“Why, despite the growth, and the jobs, and the programs, and the incentives, and all the things we do to generate wealth and prosperity, don’t we have the money to do just basic things?”
Emcee: [Mayor-elect] Chuck Bennett will be in a strong position to look at projects and proposals with a Strong Towns perspective, so I thought it would be great if I could make sure Chuck could come, so I said, “Chuck, why don’t you introduce Chuck Marohn?”
Salem City Council Member Chuck Bennett: So that’s what the concept was. I wondered. I’m really honored to be here and being asked to introduce Mr. Marohn. This is a great opportunity for our community. Chuck Marohn is a licensed civil engineer, a member of the American Institute of Certified Planners, and holds a master’s in Urban and Regional Planning from the University of Minnesota’s Humphrey Institute.
He’s an author, he’s a broadcaster, and he founded and serves as president of Strong Towns, a nonprofit organization based in Minnesota. Chuck’s passion is working with cities and towns on issues of economic development, land use, and engineering.
Chuck says that America’s post‑World War II approach to growth has transformed cities rich in history, ingenuity, and character, into places that are financially fragile, and socially frayed. Chuck works to resolve the greatness of our cities and towns by reconnecting these places with their historical development pattern.
He focuses on bringing back the basic principles of financial resiliency, and the importance of community in the measure of prosperity. I know we’re in for a challenging and thought‑provoking evening. With that, I hope you’ll join me in welcoming Chuck Marohn to Salem. Thank you.
Chuck Marohn: [laughs] We were sharing first name stories, horror stories before. Thank you so much, and it’s very nice to be here. I appreciate, not only the welcome but the turnout, and just a great day today. I’ve spent the day kind of immersed in your city, and it’s been a delightful experience.
We like to talk about Minnesota as being Minnesota nice, a very nice place. To me, Oregon and in the three days that I’ve been here has been Minnesota with a little bit more topography. Very nice, I appreciate the warmness.
I’m a civil engineer and I worked for many years doing standard engineering projects for cities. Roads, and streets, sewer water, even worked on an airport project once. I became, I don’t want to say disillusioned because I think that dramatizes things.
I wasn’t disillusioned as much as I thought I was, maybe, not a very good engineer. A lot of the questions I had about the profession, a lot of the things that I was doing that didn’t make a lot of sense to me. A lot of things that I was doing that didn’t make much sense to me, I thought I could resolve by going back to graduate school and getting a degree in planning. Planning and engineering seemed like very related fields. They’re actually quite different, sadly so.
In engineering school, we made jokes about planners. In planning school, we made jokes about engineers. They were both equally funny in their own way. I thought if I got a planning degree, I could get out in front of a lot of the projects that I was doing that as an engineer didn’t make a lot of sense.
My idea was, “I will become a planner who gets engineering and won’t screw thing up for engineers to solve.” As I worked for a number of years as a planner, I found myself in the very same situation, doing the same things that I had kind of resolved that I wasn’t going to do. And my questions just continued to grow, and grow, and grow.
Finally, as we went through this crazy year of 2008 when banks were failing and gas prices were soaring, and we had this insane election, which now looks very quaint in comparison . . . [laughter] . . . but at the time felt like lunacy to me, I sat down and started to write. Just like exercise, you have to stick to it.
I said writing is like exercise, I’m going to write three days a week. I’m going to write about the things that I see, and the things that I see going on, as a way to figure them out in my own brain.
I was focused on one central question, why are our cities struggling financially?
Why, despite the growth, and the jobs, and the programs, and the incentives, and all the things we do to generate wealth and prosperity, don’t we have the money to do just basic things?
Why can’t we keep a library open past 4:30? Why can’t we put a crosswalk in? Why can’t we keep police officers and firefighters employed? Why can we find millions of dollars to run a secondary bypass around the south side of the city? But we can’t find the money to mow the park. Why? Why is this?
I started to write, really for myself, and a few of my close colleagues. It transformed, kind of, my life. Things took off in ways that I never anticipated. A year later, some friends of mine prompted me and actually filled out the paperwork to start a non‑profit. A year later, we had a 501(c)(3).
A few months after that, a foundation contacted me and said, “Chuck, would you come and explain to us what you’re doing? We find your stuff interesting, we know you are a 501(c)(3). We are a foundation, would you come, and just explain to us what you do?” I said, “I have no idea what I do.” [laughter] “I’m just writing.”
