Bernie O’Hare gets it almost entirely wrong in this post on city subsidies (how do putting the property-tax exempt Federal Courthouse in Allentown, or SNAP benefits, count as subsidies for urban living?), but we do agree on the last paragraph:
This discussion is not about whether an economically stronger Allentown is better for the region. Practically everyone agrees that a stronger Allentown benefits the entire Valley. The discussion is about the most effective ways to make that happen. It should not be a “them v. us” issue.
This is correct, but it’s important to understand why it’s correct.
Economic development is not zero-sum. A stronger Allentown economy is good for South Whitehall’s economy. More business growth in the city benefits all areas with convenient access to the city. It makes the whole LV economy more productive by increasing the size of the market, increasing the rate of job growth, increasing the variety of recreation and entertainment choices, increasing the value of land with convenient access to Allentown, etc. If Allentown becomes a jobs and entertainment cluster, that’s great for suburban areas too. Just as the Philadelphia suburbs are wealthy because Philadelphia is a big job cluster, the same will be true for Allentown’s suburbs. Proximity to a job center increases land values in the suburbs as well.
One thing to note about this is that the inverse is not true: while “practically everyone agrees” that growth in Allentown would benefit the entire region, there is no evidence that growth in the suburbs from the late 90′s to mid-2000′s has benefitted Allentown. That’s the simplest reason to prefer concentrated growth in office real estate to diffuse growth in office real estate.
So if “practically everyone agrees” that growth in Allentown will be good for the whole region’s economy, then why are the townships so opposed to concentrating most office construction there in the future?
It is because there are separate tax bases. While economic development is not zero-sum, competition between tax bases is a “them vs. us” issue.
When a business moves from South Whitehall to Allentown, it stops paying taxes to South Whitehall and starts paying taxes to Allentown. This creates a perverse incentive for South Whitehall’s government. Even though more growth and low rents in Allentown would be good for the economic prospects of their residents, it creates a problem for their government’s budget position.
If South Whitehall would merge its tax base with Allentown’s tax base, there would be no problem at all for residents of South Whitehall. There would be no need to raise taxes, or to cut public services. They would enjoy all the benefits of growth in Allentown.
The same is true for all the other municipalities. The only reason that low rents in Allentown pose a problem for them is that they want to keep their small political jurisdictions intact, and want to keep funding public services out of a small tax base.
This is what regionalism is all about. The answer to the problems posed by the NIZ for townships is not more inter-municipal competition, but fewer municipalities. Rather than working to stop a change that will be good for the whole region’s economy because it raises the cost of parochial governance (the definition of parochialism), townships should take this opportunity to weigh the considerable benefits of regionalizing the tax base.
Everyone can get in on the benefits of the NIZ if they are willing to regionalize the tax base at the County level. That’s clearly the best way to go. No tax increases, no public service cuts, and everybody shares in the upside – not just in their role as consumers and wage-earners but also as taxpayers.