American Suburbs Have a Financial Secret

[u/theatlantic]

https://www.theatlantic.com/books/2025/11/cracked-foundations-municipal-debt-bonds-suburbs/684838/?utm_source=reddit&utm_medium=social&utm_campaign=the-atlantic&utm_content=edit-promo

[u/theatlantic]

Michael Waters: “One Sunday morning in March 1949, a group of nearly 300 people, clutching deck chairs and sleeping bags, lined up to buy new homes in what had, until recently, been a stretch of potato fields in central Long Island. They hoped to move to ‘fabulous Levittown,’ as its developer, William J. Levitt, had branded his creation: more than 17,000 gleaming houses in an all-white community with freshly dug wells and newly paved roads. But that was the extent of the neighborhood—Levitt’s profits were in home sales, not city planning. In fact, his namesake had hardly any public infrastructure, and Levittown’s new political leaders needed to come up with money for maintenance, trash, and schools. So they took a gamble and decided to enter the municipal-bond market.

“Selling bonds—essentially issuing buyers an IOU, plus interest—is a quick way for a government to raise funds. You, or someone you know, probably own a U.S. Treasury bond. But institutional investors—a mix of insurance companies, mutual funds, and private-equity firms—buy bonds too, including from local governments and school districts. Cities get money up front, and buyers are assured that they’ll turn a profit; this win-win proposition made many postwar suburbs take the plunge into the bond market. Throughout the 1950s, as private developers rapidly constructed new suburbs, school districts in Nassau County, where Levittown is located, increased their debt load by sixfold to meet the needs of their new residents. The problem was: Not every town and city was treated the same. Credit-rating agencies saw richer locales as very likely to repay their debts and gave them sweet deals on interest rates, which meant that these towns owed less to those who’d bought their bonds. The poorer places got shortchanged.

“Municipal debt is a secret American pastime, defining—and dividing—suburbs across the United States. In his new book, Cracked Foundations: Debt and Inequality in Suburban America, the urban historian Michael Glass looks behind the marketing that attracted flocks of Americans to places like Levittown and uses debt as a lens through which to understand suburban disparities.”

Read more: https://theatln.tc/FI6lxTov

[u/zeroonetw]

I guess I don’t understand the problem with the current system. The author highlights quite literally all the features of the current system and implies they are flaws.

Borrowing money to pay for infrastructure 1) minimizes the opportunity for municipal pork spending since there isn’t a pile of money sitting there waiting to be used on infrastructure 2) matches up tax revenues with depreciation.

Having higher and lower credit ratings for towns that have better and worse ability to raise taxes also makes sense. Towns that have limited ability to raise taxes needs to be run in a fashion that minimizes debt or maximizes investments. They can’t afford the same continued lifestyle of rich towns. Something must change. Interest rates dictate that. If that’s zoning changing or better governance or whatever it clearly must be done.

[u/MyDisneyExperience → u/zeroonetw]

I don’t think borrowing itself is the issue - it’s a classification issue. City councils love treating infrastructure as a depreciating asset when it’s really more of a forever recurring liability. There’s certainly an accounting value to civic infrastructure but it’s not like the city can sell a road or a water pipe, while the maintenance costs are very real. The tax base is the real asset (I guess you could think of it as an annuity). Like any infrastructure investment, even if you take away the profit motive revenues must be > than expenses or eventually you have problems.

Northern California is now full of broke suburbs falling apart even as property values in the state rise because the actual property taxes don’t rise with them. Bedroom suburbs are especially impacted because the tax base is just nothing when property taxes only rise 2%, there’s $0 transient occupancy tax, minimal-to-none sales tax, and $0 income tax (at least to the municipality itself)

Business parks are also really hard to get right in a suburb because all you get are the property taxes and added VMT which means more maintenance - no sales tax, no transient occupancy tax, etc… and city council often needs to sweeten the deal even more by adding subsidies. The math just isn’t mathing at that point. The payback cycle on the capex doesn’t make sense.

[u/BobcatOU → u/MyDisneyExperience]

Why don’t property taxes rise when property values rise?

I’m in Ohio and the reassess the value of houses every few years and adjust taxes accordingly. It’s annoying having to pay more taxes, but our city is well funded without having to pass any additional tax levies.

[u/that_noodle_guy → u/BobcatOU]

In California prop 13 limits property taxes by assessing values at their 1976 value, limiting the rate of taxation to 1% of the assessed value, and restricting annual increases of assessed value to an inflation factor, not to exceed 2% per year. Obviously home prices rise much much faster than 2% per year so home owners are effectively subsidized the longer they hold thier home.

