The Free Money Siren Song & Municipal Bankruptcy

Chuck Marohn, founder and President of Strong Towns came to Oregon for the first time last October, touring and presenting in Portland, Salem, Newberg, and Independence, and surveying the sites in between.

The following discussion took place during a tour of Salem, where Marohn’s local guides took him through the town, starting in downtown Salem and proceeding to a spot in West Salem, across the Willamette in Polk County, where the local planning authority hopes to build the west side landing for a $500 million dollar freeway bridge they call the “Salem River Crossing.” If it could be funded and constructed, the “Salem River Crossing” would be among the longest, if not the longest, elevated structures in Oregon.

Joining Marohn on the tour were OregonPEN, a safer bicycling advocate, Jim, a leader of a group opposing the Salem River Crossing, and Tom Andersen, a Salem City Council member. Discussion lightly edited for clarity only.

OregonPEN:  This bridge would be $500 million, in a city where we have unmanned fire stations because we can’t afford to staff them, and we have hundreds of miles of sidewalks that are in terrible disrepair.

Councilmember Andersen:  This is exactly [the kind of thing] I was reading last night in your website. I campaigned against [the bridge idea], and I beat the Chamber of Commerce opponent who was all in on it. The three progressives [just elected] are against it too. There’s no way to pay for it and it doesn’t even address the problem.

It will also involve an expansion of the urban growth boundary, which will ultimately lead to development of prime farmland for homes.

Chuck Marohn, Strong Towns: The perverse thing, often, about those projects is that the money, some of it will come from you, and some of it will come from ODOT, but some of it would also come through the transportation slush fund things.

Right now, at the national level, we’re talking about doing a surge in infrastructure spending. Both of our presidential candidates, for what it’s worth, have subscribed to that. There really isn’t anyone who is against it. The big issue is always how to pay for it.

Let’s say that they magically figure that out and come up with the money. Then what happens is that they go looking for shovel-ready projects. The DOTs will have things like this all ready to go. “We have this huge project all ready to go,” – and then you’ll be faced with, “Do you turn down $400 million of …”

OregonPEN: Free money.

Chuck Marohn: Yeah, “free money.” [Because] if you do, it will just go someplace else. Now, it’s no longer an issue of do we spend our money to do this, does it make sense; [now it’s] does it make sense to give away, or not accept, free money.

The problem, of course – we see this all over the place – [occurs even] where a state department of transportation, or a regional office, will be very committed to maintaining things. They’ll have a certain budget and they’ll have it scheduled out, and they’ll say, “We’re going to be very prudent about taking care of the stuff we’ve built.”

Then the free money comes in. You can’t say no to it, because the politicians have lined it up. How can you say no to this [through the] political process? That, literally, is where your salary and your budget comes from.

What they’ll say is “You just need to take 20 percent – 30 percent, 50 percent, all of –your maintenance budget for this year, to do this matching dollars on this project.”

Not only do you then put off maintenance, but you also add to your inventory of stuff you have to maintain. It’s a double‑edged sword, because we see [this with] DOTs all over. Even the ones that are trying to be very prudent, it’s nearly impossible in a political situation to say no to that [free money].

Andersen: In this particular situation, there really isn’t any DOT money, nor is there any federal money. The proposal to pay for it is an increase in gas tax, an increase in property tax, and tolling, both ways, for $1.50 on the new bridge, as well as the bridges we’re going over [right] here.
Chuck Marohn: All local.

Andersen:  All local.

OregonPEN: 95 percent of the funding plan, which isn’t actually a plan, yet, but is a memo, 95 percent of the funding would be locally generated. DOT said that the federal money and the state money would be about 5 percent, about $50 million, I guess – it’s about 10 percent.

Andersen: 10 percent.

OregonPEN: 10 percent would be about $50 million in state and federal funding. The rest would be us.

Andersen: Tolling this bridge.

Chuck Marohn: Yeah.

I’m not adverse to tolls. Tolls area more refined way to actually [balance] supply and demand than just the gas tax. That being said, you have a situation then where you actually can step back and compare and say, “OK. Is the value and benefit for us here, locally, going to be so great for doing this? Or would that money be better spent on other things?”

