The dominant approach to urban development in recent decades has been to try and make cities as 'business friendly' as possible, by using tax breaks, subsidies and abatements to attract and retain mobile capital and highly educated individuals (the 'creative class'). Providence has done this in abundance.
This approach isn’t new, or unique to Providence. It really emerged in the first two decades after World War II, in the urban renewal era. One lesson from that period is that the relationship between city policy and economic growth is uncertain and unpredictable. Another lesson is that using public resources for private purposes comes with significant costs. For one thing, policymaking is more susceptible to secrecy, patronage and corruption. For another, it often marginalizes or even comes at the expense of small businesses, the poor, and people of color.
But perhaps the biggest lesson of the last half-century of urban policy is this: it doesn’t work. And there is a lot of evidence that it generates inequality, undermines widely shared prosperity, and weakens the ability of democratic city governments to serve their people.
Economists in general are very skeptical about the idea that if a city like Providence can just get its ‘giveaways’ right, it can take off. We actually don’t know a lot about the relationship between growth, decline and particular urban policies, making it very difficult to predict what a particular policy choice will produce. Few predicted the decline of Rustbelt cities in the middle of the last century; similarly, few anticipated the recent 'resurgence' of many of the same cities. Almost all postindustrial cities have pursued the same policies of chasing mobile capital and people in recent decades – including Providence. Yet some have surged while others have not.
Why doesn’t this approach work? The rise and fall of urban economies has an organic quality to it, akin to an ecology rather than a business. Luck, contingency and path dependence often play a large role in the fortunes of cities, historically and presently. Urban economies are powerfully shaped by past and present decisions made by neighboring jurisdictions, and by state and national tax, spending, immigration, labor, and land use policies. It is very hard for cities like Providence to shape regional or macro-economic forces; they need help from higher levels of government to do large scale public works, to fund health, education, and welfare services, to provide affordable housing, and to ensure that more privileged communities don't hoard resources and shift burdens. At the federal level, that help for cities has been diminishing since the early 1980s. This has also been the case at the state level, especially since the Great Recession.
Obviously Providence has to manage its resources well, but there is little evidence that those cities that lag behind do so because they are badly governed. The cities in the US that find themselves in constant trouble are virtually always postindustrial, poor, and heavily minority, and generally surrounded by prosperous and overwhelmingly white suburbs, whose policies of racial and socio-economic exclusion exacerbate urban problems. This pattern of segregation is a function of past and present political decisions by suburbs and by higher levels of government, over which cities have very little control. The reasons why cities like Providence struggle to provide economic security to so many residents are largely structural, in other words. Tax giveaways to mobile capital don't move the needle on that, and in many ways they make things worse.
Provision of public services (like education) is residence-based – we get most of our public services where we live. The problem is that Rhode Island municipalities have serious differences in local taxing and spending capacity (and very different needs and costs) which the state doesn't adequately re-balance. Indeed, by allowing these disparities -- which benefit a favored quarter at the expense of the majority, and of Providence in particular -- the state in effect reinforces the connection between where one lives, and how much opportunity one has.
These problems are compounded by competition between towns and cities for tax base. This happens in Rhode Island, and nationally. Suburbs have the ability to use zoning to avoid low-taxpaying residents with high service needs, and to attract high-taxpaying residents with low service needs. The battle for tax base encourages localities to put up barriers to entry, hoping to free ride on the economic benefits generated by the infrastructure of nearby localities that can't do this (like Providence). Local governments (especially suburbs) never have to fully internalize the costs of these policies, because they largely fall on the cities. With extensive political power in the state legislature, suburbs resist sharing the costs at that level too. Cities like Providence face fiscal problems that are ultimately structural. The right combination of tax giveaways won’t fix this. While more honest and effective government is obviously needed, that won’t fix it either. Subsidizing desirable entrants (capital, or people) may have short-term effects on Providence's tax base, but it is unlikely to alter our long-term growth, or offer opportunity for most of our neighbors.
This approach also comes with significant costs. In effect, we are extracting money from people and businesses that are rooted in Providence, to offer it to people and businesses who aren’t, in the hope that they will somehow kick that money back to us – with no evidence that this will in fact take place. It depletes the public resources needed to make a city a livable and economically vibrant place, with little provable return. In combination with the fact that almost half the land in Providence isn't taxable -- because it is owned by non-profit educational, religious and health institutions -- it is hardly surprising that we struggle to maintain our schools and our public infrastructure, and to invest in the people who live here.
We need to focus on strengthening the public resources that help citizens manage the inevitable cycles of economic growth and decline, and providing the foundation for growing our own middle class rather than importing it. Any development policy that shifts money from taxpayers to private firms has to be measured against some other potential use of taxpayer money – like providing healthy and high quality public schools, or access to pre-kindergarten for young families, or building affordable housing, or jump-starting local small businesses and cooperatives, or funding robust youth programs in Mt. Hope and other neighborhoods.
These kinds of policies also encourage waste and corruption. Structurally short of revenue, there is a strong temptation for cities like Providence to increasingly rely on public-private partnerships, borrowing, the selling of municipal infrastructure, the privatization of public services, and the use of tax breaks and subsidies that swap public money for private development. Because many of these things aren’t directly reflected in city budgets, they are less visible to citizens. And because they are less visible, they are not only tempting for elected officials to use – it is difficult to prevent bad or even corrupt incentive deals. This approach gives capital too much political power, and leaves too much of Providence’s wellbeing driven by unaccountable and unelected economic actors.