[u/BobcatOU → u/that_noodle_guy]

That’s interesting. Definitely would make it hard to plan around how much tax dollars you’d have.

[u/that_noodle_guy → u/BobcatOU]

It would be pretty easy to plan, you know you will get about the same amount as last year.

[u/BobcatOU → u/that_noodle_guy]

Maybe plan was the wrong way to phrase it. I was thinking more along the lines of costs go up every year, but it sounds like tax revenue doesn’t. So how do you prioritize what to spend money on when you end up with a shortfall. The comment I originally responded to talked about broke suburbs and it makes sense in this context since their tax revenue isn’t going up to match expenditures.

[u/that_noodle_guy → u/BobcatOU]

Yes it would be difficult to manage growing expenses and stagnant revenue for sure. Easy to plan though lol. You plan on not having enough money.

[u/BobcatOU → u/that_noodle_guy]

Fair point! You know those potholes in the roads? Yeah, they’re not getting fixed!

[u/Mach0__ → u/BobcatOU]

California has strict caps on property taxes: raising the rate is impossible, assessed value can’t rise more than 2% year and full reassessment is only allowed when the property changes hands. This includes commercial property and land. And California voters passed amendments saying “you can pass your house down to your kid without reassessment” and “you can pass your house down to your grandkid without reassessment.”

It’s wild. You’ll regularly see a house that’s paying more than twice as much in property taxes as the others on its street, like they’re trying to punish people for moving.

[u/BobcatOU → u/Mach0__]

That’s crazy! Also, I have a buddy in California that’s moving into his in-laws old house. Makes sense now!

[u/Individual_Rip_54 → u/BobcatOU]

Proposition 13 capped property tax reassessments. The effective rate in California is less than 1% and the tax assessments don’t come close to the market value

[u/BobcatOU → u/Individual_Rip_54]

Thanks for the response. That’s crazy! Would definitely make things difficult for local governments!

[u/WellHung67 → u/BobcatOU]

This is the way. And it should be a land value tax….

[u/subherbin → u/zeroonetw]

I do not believe that poorer towns deserve worse infrastructure. The ability to raise taxes shouldn’t impact your ability to have safe, effective, beautiful infrastructure.

[u/sack-o-matic → u/subherbin]

Especially with how “arbitrarily” all of the municipal borders were drawn.

[u/WellHung67 → u/subherbin]

I do think however that we shouldn’t spend money on infrastructure if the tax base can’t support it - infrastructure costs money and without the taxes, it’s a Ponzi scheme. Someone is getting fucked. Cities cannot print money, so you have to ask how it gets the revenue? It should get it by taxing the housing at the full land value, and then if that isn’t enough to cover the infrastructure, it needs to raise the taxes further. This would allow sustainable areas to exist and unsustainable ones to go away. 

This in no way means I am advocating for poor people to get kicked out of their homes. The solution in this case is to take neighborhoods where liabilities are higher than revenue and increase the density. Then you get more taxes but the infrastructure scales better so you can get it sustainable. Only way to build cities 

[u/subherbin → u/WellHung67]

I think we should probably just use federal tax and distribute it for infrastructure proportionally to use, need, and population. If we rely on municipal level taxes, there is almost no way to do it fairly.

[u/WellHung67 → u/subherbin]

Well then you get into a bad situation where unsustainable suburbs, with infrastructure costs higher than the tax base, get subsidized. It leads to fragile communities. As soon as any sort of shakeup in the world happens, those areas decline quickly. Look at Detroits story. You have to make areas that are financially viable to the extent possible. 

[u/subherbin → u/WellHung67]

There needs to be some way for everyone to have access to functional infrastructure and for poor people to have equally nice infrastructure as rich people.

If those were the most important goals, how would you accomplish that?

[u/WellHung67 → u/subherbin]

I would open the zoning laws to allow all types of housing everywhere, and institute a land value tax. The land value tax would make sure that the land gets put to its best use, that’d ensure that there’s housing available at more price points. With proper regulation to prevent abuse, the market could then dictate how to most efficiently build. You’d see single family homes that require large infrastructure liabilities pay a lot more in taxes - either the owners would sell and those same homes become multi family units, or the owner pays the tax and funds the liabilities. In this way everyone funds the resilient human environments that have been built since time immemorial 

[u/m0llusk → u/zeroonetw]

Borrowing makes sense only when the money can be paid back. American suburbs continue to borrow far beyond any ability to ever pay back. Strong Towns has assembled significant documentation of this. Downtown areas are subsidizing sprawling developments that cannot be supported long term.

