Incentivizing local reform and urban renewal during an economic crisis.

• Author: Ascunce, Christian J.

INTRODUCTION

"We've reached the limits of suburban development: People are beginning to vote with their feet and come back to the central cities."

--Shaun Donavan (1)

More and more people, especially young people, are choosing to live in central cities instead of the surrounding suburbs. In the largely free market system for housing within a metropolitan area, suburban localities have traditionally dominated the competition. But with a new generation and a recession times are changing. The question becomes, can local city governments finally compete with their suburban counterparts in the market battle for desirable, long-term residents, and if so, how?

Local governments control three major policy areas: education, land use, and law enforcement. (2) Only in these areas can local governments affect the competition for residents. In the ideal world, all localities would produce a strong education system, affordable housing, and effective law enforcement to keep the residents of each locality well-educated, sheltered, and safe, at least at some satisfactory baseline level, but that is not reality. In reality, each government depends on its constituents for tax revenue and many residents, especially in the current economic crisis, cannot afford seemingly basic amenities. Acknowledging the dependency of residents for revenue as an issue, localities across the country have attempted many different reform programs in education, land use, and law enforcement. These reforms can be at the federal level, the state level, or the local level. (3) Academics and politicians alike hotly debate the effectiveness of reforms in each of these categories.

Frequently absent from the discussions on urban reform are the motivations (or lack thereof) of the government actors actually implementing the reforms. For example, providing mixed-income housing may address economic and racial segregation most effectively in cities, but without additional incentives developers will not provide mixed-income housing (privately or publicly) because mixed-income developments are not as economically profitable. Effectiveness is only one half of the equation and an effective reform means nothing without the incentives required to motivate political and economic actors to implement it. Therefore, attempts at successful reform must not only consider effectiveness but also incentives. This Note considers the effectiveness of various education, land use, and law enforcement reforms and the political and economic incentives guiding government action, concluding that law enforcement reforms provide the best, and only tenable, strategy for cities looking to attract more "desirable" residents.

Part I lays the foundation for a public choice analysis of local governance and inter-locality competition for residents. It discusses the predictive accuracy of the Tiebout hypothesis and outlines the inefficiencies and inequalities that currently result from a free-market localism approach.

Next, Part II addresses some of the major societal trends currently occurring and explains why these trends are leading more people to live in cities. From changes in preference, to the availability of jobs, to the opportunity to buy cheap urban land, more and more residents choose city life over suburban life. Nevertheless, the long-term success of cities and the ability to achieve permanent and lasting urban reform will depend on keeping residents in the city.

Part III addresses the three main areas where local governments govern: education, land use regulation, and law enforcement. For each area, I explain ways which local governments can make their locality more attractive to prospective residents. Part III details the many steps that have been taken to address concentrated poverty and crime in U.S. cities and why none have been truly successful. While many programs and policy decisions do provide benefits on some level, all fall short on three main fronts--integrating the urban poor with the affluent, improving city public services, and making the city a more attractive place to live. Further, the recession and budget crisis reduce funding to even lower levels. Federal subsidy programs, like HOPE VI, are facing budget cuts, which may force cities to develop independent local reforms. Because city governments will strive to act in their own self-interest in enacting reforms, Part III also considers the political and economic incentives influencing local government action.

Finally, Part IV argues that political and economic incentives dictate pursuing preventative policing measures under a locality's law enforcement authority as the first and most vital step in revitalizing America's cities. By making cities safer and more orderly, metropolitan residents will be more likely to move to and remain in the city. If cities can manage to attract affluent residents and keep them beyond their time as young professionals, cities will benefit from additional community stability and substantially greater tax revenues that can be spent on education, land use planning, and other aspects of local reform.

1. LOCALISM AND THE PROBLEM OF INCENTIVES

   A proper approach to reforming a specific local government within a metropolitan area begins with a wide examination of how the multiple municipalities within a region or metropolitan area interact. Charles Tiebout provided the foundational model for how these interactions naturally occur. (4) However, despite the great value of the Tiebout hypothesis in predicting individual and government action, (5) his model results in many inefficiencies in the provision of public goods and the distribution of wealth within a region. This section first explains Tiebout's localism model and its benefits; then it discusses negative consequences resulting from Tiebout's model.

   1. The Tiebout Hypothesis and Localism

      Tiebout reasoned, under a number of assumptions, that localities will compete for residents or "consumer-voter[s]." (6) Localities desire to attract residents because they provide the funding for local projects in the form of tax revenue. All else equal, consumers will vote with their feet by choosing to live in the locality that best fits the consumer's preferences. (7) Using Tiebout's assumptions, localities differentiate themselves through the provision of public goods (e.g. public schools, public transportation, parks, zoning laws, and law enforcement). (8)

      If accurate, Tiebout's hypothesis offers a desirable outcome because it leads to the most efficient provision of public services. Instead of one central government providing public resources, a group of local governments provide a variety of public resources, allowing the consumer to choose to live in the locality that best fits his demand for public goods. (9) Public choice theorists praise a free market system of competing local governments because it provides more options to consumers and allows people to get the most out of their taxes. (10)

   2. Inefficiencies Created by a Localist Approach

      Opponents of localism critique the regional inefficiencies it creates by allowing exclusionary zoning. Exclusionary zoning can be defined as zoning which effectively prevents a class of people from becoming members of the locality. (11) Practically speaking, all zoning is exclusionary. (12) However, exclusionary zoning becomes problematic when it prevents the free mobility that Tiebout's model assumes. (13) In today's society, exclusionary zoning most often occurs in the form of affluent suburban communities excluding lower socioeconomic classes, especially the urban poor, from moving into suburban neighborhoods. Such policies and zoning regulations fuel the creation of concentrated pockets of poverty, typically in inner cities, but increasingly in suburban spaces as well. (14) Ever since the "white flight" of the mid-20th century, much of local government policy debate and action has centered on creating greater economic integration, either by attracting the affluent back to urban centers (15) or increasing the mobility of the urban poor. (16)

      In one sense, economic segregation is exactly what Tiebout desires. He specifically argues for sorting based upon preferences, (17) and often preferences for public services are influenced by income. (18) For example, one group of individuals may prefer that the local government use tax dollars to construct a bike path. At the same time, another group of individuals may not be able to afford bicycles and therefore would strongly prefer that their tax dollars not be used for a public service from which they cannot benefit. In other words, sorting by preferences will often be strongly correlated with sorting by income. No inherent societal wrong occurs purely by sorting based on income. People should be allowed to live in a neighborhood with other individuals of similar socioeconomic status if they so desire. Additionally, as exemplified above, it would be inefficient to provide public services only desired by the upper class for all people. The flip side also holds true. It would be inefficient to provide public services such as public housing or Legal Aid clinics to wealthier residents. So, theoretically, economic segregation can facilitate a more efficient provision of public services, allowing residents to maximize benefits received from their tax dollars.

      While localities may operate more efficiently in a world of economic segregation, society does not. Those individuals left with no choice but inner-city ghettos find themselves in situations that are difficult to overcome due to the lack of infrastructure. Without sufficient local provision of public services residents struggle to gain the necessary resources to move away into more stable and adequate localities. (19) Professor Richard Briffault summarizes the current situation of so many struggling inner city localities:

      These localities typically suffer disproportionately from higher crime...