political issue, which ultimately reflects who we are collectively, as a society. And if some of us are enjoying child pornography, if we are this kind of monster, this appears reflected in the internet. The internet brings us face to face with the mirror of who we actually are. So I would rather work on ourselves rather than close down the net. The fight is against the self not against the net.
Third, there is a fast growth of networks of solidarity and cooperation in the internet, with people bringing together their resources, to live and to survive. To give an example, the senior net in the United States not only brings information (e.g., medical information to counter the monopoly of medical information by doctors) and resources together; it also develops solidarity ties between senior people, thus reinforcing the group to which all of us belong, or will belong, if we are lucky. Thus, at the time the welfare state, at least as constructed in the last half century, is being challenged economically and politically, people are reconstructing networks of solidarity and reflecting/debating about them at the same time.
The fourth dimension is social movements. The net is used increasingly by social movements, of all kinds, as their organizing ground and as their privileged means to break their isolation. The greatest example here and one that has become classic is the Zapatis tas in Chiapas, Mexico. Without fully presenting the case, on which I have written in my latest book, let me remind you of some interesting facts on this social movement. Zapatis tas organized solidarity groups around the world on the internet. And they very effectively used the internet to diffuse their information and to obtain interactive communication between their different solidarity groups. They also have used the internet in a protective way to fight repression when, in February 1995, there was a major military offensive that forced them to escape to the forest. They sent a message over the internet asking every body to flood the White House with messages because at that point the White House had put our money into the Mexican bailout. A major crisis in Mexico would jeopardize the
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GRASSROOTING THE SPACE OF FLOWS 299
entire stability of the region, ultimately wasting United States taxpayers' money. So, in one day, over 30 thousand messages came to the White House. That does not mean that street demonstrations in front of the White House are not important, but you cannot orga nize them in 24 hours; and in this particular case, it was a matter of life and death in these 24 hours. This ability of the Zapatistas to work on the net does not come from Marcos as people would say, even if he was a communications professor or from the Indian commu nities. It came from women's groups in Mexico. In 1993, women's groups organized an internet network in Mexico to support women's solidarity funded by the Catholic church and organized instrumentally by the Institute of Global Communication in San Francisco, a group of progressive computer people out of Silicon Valley. The global communications institute and women's groups sent several people to Chiapas, where they organized an extension of the women's network that was called La Neta. La Neta is an interesting expression because, on the one hand, it is the Spanish feminine term for the net; but also in Mexican slang it means the truth. So this La Neta network branched out in Chiapas and trained a number of people in Chiapas that human rights groups were the ones who were able to link up with the Zapatistas and provide both the technological and knowledge support for their internet operations.
However, not only progressive movements are on the internet. Everybody is on the internet and our societies are on the internet. The internet has played a major role in the development of American militia groups. The internet is as real as life itself. Increasingly, global movements of solidarity, enviromentalists, human rights, and women's groups are organized on the internet again on the basis of local/global connection. One of the greatest and latest examples in the United States was the Fall 1997 One Million Women March organized by two Black women in Philadelphia. There was practically no organization, no sponsorship, and yet a small group of women in Philadelphia went on the net and called a demonstration, obtaining an extraordinary level of support and mobilization. But going to a place, I think is the most interesting thing. The space of flows is not just being in the net. It is to organize in the net to be in Philadelphia on a given day—that is, using the net to control space.
Fifth, linkages are a development that we have to pay close attention to, increasing linkages between people and institutions in an interactive process. The creation of what some people call virtual cities are renewing local governments and citizen democracy. We have some relatively old experiments, such as in 1986, Santa Monica's PEN program allowing public debate between citizens—including debates on major issues such as homelessness in Santa Monica, with the homeless themselves being able to get into the debate. European cities are organizing participation in information systems. Graham and Aurigi have studied these experiments and say that they usually are one-directional infor mation systems. So still it is not a full-fledged participatory democracy; it is more infor mation than participation and democracy, but they are still evolving and changing.
And there is potential for much more. I am personally struck by the experience of Amsterdam's Digital City, an autonomous group originally supported by the municipality of Amsterdam. It is a private foundation that has organized a system of citizen participa tion and citizen interaction. You have to register to take part, anyone can visit the site, but to really participate and go into houses, you have to be registered. By 1998, they had 80,000 fully registered, participating "residents." They have activities organized around different squares: larger squares and micro-squares. Each square relates to different activ-
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ities (e.g., cultural politics, sports, business, homes). People build houses, sometimes also marry, initiate recall elections, certainly become involved in debates, and from time to time link these activities to real life in a very close interaction. So the digital-city experi ence has shown the possibility of mobilizing the population at dramatically different lev els from the most political activist to chat groups. What strikes me too is how much the group is connected to the local, political, and spatial experience in Amsterdam. On the one hand, this is a movement that grew out of the squatters movement in Amsterdam. Caroline Nevejan and Marlene Strikker, the two women who lead the movement and who lead this program, were members of this squatters movement and, in their own view, they have not changed their values much. They have continued their ability to mobilize people and change society through the new medium without abandoning the idea of the city as a place.
Even symbolically the city has ceded them as their headquarters place one of the most historic buildings in Amsterdam, the Waag, the building that in the 16th century used to close the canals for trade when ships were arriving in Amsterdam. This building also housed the School of Medicine where illegal autopsies were being performed because of the church's repression. In that building, there is a room where Rembrandt painted his famous "Lesson of Anatomy." It is in that very room where the server of the digital city is located. I think this kind of historical continuity and this linkage between history and information flows, place and electronic networks, is representative of something new happening in the space of flows.
Another example of this linkage between institutions, civil society, grassroots groups, something that is less known because it is only in the project stage, is the Barcelona Inter net Citizen Project. This project is being sponsored by the city of Barcelona and linked to a mega-project that they called Forum 2004. It is in fact a good example of connecting the global to the local, internet to grassroots. Remember that the 1992 Olympic games cre ated a great transformation in Barcelona. Among other things, Barcelona opened up to the sea by building a whole new neighborhood, connecting seaside promenade and beaches to the harbor. Now a group of local leaders, with the support of the municipality, have conceived a new project, an Olympics of sort: the Forum 2004, with the sponsorship of UNESCO and the pope. Over the course of six months in 2004, the project will plan to bring in half-a-million young people from all over the world into Barcelona in 2004 to discuss what to do with the world in the 21st century. And of course they need to build a city to organize this project, therefore another 20 km of seaside development.
Furthermore, the project includes the idea of linking up the world to those thousands of youths, sharing the debate on the net. For the Barcelona citizens to be apt to the task, there is a project to set up an internet Citizen center to train and diffuse the uses of the internet to people at large. Most people in Barcelona are unaware of the potential uses of the internet, so that a literacy campaigning directly linked to an event and with the pur pose of participating in a global debate could just be a key trigger in bringing Barcelona as a whole into the Information Age.
As you can see, there is a gradual opening up of the Information of Age to different avenues. So through a blossoming of initiatives, people are taking on the net without uprooting themselves from their places. And through this practice, they transform both forms of the space. However, are we talking only about a small elite? Are people not being in fact massively excluded from the net? Well first of all, the recent data show there
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GRASSROOTING THE SPACE OF FLOWS 301
is a large number of elites, about 128 million users in 1998. Yes, data are shaky, but the same shaky data were indicating about 30 million users in 1995/1996. What seems to be a little more solid is the rate of diffusion among users, which seems to be nearly doubling every year. By the end of 2000, we should be approaching 500 million internet users. Serious experts in the communication business predict about 1 billion users by the middle of the first decade of the 21st century, considering a slow down in the rate of diffusion when less-advanced countries and less-educated and less-affluent groups become the new frontier of expansion. The computer capacity and the telecommunications capacity is already there, the issue is how to bring people into the net. And for what?
Yet there is certainly a social bias in terms of who uses the internet. There is a gender bias, with the proportion of men to women being three to one. There is also an ethnic bias, with ethnic minorities having much lower rates of the internet use, although in the case of Hispanics in the United States, the rates of incorporation are extremely high. There is a country bias too. In fact, Scandinavia is advancing over everybody else. Finland has decided to become the first Information Society in the world. Projections are that by the year 2000 there will be more websites in Finland than Finnish people. Still, in absolute terms, there is a dominance of the internet by American users.
However, more importantly, the bias is not only in terms of use, but use for what, that is the level of education required to look for and retrieve information. I have proposed a notion that we are living in a world that is made of the interactive and the interacted. We interact but many people are just interacted. For many people, the net may become an extension of a multimedia-based, one-directional system, so that they may receive some basic information to which they just have to react, as in some marketing device. However, if we look historically into the diffusion of information and to the diffusion of technology and to the ability to upgrade the level of consciousness and the level of information, there has always been a connection between open-minded, educated social groups and the uneducated masses that through this connection become educated. As in the historic example of the development of the labor movement, printing workers were critical in that they knew how to read, where most workers did not know how to read or what to read. Printing workers were the ones that in many countries created the basis for self-training, self-development, and self-organization of these uneducated masses. And this is happen ing now in many countries. Low-income communities are being brought into the internet in different ways by local community groups.
I also personally know some important experiences that are highly developed as in the working-class periphery of Barcelona, an area called the lower Llobregat, in which the unions and the municipalities decided that they have to move into the Information Age and develop social struggles and social consciousness. They have created a cultural orga nization, and a network of internet-based, publicized activities, around a journal titled "La Factoria," which you can access on the net. Thus, they have started a process of mass education of social debate, mixing the print, the net, the city, the factory, and ultimately grassrooting the net.
Finally, even if there is still a minority of users (but a minority that is going to be numbered in the hundreds of millions), their eruption in the net, with the creative cacoph ony of their social diversity, with the plurality of their values and interests, and given the linkage between places and information flows, transforms the logic of the space of flows, making it a contested space. And a plural and diversified space.
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CONCLUSION
So, whither the theory of the space of flows? Not necessarily, because this theory was always based on analyzing the linkage between electronic space and places through net works of flows. This is indeed, increasingly, the space in which most important activities operate in our societies. There is interaction, there is connection. Moreover, it remains true, I think, and can be empirically sustained that strategically dominant activities are operated essentially through the space of flows, and that global elites ensure their domi nation in this process, bypassing segmented, isolated localities. And trenches of resis tance to the domination of flows of capital and information are being built primarily around places.
