Austin Contrarian

Why Clusters of Like Businesses Thrive

In New York, for example, diamond dealers, florists and even chess shops are clumped together.

That's from yesterday's All Things Considered (4:44 podcast).  A very nice explanation of economies of agglomeration.

I liked it mainly because the reporter actually used the phrase, "economies of agglomeration."

Some Council members are skeptical, too

Let me give credit where credit is due.  If I had been watching yesterday's Council meeting, I would have known that some city Council members also are skeptical of the new wave of historic landmark applications:

The Austin City Council on Thursday ordered a review of rules on granting historic landmark status to homes — and the tax breaks that come with that designation — amid concerns from some council members that a rush of new historic zoning cases could undermine the city's tax base.

On Thursday, the council heard 25 requests for historic status, most from the Pemberton Heights neighborhood, just northwest of downtown.

That amounted to more historic cases than the council usually considers in a year, Council Member Bill Spelman said.

The council gave preliminary approval to the requests but delayed a final vote until next week. The council also directed city staffers to look into possibly limiting the number of historic designations per neighborhood, or citywide.

"I think we have a major equity issue if all our cases are concentrated in a specific area" of West or Central Austin, Council Member Sheryl Cole said.

There are now about 440 buildings for which the city has granted historic status, city planning manager Jerry Rusthoven said.  To qualify as historic, a home must be at least 50 years old and must have retained its historical appearance, among other requirements.

The city taxes on a historic home are either capped at $2,000 or are levied as if the home is worth 50 percent of its taxable value, whichever is higher, Rusthoven told the council.

In exchange, the owner of a historic house may make only minimal changes to it.

With the 25 pending cases, along with three more cases to be considered at next week's meeting and 20 cases already approved this year, the city would lose $115,300 from the tax rolls.

The school district, county and other jurisdictions would lose taxes as well, Rusthoven said.

The solution is not to limit the number of designations per neighborhood. If a neighborhood is chock full of historic homes, we might was to preserve more of the neighborhood rather than less. (There is actually a separate zoning district for this.)

No, the solution is to enforce the ordinance on the books; i.e., require the structure to have "architectural, historical, archaeological, or cultural significance."  A house is not "significant" merely because the owners made no major changes to the house over the years. (Some of the houses on the list don't even pass this watered-down test because the owners have added garages or another wing.)

The article makes another important point.  The city's decisions spill over to the county and school district.  They, in fact, bear the brunt of an historic landmark designation.  Designating Pemberton Heights' "Huron Mills House" as historic will cost the city $5,000 per year -- capped -- but the county and AISD $29,000 per year.  (The Huron Mills House is historically significant because it was the home of the proprietor of Austin's first cash-only building materials business.  Oh, and it is an excellent example of Colonial Revival residential architecture (as is every third house in Pemberton Heights).)  The city naturally would designate fewer buildings "historic" if it had to bear the full cost of the designations.

The historic landmark tax dodge

While scanning today's City Council agenda, I was struck by the number of applications for historic landmark designation.  Twenty-five of the 93 agenda items, to be exact.

According to City code, the purpose of a historic landmark designation "is to protect, enhance, and preserve individual structures or sites that are of architectural, historical, archaeological, or cultural significance."  It is not a synonym for "old."  And it shouldn't be:  the owners of historic landmarks get generous tax breaks.   A historic designation, in other words, is a straight cash transaction; the owners get cash, we taxpayers get preservation.  So we should try to get our money's worth.  That ought to mean, at a minum, that we give two snaps about the structure we are paying to preserve.

Most of these don't rate one snap.  Here is a sampling of the items on today's shopping list:

For $10,325 in annual tax abatements, we are buying the preservation of Pemberton Heights' ca. 1938 "Lolla Peterson House."  (Step one in any landmark designation application is to name the house.)   The staff report gives this summary of its reason for recommending historic landmark status:

The house is a good example of a Tudor Revival-syle stone cottage and is associated with Lolla Paterson, who headed the Travis County Welfare Department for many years, and was known for her kindness and treatment of the needy. 

