What use is the Vice President?

(c) by Mark Dempsey

Besides being the "spare tire" for the presidential replacement, what use is an office John Nance Garner called "not worth a bucket of warm spit"? (And that's the Bowdlerized version.) Consider this tale of Vice Presidential action:

North of Sacramento's downtown is some 20-foot-under-water floodplain surrounded by weak levees (North Natomas). Land speculators purchased (or optioned) that land for roughly $2,000 an acre--a bargain for rice land, which was its then-current agricultural use.

Meanwhile, the Sacramento regional sewer plant got a federal grant to increase its capacity, but one condition of the grant was that it would not serve land so unsuited for development as North Natomas. If that sewer plant served North Natomas, the feds would assess a $6 million penalty.

The speculators weren't concerned. They went to then-Vice-President George H.W. Bush and got that $6 million penalty transformed from a prohibitive up-front fee to pay-as-you-develop installments, and they got a $43 million levee grant to improve those weak levees to pre-Katrina standards.

So far, that's a pretty good deal: pay $6 in installments to get $43 in levee money. But wait! There's more!

After some political machinations, the speculators got North Natomas annexed by the City of Sacramento, and, contrary to the wishes of that district's City Councilperson, got approval to develop it. 

Incidentally, to please the City, the speculators also "consulted" with local environmentalists. An entire staff of attorneys and experts debated with a single environmentalist--no, not an architect or someone trained in ecology, a graphic artist for the local transit agency--and the City accepted the outcome of these talks as guidance for the design of eventual build-out. If anyone was overmatched, it was that poor graphic artist--who has since left town. Predictably, the design of North Natomas development is sprawl, not the market-preferred pedestrian-friendly mixed use that cuts vehicle miles traveled roughly in half. Every North Natomas trip of significance requires getting in a car.

Once they got their "entitlements" the speculators started selling the land to builders. They had paid around $2,000 an acre for the land but sold it to builders (e.g. Winncrest homes) for roughly $200,000 an acre. If your calculator isn't handy, that's a 10,000% return on investment. Sure, there were expenses to pay for consultants and attorneys, but that's a huge gross profit.

But wait! There's even more!

If the speculators swapped the sold land for an income-producing property like apartments or shopping centers before the sale closed, they deferred income tax on this extremely profitable transaction indefinitely. 

Contrast this practice with what happens in Germany: The developers must sell the agricultural land they want to develop to the local government at the ag land price, then buy it back at the development-approved land price. All that 10,000% profit--the "unearned increment"--inures to the benefit of the public realm.

And the Germans have a very nice public realm indeed: free tuition at their universities, first-class infrastructure--without the collapsing bridges the US enjoys--and wonderful arts and parks. The arts budget--for concerts, art exhibits, etc.--for the City of Berlin exceeds the entire National Endowment for the Arts for the US.

The late Sacramento Supervisor, Grantland Johnson, told an assembled audience that it's widely acknowledged throughout California that the Sacramento Region is the most in the hip pocket of  developers. This is not a contest anyone would like to win.

But see!... Vice Presidents can accomplish things for their (real) constituents. Builders have now filled North Natomas with suburban sprawl, and its residents must pay for the cost of improving levees to post-Katrina standards while the speculators are on their way to the bank, laughing and counting their winnings.