However, new dynamics are operating, dynamics of interpenetration of uniformity and autonomy, of domination and resistance, and of instrumentality and experience, within the space of flows. So, historically produced forms of space, even as complex and new, such as the space of flows, by their very existence are transformed through the process of their enactment. They become contested spaces as well, freedom is carved in their hall ways, and cultural identity is built, and affirmed, in the net. So, the geography of the new history will not be made, after all, of the separation between places and flows, but out of the interface between places and flows and between cultures and social interests, both in the space of flows and in the space of places. The attempt by capital, media, and power to escape into the abstraction of the space of flows, bypassing democracy and experience by confining them in the space of places, is being challenged from many sources by the grassrooting of the space of flows.
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JP/neumann city planning and infrastructure.pdf
Journal of Planning History 9(1) 21 –42
© The Author(s) 2010 Reprints and permission: http://www. sagepub.com/journalsPermissions.nav
DOI: 10.1177/1538513209355373 http://jph.sagepub.com
City Planning and Infrastructure: Once and Future Partners
Michael Neuman1 and Sheri Smith2
Abstract Great cities are born of and give rise to great infrastructure. Historically, city planning has been deeply rooted in infrastructure and physical planning. One of its ontological bases has been to create urban place out of space through the intermediary of infrastructure. Currently, the links between infrastructure and city planning may be described as numerous but nonstrategic and noncomprehensive, even as the bond between infrastructure and cities remains tight. In part, this is because the planning profession has left key roles in infrastructure to other professions. This article chronicles the rises and falls in the fortunes of urban infrastructure in relation to city planning.
Keywords city planning, urban infrastructure, public works, planning history, urban development, capital facilities
Great cities are born of and give rise to great infrastructure. Seats of empire, such as Rome, Madrid, and London, owed their central standing to extensive infrastructure. These capitals could not govern the expanse of their dominions without superior transportation and communication systems to extend the reach and lucre of empire and the size of the capital administering it. The Roman Empire, for example, could not have existed in its grandeur without roads emanating to its peripheral outposts and aqueducts supplying Rome with water. Other public works critical to the rise of Rome include city walls, bridges, seaport, reservoirs, public baths and fountains, and civic architecture that consisted of amphitheaters, the coliseum, circuses, and plazas.1 The saying “all roads lead to Rome” clearly asserts the centrality of infrastructure for Rome and its empire.
The Spanish Empire that reached its zenith after Columbus’s discovery largely owed its riches to its conquest of the Americas. The meticulous planning of their settlements in the Indies, as they were known, was made possible by the Spanish Law of the Indies, promulgated to ensure uniform settlement of the New World in the sixteenth century. While this law dealt with political administration, trade, and other affairs; a good portion was devoted to city layout and planning, especially infrastructure.2 As the Archive of the Indies in Seville still attests
1Texas A&M University, College Station 2Texas Southern University, Houston
Corresponding Author: Michael Neuman, Department of Landscape Architecture and Urban Planning, Texas A&M University, College Station, TX 78743-3137 Email: [email protected]
22 Journal of Planning History 9(1)
today, administrative infrastructure was no small part of this operation, going hand in hand with physical infrastructure.
Today, global cities are indebted to their positions as command posts in the global economy to information, telecommunications, and transportation networks that concentrate knowledge, capital, and people. Old notions of empire and hierarchy have been pushed aside by a new order that shapes the symbiosis of corporate conglomerates with governments into networks, and posits world cities as nodes. The networking of society is in debt to the capital invested in net- working infrastructures, which have recast relations among peoples, institutions, and places.3 While social, political, administrative, and economic forces also have played key roles in the transformation of urban space, the transformation of social space in general and urban space in particular is partly due to the transformation of infrastructure, and the transformative power of infrastructure.4 This transformative relationship between cities and infrastructure is not limited to seats of empire or global cities. It holds for cities and towns spanning the globe.
Of course, this relationship works both ways. Cities and their social, economic, and political functions also give rise to infrastructure, as infrastructure is needed to sustain growth. Water treat- ment, sewerage, and electric power, for example, are technologies born out of the stresses of rapid and large-scale urban growth. Compare, for example, the rate of growth of New York City before and after the Erie Canal in 1825 and Croton water system in 1842, or Paris before and after it developed its sewers in the 1830s. Cities and infrastructure have always been mutually interde- pendent and coevolutionary. In fact, cities could not exist without infrastructure.
Yet concentrated cities have numerous problems stemming from overcrowding and increased resource consumption, which furthermore imply equity and sustainability considerations. As cities have evolved from industrial to informational in a network society, we believe that cities require a new type of planning that provides guidance to metropolitan areas because of the substantial changes wrought by these transformations, and the essential need for responsive planning that takes into account these new realities.
This planning is founded, once again, on infrastructure, because of infrastructure’s capacity to provide access to places and services, thus potentially lessening equity disparities, and its capacity to provide sustainable solutions, thus lowering nonrenewable resource depletion and environmen- tal impacts at all scales. Infrastructure is a systemic integrator—across spatial scales, population groups, and disciplinary specializations—and as such is suitable for a renewed vision of compre- hensive planning centered on equity and sustainability. This revived practice could un-splinter the city, and the practices that shape it.5 Analyzing the changing relations between urban planning and infrastructure since the mid–nineteenth century can inform contemporary planning practice.
This analysis covers the United States and Europe, concentrating on the former. We focus on the industrial and late/postindustrial eras because of three reasons. First, the nature, scale, and location of industry were instrumental in changing the city as it concentrated peoples and their activities in greater numbers, recreating for the industrial era an intensified version of an essen- tial urban condition.6 Second, changes to urban form continued as new infrastructure and industrial needs promoted and allowed for the dispersal of populations beyond the city’s earliest boundar- ies. Finally, because the extent and the speed that the network society spreads (globalization) are exerting a profound change on contemporary metropolises.7 Our emphasis is not on infrastruc- ture per se, as there are superb technological histories of infrastructure.8 It is on the relationships among infrastructure, city development, and the urban planning professions.9
We believe that recovering infrastructure planning as a central concern of the planning profes- sion, as the current leadership of the American Planning Association is keen on instituting, is an important step forward to continue the revival of American cities, to make metro areas more sustain- able, and to put planning more squarely in the center of various policy arenas—energy, technology, sustainability, equity—not just urban ones.10 This way, reinventing and rejuvenating the planning
Neuman and Smith 23
profession accomplishes two critical tasks: to make planning more of a leadership profession and to make cities more sustainable. This transformation must include a decisive reengagement with infrastructure planning.
So doing responds to the call of historians for the practical import of history to contemporary practice. Carl Abbott and Sy Adler recognized the opportunities for making history a part of planning.11 They understood that historical awareness helps the profession understand what it is doing in light of what it has done and hopes to do. Eugenie Birch advocated for historians to develop a planning history useful to present-day planning practice.12 Moreover, this scholarship should address the complexity of cities and practice, including interdisciplinary collaboration. Scholars should strive to “produce insights of great value by employing interdisciplinary app- roaches.”13 We seek to accomplish this by exploring the interdisciplinary interactions among the professions engaged in the activity of city planning.
A Deeply Rooted Relationship Historically, city planning has been deeply rooted in infrastructure. Early city planning, prior to the modern planning era ushered in by Georges Haussmann in Paris and Ildefons Cerdà in Barcelona in the middle of the nineteenth century, was limited to infrastructure planning, such as the layout of streets, squares, and open spaces, and the location of civic monuments, temples, and markets.14 Since Cerdà’s and Haussmann’s time, the professions engaged in city planning have continued to consolidate around the physical elements of urban space, even as they expanded their scope beyond infrastructure.
As populations grew during the industrial era, masses of people found their way to the cities. Some nineteenth-century cities were growing so fast that they could hardly cope with the influx. Urban densities rocketed to levels not since experienced, at least in the United States. For exam- ple, in the Lower East Side of Manhattan, 540,000 residents crammed into an area of two square miles in 1910.15 In daily life, streets were congested, housing was overcrowded, open space lack- ing, infectious disease common, and public health poor as a result of the lack of proper sanitation, ventilation, and other factors. Urban conditions for most deteriorated in proportion to the scale, density, and speed of population growth.
Infrastructure abetted industrial-scale urban growth in multiple ways. First, means of transport facilitated rural–urban and European–American migrations. Second, transportation infrastructures facilitated concentrated industrial activity. Rail, ports, canals, and turnpikes enabled the delivery of raw materials and growth-inducing trade. Next, the harnessing of electricity enabled industrial and residential uses to be located near each other. Finally, the impacts of growth—pollution, ill- ness, and crowding—were alleviated somewhat by sanitary infrastructure—water, sewerage, and storm drains—thus reducing mortality rates and improving life expectancy.
Before the industrial age, cities that exceeded 50,000 inhabitants were rare exceptions.16 Their small size let them fit into their environs more seamlessly, taxing nature less. Over time, the scale and density of industrial metropolises changed the relations between city and country.17 As the metropolis exceeded the capacity of the natural ecosystems to support it, an ever-spreading web of infrastructure imported materials from further afield, with the effect of supplementing or sup- planting natural systems with engineered ones.
Ongoing efforts to improve urban conditions comprise the history of city planning. Since the advent of the industrial era, historians have chronicled a series of reform movements that established the groundwork for contemporary planning practice.18 It was partly, but far from exclusively, a history of the partnership between infrastructure development and city planning, a profession whose earliest incarnations, up to about 1910, largely dealt with city form. Today as before, the prospect of cities and of life in them is largely conditioned by infrastructure, and
24 Journal of Planning History 9(1)
the way we plan infrastructure will ultimately determine whether cities and our urban way of life will be sustainable.
Infrastructure, as used today, is a modern term. According to Konvitz, the word infrastructure “probably appeared for the first time in 1875, in French,” and originally referred to military works.19 Infrastructure has acquired an expanded meaning, and now standard definitions typi- cally refer to built facilities and networks—either above or below ground. This take includes publicly and privately owned providers of systems such as utilities (gas and electricity, water supply and sewerage, waste collection and disposal); public works (roads and bridges, dams and canals, ports and airports, subways and railways); community facilities (prisons, schools, parks, recreation, hospitals, libraries); and telecommunications (telephone, Internet, television, satel- lites, cable, broadband).20 Early English uses of the term appeared between the first and second world wars. The word was not included in either Webster’s Second International Dictionary of 1934 or the first edition of the Oxford English Dictionary (OED). The word is found in the 1976 supplement to the OED and in Webster’s Third International Dictionary of 1961.
