Economics of Urban Development
This article focuses on the economics of urban development. It provides an overview of the connection between urban decline and urban development. This article examines how economic policy solutions address and remedy the problems of economic disinvestment, economic underdevelopment, and urban decline in urban neighborhoods and communities. The main urban development strategies, public policies, and programs, including impact fees, congestion pricing, tax-base sharing, special taxing districts, concurrency planning, reverse commuting, affordable housing strategies, regional government, and growth management are described. A case study of urban development in the United States is included as an opportunity to explore how the federal government structures its efforts to halt urban decline and promote urban development in American cities.
Keywords Community Reinvestment Act; Congestion Pricing; Economic Development; Economic Disinvestment; Economic Underdevelopment; Federal Government; Fiscal Policy; Impact Fees; Private Sector; Public Policy; Public Sector; Taxation; Urban Decline; Urban Development
Economics: Economics of Urban Development
Cites are considered to be the engines of national economies worldwide. In the United States, the majority of Americans live in metropolitan regions or areas. The U.S. Census Bureau recognizes 381 metropolitan areas in the United States. Despite the prominence of American cities, urban communities in the United States, and around the world, have struggled with urban flight, poverty, housing discrimination, isolation, budget deficits, declining tax bases, and rising public sector costs (Stegman, 1996). Factors that shaped U.S. metropolitan cities in the twentieth century include generational shifts, demographic shifts, sociopolitical orientations, real estate economics, income inequality, technology, social divisions, housing, zoning, and transportation (McDonogh, 2004). American cities, such as Washington DC and Detroit, are suffering from the negative externalities created by urbanization such as unemployment or underemployment, economic and social inequalities, challenges to social cohesion, urban sprawl and congestion, environmental problems, and housing shortages. Numerous American cities are suffering from urban decline and do not have the local or federal fiscal support to fix the situation. Urban decline is characterized by problems such as unemployment, underinvestment in physical infrastructure, homelessness, decrease in local population, and decrease in private sector presence and investment (Freudenberg, 2006).
Policymakers address the problem of urban decline through urban fiscal policy and urban development.
- Urban fiscal policy, negotiated and carried out at the federal, state, and local levels, affects the ability of cities to meet the economic and social needs of diverse resident and business populations. Urban fiscal policy refers to a wide range of tax, budget, and economic and other related public policy issues that affect the quality of life and the economic wellbeing of people in cities. Areas of concern and influence for urban fiscal policy makers include the causes and future consequences of the urban fiscal crisis, the optimal tax and spending rate for local governments, and public infrastructure funding. The goal of urban fiscal policy is a strong urban economy and a thriving populous. Urban fiscal policy promotes, supports, and facilitates urban development efforts.
- Urban development refers to largely government initiated and sponsored enterprises focused on redeveloping derelict urban land and communities. Urban development includes multiple efforts such as job programs, housing initiatives, reverse-commuting efforts, tax-sharing, regional governance, and congestion fees. The economics of urban development is complex. Stakeholders debate the following issues and questions: Who should fund economic development? How should economic development resources be allocated? Who is responsible for urban decline? In most cities, funding for urban development comes from both public and private sources.
This article explores the economics of urban development. The article examines how economic and fiscal policy solutions address and remedy the problems of economic disinvestment, economic underdevelopment, and urban decline in urban neighborhoods and communities. The following section provides an overview of the connection between urban decline and urban development. This section serves as a foundation for later discussion of many prominent urban development strategies and programs. A case study of urban development in the United States is included at the end of the article as an opportunity to explore how the federal government structures its efforts to halt urban decline and promote urban development in American cities.
America's Urban Crisis
Many economists, urban studies experts, and policymakers consider America's urban metropolises to be in crisis. Throughout the twentieth century, centers of industry moved from highly industrialized cities to urban-suburban hubs. As a result of industry transformations, population switches from urban to suburban living, and globalization, American cities experience uneven development and, in many instances, urban decline. Different parts of metropolitan regions experience disparities in standards of living, housing options, employment opportunities, and quality of public services. The economic health of American cities influences the physical infrastructures and services provided in a city. The fiscal issues facing local governments in the United States are complex. Local governments that serve urban areas in the United States receive funds from the federal government (in the form of grants) and the local populations (in the form of taxes). Local governments must use funds as specified by the grants given by the federal government and must meet the needs of the local population.
Urban decline effects industry, quality of life, availability of services, and infrastructure. Numerous urban regions in the United States face large structural budget imbalances in which there exists a persistent gap between the regional government's ability to raise revenues and the cost of providing basic services. Large budget expenditures include the high cost of living, public safety, and social service needs. One result of this fiscal imbalance is a long-term under-investment in city physical infrastructures. In the interest of a balanced budget, local governments are often forced to defer infrastructure maintenance, improvement, and expansion. Federal contributions are necessary to address structural budget imbalances that cannot be addressed or remedied at the local level (Lazere, 2005). Urban revenue sources are, in many instances, shrinking. Revenue sources, including income tax and corporate profit tax, are not growing in proportion with the needs of urban areas. Direct federal aid to local governments is also decreasing or leveling off. For example, the Community Development Block Grant (CDBG), a federal program that serves over 1,000 communities and provides fiscal flexibility to local officials, was cut from $4.45 billion in 2010 to $3.5 billion in 2013; the budget was due to be cut even more in fiscal year 2014 (Cohen, 2013).
The problem of budget deficits in state and local governments affects the economic health of the whole country. The non-profit Center on Budget and Policy Priorities (CBPP) makes recommendations for how state policymakers can make substantial improvements to their state fiscal systems in upcoming legislative sessions. Proposed strategies for fixing state and local revenue problems, addressing budget gaps, and financing new initiatives include the following (Johnson, 2007):
- Expand the corporate income tax flaws.
- Modernize state sales taxes.
- Separate state tax codes from the federal tax code.
- Raise state cigarette taxes.
Ultimately, American urban areas may be understood as economic organizations similar to public corporations. While a corporation has shareholders, a board of directors, and a chief executive officer, a city has landowners, city council, and a mayor. The main economic purpose of a city is to offer resources and services such as infrastructure, safety, and schools. Cities must provide the services that its residents need or the residents will leave creating falling real estate prices and unemployment. Efficient cities attract investment and development. Inefficient cities go bankrupt. In fact, Detroit, once the center of the American auto industry, filed for bankruptcy in 2013. American cities in fiscal crisis will need to rely on urban fiscal policy, drafted at the federal, state, and local levels, and private sector urban investment to provide resources for urban change and growth....
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