As you said, you’ve got diminished firefighting capacity. Are you laying off police officers? Are you keeping your libraries open? Are you maintaining your parks? What we find, very clearly, is that the system of delivery of megaprojects, of these big projects, is [that it is] very convenient for staff, and it’s very convenient for the scale at which [planning bureaucracies] like to operate.

OregonPEN:  They know how to do that delivery.

Chuck Marohn:  They know how to deliver that, very easily. The problem is that those are – if not negative-returning investments, which they almost always are – they’re incredibly low-returning investments.

OregonPEN: The toll alone, the city’s own projection . . . the Metropolitan Planning Organization projection on tolls . . . is that it would devastate demand for the trip so greatly that we keep saying, “Why don’t you put the toll on now to solve the problem you claim to want to solve and build [up] some money to do maintenance?”

Andersen: There are two car bridges now across the river. We went over one of them. In order to make anybody want to use the [proposed] bridge in the far north, these two bridges are going to have to be tolled too. Otherwise, nobody will use the bridge.

Chuck Marohn:  There’ve been a couple studies. . . . I’m not like, huge, in [accepting] academic studies [uncritically], but this one goes to human behavior. It’s very fascinating, where people will do what, economists would say, would be irrational things to avoid paying tolls.

 OregonPEN: [Go miles out] of their way. Yeah, tolls are really hated.

Chuck Marohn:  Yeah. They would sacrifice [a lot]. To me, I think you’ve come up with the exact right answer. If you think that a toll on this bridge is warranted, then let’s go do the toll right now; let’s see what that does to actual demand.

You could do that. You don’t need half a billion dollars to do that. You do it very cheaply, see what it does to demand. From a price [or] market mechanism, you can get the result that you want in terms of traffic flow just by manipulating the price.

Quite frankly, if so many people are willing to pay high tolls to get to where you’re going, then maybe you do need a third bridge. I doubt that would be the case.
[laughter]

Chuck Marohn:  That’s a theory you can test out before you go half a billion dollars down the road.

OregonPEN:  We’re climbing up into West Salem. This was all orchards. Really recently, this was all farmland and orchards. We got sprawled out into Polk County, which is a much smaller county than Marion County. It is an agricultural county. Ag is still the number one or number two [Oregon] industry every year. Marion County is the number one Ag county. Polk is close behind. We are getting a bunch of vineyards out here. There’s really a boom in wine. You saw in Newberg and McMinnville, we are having a boom in wine out here. The developers are just furious that they can’t keep sprawling out to the west. That’s what the bridge is about.

Andersen:  In order to build the bridge, we have to expand the urban growth boundary. Doing that, they’ll open this all up for development. West Salem, even though it’s in another county, is still part of the City of Salem. The city spans the river.

Chuck Marohn:  The bridge is less about traffic demand than it is about inducing certain amount of growth.

OregonPEN:  Traffic is the excuse….

Andersen: This traffic is the excuse for development.

Chuck Marohn: I know that in Oregon, you’re very proud of the urban growth boundaries. It’s one of the things that, in planning circles, you’re known for. [laughs]

I’m not going to say that I’m not a fan – I think I get the theory, but—Really, your development is no different than anybody else’s.

Your style and your pattern . . . [pauses] This is Minnesota with topography. It’s the same thing. I saw this in Portland. Once you get out of what is a very spectacular kind of core and get out into things, it’s not only ordinary, it’s almost subpar-ordinary. It’s very blasé.

You’re seeing the [exact] same type of financial dynamics, in a place like this, where the developers can . . . . They have a market, they know they can serve; they have buildings they know they can get financed; the banks know that they can sell the stuff into a secondary market.
There’s a lot of cash that can flow these through these from a transaction standpoint. The urban design is horrible. These are not built to last multiple generations; we’re not making big investments – [instead] the city’s taking on enormous liabilities doing this.

Andersen: All big time.

Chuck Marohn:  Yeah. You’re going to have to come out. . . . In 25 years, every one of these roofs will go bad at the same time. At the same time, this road will fail. The sidewalks will be old and have weeds growing up through them. What will happen is that you will have to come out and spend money that is not generated here to actually fix this stuff.

