Watering Arizona

     Boulder-based Lincoln Institute fellow Peter Pollock is among the planning experts participating in Urbanization, Uncertainty and Water: Planning for Arizona's Second Hundred Years, a major conference sponsored by the the Water Resources Research Center at the University of Arizona, with the Arizona State University Morrison Institute for Public Policy.
     A workshop beginning today is hosted by Western Lands and Communities, a joint venture of the Lincoln Institute of Land Policy and the Sonoran Institute, for the purposes of reviewing a report being discussed at the conference, "Watering the Sun Corridor."
     "A key constraint to urban development in the Intermountain West is water availabilty, with scarcity expected to become more acute as the climate changes," said Armando Carbonell, senior fellow and chairman of the Department of Planning and Urban Form at the Lincoln Institute of Land Policy. "This conference will engage a diverse group of civic, business, and political leaders in a vital dialogue on water policy choices that will affect the future sustainability of the region."
     Managing water resources has been a top issue in Arizona since the state was first settled. Today finite supplies and uncertainty makes planning for the future more complex and difficult, as Arizona's urban areas continue to grow from Greater Phoenix to Tucson, where the conference is being held. At issue are economic success and the quality of life those in Arizona currently enjoy.
     Western Lands and Communities is concerned with policy issues related to land conservation and urban development in the Intermountain West.

Black swan hunting

If housing bubbles are like extreme weather events, Jim Follain has been chasing tornadoes.
     Follain, a senior fellow at the Nelson A. Rockefeller Institute for Local Government, has been conducting research on the run-up of housing prices and ensuing crashes, with 2008 being the most notable perfect storm. He's been fascinated with the idea that on the whole, "it's almost like we couldn't see this coming."  Like meteorologists and extreme weather events, economists have not been able to predict crashes with great precision -- although they are very good at analyzing what happened after the fact. The Black Swan author Nassim Nicholas Taleb describes events such as Google's success or 9-11 in the same way: unpredictable, carrying a massive impact, but where subsequent explanations suggest less random and more predictable characteristics than was previously evident.
     So what are the warning signs to work with? Private mortgage insurance used to be a canary in the coal mine, Follain says, but that has fallen away. There are macro factors --income levels, employment, monetary policy and interest rates -- combined with the reality that housing markets are intensely local and regional. Subprime lending was prevelant in areas that had the greatest declines, and it's possible, Follain says, to look at the early indications of a "feedback loop" in real estate markets in distress.
     Using advanced econometric techniques applied to a large panel data set of annual data for up to 350 cities allowed Follain to look across cities at a point in time, and to look at individual cities across time. Panel data enables analysts to identify the effectsof city characteristics separately from the effects of temporal changes such as economic cycles. His simulations predicted declines in Florida, Arizona, Nevada, and California, he says,"but what actually happened was much worse. The model was good at predicting the worst-hit (Metropolitan Statistical Areas) ... but not the magnititude of the decline."
     Follain co-authored the Lincoln Institute working paper,  A Look at US House Price Bubbles from 1980-2010 and the Role of Local Market Conditions, with Seth H. Giertz, assistant professor of economics at the University of Nebraska-Lincoln, and plans to include new work in another paper to be posted soon. He presented some of his findings in November as part of the fall lecture series, which can be viewed in its entirety at our Lectures & Video page.

Teardowns and the value of land

The teardown has an image problem. Neighbors are aghast when an older structure is demolished and replaced was something new and most often larger. The historic preservation movement doesn't take kindly to McMansions rising. But teardowns in established neighborhoods with good density can be a green concept -- better than building something new in a cornfield miles away, smart growth advocates would argue. Teardowns take advantage of existing urban infrastructure. And while embodied energy is lost, demolition materials can be recycled; if the new building is energy efficient, so much the greener. Municipalities tend to like the increased property tax revenues from more robust assessments.
     Yet another interesting dimension is revealed in teardowns: the value of the land where the doomed house sits. It's very often the location of the parcel, after all, that is so desirable -- the improvements on the land is what's replaceable. Teardowns in this context have been studied in detail by Lincoln Institute visiting fellow Daniel P. McMillen, who presented a paper on the topic at the American Economic Association conference in Chicago earlier this month. He is also author of a 2008 working paper on teardowns and a 2006 Land Lines article Teardowns: Costs, Benefits, and Public Policy. Vicki Been, Ingrid Gould Ellen, and Michael Gedal also have a 2009 working paper, Teardowns and Land Values in New York City, that builds on McMillen's work.
     McMillen was part of a significant Lincoln Institute presence at the American Economic Association, the largest meeting of economists each year, along with visiting fellows Daphne Kenyon and John Anderson, and former board member Chip Case. Jim Follain, who delivered a fall Lincoln Lecture on his research on predicting housing bubbles, presented on that topic as well.

