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Compounded economic development

guest commentary by David Potts

Editor’s note: David Potts is a certified public accountant with more than 33 years experience. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case. Feel free to e-mail topic suggestions or questions to davidpotts@potts-cpa.com

Opinions, commentary and other essays posted in this space are wholly the view of the author(s). They may not represent the opinion of the owners of The City Wire.

How often do you hear a debate, among public officials or among residents, about the payback period or the return on investment of a multi-million dollar project before it is authorized by the city’s Board of Directors? Probably never.

It isn’t the way we are taught to think about public projects. It may be time to change the way we think.

I attended the Strong Towns workshop on the University of Arkansas Fayetteville campus this past Thursday with 160 city government officials and city planners from around Arkansas, including Fort Smith’s Mayor Sandy Sanders and Fort Smith’s City Administrator Ray Gosack. The Strong Towns workshop was presented by Chuck Marohn, an engineer, a city planner, and founder of the non-profit organization Strong Towns.
www.strongtowns.org/

Marohn’s message is that through history cities have developed in a common scheme. The scheme is common even when cultures are different. The scheme is common because man has found that this design works. Cities historically begin with small scale development such as a small grocery store. Growth comes organically as the population and demand for products and services increase. A local government is not involved much in the early growth stages.

After World War II city development patterns began to change with an orientation biased toward automobiles. As our country became increasingly mobile, it was easy to build malls and new housing divisions on cheap and plentiful land on the outskirts of towns. The downside for city finances was this required cities to invest in expensive new roads and other infrastructure to service the new development. Nobody considered that the additional tax revenues generated by this effort would fall short of paying back the cost of these new roads and water lines and their continuing maintenances cost their useful life ended. It provided people with the illusion of growth when in reality it was adding a liability that would siphon off future tax revenues.

In the 1970s, to maintain the growth of infrastructure to serve a growing area, most cities acquired large amounts of debt. By its nature, debt has to be paid back with future income. So when a community invests in infrastructure that won’t generate enough new revenue to pay back the loan during a projects useful life, it becomes an obstacle to growth in the future.

The solution? Marohn said nobody has a complete solution, but a city should respond rationally when analyzing future projects by reviewing a project’s return on investment. He also believes the idea of recruiting a large employer to solve a city’s problems is no longer valid for our new economy. True wealth is created differently. One tried and true way to create wealth is small scale development within a town.

To illustrate his point, Marohn told us a story of how Memphis turned a small declining area of town into a economically vibrant part of town with a cost of approximately $16,000. He showed a picture of a small area, maybe couple of city blocks, were a group of residents took it upon themselves to clean up a section of their neighborhood. The picture showed this group with paint and brushes repainting the parking lanes in front of some local shops.

While telling this story he asked the audience, “What would happen if a group of residents acted the same way in your town?” I was sitting in an aisle seat two rows back and across the aisle from our mayor, Sandy Sanders. He too was in a aisle seat. To his left was our city administrator, Ray Gosack. I had a clear view of both of them. Both seemed to be very attentive during the workshop. Every once in a while I would see the Mayor pick up a lined legal pad and make a note about something the speaker said.
When Marohn asked the question, “What would happen if a group of residents acted the same way in your town?” he proceeded to answer his own question. ”In most of your towns you would send people to inspect and measure whether these volunteers had complied with all the town’s codes and ordinances. When found there were not in compliance, you would then remove what they had voluntarily done.”

Marohn continued the story. Memphis city officials did not impose their authority in this effort. Just the opposite. Somebody recognized the benefit this group’s effort. The City of Memphis did eventually remove their paint job, but only to replace it with a higher quality paint job. To their credit the City decided to extend the volunteer group’s area of coverage, cleaning up and painting where needed on adjacent blocks. Within a year this same area attracted new businesses and building vacancies disappeared. The building owners were thrilled because their cash flow was up and the value of their buildings had increased. This inexpensive effort by the city had an almost immediate return on investment.

With this story Marohn was illustrating his belief that our current standard zoning and building codes discourage small-scale development by subjecting small businesses and investors to the same applications, approval, and review processes required for large projects. It doesn’t make sense to apply the same level of regulation to small scale development as to big projects when these requirements don’t make the public safer or add value to the public.

Fort Smith needs to develop a streamlined and less expensive process to encourage small scale commercial development, especially for the redevelopment or improvement of existing areas. Many people dream of owning their own business. Starting a business takes money and the cost to buy or lease real estate can be one of their most significant costs.

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A streamlined building permit approval process with a rational building code for small scale development could significantly reduce the cost for business startups. This reduced cost would lower the risk of loss for new startup businesses encouraging more people to take a risk. When others see new businesses succeed, new businesses will be attracted to the area creating more growth, more wealth, and a renewed vibrancy to the area.

Fort Smith needs to think of economic development in the same terms as compounded interest income. Small increments of growth of small businesses compounded over time create a whole lot of jobs. While we wait for years to attract a “large employer,” our home grown businesses, if allowed to develop, could provide an equally significant number of jobs.

It is not a city’s administration responsibility to create jobs. However, we should hold them accountable if they discourage or kill economic development with obstructionist processes and regulations that don’t affect public safety. Our city permitting personnel and our city inspectors should be counselors judged on how they help small scale development succeed, not on how many projects they can kill.

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Comments

Kill The Messenger mentality

Great comment Mr. Potts and many people have been telling City Hall the same message for many years only to be branded a trouble maker. There have been many reports of business owners being screamed at and harassed for their effort along with City Hall operatives visiting their place of business to add further harassment. The kill the messenger mentality must come to a halt now if we want to encourage more small business starts along with job creation. It was reported a few years ago that a senior citizen who gave his times to work on flower beds downtown was harassed and threatened with arrest if he continued to do his volunteer work to beautify the Fort Smith Downtown area.

Volunteer Work Appreciation?

Heard that same story directly from the horse's mouth and this senior citizen could be seen working days and weekends downtown on his knees in flower beds to make improvements to the appearance of our downtown. He never would name the city manager who made the threats of arrest so maybe someone else can fill in the blanks. We do know that citizens were threatened and kicked off tennis courts even though they had a reservation and we do know that people were harassed and kicked out of public parks for getting petitions signed to bring the prepared food tax to a vote of the people that finally were allowed to vote after taking city leaders to court and rejected the tax by a 70% margin. You just can't makes this stuff up and it all points to a city administration that is out of control.

Volunteer Not Me

If you volunteer to help in Fort Smith you are required to labor and keep your mouth shut if you have an idea that does not meet with the approval of city leaders. When the Pet volunteer was being attacked and humiliated by the bully on the BOD, where were the rest of the BOD, the Mayor, and the City Administrator? Don't you think that at least one of these so called city leaders would have spoke up or do they all have a secret pact to not ever disagree? Volunteer Not Me!