Austin Contrarian

Ball control

Way off topic.

Whenever a football team faces a high-scoring opponent, we inevitably hear how it must exercise "ball control."  Kirk Bohls has already opined that "if Texas is to get by an excellent Red Raiders team, it will have to devote itself to a clock-eating, chain-moving ground game."

The "ball control" strategy has never made much sense to me, at least as a blanket strategy for handling a high-scoring team.  Yes, chewing up the clock gives your opponent fewer possessions and thus fewer opportunities to score.  But it also gives your team fewer possessions and fewer opportunities to score.  Ball control, in other words, not only keeps the ball out of your opponent's hands, it keeps it out of your hands.

Reducing the number of possessions makes sense only if your opponent is more likely to score on your defense than your offense is to score on their defense.  Suppose, for example, that your offense has a 40% chance of scoring a touchdown on your opponent's defense on any given possession.  And suppose your opponent's offense has only a 25% chance of scoring on your defense.  If each team got 100 possessions, your team would be virtually guaranteed to win since statistical flukes are unlikely in a large sample.  Note this would be true even if your opponent scored very quickly when it did score.  

The optimal strategy for the team with the better chance of scoring is to maximize the number of possessions.  Your opponent is less likely to get lucky the larger the sample.  (This is essentially just the principle of reversion to the mean.)

Texas Tech has a prolific offense.  Texas has a prolific offense.  Texas has the better defense, though, and I think Texas is more likely to score a touchdown against Tech on any given drive than the other way around.  Tech's best strategy, then, is to hold the number of possessions to a minimum and hope it gets lucky.  UT's best strategy is to maximize the number of possessions.  Ball control is the wrong strategy for handling Tech.

Keep government employees downtown

The Texas Facilities Commission is proposing a massive office complex somewhere along Texas 130 east of town.  It envisions a model "company town" that would direct growth to the city's preferred growth corridor.   The massive complex would have room for 9,000 employees -- thousands of whom would be relocated from downtown Austin.   

This would be disastrous for downtown Austin.

As the Commission correctly notes, the area surrounding the Capitol is cluttered with low-rise state office buildings and parking garages; as an urban environment, it's a wasteland.  The plan also would put valuable downtown Austin properties on the tax rolls for the city, county and school district.

But emptying thousands of employees out of downtown Austin is no solution.  A vibrant downtown needs lots of people.  Quality buildings matter, of course, but they are useless if they are empty.   And while easing congestion is laudable, turning a large chunk of downtown into a ghost town is too steep a price to pay.   Indeed, some congestion is healthy; roads are lightly traveled when no one wants to go where they lead.

The Commission has a legitimate interest in reducing the rent it pays for downtown office space.  Putting valuable state property back on the tax rolls would be great for the city, county and schools.  Anyone who cares about the urban environment would like to see us redevelop the clunky office buildings and street-killing garages surrounding the Capitol.  But Austin simply does not have enough demand for downtown office space to replace thousands of government employees.

Here's a better solution:  The state should consolidate its employees and agencies downtown and sell off its parking garages and low-rise office buildings to developers.  The developers would redevelop the existing structures and lease office space back to the government at cheap rates.  Redevelopment actually would be feasible with a huge, guaranteed base of tenants.

Everyone would benefit:

1.  The state government would reap the profits from selling under-productive properties, would get cheap office space with room to expand, and would be relieved of the expense and hassle of managing state-owned properties.  The government would also enjoy the synergies of having its employees concentrated in a small area.

2.  The city, county and schools would see valuable properties added to the tax rolls.

3.  Downtown Austin would benefit from the influx of thousands of new employees and from the inevitable growth in state government.  And this plan would revitalize an ugly, sterile quarter of downtown which, incidentally, functions as a barrier between pedestrian-friendly UT and pedestrian-friendly Congress Avenue.

The only advantage I see to a complex on SH 130 is that it would spark growth in the preferred growth corridor.  Decimating a large chunk of downtown is not worth it. 

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Proposition 2 would not prevent future Domain-like deals

Katherine Gregor makes several good points, but this one deserves emphasizing:

Of course, exempting TIFs from Prop. 2 doesn't make much sense. Tax increment financing allows the city to contribute new increments of property-tax revenue (and by more recent state law, sales-tax revenues) to help pay for the infrastructure needed by a development. If a property that used to yield $1 million in tax revenues now yields $3 million, due to redevelopment, the extra $2 million is "tiffed" to pay off the project costs. So a TIF can help developers make projects with retail economically viable by contributing city property- and sales-tax revenues – exactly what Prop. 2 otherwise rejects.

