Mill Town Capital organized both a large presentation at Barrington Stage in the evening and a small one for those involved in local community development.
PITTSFIELD, Mass. — Charles Marohn believes that humans are basically wired to highly value the immediate positive while discounting long-term negatives.
That's a well recognized and documented psychology. It explains why many people will eat poor food and sit down in front of a television rather than go to the gym.
But Marohn's specialty isn't psychology. He's a civil engineer. So why was he talking psychology in a room full of government officials and city planners?
"This is a fundamental insolvency problem. This is a problem I saw in city after city after city. We were growing very robustly, we were growing for decades. We were adding new homes, new commercial buildings, and we were seeing a lot of cash," Marohn said.
"Then all of a sudden these things were coming due and we had no money. We had no money to fix anything. We were getting huge bills."
Marohn started Strong Towns, a movement to re-think how to build a city or town. The Minnesota native had noticed the same trend in cities across America -- including Pittsfield.
"We grew this in a pattern that gave us the illusion of wealth, the short-term infusion of cash in exchange for this long-term liability," he said.
For him, it started with a financial analysis of projects his city had done. A private developer came in years ago and with his own money built a residential cul-de-sac to serve new homes. That gave immediate tax revenue to the city. The roads were brand new and cost very little to maintain so the property taxes generated was a boon.
But then he asked a seemingly simple question: when the city repairs the infrastructure, how long will it take for it to recoup the cost from those taxpayers. The answer was 37 years.
"The road isn't going to last 37 years so you have this financial imbalance built into it. When this road falls apart where is the money going to come from?" Marohn said.
He looked at another similar development. The answer was 79 years. In that one, if the town wanted to collect enough tax revenue before the road needs repair it would take a 46 percent tax increase every year, a number that isn't feasible.
He scaled the model up to a successful business park. The city wanted to build one to help attract new businesses. He said he discounted any subsidy offered to incentivize new businesses or any parcels that would be off the tax rolls because of non-profits or city ownership and assumed the entire park was full and all the tax money was being collected within a year.
"It still took the city three decades to break even," Marohn said. "This is a pattern we've seen over and over again and literally every development we handled that is new and we could get the numbers, we'd see this same pattern."
New developments make sense when they are first done. The cash flow is nice from the start. So cities and towns have chased the model of growth, he said. For decades these are the types of development government officials have backed. And year after year more and more of these developments would go in. Cities and towns saw their revenue sharply increase as development after development went in. And now, the burden of repairing all of that infrastructure is putting downward pressure on budgets -- the cost versus benefit gap has reversed.
"The problem is when you get out a generation and you have to then go back and fix these things that you said as you would as a public take over and maintain, what you find is the cumulative amount of money you took in is insufficient," he said.
Marohn paused and asked the "high-powered" crowd of county officials if they see themselves role in this type of thinking. A collective silence filled the room and everyone recognized in some form or another they've participated in this longstanding practice of government. They've celebrated that big win before.
"We are wired to highly value positive feedback today and to discount negative feedback in the future," Marohn said.
But, that governmental thinking throughout the country hadn't always been like that. Marohn, there have been 70 years of the growth mentality but before that, before the Great Depression, cities weren't built like that.
"There is really no underlying conspiracy or deep thing, it is just prior to the Great Depression we had a limited capacity to build things," he said.
He displayed a picture of his downtown in its infant years. It was a handful of little shacks on the side of one road. As the years went on, those shacks got bigger. The road got longer. The city's downtown grew from the inside out.
Thousands of those small downtowns popped up across North America. Some of them failed and were gone. Some of them grew into major centers. But when they failed, it didn't quite matter as much because not a whole lot had been put into them by that point.
"At some point in the past, Pittsfield looked just a little series of pop-up shacks with some people thinking maybe there will be a city here and I'll get in on the front end of it. And we'll see what happens. We built literally thousands of these across this continent. And for a variety of reasons, it was the wrong people are the wrong time, a lot of these places never got past this phase. They failed," Marohn said.
"What happens when a place like this fails? Nothing. A few people lose a little bit of money and move on to the next place."
If the downtowns had grown, when one piece fails, the downtown could still survive because it consisted of many pieces. The places had grown "incrementally" up and out. The wood shacks became stone and granite and became taller and the downtowns became bigger. He said the same historic pattern has happened in the world's biggest cities.
"The way we built as humans for thousands of years was on this incremental path," Marohn said.
He then showed a photo of what would have been the next phase of incremental growth in his hometown. It was single-story structures on the street built in the 1920s -- the modern equivalent of the wooden shacks of old -- and had that growth continued, those would have had second or third stories added. But the depression hit and then World War II and the city stagnated. The parcels became a blight.