What the future would be – if we continue in the same pattern as that – the people in this neighborhood that have affluence will see things declining and will leave. The people that will be left are the people that can’t afford to fix the roof, can’t afford to pay the maintenance on the road, and the neighborhood will get stuck in stagnation or decline.

That is – unfortunately – when we build things like this, all at once to a finished state—you wind up with that type of dynamic built in.

OregonPEN: Of course, there’s zero transit utility here. It’s impossible to serve this road network with a bus. When the decline hits, there’ll be people who are stranded out here.

Andersen:  It’s even worse, Chuck Marohn, because we only have bus service till nine p.m., Monday through Friday, and none on [weekends].

[We tried] to have a payroll tax that was infinitesimal. A million‑dollar payroll would pay $2,100 in tax. The business interests, including five city councilors who contributed money, put on a campaign of basically lies, and [we had a] major loss. We now have bus service only Monday through Friday early morning till nine o’clock. That’s it.

Chuck Marohn:  Functionally, it won’t work for employment. The benefit of transit is that. There are a lot of people who would like to serve places like this with transit and put tons of money into it. [But] you can’t do it effectively, unless you are willing to assume people are going to [take] the last mile or two of their trip by bike. This is not really well‑configured for that either.

Andersen:  No.

Chuck Marohn: Theoretically, there’s ways we could do it, but all of them would require a massive commitment to doing something differently, and like you said, I don’t see that happening, and I don’t know if that would be a really good use of resources anyway.

Andersen: This is where the bridge comes in.

Chuck Marohn: [Looks at houses] Really?

Andersen:  Yeah, the west end of the bridge….

Chuck Marohn: These houses would be gone…? [Looks around.] And the bridge would come through here?

OregonPEN:  Right.

Chuck Marohn: [Laughs]

OregonPEN: Massive. It’s a four‑lane bridge …

Jim: It’s a five‑lane bridge. It’s three quarters of a mile to the other bank.

Andersen:  It’s twice the span of the Brooklyn Bridge.

OregonPEN:  It would be the longest elevated structure in Oregon, because it goes over this liquefaction zone in the river. It …

Andersen: [Has to go over the] flood plain.

OregonPEN: It would be this tremendous behemoth, and the people who fought against the transit levy…

Andersen:  Are the people who are…

OregonPEN:  The ones who are saying we need this bridge, and we would be happy to pay taxes for that, but not a little tiny slice for transit.

Chuck Marohn: Like I said, let’s test that theory. You’ve got to split off the two components. If [the bridge] is about creating the platform where you’re going to have more of this kind of growth . . . . To me, I think the question then is “Does this kind of growth make any financial sense?”
When you start to run the numbers you see it works for the developer, it works in the short term for the city, it works in a very short term way, but the long term liabilities you create are enormous. As a taxpayer, someone who lives within these jurisdictions, I would not want to see this kind of thing perpetuated.

Andersen:  We hold our discussions with the staff, and in my discussions as a councilor, they talk to me. There is no plan to maintain it. They have no idea how they’re going to pay for the bridge and pay for its maintenance at all once it’s open.

Jim:  They haven’t even decided who owns it, if you read those reports. It might be owned by the city, or it might be owned by the state. We haven’t decided yet. We’re going to move forward with it even though we don’t even know who’s going to own it.

Andersen:  Are we right where the bride will come through?

Chuck Marohn:  Let me ask this. Just from a bureaucratic standpoint, where is a project like this initiated? I get that people coalesce around it and start to support it and it gains momentum, but where within the bureaucracy does it emerge from?

OregonPEN:  I would put that at Region Two of ODOT, which is the state agency. They dangle the money in front of a local MPO, or the Mid‑Willamette Valley Council of Governments, and their transportation subcommittee is called SKATS ‑‑ Salem‑Keizer Area Transportation Study.
Those people, the local mayors, the local councils ‑‑ the transit district is part of that ‑‑ they are the ones who see that dangling money. And they fixate on it like a dog fixates on a bone. They just can’t see anything else.

Andersen:  Chuck, for how this particular thing started was there was a perceived need generated for another bridge, or some way to fix what was perceived as a transportation across the river. The advisory taskforce committee was appointed, and looked at all the options.
Of the 22 members of the committee, only 10 voted for this bridge option. Seven voted for no-build. And of the 10 people that voted for this bridge, at least 6 of them were not appointed officials or elected officials. [They] were the administrative staff of the agencies that were going to have something to do when they built the bridge.