This is a critical point, and one that has gotten lost in the debate.  Proposition 2 would not prevent the City from making large-scale, incentive-laden, Domain-like deals in the future.  Proposition 2 would affect smaller projects for which the cumbersome TIF bureaucracy is impractical.   Affordable housing "buy downs" in a single VMU development, for example.  Or small infrastructure projects intended to encourage better urban design.  (The amendment does not exempt all infrastructure spending, as some proponents imply; the amendment forbids spending on infrastructure "suitable to serve the improvements and uses intended by the developer or owner of a Retail Use benefited thereby" -- i.e., exactly the kind of infrastructure spending the City might offer as an incentive.)

I don't like being out-wonked, so let me briefly explain the unlimited array of incentives authorized by TIFs.

When the city authorizes a Tax Increment Financing district, it creates a specific fund that holds the incremental tax revenue generated by the development.  The fund can capture either incremental sales tax revenue or incremental property tax revenue.  

The statute authorizes the tax increment fund to "pay project costs for the zone"[1].  The statute broadly defines "project costs" to include:

1.  "capital costs, including the actual costs of . . . new buildings, structures, and fixtures";[2}  
2. "the actual costs of the acquisition of land";[3] 
3. "real property assembly costs";[4]
4. "relocation costs";[5] and 
5. "payments made at the discretion of the governing body of the municipality or county that the governing body finds necessary or convenient to the creation of the zone or to the implementation of the project plans for the zone."[6]

Number 5, in particular, is broad enough to authorize virtually anything.

Another provision authorizes the TIF's board of directors or the city to "enter into agreements [AC:  i.e., deals with developers] as the board or the governing body considers necessary or convenient to implement the project plan and reinvestment zone financing plan and achieve their purposes."[7]  The agreement "may during the term of the agreement dedicate, pledge, or otherwise provide for the use of revenue in the tax increment fund to pay any project costs that benefit the reinvestment zone[.]"[8]

Although the charter amendment would bar tax abatements, none of the above is a "tax abatement."  The statute provides for tax abatements separately; abated taxes aren't even considered when calculating the tax increment.[9]  (By the way, the prohibition of tax abatements may very well be preempted:  the statute provides that "[t]o the extent of a conflict between this chapter and a municipal charter, this chapter controls."[10])

In short, the TIF statute authorizes oodles of incentives.  Although the City technically might not be able to offer sales or property tax abatements, that's just semantics -- it could offer equivalent deals.

Proposition 2, perversely, would allow the City to strike the type of deal that so agitates Proposition 2 supporters while clamping down on the kinds of incentives that Austinites broadly support.  Proposition 2 supporters who believe the charter amendment would handcuff City Council are simply confused. 

[1]  E.g., Tex. Tax Code s. 311.0123(e)(2). 

[2]  Tex. Tax Code s. 311.002(1)(A).

[3]  Id.

[4]  Tex. Tax Code s. 311.002(1)(C).

[5]  Tex. Tax Code s. 311.001(1)(F).

[6]  Tex. Tax Code s. 311.001(1)(K).

[7]  Tex. Tax Code s. 311.010(b).

[8]  Id.

[9]  Tex. Tax Code s. 311.0125(d).

[10]  Tex. Tax Code s. 311.018.

Chronicle: Vote "no" on Proposition 2

See the Chronicle's thoughtful non-endorsement.  (It's thoughtful, of course, because it precisely matches the arguments I've raised.) 

Best Urban Development Echo Chamber

Thanks, Chronicle.  And congrats to echoes M1EK and Shilli.

  

Krugman on the new economic geography

From his blog:

Now, on to geography. A decade after the original new trade stuff, I started thinking about what happens when some (but not all) economic resources, especially labor and capital, can move. In the world of the old trade theory, “factor mobility” was a substitute for trade: if factories and industrial workers can move freely, they’ll spread out to be close to the farmers, and neither food nor manufactured goods will have to be shipped long distances. But in the economies-of-scale world I had been studying, the “centrifugal” effect of widely dispersed resources, which tends to push economic activity into spreading out, would be opposed by the “centripetal” pull of access to large markets, which tend to promote concentration of economic activity.

Think of Henry Ford and his Model T. He could have established many factories, spread across the country, to be close to his customers. Instead, however, he found that it was worth incurring extra shipping costs to achieve the economies of scale of one big factory in Michigan.

And once you’re concentrating production in a limited number of locations, which locations will you choose? Locations where there’s a large market – which will be locations where lots of other producers have also chosen to concentrate their production. If the centripetal forces are strong enough, you’ll get a cumulative process: regions that for historical reason have a head start as centers of production will attract even more producers, becoming the economic “core” while other areas become the “periphery.” Thus for about a century, until the rise of the Sunbelt, the great bulk of U.S. manufacturing was crammed into a fairly narrow belt from New England to the inner Midwest; today, 60 million people live along a narrow stretch of the East Coast. Those 60 million people aren’t there because of the scenery; each of them is there because the other 60 million people are also there.

