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SCI LIBRARY

Cities in Trouble

Robert Wood



[Reprinted from Domestic Affairs]



At the time of this article, Robert Wood was the Henry R. Luce Professor of Democratic Institutions and the Social Order at Wesleyan University. He served as Undersecretary and Secretary of Housing and Urban Development in the Johnson administration and as President of the University of Massachusetts and Superintendent of Boston public schools. He authored the book Remedial Law: When Courts Become Administrators.


Detroit is dead. The Big Apple that is New York City is rotting at the core. Miami is a battleground for competing minorities, Cuban-Americans versus African-Americans. Philadelphia teeters on bankruptcy. The only place in the Midwest that is less vibrant than St. Louis is East St. Louis. Downtown Denver has emptied out. Los Angeles is beset by drug gangs. The nation's capitol is homicide city.

That is how the media have judged our largest cities this past year. Nor, it seems, have smaller cities fared much better; almost all the core cities of America's 318 metropolitan areas are reported by their local observers to be in deep trouble.

Meanwhile, Flora Lewis and Nathan Glazer tell us that Paris is alive and well, clean and safe -- as are Munich, Amsterdam, Stockholm, Milan, and Copenhagen. To be sure, London is frayed around the edges; Mexico City chokes on smog; Tokyo sprawls with grossly inadequate housing. But scanning cities around the world, only in America does urban rot seem pandemic.

After a decade of frantic commercial office-building and a splash here and there of quasi-historical marketplaces and entertainment centers, downtown America is largely empty after hours, dirty, and dangerous. Affordable housing is scarce in city and suburb alike. Entire neighborhoods are abandoned, desolate and ugly. Thomas Wolfe speaks truth through fiction in The Bonfire of the Vanities.

The prevailing and overriding pessimism about American cities is based on more than just subjective impressions. It is grounded also in the objective indices of urban life -- indices that have been built into state and federal urban aid formulae for twenty years. Three specific economic indicators -- poverty rates, unemployment rates, real per capita income changes -- define the contours of the urban circumstance.

And the picture is not pretty. Franklin James analyzed the three economic indicators over 30 years for the 56 largest cities, and here is what he found: In 1970, only three of the cities -- New Orleans, Newark, and El Paso -- had a normalized index of economic ills more than 30 percent higher than the national average. By 1980, twenty of the cities were, by this measure, in trouble. In the mid-1980s, James estimated, with income statistics but without the benefit of new census data, changes in the distress levels in a sample of 11 cities. In all of them, poverty rates had increased and economic conditions had deteriorated -- even as a recession ended and a national economic boom got underway. All major groups of cities, classified by residential need and population change, were worse off in 1980 than in 1970 -- and by the mid-1980s, with "the Congress and the President largely unable to agree on major initiatives to reduce urban distress," the situation had worsened.[1]

Today, with another recession clearly upon us, savings and loan scandals devastating the housing industry, deficits overhanging every level of government, and voter revolts well-nigh universal, urban realities and prospects are even more bleak. As African-American leaders come into power in more and more city halls, they are facing conditions of poverty (both of their citizens and of their public treasures), patterns of violence, and attitudes of despair that mock their electoral successes.

How did we come to such an urban condition? What, realistically, can we do when fiscal constraints loom so large, conservative ideologies make us suspicious of public action, and the productive energies of the private sector are faltering in global competition?

As to the first question, the short answer is that at least since the Civil War the private sector has built our cities, determined the location of jobs and households, and either covertly or overtly determined public urban policy. Historically, government -- whether Federal, state, or local, reformist or boss-ridden -- has always been a very junior partner in the urban enterprise. If we seek improvement in the urban condition -- in the quality of life and the use of space -- the marketplace is not the instrument to rely on. It is essentially the culprit.

