The Growth Machine Goes to the Inner City

By Dwayne Wyatt

The Growth Machine that gave us suburban sprawl is going to the inner city. But the benefits of the new urban megaprojects are bypassing most central city residents. And the costs are falling on urban taxpayers, making the fiscal crisis worse.

For the first time since the rebellions of the 1960s, corporate investment is flowing into Harlem. So far $550 million has been committed from the public and private sectors, including projects by Disney, Cineplex Odeon, and Starbucks. In Los Angeles, Magic Johnson has become the Pied Piper of new investment in old neighborhoods. Encouraged by the success of his cinema complex in the Los Angeles Crenshaw district, supported by $150 million from the California Public Employees Retirement System, and backed by partnerships with Sony and Starbucks, Johnson Enterprises has embarked on an ambitious strategy of investing in urban neighborhoods across the country. Communities mostly noted for their crime, drugs, and persistent urban blight have suddenly become competitive candidates for investment. Why is this happening now? Until recently investors considered the profit potential of the inner city to be insignificant.

The Development of Underdevelopment  First of all, investment capital is moving away from some suburbs due to acute suburban overdevelopment, the corresponding increase in the cost of suburban land, and the anti-suburban sprawl movement. To maintain a competitive rate of profit, investors have to develop alternative markets as an outlet for increasing levels of capital accumulation.

Secondly, central cities offer unique advantages to suburban investors. They see it an underdeveloped third world market within commuting distance. Their strategy can be summed up as follows:

• Inner city neighborhoods are strategically located at the geographic hub of metropolitan regions. They are at the core of commercial, cultural, communication, and transportation facilities, all pre-existing investments that could reduce the up-front development costs of inner-city developments.

• Inner city neighborhoods have an underutilized, minority workforce which will account for over 54% of workforce growth in the next decade.

• Inner city neighborhoods have underserved local markets, some with substantial purchasing power. Inner city residents account for at least $85 billion, or 7 percent, of annual retail spending in the United States. More importantly, about $20 billion of that demand is not currently being met by neighborhood retailers.

• Inner city neighborhoods are victims of private and public institutional disinvestment, which provides a competitive advantage: depressed land values.

Who Benefits from New Investment?

The new ventures of the suburban growth machine in central cities are large, capital intensive, and demand considerable public subsidies. Sometimes they involve sizable public improvements, such as subway construction through old neighborhoods. Local boosters, private sector unions, and elected officials love these projects, with their lofty promises of jobs and increased local tax revenues. At first glance they do, in fact, look very promising.

In Los Angeles alone there are five current projects valued over $300 million. The $380 million Trizec Hahn retail/entertainment complex in Hollywood is now under construction. The proposed $1 billion Playa Vista mixed use project in the Ballona Creek wetlands has encountered considerable opposition due to its traffic and environmental impacts. The Staples Center is a $350 million dollar sports arena in the heart of downtown. It is scheduled to open in October 1999 with two professional basketball teams and a hockey team. The Los Angeles Coliseum, whose reconstruction is still being negotiated, would house a National Football League expansion football team. In combination, these projects and others in the wings forcefully demonstrate the heightened pace at which investment dollars are being redirected to the urban core of Los Angeles.

Who will benefit from these projects? Obviously the landlords, team owners, elected officials, retailers, contractors, lenders, and union officials will benefit. But what about the working class communities in the shadow of these projects? A few residents will get temporary construction jobs, but most of the employment created will be minimum wage (e.g., retail clerks) or seasonal (e.g., hot dog vendors). Thus, the low wage workers living near or employed by these developments won’t attend the games. They won’t frequent the new upscale restaurants or reside in the newly built apartments, condos, and hotels.

Though the city of Los Angeles may receive some revenue from sales and property taxes, these benefits will be offset by subsidized infrastructure construction, municipal permit fee waivers and tax breaks. For example, the Los Angeles City Council approved $90 million to subsidize the Trizec Hahn project and over $70 million each for the Playa Vista and Staples Center projects. The National Football League also demanded $150 million in public funds for the Coliseum project.

And what of the smaller infill development projects? In Harlem, a coalition of community groups and local merchants waged a four year battle to block an upscale market from locating on 125th Street. Some merchants viewed new corporate investment into Harlem as a covert effort to move small merchants out. Local residents also felt threatened by the new commercial investment. They knew that the economic interests behind these projects were the same ones whose redlining and disinvestment caused their community’s blight. Though the dollars invested may be smaller, the fundamentally exploitative economic relationship remains the same. Public subsidy dollars would be used as incentives, the new upscale national chain stores would hire local youths at minimum wage, and local merchants would be priced out of their stores. And, while this is going on the wealth created by these new developments will trickle up to the members of this reinvented growth machine, none of whom reside in inner city communities.

Projects Aggravate the Fiscal Crisis

Since the urban rebellions of the 1960s, local governments have been hard pressed to do anything except provide basic municipal services. The manufacturing base and much of the middle class left central cities was accompanied by the fiscal crisis. Federal block grants and state aid programs provide some support, but not enough to counter the effects of their diminished tax base. It is no wonder that most local elected officials support large developments when they promise jobs and tax revenues.

But what do these large development projects actually cost a municipality? The salient aspect of the new urban growth machine is that local government through infrastructure construction, direct subsidies, bonds, and tax forgiveness programs underwrites development costs. The fiscal impact of these subsidies on strapped city budgets should be obvious. In Los Angeles, for example, the old “we have no money” shuffle could be replaced with several hundred million dollars for such inexcusable deficiencies as spotty enforcement of city building codes.

Economist James O’Connor describes this tendency for government expenditures to outstrip revenues as the fiscal crisis of the state. Municipalities, increasingly operate under a budget deficit, balance their budgets by neglecting the needs of neighborhoods, deferring infrastructure maintenance, and underinvesting in schools, open space, and medical and recreational facilities. In Los Angeles these trends have produced a projected $33 billion infrastructure deficit, including a $7 billion backlog of critical street, sidewalk, and sewer line repairs. Even if the heavily subsidized projects discussed above are financially successful, the neighborhoods adjacent to them would still suffer from dilapidated housing and schools, inadequate park and recreational facilities, cracked streets and sidewalks, rampant zoning and building code violations, redlining, and gangs and drugs.

This urban fiscal crisis is not just an inherent feature of capitalism nurtured by the growth machine. It is also an issue of political choice. City councils choose to divert public assets to developers and corporations at the expense of their resident’s quality of social life. Alternatively, cities can pursue more thoughtful and rational development strategies, which place residents and neighborhoods at the center of the development process.

Alternative Strategies

A comprehensive neighborhood economic development policy that considers local working class residents and employees as the main beneficiaries of government activity could be developed in a different political climate. It could be the basis for a new urban development strategy. In this alternative governments would have to reorder their priorities and assumptions. They would have to direct benefits to neighborhoods with the greatest need by strengthening local economic institutions and reversing decades of disinvestment. Municipal programs could include a repair and upgrading program for public infrastructure, a comprehensive inventory of workforce readiness and training opportunities, a capital and technical assistance program for local merchants, and a process for brokering agreements between neighborhoods and developers who request public subsidies for neighborhood based projects.

Thus, two critical pieces of an effective response are to disclose the true costs of the reinvented growth machine and envision alternative policies. The next step is, however, more difficult. It is waging the political struggle to implement these policies.

Dwayne Wyatt is a city planner in Los Angeles. He can be reached atdwyatt(at)altavista(dot)net. This article is based on a presentation made at the 1999 Planners Network conference.

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