Cities – Big City Economics

Republican Plan: Squeeze the States

There is a widespread belief that the Trump Administration has no plan for coping with the Covid-19 pandemic. That critique is far too charitable. The Administration, in concert with its enablers in the Senate, does indeed have a plan.

The plan is to plow through the pandemic, keep the economy running and the stock market up, and let the states and the American people deal with the rising body count however they can. In the time-tested tradition of petty swindlers, Trump and Mitch McConnell are orchestrating a fiscal hustle to force the hands of governors and mayors and pin the blame on them if things go terribly wrong.

Asked about a possible second wave of the pandemic during his May 21 visit to a Ford plant in Michigan, Trump responded: “People say that’s a very distinct possibility, it’s standard. We are going to put out the fires. We’re not going to close the country. We can put out the fires. Whether it is an ember or a flame, we are going to put it out. But we are not closing our country.”

How would he know? As we’ve all learned, it’s the governors and mayors who decide whether extreme restrictions on business and individual activity are necessary to protect public health. Trump takes no responsibility.

Although other developed countries have political jurisdictions equivalent to American states and cities, the United States is unique in how much responsibility for funding basic public services it places upon them. The majority of public spending on everyday needs like education, police, roads, parks, transit and healthcare is the responsibility of American states and cities. But when it’s necessary to respond to a widespread threat to public health, states and cities simply don’t have the budgetary resources or flexibility that the federal government has: they cannot run perpetual deficits, have no central banks of their own, and cannot print their own currency.

That’s why we have to keep an eye on Trump’s accomplice. McConnell is making sure that the states and cities are in no position to suppress their economies as they did in the spring. In stark contrast with his urgency for providing financial aid to business, McConnell is dragging his feet on fiscal aid to states and localities, lecturing on how the need for additional aid needs to be carefully thought through, even suggesting that states consider bankruptcy.

The spring shutdown of many state and city economies put their budgets in a deep hole. New York State recently adopted a FY2021 budget projecting general fund receipts $13.3 billion lower than anticipated February. The state expects its revenue losses to total $60.5 billion through 2024. California, a state widely lauded for its early and decisive measures to contain the pandemic, adopted a FY21 budget that anticipates a drop of $20 billion in tax revenue from the prior year and requires expenditure cuts of $13 billion. New York City adopted a FY21 budget that anticipated $7 billion lower tax revenues and $7 billion reduced spending from its preliminary plan proposed in January.

Democrats are pushing for a “phase four” of federal pandemic relief, the centerpiece of which would be aid to states and localities. But McConnell is in no hurry. Said Roy Blunt (R-Mo.), Chairman of the Senate Rules Committee, back in June: “Optimistically, we might move before the Fourth of July. I do think we will move on phase four before the August break.” There was no movement by McConnell by July 4. It just so happens that most states and cities operate on a July-to-June fiscal year, so if they were to avoid draconian budget cuts in their Fiscal 2021 budgets, they needed to know what kind of federal backstop they’d be receiving before the end of June. Senate Republicans surely knew that, and surely enjoyed the spectacle of big-state governors and big-city mayors taking heat for those cuts. So why rush a phase four to get them off the hook?

The House passed a $3 billion phase-four emergency relief bill on May 15, which included about $1 trillion in aid for state and local governments. Almost two months later, there has been little movement toward a Senate version. It’s been reported, however, that McConnell told Trump he wants to hold the total cost of phase-four relief to $1 trillion, which would almost guarantee that state and local aid is far below the amount needed.

Earlier in the spring there was talk of a “first wave” and “second wave” of the Covid pandemic, following the model of the 1918 flu. Increasingly, it’s becoming obvious that the Covid virus will not exhibit the seasonality of the flu and that the U.S. has never squelched the first wave. But however you prefer to characterize the pattern of contagion, it became obvious by late June that it was out of control in much of the country. States began to walk back their re-opening policies and even the ever cautious Dr. Anthony Fauci began to hint of another round of strict shutdowns.

Without additional federal aid, however, few states and cities will be in a fiscal position to order a second round of economic closures and social distancing, no matter how bad the pandemic gets. McConnell knows that and Trump knows that, which is why he’s so confident there will be no more shutdowns. Even if some additional federal aid is eventually delivered in a phase-four bill in August, McConnell will have already delivered his warning to governors and mayors. So that’s the plan, we’re all warriors in Trump’s reelection push and McConnell will do his best to keep the governors and mayors in line.