Dismantling urban roadways: the sequel

It''s become a familiar narrative: cities around the world are dismantling urban freeways, burying them underground, or replacing them with multi-modal boulevards and parks. Portland, Ore., led the way with its waterfront park, San Francisco re-created the Embarcadero after the 1989 earthquake, and Milwaukee demolished the Park East Expressway. Seattle is looking to replace the againg Alaskan Way Viaduct, and the Treme neighborhood in New Orleans hopes to be rid of the hulking Claiborne Expressway someday. In New York, the Robert Moses Parkway outside Buffalo may be overhauled, the urban highway named for the great master builder himself -- who designed or inspired many of these roadways in the era of urban renewal.
     In this most recent contribution at the Atlantic Cities site, we look at the next generation of reinventing urban infrastructure -- the lesser-known connectors and overpasses and viaducts typically outside of downtown. It's no easy task, judging by a trio of projects under scrutiny in Boston, home of the $15.6 billion Big Dig: the McGrath/O'Brien Highway in Somerville and the Rutherford Avenue connector through Charlestown, both north of the city, and the Casey Overpass in Jamaica Plain, well south of downtown.

Property rights evolving

     Lincoln Institute President Gregory K. Ingram tackles the subject of evolving concepts in property rights in his quarterly Message from the President, in the January issue of Land Lines, and reprinted here: Clearly defining the ownership of property is often thought to be necessary for the efficient operation of markets and the appropriate use of scarce resources, he writes. Specifying property rights within mature governance frameworks is relatively straightforward for traditional private goods, but it becomes more complex for common property goods such as groundwater, environmental resources, irrigation systems, forests, and fisheries.
     Common property goods are often subject to overexploitation (the well known “tragedy of the commons”), and many observers argue that the sustainable use of common property can be solved simply by employing one of two alternatives: private ownership, or public ownership operating within a clear regulatory framework. The argument is that either approach can internalize externalities and reduce transaction costs.
     This notion that there are only two discrete solutions—private ownership or public ownership—to promote the sustainable management of scarce common resources has proven problematic for at least two reasons. First, neither private nor public ownership has always conserved scarce resources well, as in the case of the timber industry. Second, many alternative property rights approaches have been successful in managing scarce common resources in a sustainable manner, in some cases over hundreds of years.
     Examples of alternative property rights approaches include the management by farmers of irrigation systems in Nepal, by villagers of Alpine grazing lands in Switzerland and Italy, and by villagers of mountain grazing land and forests in Japan and Norway. In all of these cases, farmers owned their private agricultural parcels and also participated as communal owners of commonly held resources.
     Analyses of many cases of successful common resources management reveal that specific practices vary widely and depend on underlying institutions, social norms, culture, and ecological conditions. Accordingly, specific practices are usually not transferable from one context to another. However, research also shows that participants in successful systems have seven elements in common: accurate information about the resource; a common understanding about the resource’s benefits and risks; shared norms of reciprocity and trust; stable group membership; a long-term perspective; decision rules that avoid either unanimity or control by a few; and relatively low-cost monitoring and sanctioning arrangements.
     These systems work best when the common pool resource is in a fixed location, such as forests, grazing land, mineral deposits, and many environmental resources. When the location of the common resource is not fixed, however, virtually no single property rights approach has been very successful. This is famously the case for fisheries, where the stock of fish is mobile and its size is difficult to track. Most property rights systems applied to fisheries give property rights to the annual catch, not to the underlying stock. Many approaches have been attempted to control fish catches, and the most promising current practice uses transferable quotas, but this approach is still a work in progress.
     An excellent summary of the evolving theory of property rights is available in the recent Lincoln Institute book edited by Daniel Cole and Elinor Ostrom, Property in Land and Other Resources. Elinor Ostrom in particular has contributed greatly to the property rights literature, and her work in this area was honored last year when she was awarded the Nobel Prize in economics.
     The volume includes chapters that address the complexity of property rights and their applications to common pool resources such as air, land, water, and wildlife (including fisheries). In addition, two chapters review the self-organization of property rights practices by miners during the 1849 California gold rush and more recent gold rushes. Those authors found that very similar property rights practices emerged in other such mining situations.