Nineteenth-Century Urban Reform Movements and Their Impact on Planning The reform era, extending from around 1840 to approximately 1920, consisted of several periods, starting with sanitary reforms in urban England, Germany, and the United States. The first reform movement, improving sanitation, occurred between 1840 and 1890.21 Sanitation reforms of that time operated on a miasma theory, whereby dirt and foul odors were disease bearing, and thus needed to be flushed away from the urban population in order to secure adequate public health.22 In 1842 attorney Edwin Chadwick led the preparation of the groundbreaking “Report from the Poor Law Commissioners on an Inquiry into the Sanitary Condition of the Labouring Population of Great Britain,” which chronicled unsanitary conditions in urban England.23 In the same time period, Chadwick introduced, to European cities, the water carriage system. These egg shaped “self-flushing mechanisms powered by water” would soon help rid cities of stagnate waste. Once coordinated at the city level, these mechanisms gave rise to the first sewer systems.24
In 1845, the first sanitary survey in the United States was completed in New York, directed by physician John Griscom and titled “The Sanitary Condition of the Laboring Population of New York.” It echoed Chadwick’s report, demonstrating its transatlantic influence. This survey entailed a systematic data collection effort that mapped every property to document contagious diseases.25 Massachusetts followed in 1850 with a sanitary report written by Lemuel Shattuck, which spurred more systematic government action.26 A survey was conducted in Memphis, Tennessee, in 1878 in response to yellow fever epidemics. An important difference between the Memphis survey and prior New York and Massachusetts surveys was that it was conducted by the newly constituted National Board of Health instead of a local citizens committee. Tennessee state authorities requested that the National Board prepare a plan for Memphis based on a survey, because they noted “proper sanitation . . . can only be accomplished through the means of a thor- oughly systematized and comprehensive plan.”27 As a result, Memphis provided a model for integrating the planning of streets, sewers, storm water drainage, water supply, building improve- ments, and administrative codes in a comprehensive manner. The practical outcome of the Memphis plan, outside the city of Memphis, was to install separate sanitary sewers in dozens of cities.28 A key outcome of these advancements for the future planning profession was that they demonstrated conclusively the positive relationships among infrastructure, urban structure, and the health of urbanites. This cognizance became known as “townsite consciousness.”29
A second item addressed by the reform era was the deplorable condition of tenement hous- ing. In 1857, the first official American inquiry into crowded tenement life was published.30
Neuman and Smith 25
This report, titled The Tenement House Problem, was mandated by an 1856 New York state law. Its purpose, according to the law, was for members of the Association for Improving the Condi- tion of the Poor (established in 1854) “to make an examination of the manner in which tenant houses are constructed in the city of New York.” The housing reform movement arose in response to this report, and it rallied support around the need to improve living conditions. The results of those examinations led to a series of laws, each building toward the landmark 1901 Tenement Housing Act that required sewer systems be included as part of private construction and con- nected to city sewage systems.
Parks and open space, also part of the reforms of this period, sought to cleanse city air and to provide land for public enjoyment. This period saw the creation of New York’s Central Park in 1857, followed by park and boulevard systems in Chicago, Boston, Philadelphia, Kansas City, Indianapolis, and numerous North American cities and towns.31 In Boston, Frederick Law Olmsted Sr. designed the Fens, a linear park system or greenway that encompassed and enhanced a natural wetland, and in so doing exploited its “nature services” such as flood control. Over time, planning for single city parks expanded to the planning of metropolitan park systems, a movement that spread across the United States.32
Together, sanitation, housing, and park reforms exerted influences on the emergent field of city planning, whose origins were consolidated by none other than Frederick Law Olmsted. Known in that era for his and Calvert Vaux’s Central Park for New York City (1857), Olmsted had broader interests and activities. During the Civil War, Olmsted was director of the United States Sanitary Commission. Throughout his life and professional practice he strove to improve the health of cities and their inhabitants. A careful reading of his collected papers testifies that health was his driving concern.33 Thus, Olmsted transformed the inherited American tradition of town planning through town layouts (streets and squares) to a more thorough practice that incor- porated parks, parkways, landscaping, and sanitary infrastructure.34 This can be seen clearly in his seminal 1868 plan for Riverside, Illinois, which included storm water drainage and sewerage. Spurred this way, the nascent city planning movement began to link town layout, sanitary reforms, and housing provision.35
The various urban reform movements of the late nineteenth and early twentieth centuries— Municipal Art, Civic Art, and City Beautiful—all benefited from the inspiration provided by the 1893 Columbian Exposition in Chicago. The exhibition was housed in the Great White City, which took its name from the uniform whiteness of all the façades and the millions of electric lights, which showered a brilliant light on the whitewashed plaster buildings.36 Canals, street- cars, and water, sewerage, and electrical systems not only supported the fair’s operations but also were prominent exhibits. The fair showcased the integration of functional and aesthetic values in engineering, architecture, and civic design that went on to inspire a generation. Infrastructure and public space did the integrating.
These advances in the United States were not developed in a vacuum. They were often influ- enced by transatlantic innovations, as European cities were older, larger, and had longer traditions of dealing with urban problems, which occurred there first. Parallel to the American city beauti- ful movement were equivalents in Europe. One manifestation was found in the international expositions, which were held in leading capital and other cities throughout the continent, starting with the 1851 Crystal Palace Exhibition in London. These expositions and others showcased their city and provided a setting to display the latest wonders from around the globe.37 Moreover, authors of American cities’ municipal art and city beautiful plans garnered their inspiration from cities such as London, Rome, and Paris.38
The origins of comprehensive city improvements through physical planning in industrial Europe are usually attributed to the works of Haussmann, Prefect of the Seine (administrative district that included Paris) from 1853 to 1870, and Cerdà, the Catalan civil engineer who laid out the
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expansion of Barcelona in 1859. Infrastructure was their primary object of planning and means of its realization.
Haussmann was a skillful and willful administrator whose plan transformed Paris, chiefly by a modern network of wide streets and boulevards connecting key points such as rail stations and markets (Haussmann called them “nodes of relation”), through demolishing buildings to create open spaces, sanitary infrastructure, omnibuses, and gas lamp lighting. He also created two large public parks east and west of the city and built numerous community facilities: schools, hospi- tals, barracks, and prisons.39 Perhaps most significant to the future planning profession was his view of the city. Based on planimetric and topographic surveys of the entire city, he conceived of intervening to create whole circulatory and respiratory systems that according to Choay, would “give unity to and to transform into an operative whole” his city.40
For his part, Cerdà was more daring than Haussmann. His surveys were more comprehensive, covering social, public health, housing, and physical environment conditions, in addition to the topographic work done by his Parisian contemporary.41 He too based his plan on circulatory and respiratory systems, and outdistanced Haussmann by providing for multilevel transportation interchanges that foresaw mechanized urban mass transit, including rail. He conducted studies for the arrangements of housing and other buildings in blocks that integrated open public space into each block. His plan was an extension of the city outside the city walls, which were just torn down. It provided for other infrastructures as well: parks and plazas, sidewalks and gardens, roads and rails, water supply, sewerage, and storm drainage.42 Thus with Haussmann’s, Cerdà’s, and Olmsted’s plans, and the sanitary idea of Chadwick and others, planning began to take shape, with a decidedly infrastructural vocation.
The Progressive Era, City Beautiful, and City Planning The culmination of these efforts occurred in the Progressive Era, which lasted from approxi- mately 1890 to 1915. It was so called owing to the attempts to clean up political corruption, especially in local government. A distinguishing characteristic of the American progressive movement is that “middle-class and upper-middle-class people inspired and staffed [it].”43 This contrasted with one European version, exemplified by L’ Ecole Normal Superior de Administration of Paris, breeding ground of the elite that went on to staff national and provin- cial government in France and her colonies. In England, Oxford, and Cambridge groomed the elite for service to the Crown.
Planning historian Jon Peterson traced the birth of the “city planning” profession in America to the end of the progressive era: “the birth itself spanned almost precisely a ten-year period, from 1900 to 1910.”44 He distinguished it from British planning of the era, which concentrated on “low-density suburban [housing] estates.”45 Prior to 1890, according to Peterson, most city plans in the United States were new “townsite plans,” for completely new towns on virgin or at least undeveloped land.46 Charleston (1672), Philadelphia (1682), Savannah (1733), Washington, DC (1791), and New York (1811) were the most well-known examples of city plans based on street grids laid out by surveyors and engineers. Paterson, New Jersey, stands apart in that it was established as America’s first planned industrial city, promoted by Alexander Hamilton, in the period 1791. In the start of the twentieth century, American city planning focused on the whole of existing large cities. Prior to the twentieth century, there was “special purpose planning” in the cities, what today is often called functional planning. The pre-progressive era’s special-purpose plans were mainly for parks, water supply, and sewerage infrastructure. The progressive era intro- duced the term comprehensive into systemwide special-purpose planning in the late nineteenth century.47 Thus, we can trace two infrastructural roots of holistic city planning in the United States: street grids in town site planning and special-purpose planning.
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Historian Stanley Schultz draws attention to these nineteenth-century antecedents to compre- hensive city planning in the United States. They too were almost exclusively infrastructure-centered, and include water supply, parks, sewerage, streets, public transport, pipes for gas (street lamps), telegraph, telephone, and electric wires. As new technologies changed the city, they also changed the way the city was planned and managed.48 While the professional activities Schultz studied certainly laid a solid basis for, and are now considered part of, the urban planning profession— prior to their crystallization in the first decade of the twentieth century in a comprehensive (meaning more than one function at a time, in addition to the city as a whole), systematic, and self-conscious fashion—they were practiced by a disparate assemblage of sanitary engineers, landscape architects, architects, surveyors, and municipal engineers.49 Peterson refers to these as “antecedents of city planning.”50 Nonetheless, American cities prospered by the infusion of these new networked infrastructure systems and the urban possibilities that they engendered.
In the United States, the link between urban prosperity and planned infrastructure was never more placed into relief than in Chicago’s Columbian Exposition of 1893. It intensified the desire of cities small and large to improve themselves, in large measure through physical appearance. Excitement about the Exposition sparked many comprehensive planning efforts, then termed civic art or civic aesthetics, not the least of which was the 1901 McMillan Plan for Washington, D.C., the “inception” and “icon” of city planning.51 The McMillan Plan’s contribution to the City Beau- tiful movement was “palpable and immediate, in both the architectural and popular press.”52 This plan directed the disposition and improvement of public spaces, especially parks and the Mall. It relocated rail lines and established the location of the Pennsylvania Railroad’s new Union Station just northeast of the Capitol. In sum, an infrastructure plan clothed in the finery of City Beautiful civic design. The McMillan Plan inaugurated the dizzying decade in which city planning emerged as a new profession, distinct from its predecessors engineering, architecture, landscape architec- ture, and surveying.
