On September 10, the Penn Institute for Urban Research (Penn IUR) and Social Science and Policy Forum (SSPF) held a discussion regarding Detroit's unprecedented municipal bankruptcy and its implications for urban finance, pensions, and the future of American cities. The panel discussion included Gilles Duranton, Professor of Real Estate and Chair of Real Estate Department at The Wharton School, Robert Inman, Richard K. Mellon Professor of Finance, Economics, and Public Policy at The Wharton School, Jeremy Nowak, President of J Nowak and Associates, LLC and chair of the board of the Federal Reserve Bank of Philadelphia, and Thomas Sugrue, David Boies Professor of History and Sociology and Director of Penn’s SSPF. Penn IUR Co-Director Susan Wachter provided introductory remarks and moderated the discussion.
In 1950, Philadelphia reached its maximum population of just over 2 million residents. In the decades before 1950, Philadelphia invested heavily in an infrastructure needed to support a city that would continue to grow. Especially with the subdivision of what Philadelphians call the “Great Northeast" section of the city, from what had formerly been an unplatted tract of land acquired in 1854, the city built streets, utilities, and facilities designed for a city of at least 2.5 million people. Beginning in 1950, however, the city began to lose population. After falling rapidly, the population stabilized at about 1.5 million people in 1990. While the downtown, which Philadelphians call "Center City", and adjacent neighborhoods have gained population over the past decade, the city as a whole still deals with the basic challenge of that "missing million."
That depopulation has generated a host of challenges. Perhaps the most direct is property disinvestment. Land and buildings have become vacant and blighted after generations of depopulation. About 40,000 parcels in the city are classified as vacant, unmanaged, and derelict. Even more widespread than vacancy is non-payment of taxes by property owners who have moved or died. Of the 500,000 real estate parcels in the city, over 100,000 are tax delinquent. That loss of revenue makes governance increasingly difficult. The capital budget can no longer maintain a state of good repair in facilities and the operating budget can no longer deliver services to a population of residents who were too poor to leave in the 70s and 80s or have been poorly prepared for life in the struggling city of the 90s and 00s. Today, over one in four Philadelphians lives below the poverty line.
Of course, this is not just a Philadelphia story. This basic pattern characterizes most "Major League" cities in the U.S. (Before 1953, no Major League Baseball teams were farther west or south than St. Louis.) Detroit, Buffalo, Cleveland, Pittsburgh, St. Louis, Chicago, Milwaukee, and others suffered similar absolute and relative depopulation and the resulting challenges. The past sixty years have seen many attempts to triage these historic cities, by focusing on—and putting resources into—urban structures and economic drivers that might survive with proper resources, while shedding those elements that drain money and have little chance of being resurrected. This triage approach has led to public strategies such as building entertainment economies based on conventions, stadiums, and casinos and to implicit strategies such as building low-income housing and workforce programs in particular areas of a city in order to effectively concentrate poor people geographically and isolate them from jobs and housing.
But today we are seeing the beginnings of a new approach in many "Major League" cities. These cities are rediscovering their structural assets from early periods of development and creating new ways to drive innovation. We call this new approach “civic arbitrage” because mayors and their allies are unlocking the value of old assets by re-purposing them for new uses and/or re-positioning them through new technologies. In effect, they are harnessing their city’s assets to exploit a price difference between current and potential market value. Instead of walking away with the resulting windfall, civic arbitrage artists share the value more broadly with the city and its citizens.
For example, the restoration of basic market conditions through the acquisition and disposition of abandoned properties provides a clear example of civic arbitrage. That arbitrage makes it possible to satisfy demand for higher density development in central locations. While walkable downtowns with transit options and live-work-play opportunities are developing in many “Major League” cities, outside these orderly cores, cities like Detroit and Philadelphia are plagued by a collapse of basic market conditions for property exchange: titles are uncertain, liens for accumulated back taxes exceed the value, code violations in adjacent properties create unmanageable risk, and obsolete building types and parcel sizes impede development. Smaller governments, like Genesee County, MI and Cleveland, OH, have pioneered new institutional capacities—such as land banks and improved collections— to address these challenges. In some “Major League” cities, land banks are being created and employed to mitigate each of the problems above (clearing titles, assembling parcels, and so on.) In Philadelphia, a new land bank has been enabled by the state legislature and city agencies are designing the details that will consolidate public authority over derelict property and restore the basic market of land. Similar efforts are concentrating on improving collections of property taxes, which has the effect of both recovering revenues and lessening the burden placed on parcel owners who are paying taxes.