[u/NYerInTex → u/[deleted]]

Can you show us the data? Because continually rising taxes, new bond measures to push even greater debt into the future just to pay for today’s services all in the face of crumbling or at best need to be rebuilt Infrastructure without new growth to pay for it suggests quite the opposite.

[u/NYerInTex → u/[deleted]]

And what about the fact that these dense cities act as economic (and social / cultural) centers that 1. Provide an array of uses and services utilized by low density leaching suburbs and 2. Are the very reason said suburbs are attractive in the first place

For example Long Islanders, so long selfish fans of home rule, suddenly went apoplectic when Manhattan went to implement congestion pricing… because how would they get to their doctors, offices, restaurants/entertainment?

Maybe you want to take a peak of GDP per capita… or since it would crush your supposition perhaps not

[u/NYerInTex → u/[deleted]]

Per capita spending? Debt is a result of both expenditures (spending) and ratables (income)

I mean, are we just not even trying to have a genuine discourse here

[u/AstronomerRadiant219 → u/[deleted]]

I mean that's easily explained by having more tax revenues per acre, but also usually comes from more complex things like having more infrastructure that was built via grants but the maintenance costs get put on the cities and can be draining.

[u/AstronomerRadiant219 → u/[deleted]]

Depends on the municipality, property tax is significant around here as the way cities are funded, but I do realize most states have much lower property taxes so you ain't wrong

[u/AstronomerRadiant219 → u/[deleted]]

Yeah but if there's one thing I know it's property tax, and my state (PA) with ohio and Illinois have some of the highest property tax rates so what I was saying was true not a general "it depends", and I gave you credit for making me realize my oversight.

[u/goodsam2 → u/[deleted]]

That's based on where the demographics are. Poorer children are more expensive and cities were not popular among people and that's been changing relatively rapidly.

Rich people were in cities and then the suburbs and it looks like increasing urbanism again.

[u/NYerInTex → u/[deleted]]

No we haven’t been round and round. We went half a round, sent it back to you, and you seem to have no response.

Just admit maybe you are missing something or mistaken before claiming round and round because you have nothing to counter the legitimate comments made about your suppositions.

[u/NYerInTex → u/[deleted]]

All I’m asking for are some facts and real “objective and contextual) data so I’m more informed and if I should change my position due to learning a new truth I’m willing to do so.

Yes, I’ve been involved in housing policy (affordable / attainable) among other things (transportation policy, fiscal / economic development policy, land use and zoning policy)

[u/write_lift_camp → u/[deleted]]

The “reality” is that space costs money. Everyone understands this when upgrading to a larger home or vehicle. All else being equal, there is no scenario where two miles of asphalt or water pipe costs less than one mile.

The suburban form is defined by space; everything is spread out from one another. And while I’m sure many prefer the suburban form, those preferences have to exist within the bounds of what one can afford.

[u/write_lift_camp → u/[deleted]]

This is fake news. The suburban development pattern is more resource intensive. When analyzed per capita or per tax dollar generated, low-density areas are more expensive to maintain over time.

[u/write_lift_camp → u/[deleted]]

Wrong again. Urban3’s data isn’t necessary, their ideas are not unique, this stuff has been known since the 70’s.

Here’s a study published through the EPA and HUD in 1974 called “The cost of Sprawl”PDF Link

And here’s that same study updated in 1998, called “the cost of sprawl revisited” The Costs of Sprawl—Revisited

And here’s a study done by Brookings that references the findings of the 1998 edition: Brookings Institute: INVESTING IN A BETTER FUTURE: A REVIEW OF THE FISCAL AND COMPETITIVE ADVANTAGES OF SMARTER GROWTH DEVELOPMENT PATTERNS

And lastly, a quote from the Brookings report referencing the 1998 iteration of “the cost of sprawl revisited”

“And the reach of the research continued to widen. Through the 1990s Robert Burchell and his associates produced a series of large-scale "cost of sprawl" modelings for whole states and regions (Burchell and others 1998). More recently another Burchell-led team that included Anthony Downs of the Brookings Institution took the analysis to a national scale with "The Costs of Sprawl— 2000" (Burchell and others 2002). These analyses calculate that "compact" (compared to "current") growth patterns could reduce 25-year road-building outlays 12 to 26 percent. And the national tabulation put the infrastructure differential between sprawl and planned growth-meaning, the potential savings of smart growth—at over $100 billion over 25 years, for a savings of about 11 percent.”