This new comprehensive planning placed function alongside beauty for coequal consideration. In 1909 the Commercial Club of Chicago released Burnham and Bennett’s Plan of Chicago.53 The Chicago plan, like McMillan’s before it, was a landmark. The Chicago plan described exist- ing conditions and provided the vision for specific solutions designed to overcome existing problems as they pertain to infrastructure: transportation, streets, waterfront, parks, public build- ings, and open spaces. While Burnham and Bennett’s Plan was not merely an infrastructure plan, it did place its “emphasis on infrastructure.”54 Its solutions were attained by means of urban design, and today it is largely remembered by its famous illustrations. Furthermore, it expanded the scope of city planning so as to consider the placement and function of infrastructure beyond the local (municipal) scale. In comparison, many plans of both periods included only certain infrastructures, and other infrastructures such as energy, heat, power, water, and waste disposal got scant attention.55 Nonetheless, infrastructure, as the term is used today, played a larger role in the 1909 Chicago plan than is typically acknowledged, even in generous accounts that correctly identified its remarkably broad program, and that of the City Beautiful movement as well.
Just as importantly, it was the newly minted profession of city planning that prepared the city plans and conducted infrastructure planning. As Peterson takes pains to elaborate in his magiste- rial text, “At no time during 1905–1909, in fact, did engineers or engineering societies in any city initiate comprehensive plans, despite their expertise in street construction, bridge design, railroad grade crossings, and harbor improvements. Soon after the American planning movement achieved national organization in 1909, its leadership would bemoan the underrepresentation of this siz- able and strategic element within their ranks.”56
Other landmark planning texts were produced during this time. All demonstrated the prominence of growth-shaping or growth-inducing infrastructure planning in practice and in the classroom. In 1916, engineer-planner Nelson Lewis wrote Planning the Modern City. It identifies six principal
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elements of a city plan: transportation systems, public facilities, the street system, parks and recre- ation, location of public buildings, and patterns of land use.57 In the same year, John Nolen edited City Planning. This book explained the principles of and justifications for preparing a general plan. To Nolen and his contributing authors, the principal elements of a city plan were composed of infrastructure: streets, public buildings, recreation facilities, parks, water supply, waterways, railroads, and transportation and railways. Only five chapters of eighteen were allocated to administrative issues such as legislation and financing.58 The two seminal texts, written by two seminal figures, placed infrastructure at the center of the newly consolidated profession of city planning.
What the City Beautiful movement did was not only energize planning and foment its profes- sionalization but it expanded planning’s scope beyond infrastructure and hygiene. It seemed to say that infrastructure was never enough.59 While it stemmed from infrastructure, as city plan- ning matured, it became aligned with leading institutions in the economy and society. As it did so, it shifted its scope to political, administrative, and legal concerns. It began to plan and govern urban space. Historian Christine Boyer noted, “Out of the complex of infrastructural and service needs, city planning from its inception became a many-faceted process.” She goes on to observe in her Foucauldian- and Marxian-inspired analysis that “above all else, disciplinary space is cel- lular; its purpose is to be able to separate or break up confusing overlaps.” Planning’s distance from infrastructure started to grow just as it begun to consolidate as a profession. In planning’s place stepped state-appointed Public Utilities or Public Service Commissions that took control of infrastructure from the cities.60 This evolution of urban planning took place immediately before, during, and after World War I.
City Functional to the Mid–Twentieth Century By 1920, city plans were becoming less occupied with aesthetics and more concerned with admin- istration, the control of private property by zoning, and coping with the widespread use of the motor car. New York City’s 1916 Zoning Code was popularized by Hugh Ferris’s powerful ren- derings of building setbacks and by a clearly written legal code in support of the renderings. The diffusion of the New York code to towns and cities nationwide led to the rapid adoption of zoning as the principal municipal tool to accomplish planning, supplanting the comprehensive plans drawn by civic designers. As a result of the zoning revolution, land use zones prescribed by ordi- nance supplanted physical urban form and infrastructure location and design as the objects of planning. This transition echoed a change in urban settlement patterns spurred by the populariza- tion of automobile travel, made affordable by Henry Ford’s Model T, and the availability of cheap gasoline to power them. Increases in car ownership and income, a growing highway and street network, and streetcar and commuter rail lines permitted those who could to move out to the suburbs.61
At this time, new institutional considerations caused infrastructure-sensitive physical planning to recede, especially at the municipal level. Legally binding master plans administered by newly formed planning commissions altered how planning was done and who did it. Before, it was architects, landscape architects, and engineers. Now, lawyers and new professionals called city planners took on these tasks. Because of changing urban dynamics and changes in the planning profession, both Lewis and Nolen updated their seminal texts. Lewis’s revised Planning the Modern City recognized the increasing role of municipal administration, yet nonetheless main- tained four physical elements of a city plan: the transportation system, streets, park and open spaces for recreation, and public buildings.62 Nolen also kept his sights on physical (infrastruc- tural) planning while expanding the book’s scope to include zoning and a revised chapter on planning legislation.63
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In the 1930s, the city planning profession in the United States confronted changing economic and social conditions by creating new ideas and new tools. The development of institutional capac- ity at all levels of government (National Planning Board, state planning boards, municipal planning and zoning commissions), along with a wider range of legal instruments were accomplishments that helped city planning’s professional standing. Abetted by their growing numbers, planners developed expertise through specialization. Scientific projections of future population growth, slum clearance, and public housing were some of the key advances. Regional, state, and national planning further articulated professional aspirations throughout government and society. Infra- structure planning receded at the local level, yet was central to regional and state plans.64
The preparation of metropolitan and regional plans recognized that urban growth occurred in suburban sprawl as well as downtown concentration, and the interrelations of the two required coordinated planning for more than just the central city. Inspired by the Scottish biologist and regionalist Patrick Geddes, planners on both sides of the Atlantic produced regional plans. The Plan for New York and Its Environs, prepared in the 1920s, for example, was essentially a regional design that used regional infrastructure systems as a framework. Another example is the Tennes- see Valley Authority (TVA), a federal agency created in the 1930s to build dams, reservoirs, hydroelectric plants, munitions factories, and supportive public facilities in a multistate Tennessee River region in the Southeast. Intended as a regional development strategy for one of the chroni- cally poorest regions in the nation, the TVA was an icon of New Deal planning.65 Widely influential, both stand as convincing evidence of the link between planning and infrastructure at the metro- politan and regional scales.
The National Planning Board, created in 1933 and operating through 1943 under other names such as the National Resources Committee and the National Resources Planning Board (NRPB), coordinated federal planning for public works and national resources. It conducted long-range studies in support of its planning and stimulated local, regional, and especially state planning. Forty-five of forty-eight states adopted state planning boards in the 1930s.66 Hundreds of major public works projects were built by the Public Works Administration, the Works Progress Admin- istration, the Civilian Conservation Corps, and the TVA still grace communities throughout the United States. After 1939, at the dawn of World War II, the NRPB withdrew from public works planning and supporting state planning boards, most of which were dissolved or left idle, in favor of special duties related to the national defense.67 Nonetheless, one prime legacy of the NPB is the link between public works and comprehensive planning, fortified by a degree of multijuris- dictional coordination perhaps not since experienced.68
A number of texts were written in this same decade that endeavored to reset the direction of the planning profession. Typical was planning consultant Earl Mills, a contributing author to volume 2 of The Planner’s Journal, who averred that the profession faced a fork in the road: to plan or replan. Nonetheless, each choice maintained that planning deals with the physical form of the city.69 His prescription for an adequate city plan entailed population studies, land use and zoning, water and sewage facilities, a major thoroughfare plan, transit and transportation, parks, recreation areas, schools, civic art, and housing. Via Mills’s text, population study and land use continued to assert themselves on the North American planning scene alongside of infrastruc- ture and zoning.
Lawyer-planner Edward Bassett, a zoning pioneer, contributed his insights on the future direc- tion of planning in his book The Master Plan. There he identified seven elements of community land planning: streets, parks, sites for public buildings, public reservations, zoning districts, routes for public utilities, and pierhead and bulkhead lines. His text signaled a move away from civic design, as he chose public building sites instead of public buildings because he believed the latter belonged to the domain of architecture rather than community planning.70 Clearly, in these texts, some types of infrastructure were still a component of planning and the comprehensive plan,
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although the shift to zoning, land use, and population forecasting was taking hold and in some cases superseding infrastructure and public works planning.
In 1941, the predecessor to the International City Management Association, the Institute for Training in Municipal Administration, issued the first edition of Local Planning Administration.71 This text “set forth the basic principles of intelligent community planning,” of which only five of fourteen pertained to infrastructure. Following the progress of mainstream North American plan- ning by examining the second edition in 1948 and the third edition in 1959 of Local Planning Administration, one can detect a continuing shift away from physical planning, the comprehen- sive plan, and infrastructure, to zoning and other forms of administration, along with new tools such as urban renewal and public housing. Infrastructure, while it continued to be included, steadily declined in importance. The sea of change in the profession from shaping urban form to exercising bureaucratic functions was apparent in the table of contents. The choice of publisher, an adminis- trative association, in lieu of the American Institute of Planners, was also indicative.
Foreshadowing the ICMA “Green Book” was Robert Walker’s 1941 The Planning Function in Urban Government. Echoing the green book was Harold Lewis’s 1949 Planning the Modern City. The latter, written by the son of Nelson Lewis, also identified planning with administrative and governmental activities as much as with urban infrastructure. Infrastructure, under which he included transportation, public facilities, street system, park and recreation, and the location of public buildings, was classified in the realm of engineering, and not planning.72 Robert Walker’s book, widely used as an authoritative text, ventured even further into the administrative arena.73
Parallel shifts were spearheaded by Stuart Chapin’s landmark Land Use Planning. “It changed the way planning was practiced in the United States, by shifting the core of planning from design to land use. This meant a move away from Olmsted’s ‘complex unity’ of the city to land units segmented into categories [zones]. . . . Even as the book acknowledged that land use planning was one part of comprehensive planning, it nevertheless stressed quantitative analysis over design synthesis. . . . . In part its success derived from the fact that a land use basis (as opposed to a whole-city basis) fit more neatly into the way North American institutions dealt with real property (deeds, laws, zoning). . . . With the land use control model, planning employed a divide and conquer mentality decidedly distinct from the order and build mindset of previous physical plans.”74 At this point, we can add that around this time emerged a more widespread recognition that politics often trumped even the best plans. To counter politics, planners shored up the admin- istrative and institutional sides of planning, which also began to overshadow design. These four books signaled changes on the professional horizon.