Tea Party angst

     The Tea Party might have reached a plateau in terms of national politics, but activists are alive and well at the level of local government. And their tactics are giving municipal officials fits. Across the country, Tea Party activists have been storming planning meetings of all kinds, opposing various plans by local and regional government having anything to do with density, smart growth, sustainability or urbanism. In California, Tea Party activists gained enough signatures for a ballot measure repealing the state’s baseline environmental regulations, while also targeting the Senate Bill 375, the 2008 law that seeks to combat climate change by promoting density and regional planning. Florida’s growth management legislation was recently undone, and activists in Tampa helped turn away funding for rail projects there. A planning agency in Virginia had to move to a larger auditorium and ban applause, after Tea Party activists sought to derail a five-year comprehensive plan and force withdrawal from the U.S. Mayors Agreement on Climate Change.
    The activists are opposed to proposed master plans, a new water treatment plant, rules governing septic tanks, or a bike-sharing program. At the core is a belief that government should have no role in planning or shaping the built environment that in any way interferes with private property rights. Oddly, this opposition carries with it in almost all instances a charge that local planners are part of a conspiracy driven by the United Nations’ Agenda 21, a nearly two-decade old document that addresses sustainable development in the world’s cities – but that is being interpreted as a call to herd humanity into compulsory habitation zones.
     We have had our own experiences along these lines, and in the fall, heard from Robin Rather, who runs Collective Strength out of Austin, on how to respond and engage with this new phenomenon, at our annual gathering of Big City Planners, co-sponsored with Harvard and the American Planning Association. The APA has retained Rather and others to offer a "communications boot camp" for planners, hoping to reframe the profession’s value-add for society. The full essay on this topic is available for viewing at Atlantic Cities.

Of budgets, tax revenue, pension reform

     It was standing room only earlier this month for Economic Perspectives on State and Local Taxes, an annual convening of legislators and think tank executives from the New England states. They might have been eager to hear some good news, amid the ongoing fiscal crisis, and indeed there was some. A recovery in sales tax and income tax revenues was positive in relation to decreases in property tax revenue. Rhode Island’s solution to its pension crisis was also noteworthy, seconded by the editors of Time magazine, who put the story on the cover (The Little State that Could). The Lincoln Institute’s Adam Langley reports on selected presentations:
     -- Ronald Fisher, Michigan State University, “State and Local Debt and Borrowing Before and During the Great Recession”: By 2007, state and municipal debt was at sustainable levels, even with some debt payments falling. Post-2008, with revenues scarce, states were offered such stimulus programs as Build America Bonds, but there weren’t many takers in New England. Now interest rates are the lowest in 40 years; interest payments on outstanding debt relative to budgets are low; and construction costs are low. Public universities have led the way in borrowing.
     -- Therese McGuire, Northwestern University, “Understanding States’ Differences in Weathering Economic Downturns”: Deficits come and go in varying ways in relation to economic downturns. In the 1960s, 70s, and the 2000s, more states had large deficits; in the 1980s and 1990s, fewer had them. One major difference is that in the 60s and 70s, deficits were caused by large capital expenditures, while in this century, more is driven by current operating expenditures.
     -- Donald Bruce, University of Tennessee, “Disappearing Sales Tax: Stability and Recession Sensitivity over Forty Years”: The sales tax accounts for about one-third of state tax revenues. More of the economy is excluded from the sales tax base, including food, clothing, and some services; while the response to the declining base has been to increase sales tax rates, a broader base performs better during recession. Base-broadening measures could include interstate purchases and e-commerce.
     -- Robert Ward, Rockefeller Institute of Government, “Income and Sales Tax Revenues Rebound, Property Tax Revenues Fall”: The picture is changing rapidly as states enjoy a bit of a recovery from the deep revenue decline. Personal income tax is up 9.2 percent and sales tax is up 7.3 percent, though property taxes have begun to decline. Real GDP growth has been slow, prompting questions about how tax revenue growth is sustainable. The challenge of balancing budgets and the big-ticket items of education and health care remains.
     Mark Zandi from Moody’s covered unemployment, foreclosures and housing inventories, small business confidence, fiscal policy, and Europe, among other elements of the current simmering economic stew; his presentation was titled “On thin ice.” But it was the unlikely topic of state pension reform that perhaps stirred the most optimisim. Dean Mead from the Government Accounting Standards Board detailed proposals for tightening standards and changes in how liabilities and expenses are calculated, followed by Richard Licht from Rhode Island on the state’s aptly named Retirement Security Act of 2011, a measured but comprehensive attempt to straighten the course on public employee pensions.
     The conference Dec. 2 at Lincoln House was co-sponsored by the New England Public Policy Center and the Federal Reserve Bank of Boston.

Abatements: land value tax in disguise?

