The Problem with Stockton

By Landon Dickey

Yesterday at the Harvard Law School I had the opportunity to listen to Michael Tubbs—the youngest member ever to be elected to City Council in Stockton—talk about the challenges facing his city. Stockton has fewer police officers and more murders per capita than Chicago. Less than 1/5th of adults hold college degrees, unemployment sits at 20%, and 14% of those who are employed work in low-paying retail.[1] On top of all of these challenges, the city has filed for bankruptcy.

Stockton’s challenges are a bit of a puzzle in the context of the virtuous cycle extolled in the King Abdullah Economic City case. Stockton has a port to serve as a catalyst for economic activity. There’s no real reason to expect significant quality variation in utilities (unless PG&E has some unknown grudge against Stockton) and furthermore, Stockton has diligently built up infrastructure in order to attract residents. The Bob Hope Theater, the San Joaquin Downtown Transit Center, and the Hotel Stockton (just to name a few) are the result of steady bond issuances over the last 15 years likely facilitated by Stockton’s growth potential as a neighbor to San Francisco and Sacramento and Stockton’s aspiration to become a spillover city for individuals attracted to work in those locations.

In its efforts to draw activity in via hard infrastructure (see the first 3 steps of the “Virtuous Cycle”), however, Stockton forgot one key thing: it forgot to develop its people. While the hard infrastructure is a necessary condition of an effective city, the consequences of inadequate social infrastructure and civil services is evident in Stockton’s outcomes.

How can Stockton course correct in the midst of insolvency?

1. Hold a higher standard for new businesses.

Particularly when cities face financial distress[2], governments have to insist that businesses that enter in the wake of crisis make a commitment to citizens. In order to foster human development, citizens have to have access to economic opportunities. In practice, this should mean one of two things: 1) Governments seek out businesses in industries that will easily plug in to the skillset of its citizens or; 2) Governments require entering businesses to collaborate with academic institutions to create vocational curriculums that will allow citizens future employment.

One could imagine government actors both prioritizing the entry of firms that agree to these terms while simultaneously offering incentives (i.e. the ability to acquire land at discounted values rather than lease; lower tax rates) to businesses that will enhance opportunity for citizens.

2. Seek out socially-minded capital.

In the United States, cities have the benefit of sitting in the midst of mature capital markets. These markets have produced socially-minded investors—some seeking a return but others just seeking to break even. At Canyon Capital Realty Advisors, CEO Bobby Turner has raised funds for social infrastructure projects with an investment thesis. [3],[4] Furthermore, Social Impact Bonds offer the ability for investors to fund programs tackling homelessness, crime, and education and achieve a financial return through government savings.[5],[6]

Admittedly, if collecting $10 of eco-savings is like collecting 1,000 pennies off the ground, collecting $10 of social savings is like collecting 1,000 pennies in a pit of quicksand. Nonetheless, the pursuit of these savings is the critical step in turning cities with hard infrastructure into cities with thriving people. Just as with other SCUIF cases, there is a real role for for-profit individuals and private capital to catalyze change.

[1] http://homes.yahoo.com/news/america-s-most-and-least-literate-cities-224612878.html

2 http://urbanland.uli.org/Articles/2013/Feb/MyersCitiesGoneBroke

3 http://www.canyonagassi.com/company/canyon-agassi-the-fund/

4 For example, Canyon’s Agassi Fund covers the cost of facilities for charter schools with the understanding that as enrollment ramps up the facilities achieve economies of scale. Charter operators agree to buy the property back from Canyon once cash management is under control.

5 http://www.socialfinanceus.org/work/sibs/approach http://www.socialfinanceus.org/work/sibs/approach

6 The premise here is that the amount government budgets for social programs is higher than the cost of some innovative and semi-proven alternative programs that private investors can fund.

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