Our fiscal challenge: why local governments are failing to maintain basic services and infrastructure

The hardest thing about running for county council isn’t the early morning sign waving or the late nights away from home — it’s having conversations with people who are struggling to survive life on Kaua’i and not being able to provide an immediate hopeful answer.

I just listened to a county employee tell me that their basic health insurance plan is eating away more than one third of their salary. I spoke to a police officer who told me that their new recruits keep moving off island because they are so understaffed and overstretched that nobody wants to do the job — and even if they want it, they still can’t afford a place to live.

Meanwhile, potholes, traffic, homelessness, decaying bathrooms at county parks, etc, etc, etc.

We all know these stories. And we all want change. So, every election cycle we hear a new set of candidate promises — do more with less, cut the fat, no new taxes, fix traffic, reduce the cost of housing, etc. I’ve made some of those same claims myself.

But, after every election, what happens? We fall into a deeper and deeper fiscal hole. Services are cut, infrastructure degrades, taxes rise, and the cost of housing continues to skyrocket.

The reason government exists is to help solve these problems — yet, we can never seem to get our head above water.

Why?

Because our fiscal problems can’t be solved in two and four year political cycles. No new state tax or cut to local services can immediately fix this feeling of chronic decline (but, as you will read later, there are long term solutions).

That’s because theUnited States has entered into a fiscal ice age. As Kiewiet and McCubbins (the guys who coined the phrase fiscal ice age) write,

The fiscal climate confronting state and local governments will not improve during the lifetime of anyone reading this article. Indeed, in most places, fiscal conditions will become increasingly harsh.

The GAO (the government agency responsible for financial oversight) predicts that local and state government’s (without major policy changes) will operate negative balances all the way out to 2060.

Source: https://www.gao.gov/assets/690/681506.pdf

It’s not often that you read a Government Accountability Office update report and feel your blood run cold. But, there is no money and there’s not going to be any money. For the future of state and local governments, that is terrifying.

This doesn’t make front-page news (and I’m sure only a dozen of you dedicated souls will read this piece), but it is the most important current trend in state and local governments.

So, what’s going on here?

The baby boomers are retiring. And nobody is filling their place.

For the entire history of the United States, we could count on there being more people ever year. More customers for your business. More people willing to buy your home. More young people to help offset the cost of health care for old people. And, of vital importance to government, more people working to help fund those who have retired. Every retiree could count on having more than one replacement taking their place in the workforce. And therefore we could create ponzi-scheme retirement systems like social security and defined benefit pension plans. As long as you always have new workers, they work great.

But, when that growth stops, the entire system jams up.

The huge number of baby boomers exiting the work force is putting an unprecedented strain on government resources at every level. Old people cost more to give health care too, old people deserve their earned pensions, and old people require the social security that they paid into. We’re also living longer (which is a good thing), so we cost more for a longer time period. All of this is paid for by current workers (that’s not true for private sector pensions, but it holds true for government defined benefit pension plans — but talking about pension plans is an easy way to instantly lose all of my readers, so we’ll save that for another day).

With a surge of retirees, we need a corresponding surge entering the workforce. But, it’s not happening — and it’s not going to happen. Just when we need it most, our growth rate is slowing. As the CDC announced last week, American birth rates just hit a thirty year low. Not only are they far below replacement values, but they have been accelerating downwards since 2010. The US is now considered an “aging population” as the proportion of 65+ year olds is higher than those under 15 years old (more on this in an interesting piece in Vox published this week).

Reflecting these nationally low birthrates (and high housing costs which are pushing people out), the population of Hawai’i declined last year — for just the third time since statehood.

As health policy experts from Columbia University, Illinois University, and USC wrote in a recent editorial at The Hill,

Rapidly declining fertility today matters not just because of its immediate impact on our economy, but because of its reverberating effects on every aspect of our society for the remainder of this century.

As I’ve written before at Civil Beat, this has huge ramifications for Hawai’i’s economy (which I won’t go over again — but please read the piece). As the GAO predicts in the piece linked at the top, our aging population is driving health care related costs (including medicare and government health care plans) to increase at over 1% per year more than the rate of GDP growth.

So, like a treadmill from hell, we have to move faster and faster, just to stay still.