I went up there and I gave them the very first curbside check presentation. The very first rendition of the presentation that we are going to look at tonight. We got done with that and they said, “This is a really important message and we want you to share this message with as many places as possible.”
The Blandin Foundation gave me three years of start‑up money to go out, and figure out how best to share this message with as many people as we could. I started out talking to groups of two and three. I drive six hours once, and two people showed up. Did a lot of that. Over time, things just kind of went crazy on us.
We now, Strong Towns is a national movement of people. We have a few short of 1,500 members. We have almost a million unique readers in the last month of our online content. We are trying to create a movement of a million people who care about this message of change enough to actually share it with someone else.
Tonight we’re going to talk about why cities are struggling financially, and then talk about how we can think differently about our approach to growth and development, to actually build stronger places.
Our mission of our organization is to support a model of development that allows our cities, towns and neighborhoods to become financially strong and resilient.
I want you to think about the way we built cities thousand of years ago.
These are two artists of renderings. The one on the left is an ancient city called Ur, Fertile Crescent like 4,000 BC. The one on the right, of course, is ancient Rome. When we think about these cities, we look at them, and we understand they were built around the dominant transportation technology of the day.
That, of course, being your two feet. People walked everywhere they went. The scale, spacing, the distance between different types of things you would do on a normal day, all this was based around the society of people who walked. We can fast forward thousand of years, this is my hometown.
I live in a little city called Brainerd, Minnesota. It’s about two and a half hours north of Minneapolis‑Saint Paul. This is what it looked like back in 1904. People would ride by train, they would arrive by stagecoach, but once they got there, they would go everywhere by foot.
The scale, the spacing, the distance between different types of things you would do on a normal day, all this was based around a society of people who walked.
Beginning in the early 1900s, and then accelerating after World War II, we began to build cities around a different transportation technology. We began to build cities around the automobile.
If we talk to people, about this transition, they’re more than likely to explain it in terms of progress. We used to be a society of people who walked everywhere. Now, we build cities around people who walk…We used to build cities around people who walk.
Now, we are a society of people who drive everywhere, so we build cities around people who drive. Someday we will have jet cars, and we will build cities around people with jet cars.
Someday, we will teleport, and our cities will look completely different than they do today. This is a narrative of progress, and it’s very comforting to us because it puts these changes on a continuum of things always getting better.
I want to plant another concept in the back of your mind as a different way to think about this. It’s kind of a backdrop for the conversation we’re going to have tonight. When we look at even ancient Ur, we have to acknowledge that humans had been experimenting with how to build cities by the time you get to that for thousands of years.
They had been trying things. What worked they would keep and incrementally expand upon. What didn’t work they would throw that knowledge away. People died, cities went bad. Those ideas were not passed on to the next generation.
By the time you get to ancient Ur, and certainly, by the time you get to ancient Rome, you have an approach to growth and development, and city building that had been built by trial and error over thousands, and thousands of years.
By the time you get to my hometown in the early 1900s, you have an approach to building and development that is essentially universal. We can go to cities around the world. While we see different building materials, and different architectural styles, the essential layout and design of these places is pretty similar. All based around a trial and error approach of what worked.
When we look at this style of development, even though for almost everyone in this room, this is all we’ve ever known. This is the way things are done. It’s important for us to understand that this is a very, very young experiment. This is a very new way to do things.
We didn’t try this out for a couple hundred years in Washington State or California and see what happened there, and then take the best ideas, and migrate them here. We just built this way everywhere, all at once.
In one generation we transformed an entire continent around a new set of theories on how to build growth and prosperity in this country. We transformed our economy. We transformed our approach to building. We transformed the economic ecosystems of our cities.
It is important for us to understand that this is a huge experiment.
Nobody has ever attempted the transformation of an entire continent within a generation, the way we have. I want to talk tonight about some of the financial ramifications of this.
Some of the things that maybe weren’t apparent to us when we began this, two‑plus generations ago. If we go back to Salem of 1916, and we said in that context and environment, we are interested in job creation, and the economic growth and development.
Those things were going to be a byproduct of things we did locally. If there was going to be a job created, we were going to do that here. If there was going to be growth and development to new things being built, that was going to come from us.
After the Depression, after World War II, those things became a shared responsibility between local governments and state and federal governments. Today at the local level, we finance growth and development using three primary mechanisms.
The first one is transfer payments between governments. The idea that the state government, the federal government as our partner in creating growth, will do things like job incentives, infrastructure grants, different types of programs to allow us to create growth at the local level.