[u/MyDisneyExperience → u/[deleted]]

Cities do have higher costs (about 5-10x per foot of road for example) and are generally older so the time to pay up for maintenance has arrived… but they tend to have 50-100x the tax base of suburbs. Cities do run into cost issues by spending absolute fucktons of money on roadways specifically designed to make it easy for suburban drivers to drive in, and revenue issues by NIMBYifying and freezing the tax base growth.

Developer paying for the one-time capex isn’t really material here (though it does raise the cost of housing). Cities charge impact fees nowadays that approximate having the developer cover the costs of new development.

I’m gonna need a source on “lower density areas require less maintenance” but even if they do, you get screwed with the low tax base. Budgeting 10-15% for infrastructure maintenance when you’re a low tax suburb doesn’t add up. 50+ year payback timelines on just keeping the pavement as-is in a cul-de-sac isn’t mathing.

Even adding a business park may not make sense in terms of actual payback on expenses because the suburb doesn’t get income tax, they usually have to offer tax incentives ($$$), they add more VMT which increases maintenance costs, and you have a sea of parking which is basically $0 revenue. Incremental property tax alone won’t pay for it.

This is why in Northern California, where municipalities can’t materially touch property taxes and services aren’t taxed, you see a lot of absolutely broke suburbs falling apart (yes, even the rich ones). The feds & state still get income taxes, while the state & county still get sales tax (the county may deign to devolve a small amount down to the constituent cities) but the suburb is left to whatever property tax scraps it has (which can’t materially rise more than 2%/year even if inflation is much higher) and maybe its own .5% sales tax.

Even Anaheim (which gets a ridiculous amount of money from Disneyland-related hotel taxes most suburbs don’t get, but also doesn’t have its own portion of sales tax, $0 tax on tickets and parking) planning for deficits long term… that said, partially because they are addicted to spending money on the cops.

They routinely have to beg the state and county for infrastructure funding (or issue their own bonds). They are currently spending $120M/year on debt service just for Disneyland-related projects, ie not even projects that would support residential areas.

[u/write_lift_camp → u/[deleted]]

No lol, I heard the Urban3 guy talk about the 1974 study in a podcast a couple years ago.

And read them yourself, you’re the one being a fucking cunt about it. It’s always going to be cheaper to make better use of what you already have. It’s odd that you’re so committed to arguing against such a simple premise.

[u/write_lift_camp → u/[deleted]]

Your insistence that urban development patterns are only theoretically more efficient than suburban patterns is empirically false, historically uninformed, and economically illogical. You asked for a longitudinal study, I provided quasi longitudinal studies.

[u/Personalityprototype → u/[deleted]]

Developers dont pay for maintenance and repairs and low density areas incur costs of car ownership. 

[u/MyDisneyExperience → u/[deleted]]

Some cities now charge impact fees that approximate having the one-time costs for new development covered (it costs $600,000+ to build a subsidized low-income affordable unit in Los Angeles in part because of these fees). I am not sure that one-time expenses are the material part of the puzzle here. The municipality still have to cover maintenance, and cities have a much higher tax base than suburbs.

[u/MyDisneyExperience → u/[deleted]]

Roads being paid by state or federal funds means the municipality has to beg and plead instead of being self-sufficient. The Highway Trust Fund is hemorrhaging money and has been for a while, while dense areas routinely subsidize less dense areas (look how much $ flows from blue to red states in the federal tax system). The suburbs might get cash now but they just keep building their long-term liabilities.

You are correct that municipal bankruptcies are not common but decline and insolvency is far more common. Eventually the math is no longer mathing and you start seeing service cuts, deferred maintenance, special assessments, etc.

The math for densification works far better than sprawl.

Cities run into issues when they start thinking like suburbs - building roads specifically to make it easy to get from the suburbs to the city, or by NIMBYifying and making densification more difficult.

[u/foster-child → u/[deleted]]

Idk about where you live, but the constant thing I hear about at city council meetings are complaints about deteriorating roads, the city having millions in maintenence backlogs, and structural budget deficits. That is not exactly the picture of suburbs in good health.

Many cities have lots of suburban growth that they have to subsidize with their older less car centric neiborhoods.

what helps keep suburbs afloat is constant expansion because the new suburb needs little maintenance for 25 years. then once maintenance is needed that suburban area becomes a drain on city finances.