City Grass-Rooted Questions the Comprehensive Planning Ideal The 1950s and the 1960s saw the interstate highway system begin its assault on city centers, with highway engineers mastering the drawing boards. It was left to activists, civic groups, and other scholars to critique the way infrastructure planning was done, particularly in relation to low-income communities.75 Activists opposed destruction of viable urban neighborhoods by ribbons of concrete and maze-like multilevel interchanges whose principal design criterion was free traffic flow.
Celebrated city planners and writer-activists such as Paul Davidoff, Jane Jacobs, and Chester Hartman played vital roles in “freeway revolts” in Philadelphia, New York, and San Francisco of the 1950s and 1960s, which spread to other cities. In the main, however, the planning profession stood aside as transportation specialists aided by a range of federal and market subsidies and incentives redrew metropolitan maps in favor of the suburbs.76 It would be somewhat of an exaggeration to say that the general silence of urban planners vis-à-vis infrastructure amid the postwar urban freeway construction din was deafening. Instead, some activist voices in the
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urban planning chorus served, in part, to critique infrastructure planning done by others, particularly in relation to low-income communities.77 It took planning decades to recover from the antiurban renewal and breakdown of the comprehensive planning ideal critiques of this period.78
The turbulent decade of the 1960s ushered in a profound reconsideration of urban plan- ning’s scope and mission. Emboldened by Jacobs’s call to pay greater attention to the fine-grained details of city living, especially in the neighborhoods, planners began to fight the increasing hold that transportation engineers and urban renewal experts exerted on urban development.79 The planning profession was impelled by Davidoff’s inspiring article “Advocacy and Plural- ism in Planning” to give voice to the underrepresented and advocate on their behalf in the planning arena.80 Cities reached near the top of the U.S. domestic policy agenda, placed in the limelight by segregation, riots, decay, depopulation, and pollution. The Department of Hous- ing and Urban Development, established in 1965, applied federal muscle to the urban agenda. Infrastructure was not included as a main part of the new department’s mission. Instead, federal responsibility for infrastructure was and continues to be scattered among numerous departments and agencies.
This accelerated the shift of planning from infrastructure, and moved it toward urban redevel- opment, community planning, citizen participation and empowerment, and housing. A wave of new city planning programs inundated American universities in the sixties and early seventies, sparked by the renewed interest in working with the community residents to solve city problems. Social planning, advocacy planning, equity planning, policy planning, and other monikers denoted two shifts in planning. One was to critique infrastructure planning and physical planning from a social equity, local, and place-based perspective. The second was to continue the gradual shift away from physical form that had dominated planning in the United States.
Another seismic shift of the sixties, the environmental movement, was to have a similar effect on the planning profession. Although many were called to planning, particularly environmental planning, by such seminal texts as Ian McHarg’s Design With Nature, efforts to improve the environment relied on natural methods.81 Environmental infrastructure became the near-exclusive province of civil engineers, landscape architects, and new specialists, such as environmental engi- neers and planners.
The Urban General Plan by Berkeley professor and former San Francisco city planning direc- tor Jack Kent, along with Goodman and Freund’s Principles and Practice of Urban Planning and University of North Carolina faculty member Chapin’s second edition of Urban Land Use Plan- ning all contained ample evidence that planning was retreating from infrastructure.82 This trend away from infrastructure continued, as evinced by texts that have guided mainstream U.S. prac- tice the most, especially the ICMA’s Practice of Local Government Planning.
A Strange Estrangement As we begin the twenty-first century, the relation between infrastructure and city planning may in a limited sense be described as estranged, in the literal meaning of the term—to be kept apart from its accustomed place, or withheld from one’s perception or knowledge.83 This is so even as the bond between infrastructure and cities is as tight as ever. The vital importance of infrastruc- ture to cities has been repeatedly affirmed in case studies of cities and general treatises and histories.84 Yet in practice and in the academy, the planning profession as institutionalized in the APA and the AICP and their predecessors, has gone through continuous changes vis-à-vis its approach to infrastructure. This situation has been noted, and the relative lack of attention to infrastructure in recent decades has led it to be called “the Cinderella of urban studies.”85 Outlin- ing this relationship, and the changing fortunes of planning and cities, reveals tendencies that have import for planning practice and education today.
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In the United States, contemporary planners’ infrastructure activities include site planning, ann- exation, capital improvements planning and budgeting, transportation planning, special-purpose planning, and episodic and reactive land development review functions. In these activities, city planners typically coordinate meetings with developers, designers, and other interested parties. Additional activities may include assessing impact fees, ensuring the adequacy of easements, and applying design guidelines to projects. Planners may also be responsible for conducting infrastructure and environmental assessments, the latter of which often includes infrastructure.86 Two observations can be made about this impressive array of activities related to infrastructure. First, entire networks or systems are rarely the primary concern, except perhaps at the metropoli- tan scale (MPOs and COGs for specific functional systems) or state and national scales (if the state has serious state or regional planning, such as Florida and New Jersey). Usually, planners consider infrastructure at the site, district, or neighborhood scale—in an incremental rather than comprehensive manner. Second, many of these activities are reactive to development proposals and not anticipative of new growth or dynamic urban conditions. They skirt the long-term and strategic functions that entire infrastructure networks exert in the urban environment. City planning also tends to elide the interrelations among infrastructure systems, multimodal and multisystem synergies, sharing of rights of way, and their interactions with urban fabric and function. Reinserting these exculpated yet critical aspects of infrastructure would further strengthen planning practices.
A selective review of contemporary municipal general plans in the United States and Canada reveals a similar level of disengagement. These ten plans, in San Francisco, San Jose, Calgary, Edmonton, Portland Oregon (two plans), Dallas, Miami, Phoenix, and Toronto, adopted in recent years, centered their interests on demographics, land use, economic development, social con- cerns, urban design, and overall quality of life. A content analysis of these plans reveals their principal concerns as those just listed.87 Infrastructure occupied scant portions of their texts; an average of 11.3 percent of the pages for the ten plans were devoted to infrastructure. A typical one, the award-winning San Jose 2020 General Plan, dedicated 10 of 245 pages to infrastructure, inc- luding transportation. None of its seven “major strategies” dealt with infrastructure. San Francisco had the most content related to infrastructure, nearly one half. Yet two other plans had less than 5 percent each. Furthermore, this degree of attention is evident in the plans of cities and towns of all sizes.88
Further evidence of decentering planning from infrastructure is in the standard reference of local urban planning in the United States, the International City Management Association “Green Book,” titled The Practice of Local Government Planning.89 It does not have a single chapter dedicated to infrastructure, utilities, capital facilities, or public works. Another leading text, Urban Land Use Planning, now in its fifth edition and fifth decade, allocates one chapter to infrastructure.90
As a consequence of the profession’s partial disengagement, infrastructure planning is left to utility providers, school districts, city engineering or public works departments, parks depart- ments, and street departments. While planning agencies often coordinate with infrastructure organizations, and while infrastructure entities may have city planners or land use planners on their staffs, the degree and effectiveness of coordination among them varies widely, depending on a host of institutional, political, cultural, educational, and historical factors. Another aspect of the distance of infrastructure from the core of urban planning is that some of it is increasingly being done by the private sector, chiefly with new telecommunications infrastructures that are having a massive effect on urban development.
This follows a long history in the United States of urban development spurred by entrepreneurs using infrastructure. For the most part, American cities gained streetcars, gas light, electricity, telephones, telegraphs, and water supply from private companies operating under municipal fra- nchises. More recent utilities such as cable TV, mobile phones, computer networks, and other
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telecommunications infrastructures also are not being planned by professional city planners. These new utilities are following in the same patterns of regulated, privately owned utility com- panies of the past. In both old and new utilities, engineers, accountants, politicians, and entrepreneurs play a large role in planning and management—not city planners.
Where comprehensive planning does engage infrastructure more completely and strategically is at larger scales, notably the metropolitan, regional, and state scales. For example, the New York Regional Plan Association’s Regional Plan of 1996, the Portland Metro’s Metropolitan Plan of 1995, the San Diego Association of Government’s Regional Comprehensive Plan of 2004 (espe- cially the “Integrated Regional Infrastructure” chapter), the City of San Antonio’s Southside San Antonio subregional plan of 2003, and the New Jersey State Plan of 2001 all are based on the governance of growth-shaping infrastructure.
Infrastructure as a basis of planning at larger than the city scale is especially noticeable in Europe, where it is termed spatial planning, and in East and Southeast Asia, where architect- planners and engineer-planners set their sights on shaping urban form via infrastructure. In Europe, as the mode of planning has transformed from blueprint to strategy, especially at regional and European scales, infrastructure is used as the strategic kingpin to intra- and interconnect metropolitan regions.91 The recent metropolitan plans for Paris, Madrid, Milan, Berlin, Brussels, Barcelona, Beijing, Shanghai, and numerous other cities stress infrastructure as a principal factor shaping settlements.92 While our focus is on the United States, this admittedly limited selection does suggest that American planning can learn from international practices that link infrastruc- ture to planning.
This introductory and selective scan of infrastructure and city planning highlights as much diversity as it does identify common trends. To better understand how we arrived at this position today, the following sections illustrate key historical tendencies of urban development, infra- structure, and city planning. Beginning with the mid–nineteenth-century sanitary reforms in England and continuing to the present, the article draws mainly on seminal texts and histories, themselves relying on primary sources.
What Caused the Estrangement of Infrastructure from Planning? This overview of the history of the development of city planning in the United States reveals the changing relationship of infrastructure to planning. Our analysis of American planning history suggests that cities, city planning, and infrastructure have had strong reciprocal interdependence. Since the industrial era, after being based initially on the twin pillars of sanitary reform via infrastructure provision and poverty alleviation through housing reform, planning evolved to assume more functions, such as civic beautification, land use and development control via zoning and other legal provisions, regional and state planning, economic and community development, and environmental protection.93 We should take care to note the distinction between physical form as a basis of planning and infrastructure as a basis of planning. While there are obvious links between the two, they had different origins and differing impacts on the planning profession. The limits of the physical planning approach, especially its tendency to leave out some aspects of infrastructure, were in part what gave way to the expansion of planning into social, legal, insti- tutional, and other arenas. City planning has never been exclusively about physical planning or infrastructure, not even in European or Asian countries where technically trained architect- planners and engineer-planners practice. It has always been a means to achieve broader social and economic and political goals, and those means have included infrastructure and physical plan- ning. Notwithstanding, our analysis suggests that the stronger the interrelation between city planning and infrastructure has been, the more the professional activity of city planning and its pre-1900 antecedents—and the cities themselves—have benefitted.