The second mechanism is transportation spending. The idea that we would pool our money, use that to build not only interstates but local highways, frontage roads, interchanges, transit systems, other things that create jobs while they’re being built. Then, afterwards provide a platform, where locally we can experience additional growth.
The third mechanism is debt. While public sector debt is an important part of the conversation, far more important is private sector debt.
The ability of individuals and businesses to get long‑term financing with very little money down at very low rates, have those products sold off onto a secondary market, secure ties bought up by pension funds around the world. It creates an enormous amount of liquidity.
These mechanisms combine at the local level to help us create growth. Of course, the growth is good. It’s important to who we are because it gives us the money to do the things we want to do. This is city administration 101. If the city is growing we have more revenue, we can go out and do all the things that we want to do. There’s some really powerful incentives at play here.
When we look at new growth in this paradigm, the initial cost that we have, the initial cost to the public, is usually very minimal. We may have some staff time. We may have to upsize a pipe. We may have a little local match. The bulk of the money being spent to build all those homes, to build all those businesses, to put in all that new infrastructure, is being spent by someone else.
The benefit, however, that we realize is substantial. Not only do we have all the new transaction fees, but now we’ve got the new property tax growth. We’ve got all these new wealth coming in. We’re feeling very, very rich.
The catch is that we, the public, the taxpayer, the city, agree that we will take over the long‑term responsibility to serve and maintain all this stuff. We will forever, into the future, provide police protection, fire protection, fix the roads and the streets, and the curbs and the sidewalks, and the pipes and the pumps, and the valves. All that becomes our long‑term responsibility.
We are, in a sense, exchanging a near‑term benefit in cash for a long‑term liability. There’s only one of two ways that this strategy makes any sense. Either growth is going to continue at ever accelerating rates. In other words, we’re always going to be able to create a whole bunch more new stuff.
We can take that cash and use that to make good on all the promises we’ve made generations prior. Or, the pattern of development, the way we actually go about building and assembling our places, is going to generate for us more wealth and prosperity than it generates long term in cost.
Now, I think everybody in this room understands that the first assumption is not true. It’s not mathematically possible. But even if it were mathematically possible we’ve lived through enough of this where we know we’re not going to grow exponentially forever.
Unfortunately, the second assumption is also not true. For a little bit of time here, this presentation will get a touch technical. I am an engineer, so I have to do a little bit of that. One of the things we did early on at Strong Towns was to challenge the notion that we have come to call the quantum theory of economic development.
The quantum theory of economic development goes something like this. We do a project over here that we know makes no financial sense. We do a project here that makes no financial sense. We do a project here that makes no financial sense. But, you can’t measure them individually. You have to just trust that collectively when they’re put together, awesome things start to happen. [laughter] That is essentially the quantum theory behind economic development today.
You can’t measure it because it changes once you do. What we said is, “OK. If that’s true, there are still parts of the system that we should be able to go out and measure. There are parts of the system that, if this overall theory works, should be, in a sense, profitable for the community.”
Example number one, a dead end road with a cul‑de‑sac. This is a dead end road. There’s not through traffic. There is no commercial traffic. The only reason this road exists is to serve the people along it. If those homes were not there, there would be no road.
This was built in the mid‑1990s. When it was constructed, the city wanted it paved. The city paid half the cost, the property owners paid the other half. We analyzed the amount of revenue being produced to the city by those properties and said, “How long is it going to take the city to recoup the amount of money they spent to build that?” The answer is 37 years.
That’s 37 years for half. The road won’t last that long. When the city goes out to fix it, the city has to pay the full cost. Those taxpayers pay money every year for the city to maintain the roadway.
Here’s another development. This one is a closed loop system with a dead end cul‑de‑sac. Again, no through traffic. No commercial traffic. This one was built in the mid‑1980s. The developer paid for all the cost of the infrastructure.
That money was then rolled over into the sale of the properties, so people have been paying for that on their mortgages for years. At the same time, they’ve been paying taxes to the city to fix it and maintain it. It fell apart. The city went out and fixed it. The cost was $354,000.
We asked the question, “Based on the revenue the city is collecting from the property owners that live here ‑‑ the only reason the road exists is to serve them ‑‑ how long is it going to take the city to recoup the amount of money they just spent to fix it?” The answer is 79 years. The road won’t last anywhere near that long.
We said, “OK, let’s say the city wanted to, between now and the time the roadway fell apart, collect enough money from these property owners to actually have the revenue to go out and fix the road.” What would that mean?