Many cities have begun to realize that this script doesn’t work, and have started to adopt policies that serve the broader interest – like living wage laws and paid sick leave, for example. Low labor costs are far less important in business location decisions than is commonly assumed, and policies that lift wages for Providence’s working poor in particular can actually stimulate economic activity, job growth, and local tax revenues. After all, if low wages attracted investment, some of our poorest urban neighborhoods in Providence and elsewhere would have already rebounded. Low wages and weakened rights for working people don’t benefit anyone.
Transforming low-paid service jobs into middle-class work can be done -- in fact, that is precisely what happened to low-paying manufacturing jobs a century ago. Because of the New Deal and the labor movement, factory work in the postwar period provided some measure of economic security for millions of American families and neighborhoods. Lifting the wage floor is key. The services that Providence’s working people provide in retail, hospitality, domestic service, cleaning and security are often heavily consumed by nonresidents. We can lift these people, their families and their neighborhoods up through higher wages, better benefits, and prohibiting wage theft, for example. The cost would be borne by employers and nonresidents, while the benefits would be felt by everyone in Providence. Service workers with some measure of economic security will be more engaged, innovative and productive; turnover will decline, and customer service will improve. And what do Providence working families do when they have a little money to spend? They spend it locally. As Texas populist Jim Hightower once said, money is like manure: you have to spread it around, if you want to grow anything. I’m in favor of an approach that maximizes the number of times each dollar spent in Providence bangs around in the city before leaving it. To me, that means a preferential option for the small, the local, the ecologically sustainable, and for living wages for Providence’s working families.
Rather than focusing on attracting mobile capital, we should be focused on building Providence’s economy on a more local and less vulnerable scale. For one thing, it would provide more stability during booms and busts. For another, we’d keep more resources here, to spend on things that we value. More widespread local ownership of productive assets would create more anchored jobs – through worker cooperatives, micro-loans to foster small business development, consumer cooperatives, community-owned corporations, and municipal ownership of local assets, for example. Maybe we should consider a publicly-owned bank to facilitate this. The goal is to focus on generating indigenous, stable, balanced economic growth locally. And whenever possible, if deals have to be made, we have to make sure that the gains are comparable and widely distributed, that the costs don’t fall on the least well off, and that attraction strategies don’t lead to displacement, the undermining of local businesses, and economic activity which is ecologically wasteful or destructive.
Ultimately, Providence should do less of what it can’t do (induce growth through chasing capital with public resources), and more of what it can do (provide quality basic services). The focus should be on growing the middle class, not attracting it from elsewhere. It should be on seeing the diverse people of Providence as valuable and worth retaining, right where they are, before they even become middle class.
Many of us today feel a sense of democratic loss. Big decisions that shape our daily lives seem to be made elsewhere, beyond the reach of democratic governance, while the economy becomes increasingly unstable and unequal. The federal government seems unwilling to address any of this. Cities like Providence have a crucial role to play in preserving and expanding democracy – and in trying to fulfill the American promise of a good life lived jointly with others.
Given what I've written above, here are some urban development policy ideas I intend to work on if I'm elected to the City Council:
- Convene a task force to examine the feasability of setting up a public bank for Providence, to keep more money in the city, and offer low-cost credit for small businesses and cooperatives. Philadelphia, Santa Fe and other cities have begun to look into this, and Providence should follow suit. Public banks (whether at the state or city level) collect deposits from government entities (school districts, city tax receipts, state infrastructure funds) and use that money to issue loans and support public priorities. They are led by independent professionals but accountable to elected officials. Public banks are a way to build local wealth and end municipal reliance on Wall Street institutions, with their high fees, their scandal-ridden track records, and their ethically questionable investments in private prisons, predatory lending and pipelines.
- Expand the worker cooperative sector in Providence's economy. To do this, we'll need to pass H6155 at the state level, which changes our incorporation laws to allow for cooperatives. Please encourage your representatives to vote for the bill!
- Support efforts in the State House to pass an increased minimum wage, pegged to the cost of living
- Insert clear and enforceable clawback provisions in all tax subsidy deals to attract/retain mobile capital. This could include requirements that the firm stay in the city for a period of time or forfeit the subsidy, that it generate tax revenue in excess of the subsidy over a defined period of time, and that it not interfere with the right of Providence working people to organize and bargain collectively.
- Ensure that any new business drawn to Providence by tax subsidies doesn't displace or weaken locally owned businesses in the same market (the default should be a preference for what is already here, in other words)
- Unions, community groups and even the city itself should be empowered to negotiate Community Benefit Agreements, when a tax subsidy deal is under consideration. Provisions might include:
- Limits on the displacement of residents
- Money for an affordable housing trust fund
- Set asides for low-and-moderate-income housing units (for deals involving housing development)
- Money for neighborhood services, like parks, recreation, childcare, school repair
- Requirements to pay a living wage to all workers
- The adoption of local hiring and contracting preferences
- The use of green practices, both in terms of construction and water/energy use
- Providence is home to multi-billion dollar non-profit medical and educational institutions which do not pay property taxes -- and we have severely underfunded public services, in public education in particular. As a consequence, the tax burden falls on working people (directly, if they own homes; indirectly, if they rent), and on small businesses. We must increase the payments-in-lieu-of-taxes (PILOTs) that institutions like Brown pay, and dedicate that revenue to a specific policy that improves the quality of life for all Providence residents. That could be an Affordable Housing Trust, or public school repair/construction, or even a pre-kindergarten system.
- Consider using developer impact fees, an employer 'head tax,' and excise taxes on big box retailers and non-RI-based banks to fund public services and infrastructure that will enhance the long term economic stability and health of Providence.
- Increase the hotel tax, and dedicate the proceeds to public school repair and construction.
- We should consider a small wealth tax of some sort, which could be used to fund public school repair/construction, pre-k, affordable housing, mass transit, or youth programs in neighborhoods like Mt. Hope.