How to Stop the ‘Growth Ponzi Scheme’

Pointing to recent revelations about the city of Houston’s ailing finances, Charles Marohn of Strong Towns points out that many cities — including extremely wealthy ones like Santa Clara, California — struggle to afford basic infrastructure maintenance.

That’s because this isn’t a wealth problem, it’s a productivity problem. And like all productivity problems, growing faster buys time but ultimately makes the insolvency problem worse. If you lose money on every transaction, you don’t make it up in volume, even in California.

As Marohn explains, the underlying cause of the financial crisis facing many U.S. cities is the “aggressive outward expansion of cities,” which created a vast and unsustainable network of infrastructure that would need maintenance and repair. In California, where Proposition 13 keeps property taxes on existing homes low, cities encouraged outward development to expand their tax base in what Marohn calls a ‘Growth Ponzi Scheme.’

In Marohn’s view, “What we need is a more humble approach, one that starts by recognizing that cities are complex, adaptive systems with unpredictable feedback loops and untold novel responses to stress and opportunity. They are not mere mechanical devices, a collection of streets, buildings, pipes, zoning classifications, and financial products.” Marohn recommends five steps cities can take to make an impact on their local development and finances from the ground up, including building lots of housing, making streets safer, and converting unproductive parking lots to better uses.