Wednesday, November 30, 2011

TIF: Don't Steal, Poloticians Hate Competition

Subsidizing Sprawl by Greg LeRoy has excellent points. LeRoy blames urban sprawl largely on inappropriate government subsidies. He comments, “Subsidies originally meant to rebuild older urban areas are being perverted into subsidies for suburban sprawl.” LeRoy mentions the TIF subsidy in particular as an ill devised government plan. The TIF subsidy was originally supposed to subsidize redevelopment of poor areas and neighborhoods. Not surprisingly he TIF subsidy was used to further politician’s agendas much more than it was used to subsidize poor areas. This is, of course, an excellent example of a Baptist and Bootlegger scenario. The Baptists clamor for financial aid for the poor; and the Bootlegging politicians and government ‘sells’ redevelopment to the highest bidder. This is the expected result from an economist’s perspective. The economics of politics encourages politicians to do whatever will benefit their pocket books/ get them reelected. The sprawl caused as a result of the bootlegging is, of course, caused by government failure and an expansion of bureaucracy. This government failure can also cause businesses that are benefiting from the subsidy to expand and build more recklessly. This reckless building is not efficient. Businesses will naturally allocate their goods to their highest valued use. However, with the subsidy the normal, natural system is skewed. The TIF subsidy takes away the caution found in a free market economy. The subsidy lowers the cost of business and the chance of failure and monetary loss normally associated with business growth and change. According to LeRoy, this subsidy can last up to forty years. The author also mentions a similar issue with enterprise zones. Enterprise zones originally “intended to help poor inner-city areas…are gerrymandered showing political favoritism.” Gerrymadining and political favoritism show yet again another example inefficiency and Baptists and Bootleggers, a corrupt government system effecting free market economics.

Chiquita Moves Headquarters to North Carolina

Chiquita Moves Headquarters to North Carolina
Nov 30, 2011
Banana giant bring 375 jobs to Charlotte

This is an interesting video as it points out how governments attempt to bring businesses and jobs to their states and cities with incentives and how that may not always pan out. With Chiquita moving its headquarters from Cincinnati Ohio to Charlotte North Carolina. Apparently the Cincinnati incentivized Chiquita to “create” 90 jobs and the Charlotte government anticipates that the move will lead to a “creation” of 375.

These are interesting estimates as they assume that these jobs will come from the people of these respective cities. I think that most if not all of these jobs come from Chiquita promoting people from their other branches around the nation. With something as technical as logistics and upper management I would think that a company like Chiquita would want to promote from within their own company so that they are certain that the individuals filling these positions have the experience necessary to fulfill the duties of the new position.

I also wonder what the chief differences in the business climate are that have led to this choice. It would be interesting to look into whether either city follows development that is highly structured by the government to reduce sprawl.

According to the Sun Times, Charlotte offered 22 million. It seems that each city has made a public stance on how valuable they deem each job in their city. With an offer of 22 million on the table in the hopes that it means 375 residents of Charlotte will get hired by Chiquita, doesn’t that mean Charlotte is willing to pay close to $60,000 per job that is created? In fact, the average job is supposed to be around $107,000. If companies sell out to the highest bidder then local governments are contributing to their own demise.

Absorbing Chiquita’s risk to relocate is not a role of government in my view. This practice just encourages companies to locate away from where they would be most profitable. It is also most likely not in the best interests of the city because they could be setting themselves up to have a lot of vacant buildings from companies that relocated there because of artificial funds infusion of subsidies.

Tuesday, November 29, 2011

Is sprawl a product of bureaucratic inertia?

Today I read an article on The Boston Globe by Paul McMorrow that attacks some zoning pitfalls (Click on the title to read it). On this opinion piece, he goes on to make some controversial statements that I thought were worth addressing (or not...). The subtitle of the paper reads: “Sprawl isn’t so much a deliberate choice as it is a product of bureaucratic inertia.” It seems to me that McMorrow is arguing for more bureaucracy in the system, which implies tighter government regulations on matters such as zoning. Now, wouldn’t a bigger government mean less control for the population? The fact that people are sprawling as a product of not having enough bureaucracy appears to be a very deliberate choice rather than what the author presents.