It would mean an immediate 46 percent increase in taxes, with annual increases of three percent over inflation every year for the next 25 years, with all the money going just to fix the roadway. The sewer, the water, the storm sewer. Vastly more expensive undertakings.
Now, some of these people say, “OK, Chuck, we get it. We know we lose money on residential. We’ll make it up on commercial.” My gut reaction to that is always, “I don’t know any corporation that loses money on 90 percent of what it does and tries to make it up on the last 10 percent.” I don’t know why an incorporated municipality would find that to be a good business strategy.
Nonetheless, we have somewhat convinced ourselves if we just have enough commercial, it doesn’t matter what else happens.
This is a business park. This is one of those “build it and they will come” investments that cities like to do. This was built in the mid‑1990s. Every single lot is occupied now. The city felt this was such a successful project, that they wanted to build the exact same thing on property they owned right next door. They literally wanted to build exactly this, right over here.
We said, “All right. If we can build the exact same thing, for the exact same amount of money, and get the exact same amount of investment, would this be a good project?” In today’s dollars, it would cost 2.1 million. There is $6.6 million today in this park in actual, taxable value.
Now, pause for a second. Of those developed lots, four of them are a church. Two of them belong to a school district. It’s their bus maintenance facility. One of them is a county maintenance garage. One of them is a city maintenance garage.
These are all very important public facilities. We need churches, we need schools, we need maintenance buildings, but none of them pay any taxes to the city. Of the remaining lots, the ones that theoretically would be private sector taxpayers, every single one was either sold for a dollar and/or given a long‑term tax subsidy in order to attract them to move into this park.
For the sake of our analysis, we assumed that every single lot would be built upon within 12 months of this project being completed, by a full taxpaying, non‑subsidized entity, and that every single penny of new revenue went to retiring that bond.
If that were the case, it would still take the city almost three decades, 29 years just to break even. That’s 29 years where everybody else’s taxes would have to go up to pay to plow the snow, mow the ditches, provide police and fire protection, and every other service that was needed. That’s in the most wildly optimistic scenario.
When I first met with that foundation, I went through about 15 of these, because I very, very was proud of them. [laughs] If you’re someone who likes case studies, I’ll give you our website address in the end. There’s a ton of them on there. You can go through them and look. I found that after three, people start to cry… [laughter] Things go in the wrong direction.
I found that I can make the point with just three. Let me show you what’s going on. This is a cash flow diagram. I’m going to apologize. I like charts. I’m an engineer. I know a lot of people don’t. There’s four charts in this presentation, then will be done with the geeky stuff.
Say that a developer comes to town [and says to us]:
“I have a piece of property here I would like to develop. I will, at my expense,
pay to build all of the residential buildings, all the commercial buildings.
I will follow all of your rules and regulations.
I’m not asking for any subsidies.
I will, at my expense, go in and put in all the required infrastructure.
I’ll build the roads, the streets, the curb, and the sidewalk.
I’ll pay for the pipes, the pumps, the valve, and the meters. I’ll do all of that.
The only thing that I’m asking, as a developer, is that when I get done making this massive investment in your community, that you, the public, the taxpayer, agree to take over the long‑term responsibility for serving and maintaining it.”
What would we say? We’d say, “Fantastic. You mean you want no subsidies? You’ll follow all of our rules? You’ll pay for everything?” This is the ideal scenario.
We’re smart Salem residents. We’ve heard of this Strong Towns stuff. We’re good, prudent people. We’re Minnesotans with topography. When this money comes in from this new development, what we’re going to do is we’re going to take that portion that normally gets spent in other places and we’re going to set it aside. Every year when that money comes in, we’ll take that portion out that normally gets spent fixing other things.
We’ll set that aside and we’ll allow it to grow, so that when we get out a generation from now, and the people then have to make good on that promise that we’re making today, that we’ll take care of that stuff forever, they’ll have a pot of money to do it.
This is what it looks like.
In year one, everything’s brand new. Didn’t cost you anything. The money comes in, you take that portion, and you set it aside. In year two, more money comes in and you add to what you had in year one. In year three, you add a little more, in year four, in year five, and on and on.
And you see that a five‑year‑old street doesn’t cost you anything. A 10‑year‑old sidewalk isn’t costing you anything. A 15‑year‑old pipe isn’t costing you anything.
For decades, all that happens is money comes in and it just continues to grow. You get out 20‑something years and you’ve got quite a pot of money there.
