undefined

points

by ndriscoll3 hours ago |

comments

by scoofy3 hours ago|

[-]

When you are looking at your city budget... you're probably looking at cash-based accounting:

https://www.investopedia.com/terms/c/cashaccounting.asp

This looks at current costs. The school is a cost every year, so every year that cost shows up on the budget. The problem is that road/water/sewer maintenance often doesn't show up on these budgets because these systems are usually built all at once. Because of this they usually also need to be replaced all at once. To see those costs before they happen, you need to use accrual accounting:

https://www.investopedia.com/terms/a/accrualaccounting.asp

The entire message from Strong Towns is exactly that because cities often use cash accounting instead of accrual accounting in their budgetary processes these lingering issues of deferred maintenance don't show up until they do, and when they do, those costs will simply be too large for the city to cover without very politically unpopular interventions.

by Spooky232 hours ago|

parent|

[-]

That’s absolutely untrue. The only reason companies track depreciation as they do is because it allows them to defer taxation. Public works projects are not paid out of current cash.

Strong Towns makes good arguments about certain things and are critical in a reasonable way of how civil engineering organizations rate the need for more civil engineering works. But the budget discussion makes zero sense.

The biggest expenses for county, city, town, village government are: schools, police & fire, Medicaid share in states that do that, and employee retirement and health. A small/midsize city spends 60% of its budget on police.

Capital projects are capitalized with bonds. Governments have the lowest bond expenses due to tax exemptions. Roadwork is not done in a cash basis. It’s bonded for 10-30 years depending on the job.

by scoofy2 hours ago|

parent|

[-]

Yes, the problem is that our cities are already leveraged up to their eyeballs. At some point, the actual humans buying those bonds start becoming skeptical of the city’s ability to pay them back.

LA currently has about a billion dollars of outstanding general obligation bonds (edit: but that does not include all their future liabilities). They're still rated AA, but I presume that is because the credit writing agencies understand how many untapped revenue streams LA has, but again, those will require unpalatable political change. You can’t keep refinancing forever.

Philadelphia, Miami, and Chicago are getting close to junk bond status, and when that happens, the option to refinance starts evaporating very quickly.

by ndriscoll2 hours ago|

parent|

[-]

Wikipedia says the GDP of the LA metro is ~1.5T. I think they could handle 1B in bonds. If they choose not to, it's not because it's some impossibility. Certainly not because roads are impossibly expensive.

by scoofy1 hours ago|

parent|

[-]

I said general obligation bonds, not general liabilities. These technically are what makes this discussion so difficult.

My point is that much of what the city can tax has little to do with the city's GDP. Either the landscape of the city will have to change or the current taxation paradigm will have to change.

by ndriscoll23 minutes ago|

parent|

[-]

What they can tax does have to do with the GDP though. If they have a 1B deficit, they need to somehow tax <0.1% of activity (or cut services), whether through property tax, income tax, sales tax, corporate tax, or some other scheme. What they don't need to do is radically increase density, and since almost all of the costs scale with population, not area, density wouldn't even help that much (or might hurt if it leads to a lower percentage of net contributors).

Again, putting $1B in some perspective, the LA Unified School District budget (which is county-level, so not directly comparable to the city, but anyway) is just under $19B. Maybe someone else can ballpark how much of that is associated to the city. Or look the other things that scale with population: police, medical, waste, social programs, etc.

by Spooky232 hours ago|

parent|

prev|

[-]

LA County has a bigger economy than many European countries, and would displace Illinois by GDP if it were a state.

LA is fine.

by scoofy1 hours ago|

parent|

[-]

I also think LA will be fine in the long run, I just think that their tax structure will force significant changes. The tax base is able to cover the cities liabilities, it's just that the residents don't want to pay those extra taxes, and don't want to change in ways that let other people pay them.

The city has a billion dollar deficit right now. Trivial for residents to afford ($83 per person), but difficult to actually implement politically.

by ndriscoll3 hours ago|

parent|

prev|

[-]

Capital improvements don't need to be paid all at once; that's what financing is for. And debt service does appear on budgets. In any case, why are we to believe that e.g. $1B in maintenance that's been deferred for decades is "the" problem when the school budget is $500M/year?

by scoofy2 hours ago|

parent|

[-]

You’re making an argument about school budgets being too high. That’s fine. I’m arguing that, our school budgets are set, in large part, by our available resources. Viewing our resources from a long run perspective helps us set our current budgets.

If we cut the school budget only when we need to repave roads, we are playing fast and loose with our children’s future. When we set our budgets to be sustainable, we don’t rug pull parents who are trying to build a life in our cities.

by ndriscoll2 hours ago|

parent|

[-]

I'm not even saying school budgets are necessarily too high. I'm just saying that if someone is claiming that what amounts to 5-10% of the budget is why cities go bankrupt, and that's why they need to entirely reshape how they develop to fit some idyllic vision of a pedestrian city, then I'm going to go ahead and doubt their analysis.

Like I'm happy that my (suburban) city requires new developments to connect to a city-wide bike trail network. That's great. I just don't think Strong Towns/Not Just Bikes presents a realistic mental model of the world. They seem to clearly be pushing for a specific vision regardless of facts.

by skrtskrt1 hours ago|

prev|

[-]

Take a look at LA’s budget then, it’s literally all police and police liability payouts which are already hundreds of millions of dollars over the budget for them.