Secondly, he argues that “land is finite and exhaustible, so sprawl is a waste of land.” In economic terms, a distribution is efficient when it goes to the most highly possible valued use. Now, it seems to me that a waste of land as a marketable good would be to prohibit it from being used in a more valuable way. Studies have shown that a very low percentage of the land available in the United States has been developed, which leads me to conclude that there is still plenty of room for growth without seriously affecting any of the natural resources around us.

Lastly, he reasons that “smart growth creates the type of vibrant mixed-use neighborhoods that Jane Jacobs celebrated a half century ago, but there’s no policy imperative in urban romanticism.” This last statement shows, to say the least, a distorted view of Jane Jacobs’ ideas. To be clear, the “vibrant communities” acclaimed by Jacobs weren’t created by any development system arbitrarily set in place, but rather by people and their spontaneous interactions with one another. The best possible way to try to foster these communities into existence is to protect them from government intervention and let people live for themselves. Maybe then we will have communities that resemble such romantic times, but even if not, at least we will know that the power to make deliberate choices will have been honored in the Land of the Free.

Quick thoughts on UGBs

On the subject of urban growth boundaries (UGBs), there are many problems. Not simply with the subject of if they should be used at all, but with the fact that they apparently have limited effectiveness. As defined by the article Urban Growth Boundaries ( they are “officially adopted and mapped line that separates an urban area from its surrounding greenbelt of open lands, including farms, watersheds and parks,” and their job is to preserve the open space surrounding an urban area.

Among the problems with UGBs is, apparently, whether or not they even work. Sprawl, the phenomenon that UGBs are meant to constrain, continues despite measures against it. An article from the Journal of Urban Economics (When are urban growth boundaries not second-best policies to congestion polls, by Alex Anas and Hyok-Joo Rhee, from volume 61) even states outright in its title that UGBs are considered inferior to tolls in most cases. There are other problems as well: the fact that policies like UGBs are born from government power rather than the interaction of the market means that there is little opportunity for experimentation. The options are to abide by the rule or be punished. This means that society loses some of its optimal good as well, because experimentation in the market shows whether or not people will use it.

In general terms, I think that there is a problem with the policy, in that it is and is not supportable. It is supportable because the environment that sustains everyone’s’ lives is worth protecting, but it is not supportable because the liberty that makes life worthwhile is impacted and reduced by these policies. But I really can’t be helpful; the best advice that I can give is to let time and innovation cure things in the future, and to find a way to charge those who use a resource at the cost of society to reimburse society.

Monday, November 28, 2011

Does sprawl travel overseas?

An article in the Wall Street Journal address the issue of urban sprawl in, believe or not, South East Asia. Kuala Lumpur has been nicknamed a mini Los Angles because of its sporadic and disheveled growth patterns throughout the last century or so.

The World Bank recently informed the Malaysian countries that they need to adopt more “smart cities” or “smart growth” policies in order to attract talent and they need to improve their livability guidelines. This is a tall order for the Asian countries due to the already out of control sprawl that they face. With a poor infrastructure and public transit system, the cities have become less dense and the land use has gone to those who are not using the land to its greater possible use.

The World Bank does not go into detail when the term “smart city” is thrown around, so I will do my best to clarify this term. What constitutes as a smart city is, as the Siemens group puts it, is a city in which improved transportation, green buildings, water conservation and reuse technologies, and smart grid infrastructure are implemented. This intern will create a new blissful happy, carefree Utopia were Kuala Lumpur used to be while eliminated sprawl as we know it.

In response to this statement the region of Kuala Lumpur is aiming at creating a more efficient rail system that will allow more than 60,000-70,000 people to commute between the cities of Singapore and Johor Bahru. I actually believe that this will help in the city’s economic growth and development. However, the next issue that needs to be addressed is all of the natural disasters that Malaysian cities are vulnerable to.