And as we will continually spend more on health and retirement related costs, this leaves both the federal and state governments increasingly constrained, and ensures that less and less money will be available for local governments. Less federal grants, less willingness by the states to share resources, and a higher proportion of local government expenses going towards retirement benefits.

As Kiewitt and McCubbins (the fiscal ice age guys quoted above) put it,

As these expenditures consume more of their budgets, there is less to spend on transportation, parks and recreation, education, public safety, and all the other services that these governments provide…

The welfare state originated, and flourished, in a period marked by a favorable configuration of demographics — large working-age cohorts and small cohorts of aged dependents — and unprecedented rates of economic growth. The half-century after the end ofWorld War II is the fiscal equivalent of the Medieval Warm Period. This period has ended.

This is happening right when our aging infrastructure needs to be replaced.

For the decades after World War II, both the US and Hawai’i’s population were exploding — and along with it, so were our economies. Flush with money and drunk on the possibilities of the automobile, we spent large sums of money on sprawling infrastructure. Housing development was booming and every new residential development landed a small windfall into government coffers — which could fund increasing expansion.

At the website Strong Towns in a piece aptly titled The Real Reason Your Town Has No Money, they describe it like this:

Through a combination of federal incentives, state programs and private capital, cities were able to rapidly grow by expanding horizontally. This provided the local government with the immediate revenues that come from new growth — permit fees, utility fees, property tax increases, sales tax — and, in exchange, the city takes on the long term responsibility of servicing and maintaining all the new infrastructure. The money comes in handy in the present while the future obligation is, well….a long time in the future.

As long as we keep expanding, we can pay for the infrastructure. But, like a game of hot potato, as soon as the music ends (or the population stops growing), it’s the current tax payers who are stuck footing the bill.

The most chilling part is that Strong Towns estimates that in every town they’ve at looked at, the replacement cost for public infrastructure (which they say needs to be replaced once per generation) is higher than the total tax base for the town. Meaning, as they put it, that we’re all functionally insolvent.

In describing Lafayette, Louisiana, they write that,

It’s important to note the word “horizontally” (which I emphasized) in the quote above. They are saying that it’s the infrastructure related costs for sprawling development patterns that are costing so much. Because it costs much more for local governments to service residents in distant corners of the county (think trash pickup, road maintenance, police and fire protection, etc), building densely in town cores and urban centers is a much more efficient use of government resources. For example, the operating budget of the City and County of Honolulu is 30% lower per person than the County of Kaua’i. Because of their added efficiency from increased density, they subsidize the rest of the islands. As Senator Kouchi said at this morning’s Lihu’e Business Association meeting, O’ahu contributes 60% of the statewide revenue for our State gas tax (which goes towards maintaining our state highways), yet they only receive 50% of the funds back.

There are numerous studies showing the same thing (for starters, here and here) and it’s even codified in the opening pages of the Kaua’i 2035 General Plan:

Decentralized development or residential sprawl onto agricultural and open-zoned land erodes our rural character and town centers. Such development requires automobile dependence, which burdens our limited road network. It also incurs a greater cost per household for infrastructure and services. Expansion of this type of development will run counter to an environmentally and fiscally sustainable future. It also undermines the goal of preserving agricultural lands and the open spaces that separate towns.

Now what?

The arc of every political candidate is to begin by professing the need for bold change (that’s where I’m still at), and then they get elected and they either blame the other side for a lack of change or spend their days saying why change is so hard, and then they retire and they go back to advocating for the need for bold change.

The more versed you get on these issues, the more depressing it gets. And once you’re on the hook for actually making decisions (by getting elected), it gets really hard to find answers.

That’s because there are no short term solutions here.

We can’t do anything about our unfavorable demographics (for an interesting discussion on the lack of effective policy to boost birth rates, check out this fascinating piece from the Institute for Family Studies). And, because we live on a small island with limited resources — nobody would advocate for population boosting policy for Kaua’i.

So, that means both that we need to ensure that we don’t perpetuate the same wasteful land use patterns that we’ve developed in the past and also that we rebuild our towns to utilize resources more efficiently. Just saying “no” to all new construction is a perfect way to ensure that we continue with our wasteful status-quo.

While this is a discussion that we need to engage in as a community and is something that we will be battling with for the rest of our lives, we can take some lessons from what’s worked elsewhere to develop a framework for moving forward.

