Municipal financing the Chicago way

There are two big reasons why I favor increasing the height limit in DC.

First is out of an understanding of Jane Jacobs' ideas about "a large stock of old buildings" being necessary to support innovative and new uses and lower cost to rent.  Although I am the first to recognize that it will take decades to see the impact on rents.  See the past blog entries "Reprint: Height Act: It's important to discuss but too late to make any difference on what has already happened" and "DC height limit revisited."

Second is that DC needs more bonding capacity and increasing the value of land in the core of the city would increase DC's financing capacity because it is in part a function of the property tax revenue stream.  Property taxes will be higher on lots that can be built to a taller density because they will be worth more. 

DC is using so much of its bonding capacity on things like the baseball stadium and the convention center and now streetcars (and wasting money building new high schools like Dunbar when a majority of the city's high schools operate at less than 50% of their capacity) that there isn't money to fund other important things.

I mention this because the Chicago Tribune ran a set of investigative stories on how Chicago under Mayor Daley encumbered its future through massive borrowing (not to mention terrible lease deals for parking structures and parking meters that favored the lessee, not the city, see "A lesson to cities that they need to be very careful when leasing assets to public private "partnerships""), and using much of the borrowing to fund current operations--like running Millennium Park and painting street lights.

-- "Chicago Bond Debt" story package (3 stories)
-- "Daley took out loans to run Millennium Park"
-- "Watchdog group: Quit pushing off massive debt payments"
-- "If Chicago goes down the tubes, so will Illinois"

From the first article:

General obligation bonds are intended to help governments achieve lasting public works, such as libraries and bridges, that are too costly to pay for all at once. But records show Chicago’s city leaders exploited a loophole in federal tax law and pushed the boundaries of Internal Revenue Service rules that prohibit using this type of borrowing for day-to-day expenses.

City officials became so reliant on bond money that they even turned to it to cover retroactive pay and pension contributions. It also has been used to pay for mistakes, including cases of racial discrimination and police brutality that resulted in expensive legal judgments and settlements.

Most of Chicago’s debt woes can be traced to the long reign of former Mayor Richard M. Daley, but the borrowing he relied on so heavily has continued under Rahm Emanuel as his administration gropes for ways to deal with the financial problems it inherited.

Fortunately DC isn't in the position of spending money typically used for capital improvements for operations.  But not being able to spend money on significant capital improvements because we have
reached our capacity to do so isn't a good position either.

And DC does share two common structural "problems" with Chicago: (1) not having an integrated public process for capital improvements planning and budgeting; and (2) not requiring that citizens vote on bond funding.

The latter isn't horrid, not requiring citizen votes. 

But DC doesn't have an integrated, comprehensive and public planning and budgeting process for capital improvements.  Most jurisdictions have a running 6-year program for capital improvements planning and budgeting.   By contrast, for the most part, DC runs its capital planning through the annual budget process.

From the second article, "Spending with abandon":

Detailed spending plans the city provided to citizens, whose property taxes pay off the city’s general obligation bonds, turned out to be misleading. Time and again, dubious projects came in over budget and behind schedule.

Yet political leaders never had to pay a price. They could always issue another bond.

Rather than sober assessments of what the city needed — and could afford — a buy-it-now, fill-it-later mentality often guided decision-making.

The problem of not having the public vote on bond issues is exacerbated by having an inadequate public capital improvements planning project. 

We see the problems now, in how DC proposes a bunch of land swaps to fund a soccer stadium and claims that it doesn't have the money to fund a massive rehabilitation and expansion of the city's Central Library--that to pay for it, the library should be expanded but the added space leased to the highest bidder.

Broader lessons

1.  No city should be allowed to spend bond monies on operations.

2.  Cities need to make hard choices about what to spend money on through robust public processes. 

3.  There should be a financing bank for cities outside of the current process, which is mostly run through Wall Street.  State and/or federal infrastructure funding banks would be one such method.