This Sunday’s NFL championship games have it all: future Hall-of-Famers in abundance, jet-fueled offenses, bone-crushing defenses, and even a pair of coaches vying to bring a sibling rivalry to Super Bowl Sunday in two weeks.
And if you’re a fan of cities more than their sports teams, you know that these games feature genuine superstars: Boston, New York and San Francisco are magnets to residents and employers, engines of prosperity, and league leaders on any quality-of-life measure.
Then there’s our hometown. Baltimore is in need of a strategy for urban revival the type of elixir that turned the other three cities around.
Some historical perspective is in order. Three decades ago, none of these cities worked very well and all were losing residents. Between 1950 and 1980, New York’s population declined 10%, San Francisco’s 12%, Baltimore’s 17% and Boston’s an astounding 30%.
These losses were accompanied by steady erosion of each city’s job base, rising crime, declining school quality, and a sense that cities themselves might be passé. Many embraced the notion that the post-World War II exodus from core cities was a result of racism (fueling “white flight”) or Americans’ unfortunate taste for detached homes and expansive lawns.
Then, around 1980, some cities that had been in decline enjoyed dramatic reversals of fortune. Between 1980 and 2010, Boston’s population grew 10%, New York’s 16%, and San Francisco’s 19%. But Baltimore continued its descent, losing another 21% of its residents.
Did those in turnaround cities magically discover the virtues of racial diversity or high-density living? Or did their leaders heed the lessons of previous decades and correct policy errors that had contributed to urban decay?
Neither. There was no sudden change in the cultures of the cities that would become superstars, and no real awareness among their governing elites that they were doing anything wrong. But their most damaging policy reflexes were, in fact, altered-against their will.
All these cities had long pursued progressive political agendas with pride. But the problem with redistributive policies at the local level is that the donor classes might move out as fast as beneficiary classes move in-or, as the population figures cited earlier show, even faster. Robin Hood may seem a heroic figure, but once his rich victims flee Nottingham, even that city’s poor might question his effectiveness.
San Francisco and Boston were rescued from their folly by statewide tax revolts. California’s Prop 13, passed in 1978, capped property taxes in that state at 1% which slashed San Francisco’s rate by almost two-thirds. Massachusetts followed suit in 1980 with Prop 2½, which mandated that municipalities could not increase their total property tax receipts by more than 2.5% annually. New York City taxpayers did not revolt, but state legislators rationalized the Big Apple’s chaotic property tax system in 1981; it now enjoys property tax rates that average about one-third of those in its surrounding suburbs (though its other taxes are certainly punishing).
While no single factor explains any city’s destiny, it is not a mere coincidence that Boston, New York and San Francisco reversed their declines at the exact moment they became favorable environments for private investment in residential and business capital.
Every time a city raises the tax rate on residential and business property, its owners suffer a capital loss (which economists refer to as “tax capitalization”). In effect, tax hikes are incremental expropriations; owners flee not just because of short-term wealth losses but in fear of future damage to their property rights. Tax caps not only improve the immediate cash flow on investments in real property but perhaps more important secure it against further expropriations.
Baltimore has blithely ignored basic property-rights theory. When high property taxes chased many residents and business owners to the suburbs, the city raised rates further. When grandiose slum-clearance and transit plans destabilized neighborhoods, Baltimore’s one-party establishment arranged eminent-domain seizures and pushed even more “big footprint” renewal projects.
The results leave no doubt about which strategy is more effective. Baltimore’s real, median household income has been stagnant for the last three decades. New York’s has risen 22% while Boston’s and San Francisco’s have soared by half. Baltimore’s 2009 homicide rate was 4.7 times Boston’s and 6.7 times New York’s and San Francisco’s.
Even Baltimore’s sports facilities, which many assume have contributed mightily to our mythical renaissance, carry a lesson. Boston, New York and San Francisco have all declined to build their football teams new, lavish, government-financed stadiums within city limits. They’ve nevertheless thrived.
Maryland taxpayers, on the other hand, gifted Baltimore wonderful football and baseball stadiums near our Inner Harbor, on the theory that “stimulating” downtown development would be a game-changer that inevitably spread prosperity throughout the city. They’re still hoping for that change.
In this, Baltimore is no different from other cities wedded to policies that repel investment. All try to make up for this deficiency via capital allocation by government and all show disappointing results. As this weekend’s championship cities demonstrate, greater respect for private capital and some protections for the property rights of its owners can have miraculous effects. Someday, even Baltimore might call that play.
Author Steve H. Hanke
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