That’s absolutely untrue. The only reason companies track depreciation as they do is because it allows them to defer taxation. Public works projects are not paid out of current cash.
Strong Towns makes good arguments about certain things and are critical in a reasonable way of how civil engineering organizations rate the need for more civil engineering works. But the budget discussion makes zero sense.
The biggest expenses for county, city, town, village government are: schools, police & fire, Medicaid share in states that do that, and employee retirement and health. A small/midsize city spends 60% of its budget on police.
Capital projects are capitalized with bonds. Governments have the lowest bond expenses due to tax exemptions. Roadwork is not done in a cash basis. It’s bonded for 10-30 years depending on the job.
Yes, the problem is that our cities are already leveraged up to their eyeballs. At some point, the actual humans buying those bonds start becoming skeptical of the city’s ability to pay them back.
LA currently has about a billion dollars of outstanding general obligation bonds (edit: but that does not include all their future liabilities). They're still rated AA, but I presume that is because the credit writing agencies understand how many untapped revenue streams LA has, but again, those will require unpalatable political change. You can’t keep refinancing forever.
Philadelphia, Miami, and Chicago are getting close to junk bond status, and when that happens, the option to refinance starts evaporating very quickly.
I also think LA will be fine in the long run, I just think that their tax structure will force significant changes. The tax base is able to cover the cities liabilities, it's just that the residents don't want to pay those extra taxes, and don't want to change in ways that let other people pay them.
The city has a billion dollar deficit right now. Trivial for residents to afford ($83 per person), but difficult to actually implement politically.
Wikipedia says the GDP of the LA metro is ~1.5T. I think they could handle 1B in bonds. If they choose not to, it's not because it's some impossibility. Certainly not because roads are impossibly expensive.
I said general obligation bonds, not general liabilities. These technically are what makes this discussion so difficult.
My point is that much of what the city can tax has little to do with the city's GDP. Either the landscape of the city will have to change or the current taxation paradigm will have to change.
What they can tax does have to do with the GDP though. If they have a 1B deficit, they need to somehow tax <0.1% of activity (or cut services), whether through property tax, income tax, sales tax, corporate tax, or some other scheme. What they don't need to do is radically increase density, and since almost all of the costs scale with population, not area, density wouldn't even help that much (or might hurt if it leads to a lower percentage of net contributors).
Again, putting $1B in some perspective, the LA Unified School District budget (which is county-level, so not directly comparable to the city, but anyway) is just under $19B. Maybe someone else can ballpark how much of that is associated to the city. Or look the other things that scale with population: police, medical, waste, social programs, etc.
Again, they have $1B in the current deficit. The have $1B in outstanding bonds. They have myriad other outstanding obligations that won't show up on the balance sheet for 20+ years.
Okay, but relative to their resources, that's nothing. So they can just pay for those things. It's like worrying about a water heater replacement when you make well into six figures. At a macro level, it is obvious that the suburban model itself is not somehow financially unsustainable.
The city budget is $14B. So they need to make a ~7% adjustment somehow, which amounts to less than a 1% tweak to the local economy. That's not a broken system. It's not a ponzi scheme. It just means they should pay their bills and maybe reduce some waste. You yourself said it's trivial for residents to afford to just pay for the deficit.
Strong Towns makes good arguments about certain things and are critical in a reasonable way of how civil engineering organizations rate the need for more civil engineering works. But the budget discussion makes zero sense.
The biggest expenses for county, city, town, village government are: schools, police & fire, Medicaid share in states that do that, and employee retirement and health. A small/midsize city spends 60% of its budget on police.
Capital projects are capitalized with bonds. Governments have the lowest bond expenses due to tax exemptions. Roadwork is not done in a cash basis. It’s bonded for 10-30 years depending on the job.