Two parcels in that section were the exact same size. A chain restaurant purchased one of those properties and renovated it. His city was struggling with budgets, jobs, and economic development so that was good news.
"We were tickled pink to see this happen. We got rid of blight. We got something new. It has plenty of parking. It meets our sign ordinance. It meets our coverage limits. They even volunteered to put in a little bit of sidewalk," Marohn said.
That development had the same infrastructure and size as the other that hadn't been redeveloped like that but a difference remained. The value of the untouched parcel was $1.1 million while the new restaurant's building was valued at $600,000. The values are driven much by the market.
The biggest taxpayer in his town is on the edge. A big box store and a gas station built out 20 acres of property and it attracts people from all over the area. It's bustling. He said the city took on massive capital projects to bring water and sewer to the parcel and build roads to easily access the development.
Meanwhile, the downtown sits with vacant storefronts, places have been torn or burned down, there had been nothing new built downtown in ages. But he ran the values, what is in the downtown had 70 percent greater value per acre.
"The city is actually collecting 70 percent more property tax from the 20 acres downtown even in its rundown, dilapidated condition than it is collecting from the best of the best out here," Marohn said.
When the big box development goes out of business, reuse is questionable. But downtown there are 132 different properties and are "incredibly adaptable, flexible, and financially potent."
He modeled value per acre in cities all over. Repeatedly the traditional downtowns outperformed the mini-malls and new developments significantly. He looked at the sizes of different cities throughout. In a city in Louisiana, Strong Towns was asked to come and look at what's happening. The city was bustling but financially it was struggling.
They looked at every expense of the city, roads, sewer, police protection, fire, transit, and on and on. And looked at every single revenue stream and mapped them. He created a graphic map of profit and loss from those numbers. It revealed areas where revenues were above what it cost to service and areas which cost more to service than revenue comes in.
The poorest neighborhoods in town and the core downtown that were struggling were in the blue. The strip malls, drive-throughs, subdivisions, and big box stores were all in the red. He compared it to a value per acre map and it was highly correlated.
The struggles of those areas aren't in the "built form," he said. The downtown and surrounding neighborhoods have a built-in "ecosystem."
Marohn says it is time to get back to the incremental growth model. He encourages cities to start with their core and rebuild from there.
Pittsfield is no exception to the challenges faced in small cities and towns throughout the nation. Mill Town Capital is a Pittsfield firm that invests in local businesses, release estate, and takes on community development efforts. Managing Director Tim Burke said Mill Town's focus is to make Pittsfield a better place.
"We want to be on the forefront of who are doing things really well out there," Burke said.
He read Strong Towns and heard Marohn speak and the towns he was describing sounded eerily like Pittsfield.
"It actually feels like we could transplant you there or us here and there'd be a lot of crossovers," Marohn said of his hometown.
Mill Town brought Marohn into the city on Thursday to discuss his strategies for building strong cities and towns. Marohn gave a public presentation at Barrington Stage but earlier in the day, he spoke with a small group of government officials and planners from all over the county who live and breath community development every day.
"We wanted this small group to be as interactive as possible," Burke said.
So what strategies has Marohn seen used to build stability and strengths a town?
In a town in Michigan that had seen a big industrial sector up and leave in the past had empty spaces throughout the downtown. Town officials just couldn't seem to get people to fill the empty storefronts.
"They found that people couldn't fit into space. The space was too big for them and even if they could fit, they didn't have the capacity to fix the fire system, fix the bathroom, do all of the things you are required to get places going. The bar of entry was too high," Marohn said.
The town had a downtown and a farmers market that was separated by a parking lot. Officials found that people would park and go to one or the other. The town bought cheap storage sheds, painted them, and put them in the gap. The sheds were rented to start-up entrepreneurs for a low cost. They invited the businesses to come in and try it out without a long-term lease, without requirements to fix up the buildings.
"These businesses have been wildly successful. They are full. They have new entrepreneurs in all of the time. Here's the great thing, a lot of the entrepreneurs once they got started, figured it, are in the empty spots in the downtown. The empty spots in the downtown are now full," Marohn said.
A developer eventually came in and bought the site where the sheds were and built a multi-story building. Now the sheds are being moved to another gap in the downtown to generate the energy there. He called it a "floating entrepreneurial incubator space."
In Memphis, Tenn., officials had issues with that high barrier of entry as well. So, they took a new tactic. Instead of requiring a business to make all of the code improvements at once, they created a provisional permit. The city allowed business to operate for six months without bringing the space up to code. If the business is making it, then each month 3 percent of the revenue was put into an escrow account.
When that money builds up, the first building code issue must be addressed. The business would then slowly work through the prioritized list to make required repairs.
