How Strong Towns Principles Relate to Sioux Falls — Revenues and Expenses
based on “Strong Towns — A Bottom-Up Revolution To Rebuild American Prosperity” by Charles L. Marohn, Jr.
“Public infrastructure is a communal investment to accelerate wealth creation within a community. When, in the infinite game of city-building, the public assumes the obligation of maintaining a piece of infrastructure, the wealth that results from that investment must not only eternally cover the maintenance costs of that infrastructure; it must also contribute to the overall prosperity of the community. ” — Chuck Marohn
Chuck Marohn asks the question “Should cities seek to run a profit?” It is a provocative question if you think about profit as it relates to business. “No, cities should provide services for the least amount of money” is the usual response. But, if you think of profit as producing revenue that exceeds expenses then you may get a different answer. A city needs to have enough revenue to maintain the infrastructure it has built as well as provide police protection, fire protection and other services required by the existence of the infrastructure. The city should have more revenue than it needs in a given year so it can create a reserve for unexpected events or to finance a quality of life item like a performance center without incurring excessive debt. In other words, a city should run a profit.
The concept of revenue exceeding expenses is the heart of the Strong Towns message. Since the end of WWII we have been building expensive infrastructure on the edges of ever sprawling cities that does not generate enough revenue to pay for its eventual replacement let alone to create a reserve. And, as a result of this expansion, the value of the city’s core which traditionally produced most of the revenue was lowered. Many cities like Lafayette are now facing the problem of aging infrastructure without the money to replace it. But we are not Lafayette, we are not Detroit — we are Sioux Falls. This doesn’t apply to us — does it?
Good question. At first glance one would be tempted to say “No, we are insulated from this problem”. Sioux Falls currently has a sales tax surplus that has city leaders wondering how to spend it. According to the 2019 city budget, sales tax revenue was almost exactly twice as much as revenue from property taxes. So, as long as there isn’t a recession or a major mall closing or a spike in on-line sales we are in good shape — especially if most of the people paying sales tax live outside of town!
But when you try to dig deeper on this question it is hard to find the data needed to answer it. Information on infrastructure costs is buried in funding proposals and engineering studies. It is hard to piece it together to answer the two basic questions we need answered:
- What is the city’s total infrastructure commitment?
- Do we have the resources to meet that commitment when it comes due?
The infrastructure commitment is the cost of replacing all the infrastructure the city has promised to take care of when new developments are brought into the city. This is over and above the cost of providing routine maintenance, police protection, fire protection and paying interest on debt that was incurred in creating the infrastructure. New neighborhoods on the edge of town generate higher infrastructure costs because they are on the edge of the water and sewer systems as well. The developments on the east edge of Sioux Falls required the construction of a new sewer lift station as well as miles of pipe. What is the life expectancy of these systems? And, more importantly, can we answer the second question — do we have the resources to replace it when it needs replacing?
We don’t know. Initially, developers will pay the cost of creating the infrastructure but at some point the city will be responsible for it. Right now it seems like we are just kicking the can down the road to our grandchildren. Let them deal with it — they can raise the sales tax or something. It is not our problem — until it is (think Detroit).
So, right now Sioux Falls is following the same path as nearly every city in America. We continue to acquire infrastructure that does not build enough wealth to sustain it. That means that new developments that stretch the water, sewer, storm drainage and road systems ever thinner at greater expense don’t have the tax base to generate a profit. A completed cul de sac development will not produce more property tax revenue over time since there is no incentive to add new houses or transform some of the property into multi-family dwellings that would have higher value. It’s revenue producing capacity is pretty much fixed in place at the time of the ribbon cutting.
Contrast the cul de sac with an infill project in an existing neighborhood that already has infrastructure. The infill project may improve the value of nearby properties. This would increase tax revenues without adding long term cost commitments. The revenue generated by the neighborhood would exceed the expenses to maintain it — the city would run a profit on that project. If Sioux Falls is to avoid becoming Lafayette or Detroit we will need to enact policies to help us generate a profit on new development.
Want to check out the book? Buy it here.
