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Governor Christie Cancels Under-Construction Tunnel in Unprecedented Move

New Jersey governor Chris Christie reaffirmed his decision to cancel the "access to the regional core" tunnel across the Hudson River from New Jersey to New York. Christie had suspended his previous decision pending discussion of alternatives with the US Department of Transportation.

In the final analysis, according to Christie, none of the alternatives would have capped New Jersey's liability at its present level, which assumed a project cost of $8.7 billion. Christie told the Moorestown Community House, "No more blank checks from the taxpayers of New Jersey, not on my watch."

Current estimates for the project have range from $9.8 billion to more than $12 billion, which would require New Jersey to pay an additional $1.1 billion to $3.3 billion, since under the funding agreement approved by former governor John Corzine, New Jersey was responsible for any cost overruns. In fact, based upon the experience with other projects (such as Boston's Big Dig), New Jersey could have seen its bill run to another $10 billion or more.

Christie's decision is unprecedented. This may be the first time in decades that a major infrastructure project already under construction has been cancelled because its costs had spiraled out of control. Such cost performance has been the rule, rather than the exception. Major research by Oxford University professor Bent Flyvbjerg, Nils Bruzelius (a Swedish transport consultant) and Werner Rottenberg (University of Karlsruhe and former president of the World Conference on Transport Research) covering 80 years of infrastructure projects found routine under-estimation of costs and over-estimation of ridership and revenue (Megaprojects and Risk: An Anatomy of Ambition ).

West Africa – Key to Feeding the Next 3 Billion?

Saturday October 16 marked my third day in Accra, Ghana representing AdFarm and Praxis Strategy Group at the National Food and Agriculture (FAGRO) show. We began the day with a deep dive into grower issues as panelist guests on an agriculture-focused radio program hosted by 90.1 Rite FM.

The panel included John Dziwornu, National Secretary of the National Association of Farmers and Fishermen; Myself (Colin Clarke of AdFarm); Tony Mensah-Abrampah of Praxis Africa;  Jaques Magnee, commercial director for Raanan Fish Feed; and Andy, a farmer member of a Ghanaian Mango Cooperative.

As a panelist on the 2+hour radio program it served as a great opportunity to learn about the challenges faced by farmers. I was pleasantly surprised to find much common ground among North American and Ghanaian farmers. The similarities were stark:

  • Farmers feel misunderstood and taken for granted. People do not understand the risks they bear to produce food. As long as there is food at the market people are unconcerned about farming.
  • Farmers may only get one paycheck per year. There are no monthly paychecks like off-farm careers.
  • Farmers take great pride in the job they do and often work under difficult conditions. There are no “days off” and farmers bear great risks.

When asked if farmers are difficult to work with, Andy of the Mango Cooperative answered, “Farming is a difficult job – we want to complain, so let us complain!” I loved Andy’s candor. He was brutally honest and very animated. Tremendous passion for his work as a farmer.

There was much discussion about lack of access to financing for Ghanaian farmers and the expense of finance options today. Farmers are commonly required to pay up to 22% interest on operating loans… if loans can be secured at all. Another farmer who joined the discussion stated the need for an insurance program that will protect farmers in case of crop loss so loans can be repaid. He stated instances where he has bore the entire expense of bringing a crop to harvest, then having NO market for his crop or losing his crop to a weather issue. There are many variables working against the farmer and very little assurances outside of some subsidies on crop inputs (fertilizer for example).

My observation is the entire agricultural structure in Ghana is in its infancy. There is need for farm safety nets (insurance programs), there is need for grower education programs on production, there is need for market access expansion, there is need for improved import laws, and there is incredible need for ag infrastructure that will allow farmers to expand production and deliver their crop to market.

An interview with Davies Korboe, Chairman of farmerdavies inc. and 2010 National Farmer of the Year reinforced many of these points. Davies is a highly diversified farmer raising a mix of crops and livestock. He would be considered a large farmer in Ghana, but even as a large farmer he is facing the same issues with financing, insurance, market access and infrastructure. He sees great opportunity for Ghanaian agriculture, but many issues to overcome.