Open data is a second revolution in civic arbitrage and unlocking value for the public good. Cities such as New York, Chicago, Boston, and others are opening their data sets to the public, actively courting “civic hacking” in order to create markets based on information that has been virtually inaccessible for generations. Philadelphia has the nation’s first officially authorized big-city public data repository, which provides access to hundreds of data sets at www.openphilly.org. This data has been used in recent months to improve the information used in public debates over policy issues ranging from property reassessments to casino location to new transit service. The real power of open data comes when it intersects with substantive issues. For example, a new app called “License to Inspect” uses real-time and geo-coded permit and violation data to empower citizens to monitor and report unlicensed and unpermitted building activity, exponentially increasing the presence of city inspectors. In just a few months, the public will be able to see acquisition activity under the new land bank measure in order to anticipate development pressures and better understand the demand for new public services and investments in neighborhoods. Open data is another powerful example of how civic arbitrage can unlock latent value by moving information from file cabinets where it has near-zero value to a web portal where it can be used, analyzed and applied to addressing real urban problems.
The third example is at once the most ancient and the most elusive. Observers have long-attempted to understand and describe how innovation emerges and what roles diversity and interaction play in that emergence. But while academics maintain many hypotheses on these questions, mayors and their allies appear to be making a major bet on the connection between diversity, innovation and prosperity. Around the country, cities are using investments in infrastructure to foster cultural, intellectual, and spatial interaction, with the idea that it leads to creativity, innovation, and economic development. While there are certainly small-scale versions of this in cities like Olathe, KS and San Jose, CA, there appears to be distinctive “Major League” versions emerging in Philadelphia’s Kensington neighborhood, New York’s Brooklyn Navy Yard, and Boston’s Innovation District.
These cities connect legacy and innovation to leverage density and diversity. For example, Boston’s Mayor Thomas Menino supported the rebranding of the South Boston Waterfront as the Innovation District through promotion rather than subsidies and incentives. The district has successfully attracted new entrepreneurs, such as MassChallenge, an accelerator supported by partnerships with the Commonwealth of Massachusetts, as well as private partners such as Fan Pier, Fidelity, and Deshpande Foundation. And cities are using creative approaches to financing such efforts. In Chicago, for example, the new Chicago Infrastructure Trust has been created with the aim of securing $1.7 billion from private investors to modernize legacy buildings, locations, and infrastructures.
These examples raise a host of questions for researchers and policymakers alike. Perhaps the largest open questions relate to how much opportunity can be generated by this civic arbitrage approach and how widely it can be distributed to improve the lives of those who still suffer from the effects of fifty years of depopulation and disinvestment. In October, the Office of the Provost of the University of Pennsylvania is gathering faculty from across the University as well as local and global thought leaders to discuss these ideas and the questions they provoke. For more information on that event, or to register, please visit www.legacyandinnovation.org.
Mark Alan Hughes is a Penn IUR faculty fellow and professor of practice at Penn’s School of Design, and Elise Harrington is a Research Associate at the School of Design.
Penn IUR is pleased to announce its expanded Scholar program, which recognizes distinguished urban-focused academics and practitioners. In light of the growing importance of urbanization globally, and the need to foster dialogue and develop multidisciplinary research teams, we have expanded our program to include 70 Scholars who work in diverse fields, and are based throughout the country, and internationally.
Penn IUR Scholars are preeminent urban experts in diverse fields ranging from engineering and planning to arts and finance. Unlike our Penn IUR Faculty Fellows, who are based at Penn, our Penn IUR Scholars are affiliated with other universities and organizations in the U.S. and abroad. They bring with them a broad and deep knowledge of urban issues, and a rich body of urban-focused research, innovation and inquiry. We look forward to new collaborations with those Scholars who have recently joined us, and to continued collaboration with our long-standing Scholars.
To see our current Penn IUR Scholars, and for information about their work, visit the Penn IUR Scholar section of our website.
With support from the Rockefeller Foundation and in partnership with the Forum for the Future and the Economist Group, the Penn Institute for Urban Research convened the Future of Transforming Cities high-level meeting at the Rockefeller Foundation’s Bellagio Center, August 27-31st, 2013. The meeting brought together 23 thought leaders from corporations, universities, governments, banks, civil society and other global organizations and featured participants from more than 10 countries throughout Asia, Africa, Europe, and the US.
Over the course of the event, meeting participants were challenged to address the central premise that many urban areas, in both the developed and developing world, are suffering from critical deficits in public goods that prevent their achieving resilient and equitable futures. Working in groups, the meeting participants proposed multi-sectoral and systemic interventions aimed at provisioning public water, sanitation, and mobility infrastructure, housing and public space, as well as increased economic opportunities and the legal and market frameworks to sustain these goods. Throughout, participants were engaged in future-oriented thinking around the trajectory of global urbanization, as well as the external trends (e.g. increasing climate volatility, changing urban governance structures, and increasing availability of data and ICT) likely to impact the future of cities. In order to structure this process, a web-based program called “Futurescaper” was utilized to aggregate and map what participants saw as the key drivers of change impacting the global urban future (see diagram above).
The Future of Transforming Cities was the first of four meetings in the Rockefeller Foundation supported “Visionaries Unbound” series addressing the future of cities, ecosystems, healthcare, and livelihoods around the world. Reports from both the Economist Intelligence Unit and the Penn Institute for Urban Research, along with other products from the meeting will be made publicly available at the “Transforming Cities” section of the Visionaries Unbound website. In addition, keep posted to Urban Link for Penn IUR’s final report.