The problem is when you get to, in this example, year 25, and you have to actually go out and fix something, what you find is that the cumulative amount of revenue is insufficient. From a cash flow standpoint, you run far into the negative.
Now, cities are not one development. Cities are a collection of developments or a collection of neighborhoods. Let’s say that our developer comes back in a couple of years later after that first development and says, “You know, that worked really well for me. That worked really well for you. I have a similar‑sized development I would like to do.”
Every other year, from this point forward, a developer walks in the door with a similar- sized development. In other words, the ideal scenario for any city. Nice, steady, continuous growth. We take that money, we set it aside, and we save it for the day when we have to make good on all these promises.
Here’s what that looks like. In year one, you’ve got your first development that comes online. It pays in the entire 25 years shown. In year three, you’ve got another. In year five, in year seven, and you can see, not only do you not have any costs, but you’re having a lot of growth. You’re having growth upon growth upon growth.
Your cash actually starts to accelerate upwards. You’re feeling very, very rich. When you get to year 25 and you have to make good on that very first promise you made way back in year one, yeah, you got to spend a bit of money, but it’s not a big deal. You’ve had all this growth.
The growth creates what we call the illusion of wealth. Because we all intuitively understand, if you lose money on every transaction, you don’t make it up in volume. If you lose money over the long term on every project that you undertake, the longer you go out in the time horizon, the more downward pressure there is on your budget.
This is the answer to that question, “Why are cities struggling financially? Why don’t we have money to do basic, basic things? Why despite all the growth, despite all the job creation, despite all the tax subsidies, incentives, and everything we do to juice up our local economies, do we not have the money to do basic, basic things?” It’s because we’re living way out here. [Points to right side of chart above.]
I want to ask you a couple of questions. Do you recognize yourself in this chart here? We’re having this insane election cycle where each side of our political dialogue has all this blame for the other side. It’s greedy corporations. It’s lazy people. It’s whatever your insane thing is. Do you recognize yourself here?
This is why people smoke. [laughter] I smoke and then, oops, emphysema.
This is why you will go home and have that bowl of ice cream and watch TV instead of going for a walk. “This ice cream is good. I like this TV show. Uh‑oh, heart disease.”
It’s called temporal discounting. We are wired as human beings to highly value positive things today and deeply discount negative things far into the future. That is a human flaw.
What happened to the civilization thousands of years ago that built their cities based around the exploitation of this human flaw? What happened to them? They went away. Their ideas were not transmitted to the next generation. Their ideas failed and it did not go on. I have one more chart to show you. It’s slightly more depressing than this one.
Then we’ll start talking about other things and that’s the end of charts, but this one is very important. This is a graph of debt. Everyone in this room knows the narrative about our public sector debt. It’s massive, approaching $20 trillion. I’ve had seven quarters of calculus. I’m not going to pretend that I can grasp what $1 trillion is, let alone 20 of them.
You guys had the “Weekly Reader” when you were little? We had the Weekly Reader. I remember in fourth grade, there was a little breakup box in the Weekly Reader. It said, “If you took the national debt, converted it into dollar bills, and stacked them on top of each other, they would go to the moon and back 23 times,” or something like that. As if for a fourth grader, replacing one abstract concept for another abstract concept would clarify things. [laughter] These are monstrous sums of money. They’re beyond our ability to grasp or fathom.
In this graph, here, the bottom line, the blue one, this is the growth in our national debt. The black one right above it is the growth in our GDP. That green one, the one that soars up like that, that’s the growth in our private sector debt. That’s debt we share.
That’s home mortgages, commercial real estate loans, auto loans, credit cards, margin interest accounts, student loans, private sector debt. The way we financed this first generation of this new exciting way to build a prosperous America was by using our savings and by reinvesting that illusion of wealth back into creating more growth.
When things started to bog down, when we had liabilities starting to pile up, promises we had to make good on, things in our economy started to slow down. It took us a while culturally to figure out what to do, but we eventually shifted from an economic model based on growth through savings and investment to one based on growth through debt accumulation.
Growth through debt accumulation became such an important part of keeping everything going, that we eventually allowed our financial system to become predatory. We needed the growth so badly that we allowed our financial system to prey on our friends and neighbors.
You can’t afford a home? Now you can. You could afford a small home? Nope, now you can afford a large home. You can afford a large home? Well, now you can afford multiple large homes.
Our ability to extend this experiment by having our financial system prey on our friends and neighbors, is just not there. Obviously, there’s some huge implications in all of this. The mechanisms of growth that we become accustomed to are waning. The state and federal government are vastly over‑committed. They have made more promises than they have money to fulfill.