Mind you, the historic structure was not actually built for Ms. Peterson; she did not move in until 1957.

For $11,777, we are buying the preservation of Old West Austin's "Sutton-Bailey House."   This 1938 house "is an excellent example of severe Colonial Revival architecture" and is associated with William S. Sutton, a leader in the field of education and Dean of the College of Education at UT.  Mr. Sutton, unfortunately, died before the historic structure he imbued with significance could be built, but it was occupied by his wife and daughter ten years after he died.   Sort of a "one degree of separation" test of historic significance.

For $5,359 in annual tax abatements, we are buying the preservation of the ca. 1924 home of Madison Benson, a "pioneer automobile dealer in Austin."  The home was also "associated" with Godfrey Flury, who was responsible for the painted interior of St. Mary's Catholic Church in Praha (wherever that is) and who then established an "outdoor advertising business in Austin" (i.e., billboards).   (Like Ms. Peterson, Mr. Flury never actually lived in the house; his widow bought the house 10 years after he died.)

Come on.  Who will get a special tingle from viewing the home of  the proprietor of Austin's first cash-only building materials business ($34,772 in annual tax abatements).  Or the home of an oilman whose wife was "prominent in Austin social circles" and a charter member of the Junior League (and whose historically significant home was built in 1947) ($28,381 per annum).  Or the home of the proprietor of one of the city's "leading women's clothing stores" ($17,841) or of prominent  clothing store owners who were leaders in the city's Jewish community ($15,058) or of  a "prominent insurance man" ($12,627).

Staff recommended the historic landmark designation in each of these cases.  I'm frankly surprised they could do it with a straight face.  I'm surprised at the Planning Commission and Council's willing complicity.   The only significance of most of these homes is that they lie in tony Pemberton Heights or Old Enfield and in many cases are appraised at well over $1 million.   The historic landmark ordinance has somehow been contorted into a tax-break scheme for the members of Austin's upper middle class smart enough to work the system.   Who can blame them for asking?  But I don't see why those of us relegated to less prestigious neighborhoods should stand for it.

You can access the staff reports from the City Council agenda page. They are items 60-84.

Streetsblog Capitol Hill

I have begun contributing to Streetsblog Capitol Hill.  My first piece is on the regressivity of our housing policy.  Check it out.

"No road we built in Texas paid for itself."

From Streetsblog Capitol Hill:

Over the past two days at the Congress for the New Urbanism Project for Transportation Reform conference, attendees have called for reform at local, regional, and national levels. In a panel debate about the future of transportation funding and the role of regional planning through MPOs, several speakers argued that the foundation of transportation and development funding had to be systematically overhauled.

Mike Krusee, [AC: former] chairman of the Texas House of Representatives Transportation Committee, said that financial problems were more significant than environmental, though they should be tied together in the same discussion.

"The reason there's not a new transportation bill is because there is no money. We've hit the wall of unsustainability on how we finance the transportation system," he said.

Krusee asserted it was urgent and necessary to understand the nature of this broken financial apparatus and to develop solutions to fix it. In Texas, he said that, on average, it cost the state 20-30 cents per person per mile to build and maintain a road to the suburbs, yet drivers only pay on average 2-3 cents per mile through the gas tax, vehicles fees, etc.

"What we found was that no road that we built in Texas paid for itself," said Krusee. "None."

The expense to build roads and utilities further and further from the urban cores not only drove costs to unsustainable levels, it created an imbalance in who paid for growth. Over the past 50 years, Krusee argued, the federal government used tax money that came by and large from cities to subsidize roads to areas without access otherwise.

"City dwellers have subsidized the land purchases and the development costs out in the suburbs," said Krusee. What's more, the gas tax, which city dwellers pay when driving on city roads, but which goes to freeways largely outside of urban cores, is "a huge transfer of wealth from the cities to the suburbs to build these rings."