Beachfront Bargains

Having spent most of my life shuttling between the densest and fourth-densest counties in America, when I finished my tour in city government I thought it would be nice to try out a different lifestyle. So I moved to the East End of Long Island, down the road a piece from where Jackson Pollack did most of his pathbreaking work. My wife had already substantially made the move after her scary and exhausting battle with breast cancer.

Though I still love the city that gave me so much fun, friendship and opportunity, I also love my coastal, exurban environment. Until The Shutdown I continued to spend a lot of time in Manhattan and I can’t wait for this pandemic nightmare to end so I can once again stroll anonymously down Sixth Avenue and dive into a plate of ropa vieja, rice and beans. But as it turned out, my dispersal from the city presaged a Covid-induced flight from the city, and the summer season out here seemed to begin around April 1.

The long-term effects of the pandemic on urban-suburban-exurban residential patterns is a complicated question that I’d like to address carefully at some point, but in a nutshell I’m hopeful that they will generally be positive. In the meantime, the renewed interest in vacation-area real estate gave me a chance to opine, along with some other real estate experts, on one of my favorite topics in this WalletHub feature.

Thoughts on the May Jobs Figures

On June 5, the BLS reported that the national unemployment rate in May dropped to 13.3 percent, from 14.7 percent in April, and that nonfarm employment increased by 2.5 million. The stock market staged a huge rally and the media expressed astonishment. I guess I don’t read enough economic forecasts these days because I was surprised everybody was so surprised.

On May 21 I tweeted:

How can the PPP have committed over $600 billion to firms expected to maintain payrolls, and yet unemployment claims are over 38 million? Either many of those unemployment claims will be withdrawn once the PPP money flows through, or the PPP program has been a complete failure.

The May jobs figures answered my question. The Paycheck Protection Program (PPP) has been at least a partial success. From March 21 through May 30 initial claims for unemployment insurance totaled an astonishing 42.2 million, a number equivalent to about 27 percent of total employment at the beginning of March. But in the meantime, Congress passed the CARES Act, a central feature of which was the PPP. The PPP was intended to limit unemployment during the pandemic shutdown through, essentially, a federal subsidy of business payrolls, as well as to help small businesses survive by providing the liquidity to pay other fixed costs.

The PPP was designed as a loan program, but since the loans are 100 percent forgivable it is, in effect, a grant program. As initially legislated, PPP loans are forgivable if the borrowing firm used 75 percent of the loan for payroll and restored its pre-pandemic employment level by June 30. Through the end of May, 4.5 million PPP loans were approved, totaling $510 billion. However, the program only began taking applications on April 3 and administrative problems caused delays and frustration. Then the program ran out of money and Congress had to enact a new phase of emergency aid to refill it. Money didn’t start flowing to firms in a big way until late April. By then some 28 million Americans had filed for unemployment benefits.

The two criteria for loan forgiveness induced firms with PPP loans to rehire employees who had been laid off; many of those employees probably had already filed for unemployment. Undoubtedly, many firms also recalled workers simply because they wanted to continue operations and the PPP loans enabled them to do so. So it was to be expected that many of the initial unemployment claims were precautionary and, as my tweet suggested, eventually evaporated.

The timing of the rehires, as it relates to the reported unemployment rate, was anyone’s guess. The dip in the May unemployment rate, the survey for which was taken the week of May 10, indicates that the rehiring was relatively rapid. What exactly happens to the unemployment rate in June and July is even more speculative, insofar as Congress, on June 3, passed legislation extending the forgiveness deadline to December 31 (and also lowered the amount of the loan that must be used for payroll maintenance to 60 percent.) So firms are under less pressure to restore their employment to pre-pandemic levels by the end of June. It should not be a surprise if the unemployment jumps up again in coming months, nor should it be a surprise if it stabilizes.

Is the Devil in the Density?

Intensification of the Covid-19 pandemic prompted politicians from all over the country to proclaim the obvious– the districts they represent are not New York. Usually, the denial was issued to justify weak social-distancing policies or moves to “reopen” their economies.

Kay Ivey, Governor of Alabama, defending her resistance to a statewide stay-at-home order, said “We’re not New York. We’re not even Louisiana.” South Dakota Governor Kristi Noem defended her policies with “South Dakota is not New York City.” California’s Gavin Newsome observed, “We’re not New York…there are very different conditions in the state of California.”

