Why Growth Matters

A bigger Chicago is a better Chicago.

This is a bit more abstract a post than most of what I’ve written here, but I think it’s an important one to spell out. One of the through lines of a lot of our writing has been a focus on growth, and some things the city can do to encourage more of it. But in case you’re not sure on some of those ideas, I think it’s worth talking about why growth matters.

More of this, please.

Growth is what pays for things

Let’s start with some basics. There are some really straightforward things that a city government needs to do well. You probably have some ideas about what these are - things like a school system that educates well, a transit system which gets you from Point A to Point B reliably, garbage trucks which reliably pick up trash, a police force that effectively addresses crime, and so on. I’m not talking about anything cutting edge; I’m just talking about the core functions of city government here.

On top of those core services, you might also want our government to do other things well, too. I like living in a city that’s culturally relevant - it’s nice to have a city that can promote the arts and attract filmmakers to showcase Chicago. Summer festivals like the Taste of Chicago or Jazz Fest are great events, and weekend farmers’ markets are nice, and I’m glad the city is able to help make those things happen. On the other hand, it’s not my cup of tea, but you might want Chicago to be able to lead in ambitious policy experiments like a universal basic income pilot program. Group whatever else you can come up with on this list as a “civic goals” list of things we want a city to do, and now we’ve got two lists to work with.

The things on both of these lists cost money. Now, if you’re the federal government, maybe you can print money to pay for some things, but cities can’t. Consequently, the city has to collect taxes or other fees to pay for things. By and large, those taxes and fees will come from two sources - the residents living in the city or the economic activity occurring there. If we have more of those things - if we have more people living, working and buying things in Chicago, and more businesses operating in Chicago - then our tax base is much larger. That’s a good thing. It means that whatever amount of revenue the city needs to raise can come from a larger group, and the tax burden that each individual resident or business has to shoulder is smaller.

Growth makes the things easier, too

But wait, you might say. Won’t having more residents or visitors also mean we have to spend more money on things like schools or trains or police? Yes, a little bit - but not as much. In general, there are pretty good economies of scale across a lot of government services, such that getting bigger can make you more efficient. If we had twice as many people, we probably wouldn’t need twice as many buses or trains, for example. We’d probably need more, but we’d be able to have more consistently full ones, instead of a lot of empty ones today. Similarly, you’d probably need more garbage trucks to pick up everyone’s trash, but a denser city should make trash pickup easier (the trucks don’t need to drive as far to get to their next stop along the pickup route), so you wouldn’t need twice as many.

We also have significant fixed costs in the system, too. We wouldn’t need to build a whole new sewer system if our population grew - we’d just need to improve the efficiency of the one we have. More people means running more trains, but it probably doesn’t mean we need to create new lines. It probably means more teachers, but it doesn’t necessarily mean we have to build more schools (especially when so many of the ones we’ve already built have, shall we say, quite a bit excess capacity already). There’s a lot of existing slack in the system around fixed assets that we can better put to use before having to build more of them. This is all to say that while a bigger city will have more expensive government services in aggregate, it should also cost less per capita.

Growth fixes our past problems

I’ve also not yet touched on our biggest fixed costs of all - those of past bad decisions. I trust you’re aware that Chicago has significant debt and pension liability challenges we’re still working our way out of. Our spending on pension liability and debt service is really significant - about 40% of the city’s budget - and that crowds out our ability to pay for the things on those core functions and civic goals lists. As we’ve covered before, that 40% figure isn’t likely to change very much anytime soon, given the amount of catching up we need to do on our pension plans.

These liability amounts are fixed - short of declaring bankruptcy or amending the state constitution, we have no way of reducing these liabilities. We’re stuck with them. On the other hand, because they’re fixed liabilities, they also don’t scale up as the city grows, either. If our tax base magically doubled tomorrow, we wouldn’t have any more or any less pension debt - but we’d have a much, much easier time dealing with the existing debt we do have, as the debt per capita would be cut in half. Simply put, growth is our best way (and, to me, probably the only way) out of the city’s many fiscal challenges. Doing whatever we can to foster that growth is an imperative for the city.

Not growing is very bad

The inverse is also true here. If growing is good, shrinking is very, very bad. When you have fewer people and less activity, your tax base goes down, and the per capita cost of financing government activity gets higher. Meanwhile, those same economies of scale that help us when we’re growing hurt us when we need to cut spending - we can’t scale down some of those fixed costs in the system; we just end up with more under-utilized assets (more empty buses, more schools with too few students, et cetera). And we still can’t do anything to eliminate past debt or pension liabilities.

This can threaten to compound into what’s sometimes called a debt spiral: a shrinking tax base means taxes on everyone have to go up to pay for things. These higher taxes drive more people away, shrinking the tax base further. This means taxes have to go up again. And repeat. We’ve seen this in places like Detroit, where significant pension debts and a falling population forced the city into an ugly bankruptcy. I view Chicago as a somewhat different case - we have really significant public finances challenges, but our economy is fundamentally different from Detroit’s, where the decline of one industry (auto manufacturing) was enough to drive the city down - but the debt spiral potential is still something I’d be concerned about.

Population trends in Chicago have been pretty complicated as of late. Census Bureau data has shown our population dropping for several straight years now - though household-level data shows us at an all-time high, an interesting wrinkle if you think of liabilities as “per household” instead of “per person”. Meanwhile, we’ve also seen a significant increase in the number of college graduates - over 200,000 from 2010 to 2020, more than any other city except New York and Los Angeles - and IRS data shows that while the number of filers in Chicago has been declining of late, the aggregate income of Chicago residents has still been increasingly. These are the kind of pro-growth trends that we need to foster to ensure the long-term success of the city.

The Bottom Line

Growth is good. For Chicago to succeed, we need more of it.