Our final meeting of the day was with Philip Abayori, a farmer and President of a prominent Farm and Fisherman Association. A brilliant man, he has an amazing outlook for Ghanaian agriculture. He states there are 12 MILLION hectares of productive land in Ghana and less than 2% in active production today. He describes the different growing regions suitable for different ag industries: forestry, aquaculture, production agriculture and livestock. He envisons programs where farmers and industry professionals from each track can work together towards sustainable, well-managed production. He has great faith in the capabilities Ghanaian farmers.

My outlook towards agriculture in Ghana is one of opportunity. As we hear the “experts” tell us there is no more land available to feed the next 3 billion people I am encouraged to see places like Ghana with 12 million hectares waiting for production. Are these areas of the world forgotten? Places like Ghana can do their part to feed the world while strengthening the country’s agrarian economy at the same time. There is so much good to be done.

So where do you want to start?

Dr. Colin N. Clarke is a senior strategist for AdFarm. Follow him on Twitter @colinnclarke or on Facebook at Facebook.com/cnclarke

New York Political Leadership Forces Another Fare Hike

The New York Post editorialized (October 8) against what it called "Another TWU Fare Hike," blaming the union for the fares that will now rise to $2.50 for a ride. The editorial writer goes on to say of MTA chief Jay Walder, "It's not his fault that straphangers get whacked while the MTA's unionized workers -- whose blue collars come with fur trim -- don't have to make a single sacrifice to meet the MTA's shortfall."

In response, I posted the following comment to the New York Post site:

Not his fault? Well, perhaps not personally. But surely it is the responsibility of the MTA and those in Albany who have skewed law labor and regulation to create this untenable situation. It is about time that public officials, such as those who run the MTA, be held account for what they have given away to the unions. The unions could not have taken it without the agreement of the MTA and other local and state political officials.

The way the Post tells it, you might think that the Transport Workers Union (TWU) had engineered a coup and had forcibly taken control of the Metropolitan Transit Authority. It fact, it was all quite legal. Interests such as the TWU have used their political influence to obtain the expensive contracts that place the riders a distant second, after the employees and the taxpayers an even more distant third. The MTA was not compelled to sign overly expensive labor contracts. Albany was not compelled to insulate transit unions from the economic reality faced by everyone else, including private sector union members. Washington was not compelled to give transit labor unions job protections that would be the envy of European public sector unions. These protections are a considerable factor in driving expenditures up 100% (inflation adjusted) over the past 25 years, while ridership has risen only 40%. The appointed and elected representatives did so willingly, and to the detriment of the people, whom they were supposed to represent.

The Post rightly complains about this, but places the blame in the wrong place. If the MTA, state and federal officials who have so skewed transit economics in favor of unions, had instead served the riders and taxpayers first, then New York and the nation would have much more transit services, its fares would be lower and there would be much more ridership.

The Post also errs in saying "Only in New York could such a perverse equation come to be." In fact, the situation is no different in most metropolitan areas of the nation. Transit agencies have routinely avoided efficiency measures that would have increased transit ridership and reduced costs (such as competitive contracting or competitive tendering of services), raised fares and cut services.

As the process has unfolded over decades, the TWU and other local transit unions simply responded to the incentives that were established by the elected and appointed officials. This has contributed, along with extravagant and in rail transit expansions, to rendering transit financially unsustainable. The problem is that the public interest in transit has been hijacked by special interests.

A more appropriate headline for the editorial would have been "New York Political Leadership Forces Another Fare Hike."

African Farmers Hungry for Markets

The 30th World Food Day finds more hungry people on the planet than ever before. According to the Food and Agriculture Organization (FAO) of the United Nations 1 billion people live in chronic hunger. UN Secretary General Ban Ki-moon’s official message on this year’s theme “United against Hunger” reflects today’s global reality. “For many people, today is not World Food Day. It is another No Food Day.”

The future holds a seemingly unceasing series of challenges as food production will have to increase 70 percent by 2050 to feed a looming population of nine billion people. Here in Accra, Ghana, however, the mood is hopeful. The Honourable Kwesi Ahwoi, Minister of Food and Agriculture proclaimed that “a lot is happening here. The country is moving forward and we are not going back.”