Even New Jersey Governor Phil Murphy felt compelled to note that his state is not New York–it’s worse! Murphy: “You know, we’re not New York. Somebody reminded me yesterday that if you drove from New York City to the Canadian border, it’s a 10-hour drive. It’s hard to get more than a three-hour drive in New Jersey.”

Sometimes the not-New-York disclaimer has a moralistic tinge or political edge, but more often it seems to be an allusion to New York’s assumed higher risk profile, and more specifically, to its greater population density. Vita G., a beachgoer in Florida, observed “I think we’re doing the right thing and we’re not high risk. We’re not New York.” Matt Tompter, a brewer and restauranteur in Anchorage, offered “We’re not New York City….the reason Alaska is able to open right now is we are naturally socially distanced.” David Morgan, Sheriff of Escambia County, Florida, was even more explicit. “We’re not New York City. We don’t have the density of population they have there.” Even New York’s Governor Cuomo bought into the density argument: “Why New York? Why are we seeing this level of infection? It’s very simple: It’s about density.”

From Governors on down, people in other parts of the country seem to think that because their home states or towns have a lower population density than New York City, their risk of a coronavirus outbreak is lower. Is that so? And does the new age of pandemic abruptly end the era of Superstar Cities?

The initial outbreak of the pandemic, with its epicenter in New York City, certainly triggered an early rush to blame density as a principal risk factor. In March, The New York Times ran an article entitled “Density is New York City’s Big ‘Enemy’ in the Coronavirus Fight.” Joel Kotkin, in the Los Angeles Times, wrote “…employment and housing patterns and transit modes appear to be very significant, if not decisive, factors” behind the differing coronavirus death rates in LA and NYC, contending that the pandemic vindicates LA’s sprawl. In USA Today, Glenn Harlan Reynolds simply concluded that “density kills.”

That Didn’t Take Long

The ink was barely dry on the Senate’s bill to provide an additional $484 billion of Covid-related economic relief when Mitch McConnell fired the first volley of the next battle. On April 21 he appeared on Fox News host Bill Hemmer’s show and said:

“What I’m saying is we’re going to take a pause here, we’re going to wait at least until May 4th which is the time we’re going to have everyone back in the Senate and clearly weigh, before we provide assistance to states and local governments, who would love for us to borrow money from future generations, to make sure that they have no revenue losses.

“Before we make that decision, we’re going to weigh the impact of what we’ve already added to the national debt and make sure that if we provide additional assistance for state and local governments, it’s only for coronavirus related, coronavirus related matters.

“We’re not interested in solving their pension problems for them, we’re not interested in rescuing them from bad decisions they’ve made in the past. We’re not going to let them take advantage of this pandemic to solve a lot of problems that they created for themselves, and bad decisions they made in the past.”

His office then issued a press release repeating those comments under the heading “Preventing Blue State Bailouts” and the next day he appeared on Hugh Hewitt’s radio show and said:

“I said yesterday we’re going to push the pause button here, because I think this whole business of additional assistance for state and local governments needs to be thoroughly evaluated. You raised yourself the important issue of what states have done, many of them have done to themselves with their pension programs. There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”

He went so far as to make the suggestion that in lieu of aid, states should consider bankruptcy:

“I would certainly be in favor of allowing states to use the bankruptcy route. It’s saved some cities, and there’s no good reason for it not to be available.”

Trump then jumped into the fray, playing both sides of the issue as usual. First he told New York’s Governor Cuomo that he was very open to federal budget aid to states, but several days later tweeted: “Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help? I am open to discussing anything, but just asking?” Apparently, conservative media played up the blue-state bailout angle enough to trigger his usual polarize-for-political profit instinct.

Perhaps the most odious comment came from Florida Senator Rick Scott, who said: “It’s not fair to the taxpayers of Florida. We sit here, we live within our means, and then New York, Illinois, California and other states don’t. And we’re supposed to go bail them out?” Considering that Scott’s Columbia/HCA private hospital chain, which he founded and ran, paid $1.7 billion in settlement fines for Medicare and other fraud, it’s a bit galling to hear him talking about what’s fair to taxpayers and what’s not. Moreover, New York State has the largest “balance of payments” deficit with the federal government while Florida has one of the largest surpluses (California and Illinois are roughly in balance).

