Fixing financialization in the credit-constrained city

ABSTRACT

The financialization of urban development occurs even under conditions of credit constraint. The paper demonstrates that credit scarcity is an important and under-examined driver of policy improvisation and institutional development. Using the case of Tucson, Arizona, we show that local and extra-local interests overlap and cross-pollinate to produce unique hybrids –  geographically specific and contingent institutional forms cultivated by local growth machines to attract outside financial interests. These dynamics are illustrated with a sales-tax-based tax increment financing district that employs “enhanced financings” to attract extra-local sources of debt and equity. We find that the financialization of urban development in the credit-constrained city is not just a process of abstraction, but also of particularization in which extra-local dollars flow through embedded local networks. We conclude with a call for greater attention to the intersections of finance and urban life in “ordinary cities”.

KEYWORDS:

• Financialization
• credit-constraint
• urban development
• tax increment financing (TIF)

Acknowledgments

Thanks first go to all of our interviewees. We would also like to acknowledge three anonymous reviewers for their comments and insights on an earlier draft as well as Kevin Ward for his guidance in responding to their concerns. Additional thanks go to Sallie Marston, Heather Whiteside, Jeffrey Banister, Vincent Del Casino and Brian Marks who read and commented on early versions of the article. Finally, Alex Tarr and John Stehlin, whose AAG session on the changing logics of urban competitive strategy motivated the article. Any errors or other shortcomings that remain are our own.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Figures calculated for the areas adjacent to the stimulus-funded 3.9-mile streetcar line that runs through downtown and connects it to the University of Arizona.

2. The slogan “Keep Tucson Shitty” is Tucson’s version of “Keep Austin [Texas] Weird”.

3. Specifically a GPLET (government property lease excise tax) which involves the city taking ownership of the property for 8 years and leasing it back to the developer for symbolic sum the period of the deal. Developers must convince the city council that they will produce a 100% appreciation in property value to qualify.

4. Though, there are exceptions for particular asset classes, the discussion of which is beyond the scope of this paper.

5. Note that the typology of “transparent/opaque” does not necessarily map on to the classification of cities based on size. It is possible to have a large market that is still opaque and a small one that is transparent.

6. In 2011, California dissolved its more than 400 redevelopment agencies, which administered TIFs extensively throughout the state (Lefcoe & Swenson, 2014).

7. Note that this approach to “protecting” taxpayers from property taxes differs in its implementation and implications from California’s much better known Proposition 13.

8. Note that this is not merely a theoretical concern. In 2000, TIF districts in Illinois “generated approximately $5 billion in incremental equalized assessed value or 2.5% of the state’s total property value” (Weber & O’Neill-Kohl, 2013, p. 203).

9. According to Franzi (2014), per capita public debt levels in metro Tucson municipalities are substantially lower than in their Phoenix-area counterparts. For example, both Scottsdale and Phoenix hold double the per capita municipal debt of Tucsonans, approximately $2,000 compared to $4,500 and $5,500 in Phoenix and Scottsdale respectively.

10. All names are pseudonyms.

11. The Dodd-Frank Financial Reform Act was blamed multiple times for lowering the risk thresholds of smaller banks, thereby, exacerbating capital scarcity in smaller centers.

12. The single exception was a development by Senior Housing Group LLC utilizing Low Income Housing Tax Credits in 2012 to meet the Phase 1 requirement under the performance bond.

13. RN estimates the total project cost at $12 million (Rio Nuevo District, n.d.).

Additional information

Funding

This work was supported by the University of Arizona Social and Behavioral Sciences Research Institute [16DRS0536].