Thursday, November 24, 2011

Employers Encouraging Health and Fitness

Over the past five years, health care costs have dramatically increased due in large part to a general unhealthy lifestyle led by many. Obesity has been directly linked to "higher rates of depression, absenteeism, low productivity, and more medical claims. An overweight employee costs employers $5,000 more a year in health costs than a healthy weight individual."One could say that this is an entirely personal issue, but I beg to differ. I think there is a clear externality involved here...

E.g. Suzie chooses to partake in a relatively active lifestyle and makes mostly healthy food choices. Because of this lifestyle, she gets a clean bill from the doctor during her once yearly physical exam and is less likely to develop a plethora of health problems ranging from diabetes, to high cholestorol, to heart issues. Bob, on the other hand, has never endured any kind of physical activity other than the stroll from his car to his office building, which leaves him winded. His daily diet consists of Big Macs and XXL Coca-Colas. Because of his lifestyle choices, he does develop health problems. Suzie and Bob work for the same company and because of people like Bob who cause 1000s of dollars in extra health care costs every year, and misses more work because of it, Suzie is forced to pay more in health care costs (or their employer covers less). Bob is not intending to cause higher costs for Suzie, but that is exactly what is happening. If that isn't a negative externality, I don't know what is! Although a tax is the common way to correct a negative externality, an "obese tax" might be a little silly or extreme.

More and more employers are recognizing the problems associated with unhealthy employees, and are starting to step up. The first article cited above is one of many which discusses the different ways in which employers are encouraging their employees to make healthy lifestyle choices. I think this is a great alternative to another stinking tax. Statistics show that individuals who work out more than three times a week have 44% lower health costs. Lower health care costs for a few lead to lower health care costs for many. If employers can start expecting that their employees will incur less medical costs, they can provide better rates for everyone. If more employers follow suit and encourage their employees to get in better shape, and therefore lead healthier lifestyles, the payoffs benefit everyone.

The second article cited talks about companies (Walmart in particular) who are penalizing smokers. I left smoking out of the previous argument because one, cigarettes are already taxed (and quite heavily in some places), and two, that discussion is much more controversial. But I do fully believe there is clear negative externality associated with smoking as well. I mean, if I'm in a bar as a non-smoker (obviously, not in Colorado, but many other states still permit smoking in public restaurants, etc.) and I'm surrounded by smokers, my health is largely affected, especially since second hand smoke is even worse for your health (because you are inhaling the smoke directly with NO filter). The effect may be unintentional, but it is happening nonetheless. Again, I'm not really looking to get in to the smoking argument, just another interesting article along the same lines.

I know this is easier for me to argue as a healthy indvidual, but I make choices that help me maintain that characteristic and I don't feel like people, like myself, should have to incur higher costs because others don't make the same choices. I'm not even talking about overweight, I'm talking obese, and there is a very clear difference. And yes, there are those out there who suffer from things like a thyroid problem which makes maintaining a healthy weight impossible, but those people are the minority without a doubt. Instead of penalizing those who CHOOSE (because nobody forces them to eat fast food and sit on their butts) an unhealthy lifestyle, it seems more positive and beneficial to encourage them to make healthier choices.

Tuesday, November 22, 2011

The Argument for Two Wheels


Blog series:

Two popular topics pertaining to urban sprawl that consistently appear on this blog include: transportation methods and land uses. I recently found an interesting article that encompasses both of these topics in a very compelling discussion about something I have never heard of before: bike rooms. This article titled “A Room of Their Own for 2-Wheeled Commuters” was published earlier this month in The New York Times, and I realized an interesting link between this topic and urban sprawl.

According to the article, the 300-400 square foot bicycle room created in 2008 at 345 Hudson Street in northern TriBeCa (New York) replaced a ground-level unused storage space, and is used by many of the employees that work in the block-long building and were already riding their bikes to work. The costs for creating the bicycle room totaled $30,000, which included the installation of lighting, a new paint job, a new front door, and 10 bike racks at $2,500 each. The building’s landlord also pays an estimated $13 to $30 per square foot annually for rent.