Ghana is considered the gateway to Africa based on its strong agrarian roots and stable political environment. Agriculture is the dominant sector in Ghana’s economy. The sector plays a critical role in reducing poverty and achieving economic growth employing about 60% of the labor force and contributing about 40% to the Gross Domestic Product (GDP). It also accounts for over 57% of the country’s foreign exchange earnings.

This week at the 2nd National Farm and Agric Show in Accra (FAGRO) the suggestion that some parts of Africa might be turning the corner seems at least conceivable. At the show farmers, associations of farmers and fisherman, agribusinesses from all sectors, and NGO and governmental agricultural development organizations have come together to share Ideas, showcase and promote agriculture products and learn about improved modern and innovative methods of farming.

Farmers at the World Food Day ceremonies and the farm and agric show are confident they are up to the task. A placard carried by a farmer in the audience said as much – Aid Cannot Feed Us For Life. Rather fair prices and ready markets for what we also produce. Talking with farmers and processors who produce everything from nutmeg and tilapia to pineapple juice and dehydrated oyster mushrooms confirmed the prevailing sentiment that farmers are eager to access new technologies and reach new markets.

Linking African producers to markets is not exactly a new idea. International aid and finance organizations have invested significant resources to provide technical assistance to help farmers use good agricultural practices and to shore up supply chains. ACDI/VOCA, for example, is improving Ghana’s agricultural sector by increasing competitiveness in domestic, regional and international markets through the USAID-funded Ghana Agricultural Development and Value Chain Enhancement (ADVANCE) program. Policies and programs like the USA’s African Growth and Opportunity Act (AGOA) offer incentives for Ghana and other African countries to continue their efforts to open their economies and build free markets.

Significant challenges remain of course if Ghana and other African countries are going to truly turn the corner on combating hunger and malnutrition at home while penetrating new markets on the continent and elsewhere on the globe.

Philip Abayori, Chairman of the FAGRO Advisory Board, explains that irrigation systems are vastly underutilized for production while post-harvest storage and distribution systems are entirely inadequate. So much that, in some cases, up to 40 percent of the harvest is lost to spoilage.

At the other end of the market, particularly in foreign markets, there is a lack of information and the necessary infrastructure according to John Dziwurnu, National Secretary for the Ghana National Association of Farmers and Fishermen. Producers need to know what consumers want before they can grow to their requirements; then they must be able to ship them to points of distribution where adequate storage and quality control is in place that will enable products to reach consumers in top condition.

Find out more about Delore's and Colin Clark's visit to Ghana at the AdFarm Blog.

Delore Zimmerman is publisher of NewGeography.com and President of Praxis Strategy Group.

Satellite Cities for Beijing? Yes, But....

China Daily ran an article on the continuing urbanization of Beijing. In Build upward or outward: City’s growth dilemma, Daniel Garst notes that Beijing is not as centralized as other urban areas, with its multiple business districts and comparatively low density in its inner areas. He indicates a preference for the urbanization of Shanghai, with its stronger center (both Pudong and Puxi), but suggests that it would be a mistake to replace the historic low density development with the high rises that would be necessary to change Beijing's urban form.

Actually, Beijing's form is not that unusual for Asian urban areas. Tokyo has multiple office centers rather than a single dominant center and has comparatively low residential densities, even within the Yamanote Loop. Bangkok, Manila and Jakarta are similarly multi-centric. Chinese urban areas like Shenyang, Xi'an, Wuhan, Suzhou and Changsha are closer (but smaller) replicas of Beijing than Shanghai. Garst also misunderstands the dynamics of traffic congestion in his belief that roads and metros (subways) would be less congested with a more centralized form. In fact, higher densities routinely produce more intense congestion, not only on the roads but also on the rails and buses, a point recently made by Michael Matusik on this site.

However, Garst may be onto something with respect to a suggestion that Beijing's growth should be directed to new satellite towns, in which residents work rather than commuting to Beijing. This is good theory, but there is an important caveat, which we outlined in a comment at China Daily on the article.