Of course, the push back against this nonsense was swift. Cuomo slammed McConnell as “reckless” and “irresponsible,” Connecticut Senator Chris Murphy slammed Scott, and retiring Republican congressman Peter King called McConnell “the Marie Antoinette of the Senate.” Paul Krugman, Eric Levitz, and Paul Waldman piled on. Nancy Pelosi said flatly: “We will have state and local and we will have it in a very significant way.”

After making aid to state and local governments a central demand of their negotiations over the third COVID disaster relief bill, it was surprising and disappointing to many Democrats that Chuck Schumer and Pelosi agreed to a bill that included none. With pressure mounting to refund the small business relief program, the Democratic leadership apparently prioritized other demands, including financial aid to hospitals, aid to states and cities for coronavirus testing programs, and set-asides of small business loan program funds for small financial institutions and businesses, while betting that they could win a subsequent battle for state and local fiscal aid. Indeed, there appears to be significant Republican support for state and local aid, even if many Republican officials are laying low so as to not cross Trump and McConnell. In addition to Peter King, for example, Representative John Katko (R-NY) said that phase four had to protect state and local governments, and Republican Senator Bill Cassidy (R-LA) cosponsored a $500 billion aid bill with Democrat Bob Menendez (D-NJ).

Who CARES

For a brief moment I thought that Mitch McConnell might put aside his Machiavellian politics and do what is right for the country. And for a brief moment maybe he did! When the extent of the economic crisis the country was facing became evident in mid-March, Congress passed a $2 trillion emergency measure in a matter of days with relatively little rancor. McConnell, uncharacteristically, seemed to let Treasury Secretary Mnuchin take the lead in negotiating the deal with the Nancy Pelosi, and ordered his troupes to support the bill, which passed the Senate unanimously.

The broad outlines of the CARES act are surprisingly sensible. Subsidies to small businesses were absolutely essential to keep them alive and to keep their payrolls intact as much as possible. I still think it’s rather remarkable that the Republicans agreed to that in the form of the Paycheck Protection Program (PPP), insofar as 75 percent of the forgivable loans must be used to maintain payrolls. It was also somewhat surprising to me that McConnell and the Republicans went along with a significant increase in unemployment insurance benefits and an expansion of eligibility to free-lancers and contract workers. The corporate bailout portion of the CARES act was ideologically awkward for both parties, but it too was essential. The $1,200 tax refunds to be delivered to a broad swath of the public is a clunky and inefficient way to deliver relief but there was an administrative rationale for delivering emergency payments quickly.

Nevertheless, I can’t let the monumental Republican hypocrisy of all this pass without comment. When Obama took office the global financial system was on the brink and the economy was in free-fall, having contracted at an 8.4 percent annual rate in the previous quarter. Obama asked for a fiscal stimulus package totaling approximately $800 billion. He eventually got it, but without a single Republican vote in the House and only after giving major concessions to get the three Republican votes he needed to avoid filibuster in the Senate. Republicans then lambasted it as the “failed stimulus,” opposed every subsequent attempt to further stimulate the weak economy, and harped relentlessly on the “Obama deficits” right through the 2016 election. Once Trump was elected, McConnell and the Republican Party did an immediate about face on fiscal policy, passing a pro-cyclical tax cut stimulus with nary a flinch about the resulting deficits. When the current economic crisis hit with a Republican President desperate for a reelection advantage, Senate Republicans voted unanimously for the $2.2 trillion measure (the House vote is unknown as the bill was adopted by a “unanimous consent” voice vote.)

In any case we’ve seen a broader budget truce than existed during the last economic crisis. Even the Committee for a Responsible Federal Budget, whose very mission is to act as permanent deficit hawk, issued a statement suggesting that “setting aside short-term deficit concerns in order to avoid a depression” is the right thing to do. Nevertheless, I sense some residual doubt among the general public. “Can we really do this?” The short answer is, “Yes, we can.” From 1943 to 1945 the U.S. deficit averaged 23 percent of GDP and by 1946 federal debt held by the public reached 106 percent of GDP. The country did not spend the following decade bemoaning the fact that we ran huge deficits to win the war, nor did the high debt ratio seem to have a constraining impact on economic growth during the 1950s and 1960s. We currently have about an 85 percent debt/GDP ratio and it will surely reach that 1946 figure before this is all over. But we did it once and we can do it again.