They are not going to be coming to the rescue of every city that goes through economic hardship. Look at Detroit as exhibit A.
The DOTs are functionally insolvent. Your DOT has built more lane miles than they have any possible expectation for future revenue to maintain. Your system, like every state transportation system, is going to experience contraction over the next decade, not expansion.
The private sector is tapped. We cannot continue to accelerate debt. This has some obvious implications for local governments.
We’re going to be forced to absorb the cost of our development pattern. If we want that road fixed, we have to pay for it. If we want that pipe repaired, that money is going to have to come from us. This can’t be done in the current pattern of development without some incredibly large tax increases and/or some devastatingly large cuts in services.
I didn’t come here to tell you what you already know. This is the debate we’re having at every level of government everywhere. How big is the tax increase going to be? Who should pay for it? How deep is the service cut going to be, and where is that going to be felt? It is critical sitting here tonight that we see the third variable in this sentence. The third variable being the current pattern of development.
As long as we continue to build in an approach that is functionally insolvent, there is no way that our cities are going to avoid insolvency. As long as we continue to build in a way that gives us an illusion of wealth today in exchange for enormous long‑term liabilities, there’s no way that our cities are going to avoid default.
Whether that is a hard default, like we see in places like Detroit and Stockton and San Bernardino, or whether it is a soft default like we see in thousands of cities across this country where they’re laying off police and firefighters. They’re not maintaining parks, they’re turning off street lights. They’re putting off critical maintenance because they just don’t have the money. This sound familiar?
We have to start having a conversation about how we build cities that are financially more productive. How do we do this? Early on, after the first phase of meeting with groups of two and three and five in the basement of churches and rotary clubs, I got invited to come speak in California.
We actually did 11 talks in five days. I started in Redding and ended up in San Diego, so I saw all of California. Spent the night on a lot of couches, ate a lot of In‑N‑Out Burger, hung out with Will a little bit. But everywhere we went and spoke, we got the same feedback. “Chuck, you have scared the heck out of us, but you didn’t tell us the solution to these problems. What is the solution?”
It took me a while to hear what these Californians were saying to me, because what they were really saying to me was something subtly different than the actual English translation of their words. [laughter]
What they were saying is this, “What can someone else change about what they’re doing so that I don’t have to change anything about what I’m doing?” [applause]
I am not aware of any such solution. In fact, no such solution exists. We have created for ourselves a very complex set of problems. Problems that defy a solution or even a series of solutions.
What we talk about at Strong Towns is, “How do we rationally respond to this complex set of problems? How do we, as smart, thoughtful, intelligent people, living together in a community look at all the problems we face, roll up our sleeves and then rationally respond to them?”
When we start talking about rational responses, I always start with this photo here. Again, this is my hometown back in 1904.
When I first saw this photo I was blown away, I was astounded. The way the buildings line up just perfectly. The way they frame the public realm at just the right Greco‑Roman ratios. The segmentation of the public realm. The buildings have great symmetry, they front the street in a beautiful way. This is an exquisitely designed street.
Let me ask you some questions about these people:
How thick was their zoning code? [laughter]
How many boards and committees did they have to go to to get an approval to build something?
How much tax subsidy did they give out?
How many shovel‑ready sites did they have prepared?
How much infrastructure did they put in the ground to attract this development?
How many engineers and planners did they have on staff advising them?
How many economic advisers did they have telling them what to do to create all kinds of growth?
These people had none of the things that we consider today essential to building a successful place. They didn’t even have 30‑year mortgages. These were a bunch of illiterate lumberjacks in the middle of nowhere.
How did they build this place? How did they do it? It’s really simple. They copied what they knew worked.
They took the materials they had on hand and they built in a style and a pattern that they had seen work for thousands and thousands of years.
After 70 years of all the policies to create growth, and jobs, and economic development, after all, the codes, and ordinances, and programs. After all the advice from engineers, and planners, and economic development advisers, here’s what the street looks like today.
[Audible gasps heard]
It’s a wasteland of parking and half occupied buildings. If you want to grasp in one photo why our cities struggle, understand there’s a half million dollars of public infrastructure in that little stretch of street right there. Where is the wealth that will sustain that generation after generation after generation?
I was giving a lecture at a university in Boise, Idaho. I got to this picture and a student raised their hand and stood up and said, “Chuck, I’m from Costa Rica. Costa Rica is a very poor country. We can’t afford to build the way you do here.