So, the short answer to the second question -- what ought we to do now? -- is that we should encourage the reentry of public authority into the process of city building and city restoration. Carried out skillfully, putting government front and center will neither bankrupt the country nor discourage private urban investment. On the contrary, a judicious mix of inducements and regulatory initiatives can redirect the pattern of urban development in ways more clearly consistent with the public interest and reduce the spread of urban distress. As we shall see, both the subsidies and the regulations should focus on the disposition of land -- specifically, on land use and land taxation.

The Place That Business Built


That the rise of the American city, circa 1870, was the physical counterpart of America's industrialization, largely in the age of monopoly, is a historical commonplace. While intellectually and rhetorically the nation remained committed to free markets, as a practical matter, for a critical half-century, great monopolies or oligarchies dominated almost every major manufacturing and extractive sector of the economy. They were so important in some cities -- steel in Pittsburgh, chemicals in Wilmington, stockyards in Kansas City, textiles around Boston, soap in Cincinnati -- that both the pace of economic development and the shape of political organizations responded to their direction.[2]

Accordingly, conventional economic theory came to posit an urban "economic base" and an export/ import model of urban development driven by the location of raw materials, transportation, and market forces. The interplay of these factors determined the locations of jobs and, hence, households. Thousands and thousands of private economic decisions about land acquisition and use, industrial and service investments, and market exploitations essentially defined population densities and the character of land use. Public facilities and services almost always followed as a dependent variable, after market decisions. What is more, the private sector dominated public life. Grassroots democracy and the New England town meeting may be the stereotypes of our community life, but company towns and big city machines are closer to reality. The Muckrakers documented the collision of business leaders with the political bosses of post-Civil War cities. Writing of Pittsburgh in the Gilded Age, Lincoln Steffens took care to absolve the immigrant culture from major responsibility:

The railroads began the corruption of this city. There always was some dishonesty, but it was occasional and criminal til the first great corporation made it business-like and respectable. The municipality issued bonds to help the infant railroads to develop the city and, as in so many American cities, the roads repudiated the debt and interest, and went into politics. . . . As corporations multiplied and capital branched out, corruption increased naturally. . . . [I]t was not a haphazard growth but a deliberate, intelligent organization.[3]

Business leaders would tolerate or support bosses in cities across the country, through the first Daley in Chicago. Sometimes they would back good-government reform groups. The city-manager movement, beginning in Cincinnati before the first World War, was based on the premise that running a city was precisely analogous to running a business, a philosophy that remains popular today in mid-sized American cities. In the Eisenhower era of urban renewal, most big-city mayors came to terms with the business elite. Populist political revolts against the establishment have occurred very rarely in our urban history. Fiorello La Guardia of New York, more a populist than a boss, is, in fact, almost a solitary figure.

What is clear now is that the beat goes on. Formal oversight of city halls may increasingly be the prerogative of African-American and Latino mayors, but both in central cities and in metropolitan suburbs the driving forces of settlement and development remain in the private sector. It is responsible, in the last decade, for the extraordinary burst in commercial and residential building that spurred the two distinctive contemporary forms of urban settlements: entrepreneurial cities and urban villages.

Entrepreneurial cities -- the phrase is Robert McNulty's -- are those "hot" urban places where national developers have been able to negotiate over the past decade complex, front-loaded financial arrangements for downtown commercial meccas. The resulting developments include Boston's Fanieul Hall, Chicago's Water Town Place, Baltimore's Inner Harbor, and Atlanta's Underground.

Indeed, as Bernard Frieden and Lynne Sagalyn have shown, central cities came alive again as marketplaces. Beginning in the 1970s and continuing exuberantly through the mid-1980s, they enjoyed a golden age of downtown retail development. Office district construction came first, quickly followed by new hotels, convention centers, sports centers, restored waterfronts, and revitalized historic neighborhoods. A few statistical indicators: Between 1970 and 1986, over 100 downtown shopping malls were built in 70 cities. Between 1973 and 1983, the number of downtown hotel rooms doubled in Atlanta, Boston, Philadelphia, St. Paul, Seattle, and Washington. In 1970, only fifteen cities had convention centers that could handle a trade show of 20,000 people. By 1985, 150 cities could boast of such facilities.[4] Admittedly, on the downside substantial loss in affordable housing, real or potential, occurred. But few paid attention to that.