Krusee said building the interstate system was initially a good thing, because if facilitated interstate commerce and increased the productivity of cities. Now however, because of congestion caused by ever longer commute patterns, system productivity is in peril. "What's happened is the federal government has basically reneged on the deal. By subsidizing highways out to the suburbs, it's no longer efficient for truck traffic, for goods and services and people to move between cities in the United States because those roads have been hijacked by all the commuters."

Krusee, by the way, represented suburban Williamson County.

Krusee's assessment matches TxDOT's own internal assessment.  (This actually should be no surprise since Krusee's committee relied on TxDOT for data.)   TxDOT, for example, concluded that the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes -- just 16% of the total cost.

Some of us get swept up in the rhetoric sometimes, but roads aren't unmitigated evils.   Obviously, we need roads.  Just as obviously, I think, we will continue to need new roads.   But new roads should be built only where drivers are willing to pay for the new capacity.   And the only way to gauge that demand is to price existing roads properly; the revenue they generate will tell us when it is time to add to add that capacity.

Aragon

Mueller gets a lot of criticism -- see the grouchy comments to this entry -- much of it unfair.  I like Mueller.  I do agree, though, that it is not a model mixed-use, New Urbanist development.  Among other things, there is  too much segregation of single-family and multi-family/commercial.

So let me offer an example of a model New Urbanist development.   Aragon is an infill development in Pensacola designed by Michelle MacNeil (who happens to be my cousin).   It's several years old, but I got my first tour in August when we visited her during a trip to the Gulf Coast.

One of the most significant features of Aragon is its location.  Many New Urbanist developments are suburban greenfield developments or massive redevelopments of abandoned industrial land or airports (Mueller and Stapleton, for example).

Using asphalt more efficiently

Most mornings on my way into work, I stop at Coffee Bean & Tea Leaf on South Lamar, a new coffee shop between Riverside and Barton Springs, one door down from Bridges on the Park.  (The building used to be a soccer store.)

If you are looking for an example of how code mandates too much parking, here you go.

According to Travis County tax records, Coffee Bean & Tea Leaf occupies an 8,861 sf building.   City code requires restaurants to have 1 parking spot for every 100 sf for the first 2,500 sf, and 1 spot for every 75 sf over that.   This means that CBTL, had it built on a suburban greenfield, would have needed 30 parking spots to comply with code. 

It has 13.

And -- surprise! -- thirteen is enough most of the time.   Most mornings there is at least one  empty spot to the side of the shop.   Some mornings there is not, but even then I manage to get my coffee.   I park on Lee Barton Drive.  Or I park in the Taco Bell parking lot next door -- which is no big deal since Taco Bell lets CBTL use its parking lot before 10 a.m.  I doubt CBTL loses any business because it is "short" 17 parking spots.

I'm not sure how CBTL got away with fewer than code requires.  Perhaps it got a variance.  It sits on a narrow lot and could not have added another 17 spots without tearing down the building.  Perhaps the number of parking spots were grandfathered.

Regardless, CBTL illustrates how our code requires too much parking.

It illustrates another point, too.  Businesses want their customers to have a place to park.  Sometimes they might prefer to provide another 2,000 sf of asphalt.  Sometimes, though, they might prefer to find space elsewhere that is not being used.  The asphalt on Lee Barton Drive, rather than lying  empty, is now being used productively.  Taco Bell's asphalt, rather than lying empty before lunch time, is now being used more productively.  CBTL avoided pouring a bunch of concrete that would have lain empty 23 out of every 24 hours.   Each square foot of asphalt provides more value now than before.  And that's all because CBTL was allowed to figure out an informal solution to its "shortage" of parking.  

If there, why not everywhere?

No

I agree with Ryan Avent that this WSJ piece makes a bizarre argument against congestion pricing:

By requiring car drivers to pay a fee to drive in a city at peak hours, congestion pricing reduces traffic and raises money that can be used to support public transit—both worthy goals.

Yet congestion pricing has dubious environmental value. Traffic jams, if they're managed well, can actually be good for the environment. They maintain a level of frustration that turns drivers into subway riders or pedestrians.