“When we build we have to build one block at a time, and before we can build the next block we have to make sure that the block we just built, all the spaces are filled in, otherwise we won’t be able to afford it. We’re a very poor country, we can’t afford to build this way.”
We’re a very poor country now, too, and we can’t afford to build this way either. For a long period of time, that illusion of wealth made us think that this kind of thing didn’t matter. We could run pipe and road all over the place.
We could walk away from whole neighborhoods. We could see places go into decline and it didn’t matter because we were so rich. But it does matter, and now we’re going to start talking about how we think differently about the way we develop and build our places.
The first thing we need to do is get rid of our worst cultural habits. “Build it and they will come,” is a brilliant movie plot. [laughter] It is a terrible economic development strategy.
We are in what we at Strong Towns call the “desperation phase” of this suburban experiment. We are so desperate for growth, we are so desperate for the next thing that will get us through the next budget cycle that we do all kinds of insane things.
We are prepared to hand out tax incentives to people who come to town.
We are building shovel‑ready sites so that we can attract new growth. If you want to be a player in the game today taken seriously in economic developments you have to be willing to spend yourself into oblivion to make it happen.
This is not how cities build wealth, and this is not how cities have ever built wealth. I’m going to show you now the very simple way that cities build wealth.
Do any of you recognize this city here?
If I told you this was Portland would that surprise you? No, because at some point in the past Portland looked just like that. If I told you this was Salem would that surprise you? No, because at some point in the past Salem looked just like that. If I said it was San Francisco or Vancouver, they look like that.
The trees aren’t right so it’s not LA or San Diego, it’s not Dallas or Houston, but all of them started in the same way, a little collection of pop‑up shacks. If we go back far enough, Chicago started this way, Manhattan at one point looked just like this. We can keep going back…London, Paris, Rome.
This could be Romulus and Remus standing here at one point in history. [laughter] Rome was a collection of little pop‑up shacks at one point.
Every city that was ever created prior to this new experimental way to build started just like this. Some pop‑up shacks and some hopes and dreams. We built thousands of these across this continent, and for a variety of complex reasons, reasons that defy our ability to predict or project or even to fully understand after the fact, a lot of these places failed.
When they failed, what happened? Did unemployment skyrocket? Did the stock market crash? Did we have to have an emergency session of Congress to bail out Wall Street banks? No. A few people lost a little bit of money. They salvaged what they could and they moved on to the next place. These were little bets.
We built thousands of places like this across this continent, and for a variety of complex reasons, reasons that defy our ability to predict, or project, or even to fully understand after the fact, a lot of these places were successful. When they were successful, they would grow in a very simple to understand way. They would grow incrementally up, incrementally out and become incrementally more intense.
This is my hometown, this is Brainerd. This is what it looked like in 1870.
34 years later, after incrementally growing up, incrementally growing out and incrementally becoming more intense, this exact same street would be that street I showed you earlier.
After another 40 years of growing incrementally up, incrementally out and becoming incrementally more intense, these two and three story wood structures would become buildings of brick and granite.
We don’t build wealth by going to the casino and putting it all on red. The way we build wealth is by making small investments over a broad area over a long period of time.
Let me show you how financially potent this style of development is. These are two identical blocks in my hometown. The one on the left I’ve labeled old and blighted. The one on the right I’ve labeled shiny and new. If you look at them you’ll see they’re the same size, the same area, the same amount of public infrastructure.
They have the same thoroughfare, the same neighborhood. Everything about them is the same, except for the style of development that is upon them.
That old and blighted block looks like this. Back in the 1920s as my city was growing incrementally, the next increment of development were these three blocks.
[Points to upper left hand photo] What you are looking at here is the cheapest commercial building that you are going to be able to build on the far edge of town in the 1920s.
Had things progressed as they had for thousands of years, what would have happened? You would’ve eventually got second and third stories, they would’ve became more ornate, more intense. But that’s not what happened. These were built and then we had the Depression, we had World War II, and then we had this completely new style of development that just skipped right over this and started building out on the edge.
These buildings have stagnated for 90 years. [The next] two blocks over used to look just like this. The city had it torn down and now we have a brand new taco drive‑through. [Points to right-hand photo above.]
Everybody was thrilled with this transaction. We got rid of blight. We now have a property that conforms to all of our zoning codes.
It meets the floor area ratios, it meets the parking requirements, it meets the sign ordinance.