With this surge of rebuilding came a new type of public entrepreneur, to match wits with private developers. These entrepreneurs in government were, as Frieden and Sagalyn write,

a special breed among public officials, far removed from the stereotypes of cautious, plodding bureaucrats. Operating with a strong sense of personal mission, they brought a free-wheeling style to city government. Comfortable taking risks, cutting deals, and pressuring reluctant colleagues to keep projects moving, they were ready to change course abruptly in a crisis. . . .They valued results on the ground more than the traditions of public administration.[5]

The second new type of urban settlement -- "urban villages," as Charles Lockwood and Christopher Leinberger termed them -- arose as "outer" cities. Among the most prominent of these are the Princeton "Strip" in New Jersey; Tysons Corner outside of Washington; Walnut Creek, east of San Francisco; and Post Oak Galleria, next to Houston. They are new "office, industrial, retail, housing, entertainment focal points -- almost a low-density cityscape."[6]

The development of these villages is encouraged by such factors as the more attractive architectural features of modern commercial and industrial parks, the shift from rail to truck transport, recent telecommunication advances, cheaper land, and most important, the sheer difficulty of access to the large central cities. It is not surprising that urban villages have captured increasing percentages of new commercial construction around Atlanta, Los Angeles, and New York.

Their further growth is constrained primarily by the shortage of affordable, non-subsidized suburban housing for lower middle-income workers and by urban traffic problems. But, as Lockwood points out, these impediments can be overcome, through the construction of high-density apartments and more roads. His assessment: "The opportunity for all kinds of Americans to live, work, shop, play in the same geographical area -- while retaining easy access to other urban village cores -- seems almost too good to be true."[7]

The 1980s, then, were a boom decade for city-building. Partnerships between private developers and hard-charging public officials flourished -- and reshaped the urban landscape. And, in the process, the private sector came to dominate the urban development process to an extent rarely seen since the heyday of the 19th century industrial city.

Even by the middle of the decade, however, there were signs of trouble, for those astute enough to spot them, in the entrepreneurial city and the urban village. Anthony Downs of the Brookings Institution wrote in 1985 that "there has been too much money flowing into real estate" and that "this excessive cash flow has created many money-driven rather than demand-driven markets."[8] The next year brought the leading edge of the savings and loan scandals and the beginning of a long string of bankruptcies among developers.


Crunch Time


What prescient observers like Downs anticipated in 1985 has come to pass. Vacancy rates in commercial building now average a dizzying 25 percent in our 56 largest cities. Residential vacancies have been escalating as well, largely because new markets -- especially for condominiums -- were grossly overestimated; as a result, valuations of condominiums have fallen 29 percent between 1988 and 1990. What we are witnessing is a classic Evers-to-Tinkers-to-Chance triple play in the housing industry: commercial defaults, residential foreclosures, and then the bursting of the savings and loan bubble. The returns are far from in on the ultimate cost of this most recent shameless demonstration of sheer American greed (or on the number of indictments and convictions that will be obtained), but the best current estimates set the total at a minimum of $500 billion.

The root causes of the S&L catastrophe were incompetence, avarice, and competitive excesses within the industry. But the federal government aided and abetted the folly. The budget and tax acts of 1981 and the banking deregulation legislation of 1983 helped to channel more capital into the real estate business. Downs again:

Real estate has enjoyed special tax arrangements that have served owners, developers, sellers, and investors well but have no very persuasive justification in terms of benefits for society as a whole or its most deprived members in particular. . . .What is the rationalization for generating fat syndication fees in the process of overbuilding office-space markets throughout the nation? Or for sheltering the huge incomes of a few developers so that they pay tiny fractions of their income in taxes, while more than 30 million Americans have incomes below the poverty line?[9]

The 1986 Tax Reform Act moderated government favoritism toward development by limiting tax exemption for state and local bond issues and eliminating the tax breaks for real estate equity and write-offs. But the early 1980s had already produced a series of off-budget tax incentives that amounted to $19 billion by 1987. Accelerated depreciation and five-year amortization produced $13 billion in construction outlays. Another $6 billion were invested in tax-free state and local industrial development and housing bonds. The barn door had been open too long to recapture the horse.