I talked about that, and this is the wrong way to make these decisions. The elected or appointed officials [are supposed] to make the policy decisions, but instead, the majority of the people that voted for this were people who earn their living from doing this exact sort of thing.

OregonPEN:  The taskforce, a minority or a plurality of the taskforce said we need a bridge, and then that’s been the excuse to say, “Well …”

Chuck Marohn:  Let’s find a bridge. [Laughs]

OregonPEN:  Yeah. Essentially, they went in knowing that the Right Answer was going to be, “We have to build a bridge.” That created a fig leaf for . . . .  In theory, it was going to be done by 2009 ‑‑ the planning and the EIS would be done by 2009.

Andersen:  None of them are done yet.

OregonPEN: None of it is done yet. One member of the local activists has this [saying]. He used to work for DOT. And he says, “If there was a funding plan, this would be done by now. The fact that you can’t do this suggests that it really is the wrong thing to do.”

Chuck Marohn:  Or that the funding streams are so tapped.

At the end of the day, I really feel like we’re at a [weird] moment in this country, and you see this in an insane way at the federal level in our political dialog. We’re actually at a point, at the very local level, where people who are classically identified as right of center, and who classically identified as left of center, have so much in common when it comes to this kind of things.
There’s a whole discussion of government waste and over taxation, and [asking] why are we just continuing to fund programs that are not delivering? Then there’s recognition that this type of development is really destructive.

These types of bureaucracies, [the ones] that birth and deliver this, actually need to be defunded and go away. They need to be changed, and changed to work at a very fine grained neighborhood level. That’s going to take not only a coalition of people saying, “No, we will not pay for this,” but simultaneously a group of people saying, “We actually need to see people who are going to obsess over neighborhood-level things in the same [way] that we have historically obsessed over big projects.

OregonPEN:  You know, the interesting thing is that change is possible. If you look at school districts, there’s a lot of creativity—with the homeschoolers, and there’s a lot of people who are trying alternative methods of delivery of education. That is driving some change.

But how do you do that in the transportation planning world? You can’t do [highway] homeschooling. You can’t withdraw your support from the machine that leads to this “progress.”

Chuck Marohn:  That that’s an interesting question. Because a lot times . . . . Let’s say that you realize – and in many ways this is self‑evident, but maybe not for everyone.

The greatest investments we can make in our cities today, the highest returning, [the ones where] we spend a dollar and we get two dollars/three dollars of cash back – are fine grained. They are biking, walking‑type of infrastructure, helping people get across the street, helping people get from the house here to the store there. Those fine-grain investments pay off huge, and we’re just not scaled to do them at all. We’re scaled to deliver large things on the theory that the small things will fill in after the fact.

OregonPEN:  The trickle‑down theory.

Chuck Marohn:  Yeah.

Andersen:  It doesn’t work any way you look at it in any system.

Chuck Marohn:  Exactly. A lot of times, the people who are advocates for the biking/ walking small grain investments, feel compelled to latch onto essentially the table scraps of the big system.

OregonPEN: And [so] they support it.

Chuck Marohn:  They’ll go to the Capitol and they’ll say, “OK, we’re going to raise taxes and get another $5 billion for transportation.”

Andersen: “One percent for bikes.”

Chuck Marohn: Yeah, and $50 million of that will go for bikes. They’ll say, “We’re used to getting $2 million for bikes, now we’re going to get $50 million. This is incredible, this is huge, we’re going to do this. Let’s support it.”

There’s a part of me that . . . . I’m sympathetic to that. I grasp what they’re doing.
There’s another part of me that says we need to change our cultural expectations. At the mega‑project level, go down to a maintenance level of funding, and allow local units of government to essentially engage in finer-grained things.
The push back I get is, “Well, they won’t do it.”

OK. I don’t know if they would in Year One, or Year Two, or Year Three, but what you would see is that successful places would be doing these things, and a body of knowledge would emerge on “Here are some best practices for cities that want to be really successful.”

Right now we are stunting that intellectual growth by putting all of our intellectual energy into these boondoggle projects.