The Three Myths of Growth

Eben Fodor is currently a community planning consultant. His firm, Fodor & Associates, is based in Eugene, Oregon and does land use and growth management consulting, development impact analysis, and sustainable community planning.

To celebrate over 20 years of publishing Whatcom Watch, we will be publishing excerpts from 20 years ago. David M. Laws has been generous enough to volunteer to review the Whatcom Watch from 20 years ago to find suitable material to reprint. The below excerpts are from the April 1995 issue of Whatcom Watch.

A debate is brewing across the Northwest. Do we need more growth — or less? … [M]ost … business, government and community leaders agreed that growth negatively affects public safety, sense of community, environmental quality, traffic congestion and mobility. The tradeoff, however, seems to be the improved employment opportunities most felt were created by growth.

Growth proponents say growth produces jobs and economic prosperity. They say growth builds the tax base, providing needed public revenues. And given these benefits, proponents say we should actively pursue growth with economic-development programs, tax subsidies for business, and other means.

Each year hundreds of millions of dollars in economic development funds and hundreds of millions more in public infrastructure funds go to support and encourage growth.

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Does Growth Reduce Unemployment?

We know intuitively that growth can create new jobs. But does it reduce unemployment? Presumably, if growth reduced unemployment, a fast-growing city would typically have a lower unemployment rate than a slow-growing city. To test this, Proffered Harvey Molotch of the University of Santa Barbara examined two decades of census data on city growth rates and unemployment. He compared the 25 fastest growing cities in the United States with the 25 slowest growing cities. He found no statistical correlation between growth rate and unemployment rate.… Economic booms may provide temporary relief from unemployment woes, but the statistics clearly indicate growth is not the long-term solution.

Does Growth Build Up the Tax Base?

We hear that the more people and businesses we attract to our communities, the more tax revenue we will have. This supposedly will enable us to get more public services without increasing our individual tax burden, or to pay for a library or concert hall that we couldn’t have afforded otherwise.

The facts don’t support these arguments. Growth does increase the tax base, but it does so at a substantial cost to taxpayers…. [L]arger cities consistently have higher per capita taxes.

Could growth provide a temporary tax windfall — a brief infusion of money that helps the community? Wrong again. Growth rarely pays its own way.

Take he case of Springfield, Oregon in the 1970s. A 1981 study from Springfield’s Planning Department shows that a decade of rapid growth (1971-1981) left Springfield’s municipal funding decimated.

The lesson is that growth creates costs. New development requires new roads, sewers, water, electricity, schools, parks, police, fire stations and so forth. If new development does not pay the full cost of its impact on the community, the public subsidizes growth. Public funds are depleted and taxes go up.

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Does a “Good Business Climate” Produce Economic Prosperity?

A “good business climate” roughly translates to one with less government regulation, lower taxes and a higher level of business subsidies.

A study by Dr. William A. Freudenburg of the University of Wisconsin evaluates how well business-climate ratings predict the prosperity of people living in those areas. [...]

The results are shocking. States with “good” business climate ratings actually had worse economic outcomes than the worst business climates. People in the states with the worst business climate ratings actually experienced $585 to $1,100 more growth in per capita income after five years than did top-ranked states. The disparity was even greater after 10 years.

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It’s time to rethink our investments in growth. While all impacts of growth may not be negative, it is clear that growth can have a predominantly negative impact on our communities. The economic benefits associated with growth are temporary at best.