Keeping Cities Strong

Edward J. Dodson

[A letter printed by the Philadephia Inquirer, 4 January, 2004]

Communities throughout the entire region are facing the same challenges. Those businesses that keep their base of operations in the region leave the cities for the suburban are even more distant locations in search of acceptable profit margins. Without jobs, people -- those who have the skills at other resources to do so -- also leave. Left behind are those most dependent upon the contracting ability of the public sector to provide adequate social-welfare services, maintain an aging and crumbling infrastructure, and compete with places where the infrastructure is new, where there are fewer poor people. Over the last 50 years, government has made concerted attempts to reverse the effects of seriously flawed public policies but has done so without focusing on the core problems. A political science professor of mine described the process by which public policy is made in the United States with the term "disjointed incrementalism." We should not be surprised at the contradictory results that occur.

Cities, towns and regions have always competed with one another to attract people with purchasing power. Businesses follow. When the desirability of a region is strong there is no reason or need to provide special incentives (e.g. tax abatements, low interest loans, grants, etc.) to anyone. When a region has lost its ability to attract people, incentives are necessary but communities have no revenue sources to offer. A city cannot provide public services for free; when one person receives a subsidy, others must absorb the additional cost in the form of higher taxes. Troubled cities long looked to the federal and state governments to provide economic development funds, but these levels of government are facing the same budgetary problems (as businesses move operations to more business-friendly regions of the U.S. or to foreign countries where the cost of doing business is much lower). Left to their resources, what should cities do to create the best environment to again attract people?

The objective ought to be to encourage residents an businesses to live in and invest in their community. At the same time, the communities should adopt measures to discourage the holding of land parcels unimproved or underimproved over long periods. These objectives can be substantially achieved by converting the existing form of real estate taxation to one where buildings are exempted from taxation (thereby encouraging new construction and renovation of existing structures) and raising necessary revenue by a tax on the assessed value of land parcels only. Doing so will raise the annual cost of holding land for speculation (or just ignoring land assets because the cost of doing so is often minimal today) and stimulate owners either to develop the land they hold or sell it to someone who will.

The above measures will stimulate investment, will attract people, and will start the dominoes falling in the right direction. Cities can then begin to reduce many of the nuisance taxes on businesses and citizens that also reduce their desirability as locations. Good planning, community involvement, investment in quality-of-life amenities, and infrastructure will then combine to achieve smart-growth objectives while making it possible for developers work profitably with cities.