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Wednesday, May 30, 2012

Standing on TILTs above NIMBY Politics

        In my last post (based on this new paper), I argued that excessive big city zoning may be caused by the absence of party competition.  Without parties that compete to present generalist party platforms, legislatures devolve into pork barrel universal log-rolling coalitions.  In the case of land use, this means that legislators end up with the unilateral power to decide whether to grant zoning amendments in their districts, effectively turning a big city into a bunch of local suburban-style homeowner fiefdoms.  Land use procedure cements this result by effectively requiring that amendments be considered one-by-one, rather than in a budget or package. 

            If a pro-growth coalition is elected, is there anything they can do to change this long slog towards a shrink-wrapped city?  Yes!  At least I think so.  If the story is that, in the absence of party competition, procedure determines results, changing the procedure could produce a more pro-growth equilibrium, one that would outlast the life of a single official or coalition. 

             What types of procedural would work? My frequent co-author Rick Hills has blogged about one solution we've come up with -- "zoning budgets" -- so I want to talk about a different one: TILTs.  The proposal is modeled on another area in which party competition does not structure voting and where the interest group alignment is pretty similar to land use: tariffs.   Before 1934, trade policy was an Olsonian perfect storm.  Import-competing firms groups had incentives to be involved in politics due to the concentrated nature of the benefit they got from increased tariffs, but import consumers did not, as increased tariffs hurt each consumer only a little (even though the net effect was surely negative).  The result was heavy protectionism.   When a pro-trade coalition was elected -- e.g. President Wilson and the 63rd Congress -- they would pass tariff reform, but the reductions would soon be eaten away over time due to the differential incentives to care about politics.  The infamous Smoot-Hawley tariff was only the last in a series of protectionist tariffs passed between the Civil War and the Great Depression.

             What broke our protectionist tariff policy was procedural reform.  The Reciprocal Trade Agreements Act served to tie other country's tariffs to our own, giving exporters an incentive to fight import tariffs ("zoning budgets" is an analogue).   And then a bunch of other reforms were introduced to placate trade losers.   One of these is trade adjustment assistance (TAA), or job retraining for people who lose their jobs due to trade deals.  At a pure policy level, TAA is difficult to justify.  It is hard to see why people who lose their jobs for other reasons are not equally deserving of aid as those lose their jobs due to trade deals.   But politically it makes sense.   TAA is an acknowledgement that moving to free trade is Kaldor-Hicks efficient, but not Pareto efficient, and that the losers in trade deals have more incentive to be involved than the winners.   Beliefs about trade are only weakly structured by party competition -- protectionism crosses party lines -- but TAA helps make deals that parties can't.  TAA is effectively an automatic deal between the winners in trade (consumers) and the losers (import-competing firms and their employees), blunting the losers Olsonian incentives to stop generally-beneficial trade policy. 

            TILTs, or tax increment local transfers, would take this logic to land use politics.  If a community board or city council person votes "yes" on a new zoning amendment that increased the space under the zoning envelope, residents inside their district would get a percentage of the "tax increment" created by the newly developable property for a number of years.   The tax increment is just the new taxes generated by the increased property value -- the new value times the tax rate. 

            This is just a bribe to local landowners to stop protesting development so much.  Notably, though, it is very different from our current system of buying land owners, which has developers signing "community benefits agreements" or paying impact fees.  Those end up serving like taxes on development, increasing the cost of housing.   TILTs would be payments from the general treasury to those harmed by new development, a "deal" between those who have little incentive to care about an individual project because they each get only a little benefit (that is, all city residents and particularly housing consumers) and those who care too much (local landowners.)  That is, it would replicate the role competitive political parties would play if they existed in big cities. 

 It would also have other interesting properties.   More after the jump.

  • If TILT payments were tied to the date of proposal -- i.e. residents got TILT payments for 5 years from the date of the proposal -- it would give locals an incentive not only to approve projects but to allow them to go forward quickly.  Much of the cost locals impose on development is in delay -- through law suits, complaints, etc. -- and this would change their incentives.

  • Right now, it is really hard for citywide officials to tell the difference between projects that have really bad local effects and those that have only minor negative local effects.  NIMBY groups oppose everything locally -- if you can find a project in Greenwich Village that Andrew Berman actually supported, I salute you.  If locals received TILT payments and still opposed a project, citywide officials would at least know that the local negative externalities exceeded the size of the TILT payments.
  • Other methods of buying off local opposition - like community benefits agreements -- create incentives to oppose new projects in hopes of getting bought off.  Only squeaky wheels get grease, after all.  TILTs would be automatic -- all local homeowners would get paid -- and therefore would not create incentives.  And to the extent a developer wanted to layer a CBA on top of TILTs to deal with particularly squeaky wheels, there's no reason that she couldn't. 

  • The effect of TILTs on the city budget would be ambiguous.  If it lead to more development, it would increase the budget.  To the extent TILTs went to neighbors of projects that would have been approved on their own, the city budget would decrease.  If this became a problem, one could imagine making TILTs only apply in situations where local opposition was likely.  For instance, they could be limited to neighborhoods that were heavily residential.  Or something else. 

The details of the TILT proposal (and the zoning budgets idea and the others) are not particularly important, although I do think they are neat.   The key is thinking about how we might reorganize local legal procedure in the absence of local partisan competition.   Unless some other ideas are introduced, it is unlikely that we will see party competition in urban legislatures in the short or long term.    Reform coalitions should consider using law and legal procedure to create a stand-in for a functioning local democracy.  Otherwise, George Washington Plunkitt's famous admonition that reformers were "morning glories" that will not last against the "old oaks" of ordinary city politics will continue to be true. 



Posted by David Schleicher on May 30, 2012 at 12:56 PM | Permalink


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