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This preemption of the planning profession’s scope is termed an estrangement. While never a complete rupture, for us estrangement refers to the uneasy relationship between planners and eng- ineers, as well as between planners and public finance and administration professionals, in part because of the differences in training that they receive. These other professions have partially usurped planning’s advocacy and management for infrastructure.94 Engineers, with a mathemati- cally oriented systems approach to problem solving, speak a language distant from the combination of legalese, social survey, policy making, consensus building, and urban design that planners have evolved. Public finance and administration, sharing some commonalities with planning such as policy and law, stresses management, accountability, budgets, accounting, finance, and politics. The beginning of their separation can be traced to twin sources. First is the specialization of the professions into increasingly discipline-specific technical areas of expertise from the nineteenth century onwards.95 Second, after the City Beautiful movement in the United States, planning had gradually and steadily shifted from urban physical form to legal, social, and administrative concerns. This incremental and gradual shift spanned generations and cast a long shadow on con- temporary planning practice that has not satisfactorily been resolved on a long-term basis. We hasten to add that American Planning Association leadership, dovetailing with the advent of the new presidential administration, is actively and swiftly seeking to redress this concern.96
Whither Infrastructure? Planning for infrastructure has always been essential to the well-being and prosperity of cities and their inhabitants. Today, as argued in this article, the planning profession’s interest in infrastructure has declined somewhat in deference to specialists, such as engineers, other public work officials, public administrators, and financiers. While this is true, particularly when compared to the incep- tion of professional city planning in the United States one century ago, it is only part of the story.
As the pace of technological innovation accelerates, new and enhanced technologies place extraordinary demands on society to integrate them into the complex webs of life, not the least of which are the urban complexes made possible by infrastructure networks. These new tech- nologies have required extensive planning. We believe cities require an entirely new type of planning because of the substantial changes wrought by telecommunications technologies and the global economy. Relevant to these contemporary concerns are planning approaches that con- sider the networked nature of cities and society.97
Furthermore, earlier infrastructure technologies have caused impacts that are just now being felt or they have produced long-standing impacts that continue to accumulate and fester. Most energy-producing infrastructure falls into this category, particularly those using nonrenewable energy sources; as does private-automobile infrastructure, with its seemingly insatiable appetite for gasoline, asphalt, and concrete. Water supply, wastewater, and storm water infrastructures rely- ing on old technologies such as dams, sewers, concrete drainage channels, and storm sewers respectively, also have extensive financial and environmental costs and impacts that are not being managed in a sustainable manner.98
Compounding the combined forces of global technological change and the impacts of both old and new technologies is the decline of the public sector, especially its exercise over the planning and construction of infrastructure. The corrosion of a belief that government can do good for the public has permeated international institutions as well as national, regional, and local governments. The welfare states in Europe and North America have eliminated govern- ment programs, or deregulated, privatized, or decentralized them. As one corollary of the growth of the private sector, most data are confirming that social and economic inequities con- tinue to escalate, and environmental degradation and resource depletion accelerates, albeit with some improvements.
Neuman and Smith 35
In light of these challenges, effective management of expensive capital investments—the important yet deteriorating stocks of public infrastructure—now more than ever requires exten- sive coordination and planning, which has not gone unnoticed by scholarly observers and critical international institutions.99
The wise planning and employment of infrastructure can aid in the solving of vexing prob- lems, including sustainable urban development and redevelopment, attaining social and economic equity through access to facilities, and the preservation of rural and natural environments. We do not claim that only planners possess these qualities, nor are we arrogating a scope of activities that would amount to professional imperialism. Planners, engineers, and other professionals all have acknowledged that these issues cannot be addressed by any single profession acting alone. As long as a century ago, British planning pioneer Patrick Abercrombie called for cooperation among areas of planning.100 In that golden age of planning, engineers, landscape architects, and architects were urban planners, and routinely collaborated to solve problems and set new agen- das for our professions. Shortly thereafter, however, Alfred Bettman’s address to the 1935 Public Work’s Congress in the United States, “City Planner and City Engineer Relationships,” decried the inefficiency of infrastructure provision when coordination did not prevail.101 We add that professionals, however united collectively, must act in concert with society and its leaders to secure lasting improvements.
In times of distress, such as the Great Depression of the 1930s, World War II and its aftermath, and the current financial, economic, and ecological crises, societal leaders have returned to the comforting harbor of infrastructure as a planned remedy, via such programs as the New Deal, the Marshall Plan, and the current economic stimulus package, which includes spending on energy, transportation, and water systems. In times of plenty, urban planners have also turned to infra- structure, as we have seen in the United States in the 1920s (streets and highways to support the automobile), the 1950s and 1960s (interstate highways and water projects in the West), and the 1990s (Internet and other telecommunications). In times of excessive plentitude, some countries have undertaken imperial expansion, tangibly enabled via infrastructure. Here we have classic Rome, sixteenth-century Spain, nineteenth-century England, and twentieth-century United States. These expansions have also been abetted by administrative infrastructures to support the widen- ing of the physical web, such as the United Nations, the World Bank, and the International Monetary Fund after World War II in this century, and the Law of the Indies and the Archive of the Indies to support imperial Spain’s conquests and colonizations. Advanced societies have repeatedly turned to the twin pillars of physical and administrative infrastructures to accomplish their aims, and have always done so using advance planning and strategic foresight.
The historical evidence of the twentieth century further suggests that societies oscillate between the poles of relying on infrastructure between times of distress and times of prosperity, on the one hand, in which societies invest heavily in infrastructure, and the times of relative normalcy, on the other hand, where public works tend to be neglected, again relative to the exuberance of abundance. These swings between infra-philia and infra-phobia are also evidenced in city plan- ning, as this article has strived to show. If city planners are to attempt to achieve a balanced approach to cities and their planning, in which infrastructure planning integrated more fully with city planning, then one path can mediate the extreme swings between infra-philia and infra- phobia by a constant emphasis on planning and investing in infrastructure. Urban planners have much to contribute in this realm, including the use of a life-cycle approach to infrastructure that keeps infrastructure situated squarely in institutional and political agendas on a routine basis, instead of reacting to crises or fueling booms.
As systems theorists, ecologists, ethnographers, city planners, and others who have studied whole systems suggest, system “characteristics derive from the system.”102 This is so because parts of a system interact to endow a degree of integrity and functionality that is greater than the
36 Journal of Planning History 9(1)
sum of its parts. Separating components from a system, such as infrastructure from a city and its planning, weakens the whole. This article suggests a renewed link between infrastructure and urban planning in the professions and the academy. Strengthening the infrastructure–urban plan- ning link is a critical task in order to make city regions more sustainable.
In a rejuvenated profession of city planning that fully integrates infrastructure, a city planner could rephrase a leading city engineer of a century ago by substituting her profession: “The office of the municipal engineer is of the greatest importance to the community. . . . In fact, the city government of today is in a large measure a matter of municipal engineering, and the char- acter of the city engineer’s department is a safe index to the intelligence shown in the development of a municipality.”103
Declaration of Conflicting Interests The authors declared no conflicts of interests with respect to the authorship and/or publication of this article.
Funding The authors received no financial support for the research and/or authorship of this article.
Notes 1. Leonardo Benevolo, The History of the City (Cambridge, MA: MIT Press, 1975; reprint, Cambridge,
MA: MIT Press, 1980). 2. Dora Crouch, Daniel Garr, and Axel Mundigo, Spanish City Planning in North America (Cambridge,
MA: MIT Press, 1982). 3. J. R. McNeill and William McNeill, The Human Web: A Bird’s Eye View of World History (New York:
Norton, 2003); Saskia Sassen, The Global City: New York, London and Tokyo, 2nd ed. (Princeton, NJ: Princeton University Press, 2001); Manuel Castells, The Internet Galaxy: Reflections on the Internet, Business, and Society (Oxford, UK: Oxford University Press, 2001).
4. Henri Lefebvre, The Production of Space (Oxford, UK: Basil Blackwell, 1991); Mark Gottdiener, The Social Production of Urban Space (Austin: University of Texas Press, 1985). One can reject a strict technological determinism view of city development while at the same time acknowledging infrastruc- ture as a direct contributor to physical urban development and to the socio-politico-economic develop- ment of the city, as infrastructure provides the conduits through which communications and goods and people flow in and through the city.
5. Steven Graham and Simon Marvin, Splintering Urbanism: Networked Infrastructures, Technological Mobilities and the Urban Condition (London: Routledge, 2001).
6. Leonardo Benevolo, The Origins of Modern Town Planning (Cambridge, MA: MIT Press, 1963; reprint Cambridge, MA: MIT Press, 1967).
7. Manuel Castells, The Information Age: Economy, Society and Culture I: The Rise of the Network Soci- ety, 2nd ed. (Oxford, UK: Blackwell, 2000); Castells, The Internet Galaxy.
8. Thomas Hughes, “The Social Construction of Technological Systems,” in The Social Construction of Technological Systems: New Directions in the Sociology and History of Technology, ed. Wiebe E. Bijker, Thomas P. Hughes, and Trevor J. Pinch (Cambridge, MA: MIT Press, 1987); Wiebe E. Bijker, Thomas P. Hughes, and Trevor J. Pinch, eds., The Social Construction of Technological Systems: New Directions in the Sociology and History of Technology (Cambridge, MA: MIT Press, 1987).
9. Joel Tarr and Gabriel Dupuy, eds., Technology and the Rise of the Networked City in Europe and America (Philadelphia: Temple University Press, 1988).
10. Paul Farmer, “Change,” in Planning (Chicago, IL: American Planning Association, 2009): 3-4; American Planning Association, APA National Infrastructure Investment Task Force 2009. www .planning.org/policy/infrastructure (accessed February 23, 2009).
Neuman and Smith 37
11. Carol Abbot and Sy Adler, “Historical Analysis as a Planning Tool,” Journal of the American Planning Association 55, no. 4 (1989): 467-73.