The author contends that by improving traffic flow, congestion pricing induces more driving, which in turn increases environmental damage:  "If reducing it merely makes life easier for those who drive, then the improved traffic flow can actually increase the environmental damage done by cars, by raising overall traffic volume, encouraging sprawl and long car commutes."

Ryan makes the right arguments.  I think Owen's got the economics flat wrong, which I'll elaborate in another entry.  He's wrong because congestion pricing does not induce more traffic and because congestion pricing encourages more compact cities rather than sprawl.

But Owen's also got the environmental impact wrong.  He ignores that traffic jams impose a cost -- a significant cost -- not imposed by free-flow traffic.  That's health.  Traffic jams concentrate particulate emissions in one location.  High levels of particulate emissions are bad for people.  They cause all kinds of health problems -- asthma and other respiratory illness, obviously -- but also higher risks of infant mortality.

If you need evidence, read this spanking new paper (h/t Matthew Kahn).  It compares infant mortality rates near toll plazas to infant mortality rates after the toll plazas were replaced with an EZ pass system.  They found that the EZ pass system "reduced the incidence of prematurity and low birth weight among mothers within 2km of a toll plaza by 10.8% and 11.8% respectively."  Because toll plazas are notoriously congested and highways with an EZ pass system are not, this is a good proxy for the health effects of traffic bottlenecks.

Environmentalism is not only about carbon emissions.  The wellspring of the movement was Rachel Carson's crusade against environmental contaminants that (allegedly) made people sick.  Any calculation of environmental cost that omits the costs of making people sick is not just a bad cost-benefit analysis, it's bad environmentalism.

Break

I have been on break the last three weeks because I needed one.  I will post new stuff this weekend.

Bag fees

I hate airlines' practice of charging to check bags even though I rarely check bags.  But I understand the economics.  Strangely, Matthew Yglesias does not:

I have to say I’m not really very sympathetic to this sentiment, or with the current Southwest Airlines ad campaign slamming bag fees.  If you figure an airline is going to believe it can acquire a given amount of revenue per passenger from a given route, the bag fee doesn’t actually alter this level, it simply redistributes it from those traveling with no checked bags to those traveling with multiple bags.  Nobody is made worse off on average by this.  But at the margin bag fees do encourage people to pack less stuff which reduces the weight of the plane and thus reduced fuel consumption and carbon emissions.

The economics of charging checked bag fees is pretty simple.   The fees lighten plane load but encourage passengers to carry on more luggage.   That means a longer boarding time as more passengers stop to load bags in the overhead bins and hunt around for empty bin space.   Charging for checked bags thus can make everyone worse off:   those traveling light (usually business passengers) must spend more time boarding the plane and waiting for take off in cramped seats; those traveling with checked bags must pay more to fly.

Once one understands this, it's easy to see why legacy carriers charge bag fees and Southwest does not.  Southwest's business model relies on quick turnaround.   Its planes may stop at a gate for just  25-30 minutes.  Southwest has determined this is worth more than the marginal savings in fuel cost and handling costs.   So Southwest does not charge bag fees and trumpets this policy as a concern for its customers.

The legacy carriers don't even attempt Southwest's quick turnaround; they allow 30-40 minutes just to board, which usually isn't a big deal to them because their planes sit at the gate for so long.    The legacy carriers charge bag fees because the fees save them money on bag handlers, save some fuel, don't hurt their turnaround times and -- one presumes -- are actually passed on to their customers rather than being absorbed in the ticket price.  This means, of course, that bag-checking passengers actually pay a higher net price.  But even if business travelers see a corresponding reduction in their ticket prices, this does not mean that the bag fees are cost-neutral, as opposed to revenue-neutral.  They pay an off-the-books cost by having to endure more congestion.  The bag fees are cost-neutral only if the business ticket prices fall enough to compensate business travelers for that extra congestion.  I doubt that's the case.

The bag fees are analogous to charging tolls on a lightly-traveled road in order to force drivers onto a congested road.   That evidently makes sense in the bizarro world of airline pricing, but it doesn't make the policy cost-neutral.