Even as public policy veered sharply toward encouraging and guaranteeing private commercial investment, it savaged the housing and neighborhood programs designed to help cities and their people. The Reagan administration plundered the resources of the Department of Housing and Urban Development (HUD), which had been established in the days of the Great Society to be the cities' ally. In brief, the administration:

  • decreased the department's operating budget by 57 percent between 1980 and 1987, from $36 billion to $18 billion;
  • reduced the authorization for assisted housing from $27 billion to $7.5 billion;
  • slashed the number of units of federally subsidized rental housing from 129,000 to 19,000;
  • cut public housing reservations eligible for federal support 93 percent, from 205,000 to 14,000;
  • and advocated a voucher program in which 62 percent of the applicants reported no housing was available.

The policies of the 1980s led to overbuilding -- of commercial structures in central cities and suburbs alike and of housing for high- and middle-income residents. And overbuilding led to a downturn in the real estate and banking industries on a scale not experienced since the Great Depression.

At the same time as we were running up an S&L bill of $500 billion, we were also accumulating what the Ford Foundation has termed a "social deficit" -- the costs associated with the neglect of human needs. In The Common Good: Social Welfare and the American Future, the foundation detailed a dismal set of specifics:

  • 30 million Americans living in poverty;
  • 31 to 37 million without health insurance;
  • 25 percent of American children under the age of 6 living in poverty;
  • 25 percent of American youngsters dropping out of high school before graduation;
  • and 2 million children each year subjected to child abuse.

Ford estimated that it would cost a minimum of $30 billion a year, most of it invested in central cities, to tackle seriously this social deficit.[10] And adding to the stress on America's cities -- especially the coastal cities of California and New York -- was a new tide of immigration: nearly 600,000 legal immigrants during the 1980s, mostly from Asia and Latin America, and an estimated half million illegal immigrants, primarily from Latin America.

How well did the entrepreneurial city and the urban village respond to these expanded needs? Since 1970, in the twenty cities with the highest rates of office construction, the unemployment rate in inner-city neighborhoods has held steady at 26 percent and the average family income has dropped 4 percent. In New York, city outlays to stimulate private development increased 72 percent; those aimed at helping the poor, 20 percent. In Frieden and Sagalyn's words, cities played "Robin Hood in reverse."[11]

In the meantime, urban villages had to cope with the slowdown of investment in infrastructure -- in highways, community facilities, and affordable housing. In 1987, the Wall Street Journal explored the "shallow roots" of the suburban "mini-cities" and found that these developments had the ills of cities without a comparable sense of community. A Fairfax, Virginia, supervisor was quoted as saying, "People moved out to be away from the city and found city all around them. They wanted to be part of the county gentry, but they feel like they're on the Lower East Side." Traffic gridlock, crowded schools, overflowing landfills, and jurisdictions vying with each another to capture "good" high-tech parks and keep out "bad" moderate-income apartment complexes -- these were found to be typical features of what one resident called "life where the sidewalks end."[12]

In short, urban America in 1990 is grossly over-built in the private sector, more and more of its commercial and upscale housing developments in, or heading towards, bankruptcy. At the same time, public investment -- especially in urban schools, community facilities, and affordable housing for the working poor -- falls further and further behind. The social deficit expands each year while the debt incurred through private mismanagement and greed occupies our attention and claims first priority on the domestic agenda.

Clearly, the 1990s are crunch time for our cities.