Conventional economic theory holds that excessive government debt can suppress the long-term growth of the economy by “crowding out” private borrowing. However, as John Cochrane points out, the Federal Reserve is currently buying government debt faster than the Treasury is issuing it, so there is no sopping up of private savings or crowding out of private borrowers. Moreover, the Fed remits all of its profits to the Treasury, so interest payments on that debt to the Fed quickly return to the Treasury, costing the taxpayers nothing. The future effects, then, will depending on how long the Fed holds that debt and how much it ultimately sells to private investors or other governments. All of this is starting to sound a lot like Modern Monetary Theory.

Modern Monetary Theory (MMT) is a school of thought that holds that there is no real distinction between fiscal policy and monetary policy for countries that issue fiat money, and that inflation is the only constraint on government deficits financed by central bank money creation. It’s been quietly embraced by Bernie Sanders and loudly embraced by Alexandria Ocasio-Cortez, neither of whom are noted macroeconomists. I’ve been wary of it, possibly because of the biases of my conventional training. I’ve approached it much as Keynes predicted classical economists would judge his theories: “(They)….will fluctuate, I expect, between a belief that I am quite wrong and a belief that I am saying nothing new.” I was in a MMT-is-quite-wrong mode until the Covid crisis descended, when I quickly shifted to a heck, it’s nothing new, let’s do it mode. And I wasn’t the only one.

If inflation is, in fact, the only constraint on federal deficits, it doesn’t seem that we have much to worry about for the time being. Quite the contrary, the deflationary pressures are getting a little scary. Ten-year Treasury bonds are now trading at yields under 600 basis points, the CPI fell by .4 percentage points in March and, in a totally mind-bending development, oil prices went negative. The way things are going, we may be praying we meet MMT’s inflation constraint as soon as possible.

The World Changes Again

When I began this blog I had recently left the New York City Comptroller’s Office. During my ten years there I had built up a list of research ideas and policy thoughts that I either did not have the time to get to, or that were too politically sensitive to be pursued under the auspices of an elected official. My intention was to follow up some of those ideas and post them here, hoping that they would accumulate to a reasonably entertaining browsing stop for people interested in similar issues, and maybe even a useful research source for somebody investigating an issue of urban economics or policy.

Then Donald Trump was elected president and much of my research agenda was rendered obsolete. Not because Trump is a detestable individual who should be nowhere near the White House, but rather because he assembled the most extremist, conservative administration in modern American history, and he had Republican majorities in the House and Senate to implement his Fox TV-brand of reaction. Many of my research and writing plans presumed a backdrop of stable government, with policy possibilities fluctuating between center-right and center-left. I might have wanted to investigate particular aspects of environmental policy, for instance, but what relevance did they retain when a climate-change denying administration sought to dismantle environmental regulations rather than improve them? Or, how might thinking about alleviating homelessness have to change when the federal government was actively trying to impede the ability of municipalities to address such problems?

Gradually a list of new research items grew, more relevant to this era of spiteful conservative government and to the period of liberal push-back that will inevitably follow. Then, the novel coronavirus changed the world again. Suddenly, the importance of repealing the caps on state and local tax deductions paled in comparison to the massive fiscal challenges states and cities will face with their economies shut down. Concern about the cost of housing in big cities shifted to concern about whether people will still be willing to live in dense urban environments. Plans to expand urban transit transform into worries over whether the riders will ever return.

By the beginning of April we had seen enough of the virus to know it was a vicious bug and that the social distancing measures were absolutely necessary. In the immediate future there will be a whole lot of death and sorrow, and much human misery in the collateral economic and social damage. Emergency efforts to mitigate the damage will preoccupy the public agenda in coming months, and the recovery of semi-normal economic life will be the policy preoccuption of the next two years or so. It will probably take much longer than that to regain the ground we have lost, especially in terms of the economic interfaces that were flowering all over urban America– the vibrant street life, the proliferating cafes and restaurants, the brimming public transportation, the large employers that were returning from their suburban exiles.

It will probably take five years or more for people to resume their pre-pandemic lifestyles–for travel to recover to the levels of 2019, for people to eat out as much, for events with large crowds to become as common as they were before. It may take a decade or more for the economic damage to be fully repaired–for new restaurants to replace vacant storefronts, for office buildings to be refilled, for the thick ecology of small business contactors to be regenerated. But I’m betting that in the long run the pandemic of 2020 will turn out to be a ditch, not a turning point. There was continuity of the economic and social trends before and after WWII, there was continuity before and after the Great Recession, and I think there will be continuity once again. The big cities will come back, small towns will continue to languish, and we’ll face all the old problems we had before.