12. Eugenie Birch, “Presidential Address,” in Proceedings of the Fourth Conference in American Plan- ning History (Hilliard, OH: Society for American City and Regional Planning History, 1991); in Mary Sies and Christopher Silver, “Planning History and the New American Metropolis,” in Planning the Twentieth-Century American City, ed. Mary Sies and Christopher Silver (Baltimore, MD: Johns Hopkins University Press, 1996), 449-73 (quote from p. 449).
13. Sies and Silver, “Planning History and the New American Metropolis,” 450. 14. Benevolo, History of the City, Spiro Kostof, The City Assembled: Elements of Urban Form through
History (Boston, MA: Little, Brown and Company, 1992). 15. Neil Smith, “New City, New Frontier: Lower East Side as Wild Wild West” in Variations on a Theme
Park, ED. Michael Sorkin (New York: Hill and Wang, 1992), 61-93 (quote on p. 64); and authors’ calculation.
16. Benevolo, History of the City; Lewis Mumford, The City in History: Its Origins, Its Transformations, and Its Prospects (New York: Harcourt, Brace & World, 1961).
17. William Cronon, Changes in the Land: Indians, Colonists, and the Ecology of New England (New York: Hill and Wang, 1983); William Cronon, Nature’s Metropolis: Chicago and the Great West (New York: Norton, 1991).
18. Jon Peterson, The Birth of City Planning in the United States, 1840-1917 (Baltimore, MD: Johns Hopkins University Press, 2003); Peter G. Hall, Cities of Tomorrow: An Intellectual History of Urban Planning and Design in the Twentieth Century, 3rd ed. (New York: Blackwell, 2002); Robert Fishman, ed., The American Planning Tradition: Culture and Policy (Washington, DC: Woodrow Wilson Center Press, 2000); Mel Scott, American City Planning Since 1890 (Chicago: American Planning Associa- tion, 1995); and Daniel Schaffer, ed. Two Centuries of American Planning (Baltimore, MD: Johns Hopkins University Press, 1988); Tarr and Dupuy, Technology and the Rise of the Networked City; Donald Krueckeberg, Introduction to Planning History in the United States (New Brunswick: Center for Urban Policy Research, 1983); Leonardo Benevolo, The Origins of Modern Town Planning.
19. Josef Konvitz, The Urban Millennium: The City Building Process from the Early Middle Ages to the Present, 131, 1985 Carbondale, IL: Southern Illinois University Press.
20. World Bank, World Development Report: Infrastructure for Development (Oxford, UK: Oxford University Press, 1994); United Nations Center for Human Settlements (UNCHS Habitat), Cities in a Globalizing World: Global Report on Human Settlements (London: Earthscan, 2001); Graham and Marvin, Splintering Urbanism; Michael Neuman, “Infrastructure” in Encyclopedia of the City, ed. Roger Caves (London: Routledge, 2005).
21. Krueckeberg, Introduction to Planning History in the United States; Stanley K. Schultz, Constructing Urban Culture: American Cities and City Planning 1800-1920 (Philadelphia: Temple University, 1989).
22. Martin Melosi, The Sanitary City: Urban Infrastructure in America from Colonial Times to the Pres- ent (Baltimore, MD: Johns Hopkins University Press, 2000); Domenique LaPorte, The History of Shit (Cambridge, MA: MIT Press, 2000).
23. Edwin Chadwick, Report from the Poor Law Commissioners on an Inquiry into the Sanitary Condition of the Laboring Population of Great Britain (Edinburgh: University of Edinburgh Press, 1842; reprint, Edinburgh: University of Edinburgh Press, 1965).
24. Krueckeberg, Introduction to Planning History in the United States, 17. 25. John Griscom, The Sanitary Condition of the Laboring Population of New York (New York: City
of New York, 1845); John Levy, Contemporary Urban Planning (Upper Saddle River, NJ: Prentice Hall, 2009).
26. Melosi, The Sanitary City, 63. 27. Jon Peterson, “The Impact of Sanitary Reform upon American Urban Planning, 1840-1890” Journal
of Social History 13, no. 1 (1979): 83-105.
38 Journal of Planning History 9(1)
28. Stanley Schultz and Clay McShane, “To Engineer the Metropolis: Sewers, Sanitation and City Plan- ning in Late Nineteenth Century America,” Journal of American History 65, no. 2 (1978): 389-411.
29. Krueckeberg, Introduction to Planning History in the United States. 30. Robert De Forest and Lawrence Veiller, eds., The Tenement House Problem, Vols. 1 and 2 (New York:
Arno Press and The New York Times, 1970). 31. William H. Wilson, The City Beautiful Movement in Kansas City (Columbia: University of Missouri Press,
1964); William H. Wilson, The City Beautiful Movement (Baltimore, MD: Johns Hopkins University Press, 1989).
32. Mel Scott, American City Planning Since 1890 (Chicago: American Planning Association, 1995). 33. Charles Capen McLaughlin and others, eds., The Collected Papers of Frederick Law Olmsted
(Baltimore, MD: Johns Hopkins University Press, 1977), 6 vols. 34. John Reps, The Making of Urban America: A History of City Planning in the United States (Princeton,
NJ: Princeton University Press, 1965). 35. Jon Peterson, The Birth of City Planning in the United States; Schultz, Constructing Urban Culture. 36. Phil Patton, “Sell the Cookstove if Necessary but Come to the Fair,” Smithsonian, June 1993, 38-49. 37. Another manifestation of the city beautiful idea in Europe was spurred by Camillo Sitte’s City Plan-
ning According to Artistic Principles (1945, New York: Reinhold). This slim volume was especially influential in German-speaking lands and Northern Europe. It rekindled interest in the qualities of pub- lic spaces, notably squares and streets and their disposition in relation to the built urban fabric. Even though the text did not concern itself with infrastructure besides streets and squares, it sought to bring back the “art” to city building, which he saw to be disappearing in the shadows of functional-technical infrastructure construction (Sitte, City Planning, p. 84).
38. Reps, The Making of Urban America; Levy, Contemporary Urban Planning. 39. Francoise Choay, The Modern City: Planning in the 19th Century (New York: George Braziller, 1965;
reprint, New York: George Braziller, 1969); Benevolo, The History of the City; Howard Saalman, Haussmann: Paris Transformed (New York: George Braziller, 1971).
40. Choay, The Modern City, 16. 41. Ildefons Cerdà, “The Extension of the city of Barcelona: Descriptive Memorandum of the Technical
Work and Statistical Studies Carried Out by Government Order,” in Cerdà: Urbs i territori: Catalog of the Exhibition Mostra Cerdà, ed. Generalitat de Catalunya (Madrid: Electa, 1996).
42. Ildefons Cerdà, Teoría General de Urbanización y Aplicación de sus Principios y Doctrinas a la Reforma y Ensanche de Barcelona [General Theory of Urbanization and the Application of its Prin- ciples and Doctrines the Reform and Expansion of Barcelona] (Madrid: Imprenta Española, 1867), 2 vols.
43. Wilson, The City Beautiful Movement, 41. 44. Peterson, The Birth of City Planning in the United States, 2. 45. Ibid, 3. 46. Ibid, 6. 47. Ibid, 22. 48. Hughes, “The Social Construction of Technological Systems”; Tarr and Dupuy, Technology and the
Rise of the Network City. 49. Schultz, Constructing Urban Culture. 50. Peterson, The Birth of City Planning in the United States, 29-73. 51. Ibid., 333 and 126. 52. Wilson, The City Beautiful Movement, 69. 53. Daniel Burnham and Edward Bennett, Plan of Chicago (Chicago: The Commercial Club, 1909). 54. Peterson, The Birth of City Planning in the United States, 217. 55. Tarr and Dupuy, Technology and the Rise of the Networked City. 56. Peterson, The Birth of City Planning in the United States, 179.
Neuman and Smith 39
57. Nelson Lewis, The Planning of the Modern City, 1st and 2nd eds. (Brooklyn: Press of Braunworth & Co. Inc., 1916 and 1922).
58. John Nolen, City Planning: A Series of Papers Presenting the Essential Elements of a City Plan (New York, D. Appleton, 1916).
59. British planning pioneer Raymond Unwin remarked, “The truth is that in this work we have neglected the amenities of life. We have forgotten that endless rows of brick boxes, looking out on dreary streets and squalid backyards, are not really homes for people, and can never become such, however complete may be the drainage system, however pure the water supply, or however detailed the bye-laws under which they are built” (Raymond Unwin, Town Planning in Practice: An Introduction to the Art of Designing Cities and Suburbs [London: Unwin, 1909], 4).
60. Christine M. Boyer, Dreaming the Rational City: The Myth of American City Planning (Cambridge, MA: MIT Press, 1983): 67, 71, and 111-112.
61. Sam Bass Warner Jr., Streetcar Suburbs: The Process of Growth in Boston, 1870-1900 (Cambridge, MA: Harvard University Press, 1962; reprint Cambridge, MA: Harvard university Press, 1978); Kenneth Jackson, The Crabgrass Frontier: The Suburbanization of the United States (New York: Oxford University Press, 1985).
62. Harold Lewis, The Planning of the Modern City, Vols. 1 and 2 (New York: John Wiley, 1949). 63. John Nolen, City Planning: A Series of Papers Presenting the Essential Elements of a City Plan,
2nd ed. (New York: Appleton, 1929). 64. Harvey Perloff, Education for Planning: City, State and Regional (Baltimore, MD: Johns Hopkins
University Press, 1957). 65. Phillip Selznick, TVA and the Grassroots: A Study in the Sociology of Formal Organization (Berkeley:
University of California Press, 1949). 66. Peterson, The Birth of City Planning in the United States, 322. 67. Marion Clawson, New Deal Planning: The National Resources Planning Board (Baltimore, MD:
Johns Hopkins University Press, 1981). 68. Once again, similar activities were undertaken in the United Kingdom. Thomas Adams prepared eight
advisory regional plans between 1924 and 1932, and introduced the American idea of a parkway into metropolitan design in his work around the city of London. Patrick Abercrombie, prior to leading the development of the Greater London Plan of 1944 and the Clyde Valley Plan of 1946 for the Glasgow urban region of Scotland, produced a series of advisory regional plans in the twenties. (See Hall, Cities of Tomorrow.) They were regional designs that guided the physical form of the region, and the location and size of new or expanded settlements. Infrastructure was to do the shaping.
69. Earl Mills, “Elements of an adequate comprehensive city planning program,” Planner’s Journal 2 (1936): 150-54.
70. Edward M. Bassett, The Master Plan: With a Discussion of the Theory of Community Land Planning Legislation (New York: Russell Sage Foundation, 1938).