Marohn spoke with local officials for more than two hours, sharing strategies that have been successful in cities just like Pittsfield.
Oswego, N.Y., officials noticed a problem with housing. The housing stock was declining, people weren't investing in homes. The downtown was doing alright but the blocks outside of it were not.
"Part of a great downtown is a great neighborhood. There is an ecosystem there. Improvements in the downtown should raise the values of the neighborhood," Marohn said.
A successful downtown should raise the values of the neighborhoods but it wasn't. Officials there looked into it and it wasn't that the owners didn't have the resources or didn't have access to capital. It wasn't that they were people who didn't value their properties and were slum lords. It was that they didn't have any confidence in the neighborhood.
"It is a rational thing if you believe your neighborhood is going to stagnate or decline to not put money into it. If you had a stock investment that you knew would be worth the same next year or less, how much more money would you put into that stock?" Marohn said.
They created a grant program -- a program that got Pittsfield Mayor Linda Tyer to raiser her arms into the air with a feeling of validation -- to help people make exterior repairs to their homes. The city had tried to use grant programs to fix furnaces and insulation but those didn't do anything significant.
Oswego's program matched 50 percent of the cost to do exterior improvements that can be seen from the street. But it wasn't granted to individuals but instead to blocks. It required neighbors to get together and pool money, commit to the different exterior project, and half the cost would be paid by the city.
"All of a sudden, you have five neighbors out talking to each other about their vision for how this neighborhood is going to come back. Here's what I want to do to make my house great. Wow. Here's what I want to do to make my house great. And all at once, pop. The block goes in a different direction. What they have seen is they have unleashed a huge amount of personal initiative, personal capital. You start giving people confidence in their neighborhood, everything changes overnight," Marohn said.
"It isn't a change overnight because some big investor comes in from Wall Street and puts $1 million into the neighborhood. It is a change overnight because you put $5,000 in, you planted $50 worth of shrubs, you painted your place. It is people who are there now participating in the gains of the neighborhood. That is a powerful, powerful strategy."
Marohn said Pittsfield is in the same boat as Oswego was in that the downtown is much further ahead than the surrounding neighborhoods.
"The surrounding neighborhoods are a drag on your downtown right now and they shouldn't be," Marohn said. "We have to get that confidence back."
Marohn continued to say the switch in the neighborhood from of decline to investment destroys the slum landlord business model and pushes them out. Slum lords buy properties are a low cost, pays little in taxes and rides the value of the property down while the cash flow makes sense. But if values go up and taxes are going up, that kills that strategy.
"The slum lord issue goes away because the values are going up. That act alone destroys that business model," Marohn said.
The next step is to connect the neighborhood to downtown. Marohn is of the belief that there is no financial way for a city to provide and maintain parking downtown if those living just outside of it have to drive.
"You will go broke with that as a business model. You can't provide enough parking at a low enough cost to make that work," he said.
He said the focus needs to be on making an easily walkable downtown. And he is calling on a new way to address these issues -- start by observing how people use the city now, think of small ways to improve that, and repeat. The said the days of the studies and planning processes to develop a large improvement program are over. Instead, do something small, temporary and cheap, see if it works, and then make it permanent if it improves how residents are using the city.
"We can make really small investments, really small, cheap investments, and they will have a big impact on the neighborhoods," Marohn said. "We should go out and spend $10,000 trying out different things, finding out what works, and then do that permanently."
He said he spent a lot of time sitting in meetings wasting people's time and money in his engineering days. He said he'd rather see a city fail on a project quick and cheap instead of spending a lot of money to create something that doesn't serve the people that well. He called for a mental shift from "orderly and dumb" to "chaotic and smart."
He said observing where people walk and how they get places can reveal small areas to make changes. The engagement with the community has to be different than traditionally. He stressed the word "humbly" in this process by having planners and engineers focus their questions and observations on what residents do on a daily basis and then using the engineering expertise to make that better, as simple as it may be.
Now most planners engage the community by holding a formal public hearing or community meeting to get the neighborhoods together and planners ask the residents "what would you like to see in your neighborhood?" Marohn said what happens is that the people have different ideas. One may feel improved sidewalks are important, another may improve planting and the scenery, and another feels something else should be the priority. But they all agree that something like a splash pad would be great.
"Now you have a mandate for a splash pad," Marohn said, another new project that doesn't address the connectivity issue nor improve how the residents currently use the city.
The questions to Marohn from the government officials got into the weeds of building codes, zoning, and taxation but the premises of Strong Towns' concepts resonates with the city of Pittsfield, which has many of the same problems Marohn has seen elsewhere, problems he's also seen be solved by the development of programs and ideas that focus on the incremental growth from the downtown, out.
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