The engineer was happy because we got rid of the on‑street parking and now the cars can flow through more smoothly.
The environmental people were happy because they have a little bit of green space and they convinced them to put native plants in the stormwater area.
Even the bike/walk people are happy because they got a sidewalk. The sidewalk ends right there, but they got that stretch. [laughter] Here’s what nobody bothered to consider.
That old blighted rundown block when this was built had a total property value of $1.1 million. That shiny and new block two blocks over, the same size area, the same amount of public infrastructure, the same everything just a different style of development is only worth $800,000.
On the day this [taco place] was built, the city was collecting 42 percent more taxes from that old run‑down block.
Understand what you’re looking at. You are looking at the traditional pattern of development, the way we built places for thousands of years in its infancy after 90 years of neglect, and it still outperforms by a wide margin the stuff we build brand new today.
We all know the trajectory of the taco joint.
20 years from now this will be turned into a used car lot, There’ll be a new taco joint up the road. 10 years later it will be boarded up, we’ll be trying to get a grant to get it torn down. We’ve all seen this, we’ve all been around long enough to see this life cycle of that style of building.
In fact, in the years subsequent to this being built, here’s what’s happened to the property values.
This is the kind of thing we see in our cities, the way we denude our cities. Out on the edge we see the same kind of thing.
[Points to left-hand photo.] This is our big box store. This is our most valuable piece of property out on the edge of town. This is 19 acres, a double sized big box auto dealership gas station. This is the Mills Fleet Farm site. When the Mills people come to a meeting, we just stop what we’re doing and say, “What help do you need? What do you need from us?”
You guys don’t have Mills Fleet Farm. Mills Fleet Farm . . . mid‑western big box store. Very successful. When you walk in, auto parts, animal feed, lumber, guns and ammo, camouflage lingerie. That’s the product mix. [laughter] They’re wildly successful. We have the biggest one in the world. Brainerd is the home of Mills Fleet Farm. Don’t read too much into that.
[Points to left-hand photo again.] This is 19 acres. This is the most valuable 19 acres in the entire area.
[Points to right-hand photo again.] This is 19 acres of our core downtown. If you have seen the movie “Fargo,” you have seen a not so flattering but not so inaccurate portrayal of my hometown. We don’t talk that way, though, at least not when anyone else is around. [laughter]
19 acres, no new buildings have been built there in my life.
We’ve torn quite a few down for parking lots. A number of others have burned down, and we cleared away the rubble and they’re now parking lots. This is a place where the second and third stories are largely unoccupied. The first story struggled to keep tenants. This is not a downtown you take people to when they come to visit.
Yet when we step back and look, we see that 19 acres out on the edge has a total value of $600,000 in acres, is a huge pot of money in one place. But when we compare it to the 19 acres in the downtown, what we see is that downtown we collect 78 percent more property tax. Sales tax [from each], even though one is a regional draw and one is a local draw, are about even.
How much did we spend to get that big box draw on the edge?
We spent almost a couple hundred million on the bypass.
We spent millions more on frontage roads, backage roads.
We spent $10 million to get the water and another $10 million to get the sewer out to this site.
When I was an engineer I actually designed this road here, this backage road. This was $2.6 million.
How much did my generation spend to get that development in the downtown?
Nothing. That was wealth that my great, great grandparents and their contemporaries built, slowly and incrementally over time, and then bequeathed to us as an endowment of sorts. We’ve kind of slowly melted down.
What happens when Mills Fleet Farm goes out of business? It’s heretical to say around my hometown because we love Mills Fleet Farm, but at some point in the future that will not be the highest and best use of that property. . .it will go away. [Just as] we do not have the Hudson’s Bay Company, at some point in the future, this will be gone. What happens then?
I don’t know. But experience tells us by looking around that whatever it is will be lower on the economic food chain than this. This is the peak today.
There’s 134 different properties in the downtown.
What happens when one of them loses a tenant?
What happens when one of them goes out of business.
What happens when one of them chooses to retire?
What happens when it’s discovered that planners are not infinite in their wisdom and we actually have too much office space and not enough residential space? Or too much retail and not enough office?
These buildings are highly flexible. You don’t have to be Nostradamus. You can change them over time. If you need something more, they’ll flex into something else. I have seen buildings go from being a pizza place, to an account’s office, to a thrift store.
Our new building style is not only not very productive, but it is very, very fragile. Our traditional development pattern not only is financially really, really productive but has tremendous amounts of adaptability and resiliency.