In 2009, New York City created a law that requires commercial office buildings to allow cyclists to bring their bicycles into their offices. The fact that the 345 Hudson Street bicycle room was created before this law exemplifies the underlying motive behind the sprouting trend of bicycle rooms in New York City commercial buildings. Landlords realize that they forfeit the potentially high rent for the precious ground-level space in their buildings, but they also recognize that creating bicycle storage provides an incentive to potential two-wheel commuting tenants and to employees and customers that would take advantage of free parking.

Furthermore, Noah Budnick, the deputy director of the nonprofit Transportation Alternatives, states that bicycle rooms are becoming a selling point for the real estate industry in New York. Landlords are incentivized to create bicycle rooms by the opportunity to earn LEED certification points. LEED certification indicates to the public and to investors that the building contributes to the efforts for establishing a greener community. In the case of 345 Hudson Street and a few other office buildings mentioned in the article, the bicycle rooms that replace an unused storage or basement space portrays land being transferred to its most highly valued use. If landlords can turn an unused space into an incentive for potential tenants or for current employees and customers, why not create bicycle rooms? If tenants, employees, and customers have a safe, weather protected, and free space to store their bicycles, why not trade their four wheels for two?

The topic of bike rooms spurred my interest about the practicality of bicycle transportation in our supposedly sprawling nation. I stumbled across a blog series titled “Bikeconomics” on that discusses the economic impact of bicycling and how the bicycle is “emerging as an effective engine of economic recovery.” At first I found the idea a bit far-fetched, but after reading the majority of the columns in the series, I began to see some sense in Elly Blue’s compelling argument. (I definitely recommend checking out this blog series if you have some spare time.)

I realize that bicycle transportation is not practical for certain cities, climates, and people; a bicycle would certainly not be the best option for a family that must transport kids to school and buy a lot of groceries, or for someone who must travel a long distance in a snowy climate along a route with busy streets and highways. But for a healthy individual that is located in a typically warm climate and within a reasonable distance (5-10 miles) from their job and other economic activities, a bicycle offers a very inexpensive and convenient transportation method. Consider the benefits of two-wheel commuting. Bicyclists can save the estimated $8,485 annual cost of driving a car (according to AAA), take multitasking to a new level by exercising while commuting, and help decrease air pollution in their city, all while still enjoying the same individual freedom that a car offers.

Bicycle transportation offers just as many benefits to cities as it offers to individuals. The blog series briefly discusses these benefits: “A 2008 study in Portland clocked bicycle-related industry alone as contributing $90 million to the local economy every year. Bicycle tourism is another huge boon to regions that can attract it -- in 2010, Wisconsin bragged of a yearly $1.5 billion bike economy.” And to add onto the discussion about the growing trend of bike rooms, city businesses certainly cannot complain about the prospect of reducing the need to provide expensive parking for car-dependent tenants, employees, and customers.

So how does bicycling and the current trend of bike rooms relate to urban sprawl? As we have discussed throughout this semester, transportation and policies affecting transportation directly relate to the spatial size of cities. In general, as the cost per mile travelled or overall cost per trip decreases (usually caused by increase in income or by transportation subsidies), the urban density also decreases as people can now afford move away from the urban center. It’s no wonder our current primarily automobile and mass transit dependent cities experience a decrease in urban density. Yes, bicycle transportation boasts obvious financial, health, and environmental benefits, but perhaps we have overlooked the most obvious benefit: the distance limitations of the bicycle! Unlike car or mass transit dependent residents, bicycle-dependent residents must live close to the CBD.

In my opinion, cities ought to create policies that exploit this specific benefit of bicycle transportation to encourage residents to switch from four to two wheels. New York City’s law requiring commercial office buildings to allow cyclists to bring their bicycles into their offices doesn’t exactly command the creation of bike rooms. But through incentives to both businesses (LEED certification points and a unique selling point for potential tenants) and individuals (safe, weather-protected, and free bicycle storage), this law indirectly encourages bicycle transportation.