Fear City’s Revenge

I was reading Kim Phillips-Fein’s Fear City at the time news broke of Amazon’s choice of Long Island City as one of its two HQII locations. The Amazon announcement was greeted with a weary acquiescence to the city’s inevitable dominance, as though the Yankees had just signed Bryce Harper. What a contrast to the mood of grim, inexorable decline that permeates Fear City. It reminded me that each chapter of Gotham’s story sets the stage for the next, and that the great city’s essence can be suppressed but not extinguished.

Phillips-Fein’s book is a highly readable narrative of New York City’s brush with bankruptcy in the 1970s. For those who are not municipal budget wonks, the book maintains a good balance between financial detail and narrative flow. I set down to read it as a professional chore but found myself re-immersed in a period I lived through but, in the heedlessness of youth, failed to appreciate as a time of such outlandish grotesquerie. I could almost hear the punk music pounding and smell the tenements burning.

In Phillips-Fein’s telling the fiscal crisis was not just a trauma for the city, but a pivotal triumph for the emerging neoliberal creed of public-sector austerity over an exhausted New Deal progressivism. With banks refusing to lend to the city, and Wall Street refusing to issue more bonds, and the White House refusing to provide federal aid (thanks in no small part to President Ford’s Chief of Staff, Donald Rumsfeld), the city was forced to make draconian cutbacks in public services. Fire houses and day care centers closed, public infrastructure decayed, and perhaps most symbolically, CUNY ended its policy of free tuition. It was the end of expansive, activist urban government.

If Phillips-Fein had continued her story, though, it would be apparent that the neoliberal triumph was not so final. City government did make many important fiscal reforms as the result of the crisis and today it is run with a great deal of financial discipline and transparency. But its ethos of activist municipal government was not eradicated. In the early 1980s the state and city undertook a major reinvestment in its subways under the leadership of Richard Ravitch, and in the late ’80’s Ed Koch launched his massive housing program, which was instrumental in revitalizing large parts of the city. Mayors Dinkins, Giuliani and Bloomberg continued the housing program and made large strides in reclaiming the city’s waterfront and other abandoned industrial areas. Mayor di Blasio launched a universal preschool program. CUNY did not restore free tuition but it survives as a unique urban institution and in many respects is thriving. Urban liberalism in New York City retreated but did not surrender and had reasserted itself within a decade of the crisis.

There is also another sense, I think, in which Fear City’s short-period narrative obscures the meaning of the fiscal crisis. By giving so much attention to the neoliberal critique of the City’s financial practices and its expansive mission, Phillips-Fein inadvertently conveys that they were the underlying causes of the crisis. They were not. The crisis occurred in the midst of a severe national recession, which Phillips-Fein barely mentions, and a long-term restructuring of the nation’s economic geography. The city’s manufacturing base had been hollowed out by firms moving to the suburbs, and more portentously, to the sunbelt.

We now know that industrial capital’s search for the ideal business climate did not end with the sunbelt. The garment makers, the metal shops, and the electrical assemblers that first moved to South Carolina, Georgia and Texas in search of cheaper and more docile labor, lower taxes, and lax environmental standards later found even more favorable locations in Bangladesh, Mexico, and China. Those manufacturing firms have moved on and so has the city, and only the most stubborn industrial revivalists would still argue that manufacturing mens’ and boys’ outerwear is key to New York City’s economic future.

What appeared to many in 1975 as the city’s death throes now appears more like a molting, with the city shedding activities that would not be essential to its regeneration to make way for those that would. The first energy crisis and resulting recession caught the city during that extremely vulnerable time, a vulnerability compounded by some admittedly sloppy budgetary practices resulting in the humiliating fiscal crisis. But the fiscal crisis wasn’t the result of a fundamentally misguided vision of the role of government in a modern metropolis. In fact, it was that expansive vision of urban government that created the cultural, intellectual and physical conditions for revitalization.

Austin Debates Density

One of the most interesting urban planning debates going on in the country right now is happening in Austin, Texas. In 2012, the Austin City Council adopted the Imagine Austin Comprehensive Plan, a three-year effort that established priorities for the city’s growth and development for the next 30 years. Among the priority actions the plan identified were to invest in a compact and connected Austin, to grow and invest in the creative economy, and to develop and maintain household affordability. The next step in implementing the plan is to revise and modernize its zoning regulations. The city is now in the midst of that process, which it has dubbed CodeNEXT.