Forks in the Policy Road: People and Places


In and of itself, an unavoidably bleak description of urban America, fact and pattern substantiating impression, is a somber note on which to begin the decade. The seriousness of the diagnosis, however, is compounded by the contradictions among the various proffered prescriptions. The difficulty is not just that the conservative band-aids of "enterprise zones" and home ownership for public housing tenants are so marginal in their responsiveness and likely impacts as to be cruel. It is also that even those who recognize the severity of urban distress and the need for commensurately major responses are sharply divided about what to do next.

Essentially, the pro-urban advocates fall into two broad camps. The first would focus on aiding people in distress wherever they may be found, assuring by income transfer and insurance at least a minimum safety net. The second insists that attention to places and their institutions, as well as people, is necessary. The debate between these two camps of well-meaning people threatens a stalemate, which would confirm Reinhold Neibuhr's counsel that the greatest peril to the public good lies with the "foolish children of light."

What sparks the help-people-forget-places approach to urban policy (and lets the marketplace continue on its merry way) is the fascination with public choice theory. Beginning in the 1970s, that intellectual fashion became the rage in one university public policy program after another. It generated, as to urban policy, two basic recommendations: First, worry about people, not places, and, second, help them with income distribution schemes that operate through the marketplace, not through the delivery systems of public programs.

In the policy arena, that counsel first emerged in the report of President Carter's Commission on the Agenda for the Eighties, which essentially proposed that the nation write off the snow belt in favor of the sunbelt, by assuming almost perfect labor mobility. The decade ends with the prescriptions of Robert Reischauer, who once again urges us to focus on people instead of places and calls for new initiatives that involve entitlements, vouchers, and tuition tax credits. He describes urban policy-making between 1960 and 1978 as an "aberration" not to be repeated, because a coherent national urban policy is now infeasible "given the inherent complexity and diversity of the federal system and the economic turmoil of the past fifteen years."[13]

The alternative approach argues that a sense of place -- physical space, comely artifacts, community -- makes a crucial difference to policy-makers and citizens alike. Rural poverty, rural racism, and rural sickness are different from their urban counterparts. Sheer density -- its impact on the physical environment and on the velocity of human interactions, its propensity to encourage impersonality and human indifference -- is a significant variable, essential to factor into the framing of policy.

The plain fact is that people live in places. There are no exquisitely rational, purely passionless men and women, whose invisible hands guide invisible markets. People are always somewhere and where they are and with whom they live and the suitability of their surroundings touch their lives in ways that no private-sector calculus can comprehend.

The satisfactions of social life, community, and man-made expressions of beauty are possible only in places. A place called a school, a place called a neighborhood, a place called a city -- these are requisites for a peaceful, successful America promising domestic tranquility. Most of all, so is a place called home. People without places -- nomads, gypsies, those with no fixed abode -- are historically, are today, the most unfortunate, the most miserable.[14]

This standoff -- between those who would focus urban policy on the provision of transfer payments to people and those who would also attend to institutional reform -- needs to be resolved. Until it is, policy-makers will treat cities as just another species of interest group. Even worse, because American myth has always held out farmers and small towns as the morally superior individuals and communities in our country, naysayers will find it easy to dismiss urban programs.


Heading Home


Stipulate, then, that our cities are in distress and that the marketplace has largely shaped their form and substance. Stipulate as well that caring about places is the starting point for fashioning effective urban policies -- that we need to undertake institutional reform as well as individual assistance. What should we do next?

All three levels of government in our federal system -- national, state, and local -- have roles to play in the restoration of the city as a place where people can live safely, well, and with enthusiasm. But in the 1990s, states will have to take the lead because the central issues now -- of land use, land planning, and land management -- fall mostly within their domain.

The focus needs to be on land because it is the price of land and local restrictions on its use that are largely responsible for the nation's inability to provide affordable housing. For half a century, the federal government has provided subsidies, and insured mortgages, for housing. And during this period, technological innovations, prefabrication, and new materials have helped to moderate the cost of the housing "envelope" -- the actual structures themselves.