Satellite cities are not a reasonable answer unless they are so far from the Beijing urban area that commuting to Beijing is not possible. The idea of self-contained satellite cities, where people live and work in them has not worked anywhere. There are good examples of failure in London, Cairo, Stockholm, etc. So long as the large urban area can be reached, people will commute there.

Cairo provides a useful example. Egyptian planners have long decried the continuing commute pattern into the urban area from the new towns of 6th of October and 10th of Ramadan, which are within commuting distance. On the other hand, the new town of Anwar Sadat, more remote from the urban area, has been more successful in keeping its residents in its labor market.

Locating new satellite towns far enough to make commuting infeasible will be a real problem for Beijing. There just is not enough territory in the provincial level municipality. That means the new towns would have to be in the province Hebei, which along with the province level municipality of Tianjin surrounds Beijing.

Short of remote new towns and forcing population and economic growth away from Beijing, the key to minimizing traffic congestion will be to minimize work trip distances by achieving a dispersion of comparatively lower density employment to match the lower density suburban dispersion. Economists Peter Gordon and Harry W. Richardson have found that "suburbanization has been the dominant and successful mechanism for reducing congestion." in the United States. This applies no less to Beijing.

Photograph: Forbidden City, Beijing (by author)

Property Values 11 Times Higher Across Portland's Urban Growth Boundary

One of the starkest impacts of smart growth policies is the huge differentials in property prices that occur on virtually adjacent properties on either side of an urban growth boundary.

The extent to which regulatory restrictions can drive up prices is illustrated by the differences between the values of undeveloped lands just a few steps from each other, but across the urban growth boundary. Research from more than a decade ago in Portland indicated that land on which development is permitted inside the urban growth boundary tended to be 10 times as valuable per acre as land immediately outside the urban growth boundary, on which development was not permitted. In Auckland, New Zealand, recent research found virtually adjoining undeveloped land value differences at 10 times or more as well. Research in the London area by Dr. Timothy Leunig of the London School of Economics indicates that this difference can be as much as 500 times.

Recently (February), I examined tax assessment records for all parcels in Portland's Washington County that abut the urban growth boundary to see if value differences exist. The properties had to be 5 or more acres and be undeveloped. Research was conducted based upon Internet information in February 2010. Property along 25 miles of the urban growth boundary from Cedar Hills to Hillsboro to southwest Beaverton was included in the analysis.

  • The land adjacent to, but outside the urban growth boundary (on which development is prohibited) was assessed at approximately $16,000 per acre.
  • The land adjacent to, but inside the urban growth boundary (on which development is permitted) was assessed at approximately $180,000 per acre, approximately 11 times the price of land that is virtually across the street (across the urban growth boundary)

A sample was also taken of more remote developable parcels of more than 5 acres, on which development would not be permitted. These parcels, which were from one to five miles outside the urban growth boundary, had a value of approximately $8,500. Thus, the developable land inside the urban growth boundary was 21 times as expensive as the more remote land.

These data indicate the impact of urban growth boundaries on the price of raw land, which is inevitably passed on to buyers of new housing. Without an urban growth boundary, it would be expected that land on both sides of an urban growth boundary would have similar values. Further, land would be expected to drop in value beyond the urban fringe, but not by the drastic amounts indicated in Portland, Auckland and London.

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Photograph: (By Author)

Modifying Loans and the Decision-Makers

A recent editorial in The New York Times lamented the latest housing market woes, this time resulting from various banks’ disregard for, or inattentiveness to, a legal foreclosure process. As the article correctly states, “It is hard to be shocked.”

Further fueling uncertainty is of immediate concern, adding another layer of doubt to what may end up proving to be a formerly nascent recovery. While President Obama is calling for more thorough analysis to determine if foreclosure or modification is more prudent, and a provision in the Dodd-Frank bill authorizes government aid for troubled homeowners to assist with legal services, neither gets to the heart of the problem.

Homeownership is not an inalienable right, and should be reserved for those who are in the financial position to shoulder the burdens that come with the supposed pride. The banks reviewing loan applications should be the final bastion of culpability in assessing prospective buyers’ financial wherewithal.