  1. As I’ve written before, no new roads. Every time we build a new road (or even large scale road widening projects), we are putting an additional fiscal burden on future populations. New roads do not reduce traffic in the long run (as they induce more people to drive) and they help perpetuate home construction in far away corners of our island which, as was stated above, costs the government more to maintain. Can we finally stop talking about the possibility of a second bridge over the Wailua river and a bypass road to the homesteads?
  2. As I’ve written before, we need to ensure that roads are paid for by those who are using them. When we use tools like our recently passed half percent excise tax to pay for road infrastructure, we are subsidizing inefficient land use patterns by putting higher taxes on exactly those who can afford it least. To ensure that users of the roads are paying for them, we need to increase our state and local gas taxes and work to eliminate the excise tax increase as soon as possible. It’s fine if you choose to live far away from where you work (for example, I currently live in Kapahi), but we shouldn’t ask others to subsidize our driving.
  3. Right now the economy in Hawai’i is booming. Our island has more tourists than we can handle and unemployment is as close to zero as it can get. And we haven’t yet begun to realize the massive costs of a changing climate (with the recent flood being the first harbinger of things to come). Now is the time that we need to spark a massive reinvestment in our towns through a combination of creative financing strategies (see this piece on using bonds along with other financing tools like cap and trade to fund town core development) and loosening up zoning regulations in every community adjacent to existing jobs (this is obviously much easier said than done — but it’s definitely possible. Check out the book Our Towns for an incredible journey of downtown revitalization in towns all around the country). If you live within a town core, you have every right to keep your single family home — but we need to ensure that our neighbors (if they want) can build duplexes, triplexes, and fourplexes. We need to do whatever is possible to incentivize getting more people living close to where they work, but we need to work hard to do this in a way that makes our towns someplace that people want to live. As Vancouver city planner Brent Toderian writes,

Density done well has three components.

One, it has to be of a very high design quality. I don’t just mean aesthetics, although that can be part of it, but it’s about profound relationships being addressed through smart design.

The second piece is that it has to be multimodal. In fact, it has to have active transport priority: walking, biking, and transit have to be emphasized. If you try to design density around cars, it’s a recipe for failure. You have to make walking, biking, and transit not just available, but delightful.

The third piece is amenities and a diversity of housing types, to make density not just compact, but livable and lovable. It’s the difference between cramming people in and creating great neighborhoods. So, amenities such as parks and green spaces, public and people places, heritage preservation and integration, community and cultural facilities, civic facilities, even things like incubator space for artists. Amenities are the things that give communities heart and vibrancy. It also includes housing diversity: rental housing and public housing.

And, as is written in our excellent General Plan:

The alternative to sprawl focuses new development in existing towns in order to leverage existing physical and social infrastructure while preserving vital open space. This fosters town centers that support infill housing and mixed use environments. For example, town centers should be centered on functional and attractive shared spaces where people can live, work, and play in the same area. Priority infill areas include the major employment centers of Līhuʻe and Kōloa. With the exception of hazard areas, additional infill growth should be encouraged in all towns.

This piece is already verging on the border between too long and way too long — but, some final closing remarks.

This isn’t just about increasing the efficiency of government, it’s about ensuring that people can afford to live on Kaua’i. As I’ve written many times before (most comprehensively at this piece on Kaua’i’s Wicked Problem), adding new housing units in our town cores is vital to decreasing housing costs on Kaua’i. It’s not going to happen overnight, but it’s the only way we can set our island on the path towards affordability.

And, the only way to set us on the path towards sustainability. As I’ve written before, this is also about climate change. To solve the climate crisis, we need to solve the housing crisis. I won’t go through it all again, but, if you’re interested, please check out the piece linked above.

Every decision has to be framed around using less resources for a higher degree of economic output. Expanding our economy and not our population will represent one of the greatest challenges human society has ever faced.

And, lastly, fixing the fiscal crisis isn’t just about density. It’s also about government efficiency and figuring out ways to find balanced revenue sources (speaking of revenue sources, here’s one more shameless pitch for a piece I wrote on the need for cap and trade). And of course, there’s always the need for pension reform.

I don’t have the exact answers — nobody does. That’s why this is a conversation that we all need to engage in. Managing our way through the fiscal ice age is not just about cutting services and raising taxes — it’s about finding more efficient ways of running a local government.

And that’s a lifetime task for all of us.

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