Cities could directly encourage bicycle transportation (and also indirectly encourage a denser urban center) through any of the following: 1) a yearly tax rebate for two-wheel commuters, 2) an increase in the amount of safe bike lanes, or 3) bicycle advocacy agencies that educate the public about buying, riding, and maintaining bicycles. According to the Bikeconomics blog series, some U.S. cities such as Oakland have already taken initiative: “Earn-a-Bike programs empower participants with a free bicycle and the skills and knowledge to maintain and ride it well.”

Clearly, bicycle transportation is not for everyone, and clearly these suggested policies will not encourage everyone to switch to bicycle transportation. Furthermore, bicycle transportation cannot entirely shrink and/or reshape a city’s spatial size. But perhaps a city’s policies can simply encourage people to reconsider their primary transportation method and locational choices. The population of bicycle-dependent residents will undoubtedly be smaller than car and mass transit dependent population, but sometimes even the smallest changes can have the biggest impact.

Wednesday, November 16, 2011

The Streetcar to Nowhere

The town that I love and hate all at the same time (Cincinnati) is building a streetcar that will run from the downtown area through an very unfriendly part of town and then on to the south part of the University of Cincinnati campus. It will run by Findlay Market, one of the few remaining historical markets in the United States. The problem is, most people in Cincinnati do not live in the downtown area and a vast majority of the population lives outside the city limits. Actually, out of the approximately 2.2 million people in the metropolitan area, only 300,000 actually live inside the city limits. This being said, accessing the street car will be a problem for most.

In order to board the street car residents must drive downtown, pay the $7-10 to park in a parking garage, walk to the streetcar, pay the fee to get on the streetcar, take the 5-10 minutes ride to Findlay Market or wherever they are headed and then take the streetcar back to the parking garage then head home. Any sensible person knows that this is a huge waste of time. Making matters even worse, Findlay Market has plenty of parking right next to it. I know this for a fact because I've been to Findlay more times than I can remember. Furthermore, the south part of UC is loaded with vehicle parking. To make matters worse, a huge part of the operating costs will be subsidized by state funding. The streetcar will run in the red with no chance of even coming close to paying for itself. Finally, check this out. This one really gets me going. Because of the stops that the streetcar has to make, it would be faster to walk than to take the streetcar. Streetcar planners say that being in the streetcar will make people making this transit feel safer which begs the question, WHY WOULD ANYONE WANT TO PAY TO RIDE THROUGH AN AREA WHERE THEY FEEL IT NECESSARY TO BE PROTECTED BY SHEET METAL!?!?!? Hopefully you now see how confusing this whole project is.

Obviously this is a terrible plan. Building the light rail would not help anybody. After visiting Findlay while I was back home this summer I saw lots of signs all around urging voters to vote for passing the streetcar bill, so apparently the owners of Findlay Market think they will get some sort of benefit from the streetcar. The bill proposed funding the streetcar from tax payer money, so whether Findlay get more money from additional visitors than it loses from its taxes is a long mathematical equation but if I had to make a guess, the benefits will probably not outweigh the costs in this case.

The city council, by building this streetcar, wants more people to frequent Findlay Market, the Over-the-Rhine neighborhood, and downtown. There are numerous ways to do this without spending $95 million on a streetcar. Subsidize parking garages downtown. Instead of parking being $7, make it $3. Subsidize parking meters. Build more street parking near Findlay Market (even though there is more than enough places all around it). Build bill-boards that have advertisements for this area. TV commercials, radio commercials, anything but a streetcar. This is way out there, but consider building a city wide rail system like the Metra in Chicago that transports so many people in the Chicago suburbs to the city. My point is, there are so many ways to accomplish the goal of promoting Findlay Market without having to spend $95 million on a streetcar.

Let me make an assumption here that may blow some people away; the real reason the city council wants to build the street car is NOT to promote Findlay Market, Over-the-Rhine, or downtown, it is to make money for somebody, somewhere. If I had to make a wild guess, I think the city council may be nervous about the upcoming elections and having this on their resume would be something they could point to as something they did while in office to improve the city. The labor unions and companies building the streetcar would benefit from the bill being passed. This opportunity to make money off the streetcar contract would make them the bootleggers in my mind. Findlay Market may get some more exposure from the streetcar, and if in fact they did get some benefit from this, they too would be considered as a possible bootlegger. The baptists here would be the taxpayers who are forced to pay for the streetcar. They get no choice whether to pay the taxes, they probably won't use it, and it probably won't benefit them at all.