     Consider the property tax abatement, a common tool used by jurisdictions typically to encourage development of parcels or usher in a new business that will provide jobs for the local economy. The basic abatement, most often on newly developed land, is a reprieve from the property tax obligation, or a reduction, usually over a period of time. Abatements are in use across the country in a variety of forms. The free online database Significant features of the Property Tax includes information on relief measures in place in all 50 states.
     The efficiency advantages of the land value tax (LVT), compared to a traditional property tax on both land and structures, are well established. In particular, a land-only tax does not discourage choices to build or maintain structures, while the property tax does. Yet authorization or adoption of a land value tax continues to be quite rare. Implementation and results vary equally widely, according to Assessing the Theory and Practice of Land Value Taxation.
     Next week at Lincoln House, economist John Anderson will conclude the Fall 2011 lecture series by looking at policy recommendations that would make abatement programs closer to the LVT ideal. What form would property tax abatements take to achieve the advantages of a land value tax?To best mimic an LVT, abatements should be comprehensive, unconditional, and permanent, but a review of the features of existing abatement programs across states finds instead that most are particular, conditional, and temporary.
     John Anderson is the Baird Family Professor of Economics in the College of Business Administration at the University of Nebraska-Lincoln. An advisor to public policymakers in the fields of public finance, fiscal reform, and tax policy, he served as a senior economist with the President’s Council of Economic Advisers in Washington, DC, in 2005-06. He has also advised state governors and legislatures, and numerous state agencies in the United States. In the international arena, he served as a technical advisor on fiscal reform projects and local government reform projects in Moldova, Montenegro, and Macedonia.
    The lecture, at noontime on December 14, 2011 at the Lincoln Institute in Cambridge, is free but registration is required.

Retiring, but not shy, Ron Sims

For a while President Obama looked like he might promote smart growth at the national level -- linking together the federal agencies for housing, transportation, and the environment, and making the US Department of Housing and Urban Development a hotbed for innovation. One of the more promising soldiers in that effort was King County executive Ron Sims, who became deputy secretary. Now Sims is headed back to Washington state, and the sustainability agenda has run into opposition and budget realities. Addressing the New England Smart Growth Leaderhsip Forum at the Federal Reserve Bank of Boston last week, however, he said getting discouraged was not an option.
     "I am no ways tired," said Sims, who is as likely to hug you as shake your hand. "So what if it's difficult?" In an evangelical keynote, he acknowledged frustration in trying to promote planning on Capital Hill, where he sometimes heard 'I don't believe in this.'  The Tea Party and aligned Republicans have characterized sustainability initiatives as just shy of communism, according to Paul McMorrow in a recent Boston Globe op-ed, noting a House bill forbidding even the use of the term. He compared efforts to revitalize cities to the civil rights struggle, but emphasized that smart growth was "a way of using money smartly," versus poor planning that "turns local businesses into an ATM machine. "It's conservative financially," he said. "Sustainability is the only way this nation will endure." The focus on equity and supporting urban neighborhoods will help cultivate future geniuses living in cities, he said, key for economkic competitiveness. "We can't not have all hands on deck."
     Sims says he is essentially retired, for the moment, enjoying his family. There may be inevitable speculation of him someday running for mayor of Seattle.
     The focus of the forum, led by senior fellow Armando Carbonell and featuring Doug Farr on LEED-ND and Marc Draisen of the Metropolitan Area Planning Council among many others, was the Sustainable Communities program, which has been zeroed out after a round of nearly $100 million in grants benefitting a number of New England communities and regional planning groups.  The program was modest by any measure -- .0002 percent of the federal budget, as Rob Steuteville notes -- but made a huge difference at the local level and moving projects and initiatives forward. Phil Langdon from New Urban Network filed this dispatch with coverage of the gathering, co-sponsored by HUD, EPA, and the Federal Home Loan Bank of Boston.

Ron Smith 1937-2011

     A memorial service will be held today at Old South Church in Boston for Ronald Lee Smith of Winchester, former president of the Lincoln Institute of Land Policy, who passed away Dec. 3. Smith was dean of Georgetown University's McDonough School of Business from 1977 to 1987, and dean of the University of Nebraska business school before that, before coming to the Lincoln Institute in 1986. As president, he made several key hires, helped create a new organizational structure, and oversaw the move into our current home at 113 Brattle Street in Cambridge. 
    Kathyrn J. Lincoln, chair of the board of the Lincoln Institute, said Smith helped shape the world-class organization of today. He is survived by his wife, Betty, and his children Evan, Deanna, and Kathy.
     Smith succeeded Arlo Woolery, who was what was then called executive director of the Lincoln Institute, founded in 1974. James Brown was president after Smith stepped down in 1996, and Gregory K. Ingram, our current president, has been leading the institution since 2005. More on the story of the Lincoln Institute is available here.