Austin, of course, is one of the fastest growing cities in the U.S. From 2000 to 2017 the city’s population increased from 657,000 to 950,000, an annual rate of growth of 2.2%. It’s also gained a reputation as a fun place to live and has become a migration magnet for millennials; a Brookings Institution study found that Austin has the second-highest proportion of millennials in its population (27.2%) of the top 100 metro areas. With about 48% of its adult population holding a bachelor’s degree or higher, it also ranks among the nation’s most educated cities, comparable to Boston and Minneapolis.

Not surprisingly, Austin’s economic prosperity has entailed some costs. In particular, during this century it has had one of the fastest rates of housing price increase in the country. According to the Freddie Mac House Price Index, home prices in Austin have increased at about a 5.0% average annual rate since 2000, which is on a par with the Fresno, Salt Lake City and Washington D.C. metro areas. Since much of the city and the surrounding areas are zoned for single-family homes, growth has mostly taken the form of low-density sprawl. The developed land area of the metro area increased from just 53 square miles in 1970 to 372 square miles in 2016.

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Time for an SUV Tax

There is no question that New York City is not viable as we know it without its mass transit system, so the snowballing problems of the Metropolitan Transportation Authority should be of concern to everyone who lives or works in the city, whether or not they are regular users of the system.

Increased funding for NYC Transit (the subsidiary of the MTA that operates the subways and buses within NYC) may not be a sufficient step for improving the system but it is certainly a necessary one. Finding additional funding in an already heavily taxed city will not be easy, however, and already the Governor and Mayor are at war over whose responsibility it is. In addition to each arguing that the other already has money in their budget that can be used to help, Mayor de Blasio has proposed an income tax surcharge on tax filers earning in excess of $500,000, while Governor Cuomo is considering some version of the congestion pricing system originally proposed by Mayor Bloomberg.

When Bloomberg made his push for congestion pricing in 2007, I was working as the Chief Economist for New York City Comptroller William C. Thompson. The Comptroller is an independently elected citywide official who frequently serves as the chief antagonist of the Mayor, and at that time Bloomberg was maneuvering to have the city’s term limits waived so he could run for a third term. Thompson, who was planning to run for Mayor in 2009 all along and now faced the prospect of opposing Bloomberg, was casting about for an alternative to Bloomberg’s proposal. As it happened, I already had drawn up an alternative as a think piece and Thompson was intrigued. He eventually adopted it as the position of the Comptroller and as a plank in his 2009 and 2013 Mayoral campaigns.

Before describing my proposal I should note that residents of New York’s “outer boroughs” have a deep-seated suspicion of schemes to restrict access to Midtown Manhattan, whether they be in the form of tolls on the East River bridges or the more high-tech congestion pricing plan Bloomberg sought. I share their suspicion. There is, of course, a distributional effect, as a congestion pricing regime would disproportionately charge residents of the outer boroughs in order to improve a subway system that disproportionately serves Manhattan residents. But I think outer borough residents have a more visceral objection as well. Many of them work in Manhattan, study in Manhattan, play in Manhattan, and have family roots in Manhattan. They see Manhattan as the city’s commons, not as a separate borough to which its increasingly wealthy residents should have privileged access. It’s that possessiveness that all New York residents feel toward Manhattan that underlies their hostility to bridge tolls and congestion pricing. It was ultimately outer borough opposition that sunk Bloomberg’s congestion pricing proposal, and that Thompson was seeking to appease.

The proposal I devised for Thompson would impose a registration tax on motor vehicles registered in the five boroughs according to the curb weight of the vehicle. Thompson modified the proposal only by expanding it to all 12 counties of New York’s metropolitan commuter transportation district. Passenger vehicle registration fees in New York State average only about $20 per year and neither the State nor City imposes a personal property tax on vehicles as many states do. As proposed, a vehicle weighing up to 2,300 pounds (think Toyota Yaris) would pay an annual registration fee of $100, and the fee would increase by $.09 per pound above that weight, bringing the annual registration fee for, say, a Lincoln Navigator SUV to about $430. The registration tax could generate about $350 million annually just from the 2 million automobiles and trucks registered in the city. The revenue generated could be adjusted, of course, by adjusting the weight formula. More precise estimates of the revenue could be made beforehand using data on the makes and models of vehicles registered, which we did not have access to at the time.

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