To sum up this article and this issue; the streetcar is obviously not about making smart financial decisions (it will run in the red permanently), it is not about improving transportation (walking the route would take less time), and it is not about making a majority of resident's lives better off (it would only possibly "benefit" those along the line), the streetcar is about a select few (bootleggers) making money off of the taxpayers. This is another ridiculous idea that is being called for under the name of city planning and betterment of the city, but as is the case with lots of public projects, it will probably hurt the people it is trying to help.

Tuesday, November 15, 2011

The More Highly Valued Use

In yesterday's Wall Street Journal, I read an article entitled "Farmers Reclaim Land From Developers." Though not tagged online as an economic article all of the information provided in it allows for an economic analysis of why land has shifted back to agriculture purposes after previously being purchased for housing developments on the urban fringe.

According to the article, the value of residential land has fallen by nearly 70% since it peaked in 2006 while agricultural land has risen in value by nearly 20% in the last three years. At the same time, developers have been defaulting on loans for the land that they purchased to develop at highly inflated prices and farmers, often the same ones who sold the land in the first place, are reclaiming the land for significantly lower prices than the developers paid. Also, more people have been entering the agricultural market because of the rising prices of corn, cotton, and other agricultural products. Furthermore, fewer people who once considered relocating to picturesque exurban neighborhoods because of the low cost of fuel are now no longer interested in occupying these places because of rising gas prices and a decline in their own property value, which would cause them to sell their house, in many cases, for less than what they paid.

To start, while housing prices were rising prior to 2006 and before the housing bubble completely popped in 2008, land developers saw huge profits to be gained from purchasing land near the urban fringe to develop into residential communities. This meant that by purchasing the land from farmers, who were not making nearly the same amount of money as the developers expected to from the land, the sale of land to developers meant that that land was going to a more highly valued use. Now that demand for houses in exurban communities has all but disappeared due to their distance from the CBD, and farmland has increased in value as a result of rising crop sales prices, holding the land for its future development is not the most highly valued use. Idle land is worse, economically, than land being used for something not its most highly valued use.

As it stands, all land still being held for development but not actually developed is, in effect idle. Even if agriculture is not the most highly valued use of the land, which it seems to be, it is better for farmers to reclaim the land than allow it to remain sectioned off for development that is unlikely to occur any time in the near future, if at all. In several cases, farmers who previously sold their land to developers, like the England family that sold 430 acres of land for $8.6 million, were able to repurchase it for much less than they sold it for; in the case of the Englands, they repurchased their land for $1.75 million. For the families that this is true of, they could invest the profit in capital improvements to their equipment and in additional acreage.

Along with the new farmers entering the market because of expectation of profit, all of the old families who repurchased their land are beginning to produce more of the crops with currently increasing prices. As more suppliers enter the market, the supply curve shifts to the right, increasing the equilibrium quantity and decreasing the equilibrium price for a given product. Since the price will decrease, it is likely that at some point in the near future, some of the new entrants into the agricultural market will either leave completely or at lease leave the specific market for corn or cotton for a different, higher priced good.

One person interviewed for the article predicted that some land, south of Chicago, previously expected to be converted to a neighborhood would not end up being developed for another 15 to 20 years. At that point, it can be predicted that the profit developers would gain from the land will be greater than the profit that farmers could gain from farming the land. In that case, the land parcel would once again be going to a more highly valued use. Since this change would not occur until a point quite a ways into the future, this observation of natural market fluctuations demonstrates that sprawl is a function of supply and demand and when there is no demand for exurban developments, the outward expansion of cities stops or slows significantly. Previously people thought that there would be developments in the places that farmers are now taking over, but now that no one has a desire to purchase a dwelling there, sprawl is being curbed, not by policy, but by the market.