Wednesday, May 2, 2012

On Urban Renewal: Wrong Time for new URD

Urban Renewal Districts are a powerful public finance tool by which local communities can redirect funds to support local redevelopment efforts.  Such efforts in the best circumstances and serve as a catalyst for future growth (or he district at least).  There has been some effort to study such districts to see if a clear statement can be made about their overall success in enhancing economic growth and the answer is that the challenges to such a study (the lack of any sort of reasonable counterfactual) are too great.  So we are left to consider anecdotal evidence and draw notional conclusions - but such is the way of the world and yet we still have to make decisions.

Decisions like, for example, should the City of Portland create a new district encompassing PSU and Lincoln High School.

But before we get to that a quick primer.  URDs create a cap on tax revenues at current levels and redirect additional revenues above this 'frozen base' to the URD to spend on projects within that area (or, if Portland had its way, other areas as well).  This diverts tax revenues that would otherwise go to schools, the county, etc.  [See the nice graphic above that I stole from a student]  Now there is a potential endogeneity in that as tax revenues get diverted some of that tax revenue might not have been there absent the URD.  URD advocates argue that the investments they make attract other private investment and contribute to the overall growth trajectory of the area.

The idea at the beginning of URD was that such actions would be limited to 'blighted areas' - really bad examples of areas experiencing urban decay, but city planners and administrators love them because they give them such a powerful tool to facilitate changes and they get to siphon off money from other local taxing districts (local fire districts tend to be suspicious of them for example, as are other entities like libraries).  In economics speak there are real opportunity costs here, this is not just a free lunch.  Yu may recall an angry Ted Wheeler argue against the establishment of a stadium URD to finance the Jeld-Wen renovation while he was Multnomah County Chair.

Which brings us back to the proposed "Education URD" and why some are so opposed.  [From Jack Bagdanski, here is a League of Women Voters screed against it]  From the Oregonian story about the Multnomah County Commission vote (it was 3-2 in favor after Portland promised to direct $19 million for a new MultCo building):

Adams' new zone at PSU would drain about $50 million from the county's coffers over the zone's 30-year life. It would also divert about $60 million from Portland Public Schools, Kafoury said, although the formula for calculating that figure is complicated and it could be lower.

Which is the opportunity cost in a nutshell.  It is amusing that they call it the education URD given that it will cause a bit hit to the PPS budget.

Now I am actually an advocate of URD when done in the right place and at the right time but this is neither in my opinion.  While schools are being forced to make absolutely draconian cuts to what is already an embarrassment of a public education system this is the wrong time to start making investments in an areas where the marginal return is probably very low.   This is not to say that it should never be done, but when the city and PPS are desperately trying to find $10 million to save 110 teaching positions, the timing just feels wrong.  This is also not to say that it should be done, city officials are potentially guilty of overreaching here - using an inappropriate policy tool for goals they are impatient to accomplish.  This risk is great that they could spur a backlash and cause the eventual destruction of Urban Renewal as a whole like what happened in California.

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