71. Ladislas Segoe, ed., Local Planning Administration (Chicago: The Institute for Training in Municipal Administration, 1941).
72. Lewis, Planning the Modern City (New York: John Wiley & Sons, 1949). 73. Robert Walker, The Planning Function in Urban Government (Chicago: University of Chicago
Press, 1941). 74. Michael Neuman, “Does Planning Need the Plan?” Journal of the American Planning Association 64,
no. 2 (1998): 208-220. 75. Cliff Ellis, “Professional Conflict over Urban Form: the Case of Urban Freeways, 1930-1970,” in
Planning the Twentieth-Century American City, 262-79. 76. Adam Rome, The Bulldozer in the Countryside: Suburban Sprawl and the Rise of American Envi-
ronmentalism (Cambridge, UK: Cambridge University Press, 2001); Jackson, Crabgrass Frontier; Chester Hartman, The Transformation of San Francisco (Totowa: Rowman and Allenheld, 1984).
40 Journal of Planning History 9(1)
77. Cliff Ellis (1996) chronicles the influence of highway engineers in American city infrastructure plan- ning. “Municipal engineers in Chicago and Detroit produced plans for express highways as early as the 1920s.” Furthermore, “the federal government entered the urban freeway debates forcefully only during the 1930s,” with two influential documents prepared by highway engineers in the Bureau of Public Roads: Toll Roads and Free Roads (1939) and Inter-regional Highways (1944), the latter serv- ing as a blueprint for the 1956 Interstate and Defense Highway Act.
78. Alan Altshuler, The City Planning Process: A Political Analysis (Ithaca, NY: Cornell University Press, 1965); Martin Anderson, The Federal Bulldozer: A Critical Analysis of Urban Renewal 1949-1962 (Cambridge, MA: MIT Press, 1965); Aaron Wildavsky, “If Planning Is Everything, Maybe It’s Noth- ing,” Policy Sciences 4 (1973): 127-53.
79. Jane Jacobs, The Death and Life of Great American Cities (New York: Random House, 1961). Also, it should be noted that urban renewal did include a large dose of infrastructure provision, although this has been overlooked by some commentators.
80. Paul Davidoff, “Advocacy and Pluralism in Planning” Journal of the American Institute of Planners 31 (1965): 103-115.
81. Ian McHarg, Design with Nature (New York: American Museum of Natural History, 1969). 82. T. J. Kent, The Urban General Plan (San Francisco: Chandler, 1964); William Goodman and Eric
Freund, Principles and Practice of Urban Planning, 4th ed. (Washington, DC: International City Man- agers’ Association for the Institute for Training in Municipal Administration, 1968); Stuart Chapin Jr., Urban Land Use Planning (Urbana: University of Illinois Press, 1957; reprint, Urbana: University of Illinois Press, 1965): 965.
83. We do not interpret estrangement to mean complete divorce or separation. See the Shorter Oxford English Dictionary, 6th ed. (Oxford, UK: Oxford University Press).
84. Bonnie Lindstrom, “Public Works and Land Use: The Importance of Infrastructure in Chicago’s Metropolitan Development, 1830-1970,” in Suburban Sprawl: Private Decisions and Public Policy, ed. William Weiwel and Joseph Persky (Armonk, NY: M. E. Sharpe, 2002); Steven Erie, “Los Angeles as a Developmental State,” in From Chicago to L.A.; Making Sense of Urban Theory, ed. Michael Dear (Thousand Oaks: Sage, 2002), 133-59; William Cronon, Nature’s Metropolis; Harold Plat, City Building in the New South: The Growth of Public Services in Houston (Philadelphia: Temple University Press, 1983); Melosi, The Sanitary City; David Perry, ed., Building the Public City (Beverly Hills, CA: Sage, 1995); Benevolo, The History of the City; Lewis Mumford, The City in History.
85. Graham and Marvin, Splintering Urbanism, 18. 86. A review of the PAS Reports and books on the American Planning Association’s Web site reveals
numerous documents pertaining to these infrastructure efforts. They also underscore the two observa- tions that follow.
87. Search terms we used in the content analysis of the plans were infrastructure, capital facilities, com- munity facilities, public facilities, public works, utilities, transportation, circulation, wastewater, water supply, open space, parks, and recreation and other directly related systems. We examined the entire text of the following city plans: City of San Jose Planning Department, San Jose 2020 General Plan (San Jose, CA: City of San Jose Planning Department, 1994); City of Edmonton, Capital City Downtown Plan (Edmonton, Alberta, Canada: City of Edmonton, 1997); Portland Metropolitan Coun- cil, Metro 2040 Growth Concept (Portland, OR: Portland Metropolitan Council, 1994); Portland Met- ropolitan Council, Urban Growth Management Functional Plan (Portland, OR: Portland Metropolitan Council, 2007); City of Dallas, Forward Dallas! Comprehensive Plan (Dallas, TX: City of Dallas, 2006); City of Calgary, Imagine Calgary Plan (Calgary, Alberta, Canada: City of Calgary, 2007); Ontario Municipal Board, Toronto Official Plan (Toronto, Ontario: Ontario Municipal Board, 2007); San Francisco Planning Department, San Francisco General Plan (San Francisco, CA: San Francisco Planning Department, 1996–2009); City of Miami Planning Department, Miami 21 Code (Miami, FL: City of Miami Planning Department, 2009); City of Phoenix, General Plan for Phoenix (Phoenix, AZ: City of Phoenix, 2001).
Neuman and Smith 41
88. Rolf Pendall, “Municipal Plans, State Mandates, and Property Rights,” Journal of Planning Edu- cation and Research, 1 no. 2 (2001): 154-65; Rolf Pendall, Robert Puentes, and Jonathan Martin, Review of the Land Use Regulations in the Nation’s 50 Largest Metropolitan Areas (Washington, DC: Brookings, 2006); Phillip Berke, David Godschalk, and Edward Kaiser, Urban Land Use Plan- ning, 5th ed. (Urbana: University of Illinois Press, 2005).
89. Charles Hoch, Frank S. So, and Linda C. Dalton, The Practice of Local Government Planning (Wash- ington, DC: International City Management Association, 2000).
90. Berke, Godschalk, and Kaiser, Urban Land Use Planning. 91. Koos Bosma and Helma Hellinga, Mastering the City: North-European City Planning 1900-2000.
(Rotterdam: NAI Publishers; The Hague: EFL Publications, 1997), 2 vols.; Andreas Faludi and Bas Waterhout, The Making of the European Spatial Development Perspective: No Masterplan (London: Routledge, 2002).
92. The lead author has been to these cities and examined their plans. 93. Housing, while a strong planning root in Europe, is not as much a root in the United States. A debated
puzzle in American planning history is why housing played a lesser role (Gail Radford, 1996. Mod- ern Housing for America: Policy Struggles in the New Deal Era. Chicago, IL: University of Chicago Press.). We thank an anonymous reviewer for this insight.
94. American Water Works Association (AWWA), Water Infrastructure at a Turning Point: The Road to Sustainable Asset Management (Washington, DC: AWWA, 20065); Neil Grigg, The Sanitary Condi- tion of the Laboring Population of New York (Boca Raton, FL: CRC Press, 2002); Institute of Trans- portation Engineers (ITE), Transportation Planning Handbook, 3rd ed. (Washington, DC: ITE, 2009); John Vogt, Capital Budgeting and Finance: A Guide for Local Governments (Washington, DC: Inter- national city Management Association, 2004). This shift goes back a long time. William Wilson’s and Martin Melosi’s meticulous analyses indicated that “beginning in the nineteenth century, municipal engineers deliberately preempted several planning areas, especially those involving sanitation, street grading and surfacing, drainage, and the oversight of [capital] improvement construction” (Wilson, The City Beautiful Movement, 285; see also Melosi, The Sanitary City).
95. Robert Wiebe, A Search for Order, 1877-1920 (New York: Hill and Wang, 1967). 96. Paul Farmer, “Change,” 3-4; American Planning Association (APA), National Infrastructure Invest-
ment Task Force (Chicago, IL: APA). 97. Gabriel Dupuy, L’urbanisme des reseaux: theories et methods (Paris: A. Colon, 1991); Graham and
Marvin, Splintering Urbanism. Richard Hanley, Moving People, Goods and Information in the 21st Century (London: Routledge, 2004); Oliver Coutard, Richard Hanley, and Rae Zimmerman, eds., Sustaining Urban Networks (London: Routledge, 2005); Rae Zimmerman and Thomas Horan, eds., Digital Infrastructures: Enabling Civil and Environmental Systems through Information Technology (London: Routledge, 2004).
98. UNCHS Habitat, Cities in a Globalizing World; Peter Hall and Ulrich Pfeiffer, Urban Future 21: A Global Agenda for Twenty-first Century Cities (London: E& FN Spon, 2000); World Bank, World Development Report.
99. Hall and Pfeiffer, Urban Future 21; K. Bernhart and S. McNeil, “Infrastructure and Public Works Education: One Size Does Not Fit All,” Public Works Management and Policy 5, no. 4 (2001): 318-28; UNCHS, Cities in a Globalizing World; World Bank, World Development Report: Infrastructure for Development (London: Earthscan, 2001).
100. Patrick Abercrombie, “Town Planning in Greater London: The Necessity for Cooperation,” Town Planning Review 2 (1911): 261-80.
101. Alfred Bettman, City and Regional Planning Papers (Cambridge, MA: Harvard University Press, 1946). 102. Thomas Hughes, “The Social Construction of Technological Systems,” in The Social Construction of
Technological Systems: New Directions in the Sociology and History of Technology, ed. Wiebe E. Bijker, Thomas P. Hughes, and Trevor J. Pinch (Cambridge, MA: MIT Press, 1987), 52.
103. Albert Noyes, “Organization and Management of a City Engineer’s Office” (1894), p. 544 in Schultz, Constructing Urban Culture, 189f13).
42 Journal of Planning History 9(1)
Bios
Michael Neuman, an engineer and planner by academic training, is associate professor in the Department of Landscape Architecture and Urban Planning, founder and chair of the Sustainable Urbanism Certificate Program at Texas A&M University, and founder of the multidisciplinary Barcelona Program, a semester abroad program for planning and design students.
Sheri Smith is an associate professor, urban planning and environmental policy, at Texas Southern University where teaches courses on Infrastructure Planning, Development and Growth of Cities, and Community Development.
