In each of these, the local unit of government benefits immediately from all the permit fees, utility charges, and increased tax collection. This is real money that provides revenue for the current budget. Cities also assume the long-term liability for servicing and maintaining all the new infrastructure, a promise that won’t come fully due for decades. This exchange—a near-term cash advantage for a long-term financial obligation—is one element of a Ponzi scheme.
The other is the realization that the revenue collected over time does not come near to covering the costs of meeting these long-term obligations. Development spread out over a broad area is very expensive to maintain. Over a life cycle, a city frequently receives just a dime or two of revenue for each dollar of liability, a ridiculously low level of financial productivity.
Decades into this experiment, American cities have a ticking time bomb of unfunded liability for infrastructure maintenance. The American Society of Civil Engineers (ASCE) estimates deferred maintenance at multiple trillions of dollars, but that’s just for major infrastructure, not the local streets, curbs, walks, and pipes that directly serve our homes. Every mature city has a backlog of deferred maintenance, a growing list of promises with no discernible path to make good on them.
We have responded to this challenge in two ways that compound the tragedy. First, like with any pyramid-shaped financial structure, cities tried to overcome insolvency by growing faster. This alleviates the immediate budget pain but only increases the future hardship. Sequential bubbles over the past four decades in residential and commercial real estate attest to the collateral damage of trying to grow our way out of this problem using the same experimental pattern of building.
The other response has been to increasingly rely on debt to close budget gaps and induce growth. Beginning in the 1970s, corresponding with the transition to the second generation of this experiment, Americans financed new growth by borrowing staggering sums of money, both in the public and private sectors. By the time we crossed into the third generation and flamed out in the foreclosure crisis, our financing mechanisms had, out of necessity, become exotic, even predatory.
We have misdiagnosed the problem. Our problem was not, and is not, a lack of economic growth. Our core problem is 70 years of unproductive growth, a pattern of building and assembling America that has buried our local communities in financial liabilities. We are now forced to grow faster and faster lest it all fall apart. That’s economic growth as desperation, not as a credible strategy for success.