The same sort of logic explains why particular industries concentrate in certain locations, except that in such cases the logic involves things like a deep labor market for specialized skills and a good market for suppliers of specialized inputs. What determines which industry locates where? Often, accident: Silicon Valley owes its existence in large part to a couple of guys named Hewlett and Packard, who started some stuff in their garage, New York is New York because of a canal that only pleasure boaters use today.

Again, this may seem obvious, and it is now – but it wasn’t before 1991 or so. As with trade, the plain English version was possible only after the mathematical models had been worked out.

You may ask, where’s the policy implication of all this? Actually, the policy morals are fairly subtle – for example new trade theory does suggest a possible role for government interventions, but also suggests bigger gains from trade liberalization. Mainly my work in trade and geography was about understanding the world, not driving a political agenda.

He's also posted his 1991 paper, "Increasing Returns and Economic Geography" (PDF), which lays out the mathematical model.

austincontrarian.com

I've finally registered www.austincontrarian.com.  It maps to my old domain, which is still active, so nothing ought to change.  It's just easier to remember.

Height limits

There's an interesting debate over D.C.'s height limits at Ryant Avent 's blog and the DCist.

Austin does not have height limits downtown; building mass is instead controlled by floor-to-area ratios.  But some -- most notably, iconoclastic architect Sinclair Black -- have argued that we need height limits.  They argue the absence of height limits encourages owners to bank their properties while they wait for the big score.  This saddles the rest of us with a bunch of surface parking and low-rise uses such as drive-through banks while we wait for the urban environment to fill in.  Better, they say, to impose hard height limits and encourage everyone to develop their properties now.

The surface parking lots downtown piss me off as much as anyone.  And I must say the land-banking theory is plausible, although I haven't seen any study showing it's true.  But I think there's a better solution for encouraging the development of property then imposing an arbitrary limit on building capacity:  Simply jack up property taxes on the value of the land and slash property taxes on the value of capital improvements.  (The reallocation should be revenue neutral, of course.) Taxing capital improvements -- surprise! -- discourages capital improvements.  A property owner, however, can't dig up his lot and cart it off somewhere else.  (See Henry George.)

Reallocating the tax burden would encourage property owners to maximize the value of their land right away rather than waiting for the big score.  It would also encourage them to build the optimally-sized building rather than settle for something slightly smaller or cheaper because of the distorting effect of property taxes.  It also might discourage premature teardowns.  I'm thinking of properties like the Fox and Hound pub, which has been torn down to make way for a new apartment building.  These lots can sit vacant for months, or even years, before the new development breaks ground.  I don't know whether property taxes prompt premature teardowns, but reallocating the property tax burden certainly couldn't hurt.

This would mark a radical shift in state tax policy, of course, and I'm sure would infuriate too many property owners to be politically feasible.   I suppose you should just file this one under "pipe dream."

Update:  This organization advocates this kind of two-tier tax.  H/t Joshua (who provided other useful information in the comments).      

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Krugman

wins the Nobel in economics.

I mention it only because he's done so much important work in regional and urban econonomics.  Geography and Trade simply (and elegantly) explains why industries tend to concentrate in single cities or regions -- i.e., why agglomerations are important and why we see them everywhere. 

Update:

Tyler Cowen describes this work:

I am most fond of Krugman's pieces on economic geography, in particular on cities and the economic rationales for clustering.  He almost single-handedly resurrected the importance of "location theory," an all-important but previously neglected branch of economics.  Here is the best summary piece of Krugman's work in this area.  I believe this work will continue to rise in influence.

Here is urban economics savant Ed Glaeser praising Krugman's contributions to economic geography.

I do think Krugman is a political hack and wish he'd stick to economics in his New York Times column.

Update 2:  Oh, and here's Krugman's essay on rent control, one of my favorites (either by Krugman or on rent control).

Sorting out Mueller

Today's Statesman has more on the SDS charter amendment's potential impact on Mueller.  The charges, counter-charges, and rebuttal arguments are bewildering.

No wonder:  The SDS charter amendment is a complicated piece of legislation.  Municipal finance and economic development law -- the backdrop for the charter amendment -- is extremely technical, the domain of highly specialized lawyers.  The Mueller agreement (including exhibits) is over 1,000 pages, and spells out, in detail, complicated financing mechanisms for a period stretching over 15-20 years.   No stranger to the Mueller MDA (myself included) could possibly evaluate all of the competing claims.  I doubt the experts who drafted the Mueller MDA understand exactly how the charter amendment will impact Mueller.  It will likely take years of litigation before anyone knows.  (Since any citizen has standing to enforce the charter amendment, I'm confident that some malcontent will sue.)

Some of the claims outlined in the Statesman article, however, don't make much sense, even to this non-expert: