Planners, Finance, Geography, and Urban Sprawl

By Pat Dugan, Dugan Consulting Services

A Geographical Perspective

By following my inclinations rather than my training, I have become both a planner and a finance officer. I came into these professions through the back door, without any significant formal training or education in either. My academic training, instead, focused at the graduate level on geography, with some specialization in economic geography. This background has given me a somewhat different perspective than others, not only on the art and science of community development, but also on the more structured world of public finance. Geographers have terms for this perspective, one of which is "thinking spatially." Thinking spatially trains one to ask questions related to the "where" and the "how and why there."¹ Another important feature of a geographic perspective is attention to the concept of place; how people affect place and how place, in the context of its location and surroundings, affect the activities of people.

Paul Krugman, a Princeton economics professor and New York Times columnist, has long criticized his colleagues in economics for not incorporating a geographical perspective into their analysis of economic phenomena.

The study of economic geography - of the location of factors of production in space - occupies a relatively small part of standard economic analysis…. On the face of it, this neglect is surprising. The facts of economic geography are surely among the most striking features of real-world economies ...²

Paul Krugman's interest in how geography affects economies underlies his research interests that ultimately resulted in his winning the Nobel prize in economics for "… analysis of trade patterns and location of economic activity"³; in other words for his work in integrating the previously disparate research fields of economics and economic geography.

Geography in Planning and Finance

A similar lack of attention to geography has also been common in the practice of both community development and public finance. This perhaps is to be expected in the field of public finance since there is little in the work of accounting, the basic training for most finance officials, which may be thought of as geographical. However, it should be more surprising in the field of community development since community development directly deals with managing change in a community over time through the geographical space of the community. To me, planning is applied geography. Much of what drives how a community changes and evolves over time is the subject matter of the disciplines of urban and economic geography. Instead of training in urban or economic geography, the professional training of most planners tends to focus on the process of planning or design, probably reflecting the architectural orientation of most of the major schools of urban planning.

While a geographical perspective may seem somewhat irrelevant in public finance, a lot of what finance officials deal with has a geographical context. The revenue capacity of a city is a reflection of the community's economic geographical character. Costs of providing services vary by the geographical composition of the community, and the location of the demand for various services. There is even an academic literature regarding the geography of public finance.⁴

The practice of modern public finance goes well beyond the need to maintain accurate financial records and safe keeping and management of a local government's funds. Modern public finance is heavily oriented to financial planning and management. A crucial part of such management and planning is anticipating the future, and developing strategies to both manage and respond to changes in a community's fiscal conditions and needs. This often involves financial forecasting and such forecasting should, and often does, incorporate forecasting future economic conditions that will generate both future revenues and the need for governmental services. The overall economic conditions of a community and the specific locations of future economic activities are driven by economic and urban geographical factors influencing development decisions. In addition, financial policies and measures of the local government can influence how, when, and where development locates. Understanding these geographical relationships and factors will improve the quality of the related financial planning and management.

Interestingly, geographic considerations provide a connection between the practice of planning and public finance at the local level. First, planning and finance are linked since planning decisions can affect the finances of a local government. Planners seek to shape the physical development of a community through various planning actions and programs. The geographical patterns (the location, intensity, and magnitude of various land uses) of existing and future development both generate revenue for local government and create a demand for services that those revenues fund. The financial flow between the revenues generated by the development pattern and the services demanded by that pattern is managed through the local government's financial system.

The link between planning and finance can also flow from finance to planning since financial decisions can also influence how a community develops. For example, financial decisions and policies regarding the financing of public facilities can influence where and when new development occurs, and tax and revenue policies can provide incentives or disincentives for new development.

The Financial Geography of Urban Sprawl

An illustration of the geographical relationship between planning and finance can be seen in our efforts to manage urban sprawl. The significant influence that geographical aspects of public finance measures have on development patterns is explored in a new book, Perverse Cities⁵ by Pamela Blais.

Perverse Cities presents an excellent analysis of urban sprawl and why our planning efforts to curtail sprawl have tended to fail. Ms. Blais focuses primarily on the financial incentives and subsidies for urban sprawl that are provided at the local level. While she draws heavily, but not exclusively, from the Canadian experience, much of her analysis can be easily applied to the United States.

Ms. Blais' thesis is that the financial incentives that encourage sprawl outweigh and frustrate our planning measures. These financial incentives are created by a disconnect between how geography⁶ affects the way costs for services are incurred in urban sprawl and how that geographical relationship is ignored in how revenues are raised to support those services. Ms. Blais argues that although an estimated 38 percent of local service costs may vary by location of the development,⁷ the taxes or fees (what she refers to as the "price" of development) to support all of these services tend to be set without regard to location.

As noted in a range of studies cited by Ms. Blais, higher density, compact development located close-in to an urban center is economically efficient and costs considerably less to serve than inefficient, sprawling, low density development located on the periphery of an urban area. However, the prices for services are almost always set by averaging costs across the entire community. Property tax rates, utility rates, service fees, and often impact fees are set the same for all development irrespective of the where the development is located. In such cost averaging, compact developments that have low service costs are charged more than the actual costs to serve them, while sprawling developments are charged less. Consequently, compact, efficient development subsidizes inefficient sprawling development, providing an economic incentive for sprawl relative to compact development.⁸

In order to eliminate the financial incentives for urban sprawl, Ms. Blais advocates better working relationships between planners and finance officials:

While the city planners were busily envisioning a more compact, mixed use urban form… down the hall the finance advisors were concocting financial instruments that would encourage and subsidize sprawl."⁹

A better matching of planning objectives with financial measures is necessary to avoid the divergent policies that can frustrate both planning and financial objectives. One of the keys to such matching is to recognize that planning policies and financial measures interact with one another, and that this interaction occurs within a geographical context. This recognition requires an understanding of how the geography of a community (as managed by planners) affects the fiscal health of the community (as managed by finance officials). Within this environment, planning decision affect finances, and financial decisions affect development patterns.

1. Sarah W. Bednarz, Maps and Spatial Thinking Skills in the AP Human Geography Classroom

2. Paul Krugman, “ Increasing Returns and Economic Geography,” Journal of Political Economy (The University of Chicago), 99: 3 (1991).

3. http://www.nobelprize.org/nobel_prizes/economics/laureates/2008/press.html

4. One of my favorite reference books in public finance is by R.J. Bennett, The Geography of Public Finance (New York: Methuen, 1980).

5. Pamela Blais, Perverse Cities, Hidden Subsidies, Wonky Policy, and Urban Sprawl (Vancouver/Toronto: UBC Press, 2010).

6. Although the essence of her argument in her book is a geographical one, she never uses that terminology.

7. Blais cites Kitchen, Harry: “Canadian Municipalities, Fiscal Trends, and Sustainability,” Canadian Tax Journal 50:1 (2002), pp 156-80.

8. Also see Patrick Dugan, “Still Tapering Off,” Western Planner, April/May, 2001.

9. Pamela Blais, Perverse Cities, Hidden Subsidies, Wonky Policy, and Urban Sprawl (Vancouver: UBC Press, 2010), page xi.