This creates a moral conflict in many cases, as banks make money by lending money. In the interest of financial stamina, however, the banks have overlooked the simple fact that they only make money by lending money if the borrowers can pay them back. While there will always be some percentage of borrowers that fail to pay back their loans, it is all too well documented now that those levels are excessively high in today’s economic environment.

Most troubling is the realization that many bank REO departments (for “real estate owned,” the class of property that goes back to lenders upon unsuccessful foreclosure auctions) are not staffed by real estate minds. While it is not fair to make a wholesale categorization of REO departments nationwide as real estate deficient, there are multiple cases where simple real estate fundamentals are unknown.

Examples here include law firms, architecture firms and real estate advisory firms being engaged to teach real estate 101 to national banks’ REO departments. There have been cases where those making the decisions between lending or not lending, or foreclosure or modification, are unable to effectively comprehend sale and purchase agreements, site plans and floor plans, inspection reports or market analysis documents. This is not to suggest that these are bad people. But, as clerks, statisticians and analysts who are not educated or trained in the intricacies, or even general principles of real estate, they simply do not get it. How can such fragile issues with widespread economic and social ramifications be addressed by anything less than experts?

In other words, these last bastions of culpability are unable to perform the simple tasks that even a reasonably responsible borrower should comprehend. Banks are in the business of making money, and that, in and of itself, is not a crime in a capitalist economy. But they should at the very least properly train those who are making decisions on lending millions upon millions of dollars to aspiring, whether ready or not, homeowners.

Soccer Moms Against Rail Transit in Tampa

On election day, the voters of Hillsborough County, Florida (Tampa) will vote on a one-cent sales tax that would fund transit (75%) and roads (25%). Part of the funding would be used to build a new light rail line, which is the focus of campaigns on both sides.

The proponents are the usual well financed coalition of business, rail construction companies and consulting engineers, who could well profit from the program going forward.

The opposition, however, is unusual. It is a direct outgrowth of the growing citizen involvement from the TEA Party and 912 Project. These groups have broken new ground in raising general issues of government waste and public expenditure policy. This could be an important step toward balancing the spending proclivities of special interest groups with taxpayer interests in spending no more than is necessary to provide essential public services.

In Tampa, the rail opposition goes by multiple names, including "No Tax for Tracks" and Smartmoms. The more interesting of the terms is Smartmoms, or "Suburban Moms Against the Rail Tax." They might have just as accurately called themselves "Soccer Moms Against the Rail Tax," reflecting the demographic that has been so important in recent elections.

I recall being told by a disappointed former federal official that one of his greatest disappointments was to learn that there was no constituency for economic efficiency. This may be changing, if the developments in Tampa are any indicator.

I had the privilege of speaking at one of their rallies recently and wonder whether Tampa might represent a new birth of citizen questioning of large spending projects. Their revulsion at the "if we don't take the federal money, Baltimore will" line of thinking was refreshing. One key to restoring a more prosperous America will be to minimize this mutual plunder, by which Washington seduces local areas to buy things they never would with their own money. A new day could be dawning.

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Photo: Downtown Tampa (by the author)

Vancouver Olympic Villiage Development Becoming a Burden to Taxpayers

The former Olympic athlete's village in Vancouver is in the news again, but this time no one is celebrating. The billion dollar plus development, originally built to house athletes then converted to a residential housing development, was primarily financed by a loan from the city of Vancouver. Millennium Development Corp., developer of the project, currently owes the city $731 million. Millennium was scheduled to pay back the first $200 million by August 31st, but came up $8 million short. They managed to find another $5 million by September 20th, but they are still $3 million short. On top of this, they have another $75 million due in January. The city is considering legal action against the developer.

This isn't the first we've heard about financial troubles with the project. The city actually took over the loan from Millennium’s initial lender due to cost overruns. The repayment schedule was considered feasible, given the strength of the Vancouver real estate market. Unfortunately for them, sales have been slow. While 223 units sold during the presale, only 36 units have moved since. This leaves more than half of the units. 454, lingering on the market. The city has actually been forced to take over the 252 units of social housing that were required to be built due to the city's inclusionary zoning laws.

