By Rob White
As you might imagine, I do a fair amount of pondering about how to increase the economic vitality of Davis. And I often wonder what other cities and towns in America (and the world) are doing to meet their fiscal challenges while staying true to their communities values.
I recently read an article on the Governing.com website titled “The Illusion of Growth Economies: Can Cities Like Charlotte Reinvent Themselves?” posted by Aaron Renn on July 15, 2013 (http://www.governing.com/blogs/view/col-charlotte-cities-illusion-growth-economics.html). The title alone struck me as potentially having value, but the synopsis was even more telling: “A city that’s growing can spend more money while keeping taxes low. But when the limits of growth are reached, it will need to reinvent itself.”
Renn opens the article by saying “rapidly growing cities benefit from scale economics. As a city grows, it spreads the fixed costs of providing services across more units, thus lowering unit costs and enabling taxes to stay low. This is doubly true as cities spread into undeveloped ‘greenfields,’ where there are few legacy costs. This can make cities look well managed when in fact they are simply benefitting from growth.”
With his second paragraph, Renn captured the Davis conundrum perfectly by saying “The real question is what happens when the growth cycle ends and unit costs either flatline or start going up. Can the city find sustainability demographically, economically and fiscally without growth as a fuel?”
Renn uses Charlotte, NC as his example of a city that is on the verge of needing to make some hard choices. According to the article, they have grown to their external limits and are now facing the issues that a slower growth community must manage.
The article highlights that Charlotte had to reconcile “how rapid population growth and annexation had enabled the city to spend more money without raising taxes.” One of their city council members, Warren Cooksey, went so far as to say “Cities have identifiable growth cycles, and Charlotte is entering into a new one.”
Another perspective highlighted in the article was from John Hood of the conservative John Locke Foundation, based in Raleigh. He said, “Cities have long maintained that they needed to annex land to ensure that ‘people were paying their fair share’… ‘They denied it was a way to get more money. Now they say because we can’t annex anymore, we have to raise taxes. That gives the game away.’”
Renn continues with, “Not only is Charlotte now limited in its ability to annex, but it is facing an overhang of capital upgrades to bring many areas of the city up to par in services. As a result, taxes are going up.”
And just when Davis thought it was alone in municipal financial issues, Renn states “This is not to say that Charlotte is poorly managed. But the transition from thinking about managing rapid growth to thinking like an operator is a tricky one. Even many companies fail to make it. Retailers, for example, frequently fall on hard times when they reach the point where they can no longer simply open new stores to meet financial targets.”
“Cities that are benefitting from strong growth have the wind at their backs. But it would be naive to assume that they must be doing something better than everyone else just because of that. Places like Chicago and New York were the Charlottes and Houstons of their day, right down to their laissez-faire economies. But they eventually hit the limits of growth and had to wander in the wilderness while trying to reinvent themselves.”
But one view I hadn’t given enough consideration to was that of older cities and how they have addressed the lack of boundless growth at the periphery, Renn points out that “This is the mark of a great city. A London or a New York can sustain and reinvent itself across growth cycles. Too many places, particularly our Rust Belt cities, have not met this challenge. When the economy shifted and growth ended, they went into a decline that has not yet abated.”
“Rather than making today’s Sun Belt boomtowns smug, this should serve as a cautionary tale. Even the most prosperous and seemingly invincible cities can be undone when trends shift and growth fades.”
And though Renn does not provide the answers of how to transition effectively into a slower growth economy, he does opine “Charlotte’s metro area continues to grow strongly, so its day in the sun is not yet over. But as the central city hits annexation limits and faces tax increases for the first time in 20 years, the region should treat this as a preview of what is coming and start preparing itself for the day when growth alone is no longer fiscal magic.”
Like Charlotte, Davis has a few more opportunities to create lasting revenue from a few potential growth areas. These include the downtown densification, the potential mixed-use project of the Downtown/University Gateway District (south of the Mondavi Center), and the two potential locations for an innovation park on the east and west ends of the city,
Potential growth in these areas will most certainly help to close the current financial hole we are now experiencing in Davis. But the cautionary tale demonstrated in this article is to use those potential new resources as a way to bridge to the future and recognize that a slow growth mode for any city will most certainly require inventive measures to balance the demands of the citizenry with the revenues provided.
And though we are blessed with opportunities on several fronts for projects that are seemingly all but tailor-made for the DNA of Davis (fostering home grown technologies and the research of the university), if we squander any new revenues gained from these projects we will not have heeded the warning given by Renn that our current fiscal issues are “a preview of what is coming.”
I look forward to your comments and questions. My email is rwhite@cityofdavis,org if you choose to email me directly.