What has pushed the price of housing out of reach for many Americans is the spiraling cost of land. Over the past thirty years, land values have increased three times faster than the consumer price index; they now exceed one-quarter of the total cost of the typical housing unit. Our persistent practice of taxing real estate development more than undeveloped or underdeveloped land and our failure to recapture the costs of new roads and community facilities that open up vacant land for development have been major impediments to the provision of affordable housing. In short, what urban America needs most is a land reform program. And it is the states that have the constitutional powers needed to pursue one -- the powers to reform real property assessment and taxation, to separate valuations of sites and development, and to require local governments to set aside land for the housing needs of all income strata. Some states -- notably Florida, New Jersey, and Washington -- have begun such initiatives under the rubric of growth management policy. The federal government can help, by increasing its support for viable public housing, with an emphasis on scattered sites, and by providing grants to states for growth management programs under an updated version of the Jackson-Udall legislation of the 1970s. It can also use its considerable stock of land for pilot programs and encourage planning on a metropolitan basis.

Indeed, the need for metropolitan planning-an initiative proposed, but not enacted or funded, in the 1960s -- has never been greater. At rock bottom, local political attitudes and parochialism, in suburbs and central cities alike, are what thwart efforts to remedy urban distress. In the suburbs, a NIMBY (not in my backyard) ideology chokes diversified development. In central cities, an emphasis on job creation, instead of housing, has distorted land use and investment. City TOADs and LULUs -- Temporarily Obsolete Derelict Sites and Local Unwanted Land Uses -- abound. Scholars estimate that these structures and parcels now account for as much as a fifth of current land uses. Comprehensive policies to reclaim them could have a major effect.[15]

Until the use, regulation, and taxation of land are thoughtfully integrated, payments to people -- vouchers of whatever amount and for whatever purpose -- will not suffice. It is the purposeful use of regulatory authority and the steady strengthening of urban public institutions that can be the catalysts for an urban turnaround.

Even though we are in a period of financial constraint, the problems of the cities have to be addressed now, before they get worse. This time we need to focus on real reforms that will make a real difference. We need, as a matter of first priority, to take charge of the land.


NOTES AND REFERENCES


  1. Marshall Kaplan and Franklin James, eds., The Future of National Urban Policy (Durham, N.C., and London: Duke University Press, 1990), Chapter 1, pp. 13-31.
  2. Robert Wood, "Can American Business Build a World Class City?" Business in the Contemporary World, Vol.1, No.1, October, 1988, p. 82.
  3. Lincoln Steffens, "Pittsburgh: A City Ashamed," The Shame of the Cities (New York: Harpers, 1904), pp. 149-150.
  4. Bernard J. Frieden and Lynne b. Sagalyn, Downtown: How America Rebuilds Cities (Cambridge: M.I.T. Press, 1989), as quoted in Wood, op cit, p. 84.
  5. Ibid, p. 84.
  6. Christopher Leinberger and Charles Lockwood, "How Business Is Reshaping America," Atlantic Monthly, Number 258 (October, 1986), pp. 34-38.
  7. Ibid.
  8. Anthony Downs, "Tax Reform: What About Real Estate?," Urban Land, August, 1985, p. 14.
  9. Ibid, p. 17.
  10. Ford Foundation Project on Social Welfare and the American Future. The Common Good (New York: Ford Foundation, 1989), chapter 7.
  11. Frieden and Sagalyn, op cit, p. 87.
  12. Betsy Morris, "Shallow Roots," The Wall Street Journal, March 26, 1987, p. 25.
  13. Robert D. Reischauer, "The Rise and Fall of National Urban Policy: The Fiscal Dimension," in Kaplan and James, op cit, p. 234.
  14. See Robert Wood, "Present Before the Creation: Lessons from the Paleozoic Age of Urban Affairs," Journal of Urban Afffairs, Volume 13, No.1, 1991.
  15. Michael R. Greenberg, Frank J. Popper, and Bernadette West, "The Toads: A New American urban Epidemic." Urban Affairs Quarterly, Volume 15, No. 3.