Amidst this turmoil, the city is doing everything it can to ensure that the remaining units are neither sold off cheaply nor rented out, since this would reduce the long run selling price. Their solution is to wait for the market to rebound. Councilor Raymond Louie stated that “the benefit of being the city is that we are lasting and we can stay forever...it's a paper loss for now, but we can wait for the market to recover.” Of course, if this were a wise decision, why are private brokers and developers not doing the same? The answer is simple: the assets are depreciating anyways, so they may as well cut their losses. The problem here seems to be that the sitting government is afraid that it will look bad for them if the sale of the units doesn't cover the full loan amount. By telling the developer to sit on the assets, they can claim that the debt will be repaid when the market recovers (and they are happily retired from council).

The British Columbia government reported that the cost of the Olympics to BC taxpayers was $925 million. The original estimate was $600 million. On top of this, the federal government kicked in $1 billion for security costs. That also doesn't count the $700 million they spent on highway upgrades, $2 billion for a light rail extension, or $885 million for a convention center. Millennium’s financial troubles threaten to add to the losses incurred by taxpayers. Reports claim that the development is worth between $150-200 million less than what they owe the city. On top of that, at least 15 of the pre-sale buyers are trying to back out of their purchases. The bad news for taxpayers just keeps coming.

While the city was forced to back the loan in order to live up to its Olympic commitments, there is a clear lesson here: cities should not be in the housing business. Even though they've managed to keep housing prices artificially high, they can't break even on a housing development that was advertised to the whole world. Either the housing market will overheat again, and the project will become solvent, or the taxpayers will lose a couple hundred million dollars. Potential home owners in Vancouver can't seem to win. The best thing the city can do at this point is admit failure, and allow Millennium to have a fire sale. It won't do much about the cost of living in the city, but at least a few people will pick up bargains. Of course, politicians aren't likely to cut their losses. Better to pass the buck to the next council.

California Expenses Putting a Strain on Business

Is it any wonder why California’s economy has been so sluggish during the recession? According to the 2010 Kosmont-Rose Institute Cost of Doing Business Survey, one-third of the nation’s forty most expensive cities are located in California, deterring businesses from setting up shop in the state. The increases in sales, income, and vehicle taxes in 2009 further depressed the business climate and exacerbated the problem of unemployment. Though local governments are trying to cut costs and boost local businesses, they have not been able to reverse the effects of outrageous taxes and fees.

As one would predict, the ten most expensive cities in California in 2010 are located almost exclusively in the Bay Area or Los Angeles Area. Berkeley, Oakland, and San Francisco round out the Bay Area localities with San Francisco actually making the top ten national rankings as well. Beverly Hills, Culver City, Inglewood, Los Angeles, San Bernardino, and Santa Monica all represent Los Angeles County while Rancho Santa Margarita fills the final spot. However, none of these cities joined San Francisco on the national list.

There is one thing missing from Kosmont’s national list of most expensive cities: the Great Plains states and Midwest. With the exception of Chicago, there are no cities on the list from the area between Arizona and Ohio. Even in the West, there are only three cities, San Francisco, Portland, and Phoenix, that made the top ten.

Where do we find the least expensive cities? They are in the middle of the country, of course. Five of 2010’s least expensive cities are in Texas, one is in Nevada, and one is in Wyoming. Texas has fared surprisingly well during the recession, as have states like North Dakota. Low business costs and a bustling energy industry have made these states havens for new businesses and job seekers alike.

Companies in California are now packing up and moving north and west to save money. Friendlier and more stimulating business climates in states such as Arizona, Washington, Oregon, and Colorado are luring companies like Google, Hilton, and Genentech. As Larry Kosmont, President and CEO of Kosmont Companies, commented, “Just being located in California, cities are at a ‘cost’ disadvantage right out of the gate.” If California wants to keep the companies that bolstered its success during the beginning of the decade, it must reconsider its recent tax hikes and have faith that improving the business climate will stimulate the economic growth that the state sorely needs.