How Bankrupt American Cities Stay Alive – Debt [ST04]

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This is the fourth video in my strong town series you probably want to watch at least the last two videos to properly understand this one when some people see the growth ponzi scheme graph for the first time they may ask we’ve been building car dependent sprawl since the 1950s why are the suburbs still here shouldn’t they all have gone bankrupt by now and it’s a

Completely reasonable question of course there have been cities in the u.s that have gone bankrupt detroit michigan is the example most people think of but there have been several others such as vallejo california or jefferson county alabama and washington park illinois and moffat oklahoma have declared bankruptcy twice but before you jump on any of these particular

Examples you should know that only 27 states even allow municipalities to declare bankruptcy and of those 15 have special conditions or limitations so bankruptcies are not telling the whole story nevertheless most car dependent places are still here so why is this before we get into the answer to that question let’s talk about how american cities used to be built

Consider an early city it would start as a collection of shacks along a road or railroad like this one a small number of people here would make some bets on the future and build their houses and shops nearby many of these attempts may have failed but others were successful too like this one so the shacks became more permanent structures and they could now afford

To build some basic road and water infrastructure as more time passed the buildings became made of stone and granite there was a permanence to it a proper sewage system was built and the roads were upgraded this would attract more people and the city would gradually grow outwards most importantly as this place grew it would build the wealth needed to sustain it

A place like this is never finished some parts will succeed and build up others will fail and change their land use but in post-world war ii america this approach changed completely instead of incrementally building upon the places they already had american cities started building brand new places to a completed state in new neighborhoods on the edge of town and

Left their existing places to rot away remember this photo from earlier its front street in brainerd minnesota 1871. in 1905 it looked like this and this is what it looks like today because as pro-suburbanization policies came into place it became cheaper and easier to build new buildings on the edge of town rather than to improve the places that already existed

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People used to be so proud of this place that they had built that they put it on postcards nobody is making a postcard of this place incidentally this is something that really bothers me when americans claim they can’t be like european cities because their cities were built for the car this street wasn’t built for the car it was bulldozed for the car it didn’t

Have to be this way but it’s true that american suburbia was built to be car dependent you need an automobile to do just about anything but even more important is how differently these places were built and funded compared to anything that had ever been built before this infrastructure was not built using existing wealth instead in order to accelerate growth

Federal and state funds were used to build these places paid for by government bonds chicagoans raised their share of the 92 million dollar cost by a bond issue interest and retirement to be paid for by future revenue borrowing money to finance expansion is traditional with americans the time and money saved more than repays your investment if you wait to pay

As you go you may not go at all now you could argue that debt in itself isn’t necessarily a problem as long as that debt can be repaid but as we’ve discussed in previous episodes sprawling car-dependent places cannot sustain themselves the amount of tax revenue collected is not sufficient to cover the replacement cost of the infrastructure the roads electrical

Wires water pipes and waste water systems are spread out over a huge area while servicing very few people who actually pay for it this creates an illusion of wealth these cities and suburbs look wealthy because of their new infrastructure but in the long term they’re financially insolvent but the effects of this are not seen until that infrastructure is due to

Be replaced which only starts to happen after about 25 years when these infrastructure maintenance bills come due the city needs to find a way to pay for them and if the city is not growing they can’t just sweep the problem under the rug the first reaction of many people is to just increase tax revenues but this shows a lack of understanding of the scale of

The problem strong towns has several examples from actual real world cities and towns tampa florida for example needs to pay 3.2 billion dollars to repair its water systems requiring an eight times increase in spending fun fact tampa already pays more in debt payments on water infrastructure than it spends on maintaining water infrastructure an extreme case is

The small town of backus minnesota which was at the end of life of its wastewater system but because this town was made up of sprawling low productivity car centric infrastructure the wastewater system was sprawling and wasteful as well this replacement cost was 27 000 per family which was the median household income in the town you can’t just tax people their


Entire yearly income of course in any sane country a small low-density town wouldn’t have a wastewater system each home would have its own septic tank maintained by the household but this is the problem with the american mentality around car dependent sprawl everybody expects urban services with near rural densities municipal water and sewage systems buried

Electrical cables traffic lights garbage collection fully paved multi-lane arterial roads to every neighborhood but they’re not willing to actually pay for it the american dream never said nothing about maintaining your own septic tank so an american town placed in this situation takes money from federal and state governments and rebuilds the wastewater system

Here’s another small town in minnesota that had the same problem and their bailout package looked like this this single wastewater project amounted to 37 times the amount raised annually from property taxes you may think that talking about cities this way in terms of their finances is crude or excessively neoliberal after all cities are much more than their

Balance sheet and not everything in a city needs to turn a profit but ultimately in order to provide a high quality of life in your town or city you need to have the money to actually pay for services there are regular articles in the us about cities closing libraries turning off street lights overnight or deferring road maintenance so much that their roads

Become worse than belgium’s you can’t make your city great if you’re financially insolvent incidentally canadian cities are somewhat insulated from this problem because there are legal debt limits for many cities in canada for example in ontario annual debt repayments cannot exceed 25 percent of a city’s revenue though keep in mind that there’s no such limit on

Provincial debt and ultimately the province may be paying for a lot of that new infrastructure now as we’ve discussed in previous videos a growing city can just build more developments on the edge of town this provides a quick influx of new tax revenue and this can be used to pay for the previous generation of infrastructure liabilities again this isn’t built on

The wealth of places that already exist it’s building new places in the suburbs even as existing inner ring suburbs may be falling into disrepair to create this growth the city needs to build a new infrastructure and that is usually paid for with a mix of funds from federal and state governments as well as debt this chart shows the increase in u.s public sector


Debt since the 1950s and you can see where the first and second generation of suburban infrastructure liabilities comes due now when you plot this public sector debt against u.s gdp you might argue that the levels of debt seem proportional i’m not going to get into that but this graph is hiding something because while local governments take on their own debt to

Build infrastructure eventually somebody needs to actually buy the houses and businesses usually with debt and mortgages in the first generation of car dependent suburbia this private sector debt was minimal but look at what happens as we get into the second and third generation of the suburban experiment here you can start to see how instead of building on wealth

That already exists in cities america is financing its insolvent car dependent sprawl by heavily indebting its citizens to fund that growth but don’t worry after the 2008 financial crisis everyone realized their mistake and it’s all fine now of course there’s way more to this than just suburbia the entire american economy is built on a dangerous dependence on

Debt and growth but that’s getting far beyond the topic of this video or even this youtube channel so let’s get back to talking about cities we need to re-evaluate how cities are built and financed for centuries cities were built by many people making small bets and as those places succeeded and generated wealth they were upgraded and improved upon building

Successful cities but that means taking advantage of the infrastructure that already exists instead of constantly building out new public infrastructure we need to densify the places that have already been created and build upon the wealth that’s already there to make cities that can sustain themselves now low density suburbs in rural areas are fine too but

These places can’t expect the same level of services that you’d find in a major city in future videos in this series we’ll discuss which parts of cities operate at a loss and which parts keep them afloat and how the poorest americans are subsidizing wealthy suburbanites but there are a few topics we need to discuss first like these awful places i’d like to thank

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