The "growth" treadmill

Researchers at Amory Lovins' Rocky Mountain Institute (RMI) are known for dreaming up innovative ways to save money by saving energy. But they also are thinking about how communities can develop and prosper in sustainable ways. The following article from the Spring 1995 Rocky Mountain Institute Newsletter explains how local policies that promote "growth" often end up encouraging sprawl, strained services and higher taxes.

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"The hurrier I go," said Alice in Wonderland, "the behinder I get." Communities around the country are feeling a little like Alice these days, as they discover that the growth that was supposed to solve their economic problems is only bringing bigger, more expensive ones.

On this side of the looking-glass, when projections go that far wrong, it's time to re-examine the assumptions. One of the most cherished assumptions in community planning is that growth generates more money in taxes than it demands in new services. But is that assumption valid?

RMI senior researcher Michael Kinsley takes on that question in a new paper, "Paying for Growth, Prospering from Development." Its thesis: local governments, by failing to take into account all the costs of expansion, skew the market and unwittingly encourage "socialized growth"—something that is in the interest of neither "conservative" growth advocates nor "liberal" growth opponents.

One of RMI's guiding principles is that markets can be wonderfully efficient at allocating resources, but only when prices reflect true costs. The Institute has long urged governments and utilities to remove distorting (and often unintended) subsidies that, for example, make nuclear power look cheaper than cleaner competitors. In his latest paper, Kinsley applies the same reasoning to land-use policies, arguing that faulty price signals in many areas have led to sprawl, strained services, higher property taxes, and a declining standard of living.

In recent years, several studies have indicated that residential growth usually results in net losses to public coffers, while commercial and industrial expansion may provide net gains but often does not. So why do communities keep rolling out the red carpet for growth?

Kinsley identifies four types of communities that feel, rightly or wrongly, that they need to grow. "Hungry" towns want growth to save themselves from a stagnant or declining economy. "Rusty" towns seek growth to upgrade old, deteriorating infrastructure or substandard services. "Debtor" towns rely on the revenue from growth to pay for existing infrastructure and services. And booming "Booster" towns believe that further growth will keep them riding a wave of prosperity.

Not all growth is bad, Kinsley notes; slow growth is manageable. In many cases, growth can genuinely improve Hungry and Rusty towns, but many are so desperate that they'll take anything. If they're not careful, their quality of life—often their primary salable product—will decline, and with it their hopes of attracting clean business, retirees or tourists.

Debtor and Booster towns, especially, can easily become caught in a vicious growth cycle. Revenues from new growth often aren't enough to offset the costs of higher demand for schools, police, fire protection, roads and sewers. Moreover, local governments rarely budget for replacing capital improvements until the replacements are needed, on the assumption that they will be covered by new revenues (read growth). The result is that the infrastructure demanded by growth must be paid for by a new round of growth that, in turn, will also fail to pay for itself, but on an even larger scale.

Meanwhile, governments usually spread the cost of new infrastructure evenly among all taxpayers, rather than charging it to those who created the cost. This raises taxes for longtime residents, most of whom experience little or no benefit from the growth. Because they don't understand the economics of growth, they, too, begin to call for more growth, thinking it will relieve their tax burden. The community is now growing just to stay in place, and even a slight slowdown can cause serious fiscal crisis.

Ironically, Kinsley notes, growth subsidies are highest where local government allows or encourages the sprawl of urban expansion into rural areas. The costs of providing services to rural residential subdivisions are disproportionately high, while taxes on rural subdivisions are disproportionately low. Rural expansion appears cheaper than it will, over time, turn out to be, which in turn encourages more people to move to rural areas and demand urban services.

Many communities attempt to correct the price signal by assessing "impact fees," which are intended to make growth pay its way. In theory these fees should work, but the fear of being sued by developers restrains officials from asking for much. And since impact fees usually don't cover future replacement costs, they can actually lull governments into the same old trap of relying on fees from future projects to finance the upkeep of existing ones.

Kinsley is careful to distinguish between growth and development. Growth, he says, is an increase in quantity; development implies an increase in quality. Comparing communities to human beings, he notes that physical growth after maturity is know as cancer, yet development—learning new skills, discovering new interests and enterprises—can and should continue throughout life.

It's indeed true that growth creates jobs in a community. But Kinsley notes that sustainable development puts people to work, too—without requiring the expansion of services that leads to higher taxes, and without degrading quality of life.

Kinsley—who, incidentally, served as a county commissioner in Pitkin County (Aspen), Colorado, for ten years—advocates transforming the hidden subsidies of "socialized growth" into a system of explicit charges and subsidies more in keeping with a community's long-term goals. For example, if the removal of growth subsidies pushed prices beyond the reach of young families, then the community can take the subsidy it would have previously given to a developer and use it to build subsidized housing for young families. Such a policy would not expand the role of government, Kinsley argues, but would rather make governments more accountable by clearly identifying what is and isn't being paid for.

"Paying for Growth, Prospering from Development" is an attempt to bring reason to the looking-glass logic of contemporary land-use policy. If it convinces local officials of the need to put a fair price on growth, Kinsley says, it will have done its job. Compared to that, designing the legal and technical means to do so should be relatively easy.

Article reprinted from the Spring 1995 Rocky Mountain Institute Newsletter. For more information contact the Institute at 1739 Snowmass Creek Rd., Snowmass, CO 81654, (970/927-3851)

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Governments usually spread the cost of new infrastructure evenly among all taxpayers, rather than charging it to those who created the cost. This raises taxes for longtime residents, most of whom experience little or no benefit from the growth. Because they don't understand the economics of growth, they, too, begin to call for more growth, thinking it will relieve their tax burden. The community is now growing just to stay in place, and even a slight slowdown can cause serious fiscal crisis.

Growth creates jobs in a community. But sustainable development puts people to work, too—without requiring the expansion of services that leads to higher taxes, and without degrading quality of life.