Living Regionally, Thinking Locally

By Steven Pearlstein
Friday, September 15, 2006

It would sound pretty silly at this point to talk of the District economy, or the Fairfax economy or the Prince William economy. The way most people and businesses experience it, this is a regional economy -- one that is becoming more so every day.

The markets from which employers draw their workers, from which companies draw their suppliers, from which retailers draw their customers -- surely all of these are regional.

There's a regional housing market, in which the supply and prices in one area affect the supply and prices in another.

And in the competition for top talent from around the world, the "creative class," it is the region's offerings of airports, universities, sporting and cultural venues, restaurants and recreational possibilities that are considered, not those of any one location.

To the degree the economy is regional, so are its problems -- transportation gridlock, the lack of affordable housing, the skills mismatch between what companies need and what workers can offer. And yet, with the exception of Metro and the airport authority, most of the regional mechanisms and institutions we have for addressing them are either weak and ineffective, or are yet to be developed.

Consider, for example, that while all of the region's suburban jurisdictions have active programs to attract new jobs and commercial development, most would prefer that the people who will hold those new jobs and shop in those new stores live somewhere else. The reason is simple: Jobs and office buildings generate lots of tax revenue but little new demand for government services, while new housing developments, and the school-age children that come with them, are often net drains on a county treasury.

Obviously, if every jurisdiction plays this game, you end up with sprawl, which is precisely what has happened. The only way to avoid this is to have mechanisms by which neighboring jurisdictions share in the costs and benefits of economic growth, giving them the financial incentive to cooperate rather than compete.

The District, for example, really doesn't need or want too many new jobs, nor the commuters who go with them. But the District could benefit from an influx of residents who might re-create a middle class and push for much-needed reform of the D.C. public schools.

Next door, Prince George's County has the opposite problems. It has too many residents and too few jobs, forcing people to commute long distances to work while creating a fiscal squeeze that makes it difficult to deal with chronic problems such as crime and failing schools.

The obvious solution is for the two jurisdictions to get together and push a plan that would steer residential development to the District and job creation to Prince George's, particularly near the Beltway and at Metro stops. But unless there is some mechanism to share the new tax revenue from the office parks and share the costs of providing services to the new residents, there's no incentive for either side to cooperate.

The lack of affordable housing poses a similar challenge. This is now a big problem for businesses and governments whose lower-paid employees are being priced out. Yet no one jurisdiction has the incentive or means to tackle it. As a result, lower-income workers have been gradually pushed to the periphery of the region, or out completely, adding to traffic congestion and forcing them to commute longer distances.

Recently, some jurisdictions have toyed with "inclusionary zoning," which on the surface looks like a clever way to force rich developers to forgo some of their excessive profits by setting aside a percentage of every project for affordable housing. In fact, what this really becomes is a tax: Residents of the new development pay more for their houses so some of their new neighbors can pay less.

Though admirable in intent, inclusionary zoning by one jurisdiction is probably not a great way to solve what is really a regional social and economic problem. The better idea would be to use a small portion of the real estate transfer tax in every jurisdiction to create a regional housing fund that could subsidize affordable housing in every community where it makes sense, whether or not there's new construction.

That's somewhat analogous to Rep. Tom Davis's admirable plan to generate $3 billion to modernize the Metro system over the next decade. Davis is on the verge of getting Congress to appropriate half the money, on the condition that Virginia, Maryland and the District come up with a dedicated revenue stream to fund the rest. The District has agreed to use a small portion of its sales-tax revenue. And, after a stumbling start, Maryland political leaders seem to be on board. But in Richmond, despite the strong backing of Northern Virginia politicians, the anti-tax jihadists in the Republican-controlled House have blocked the state's cooperation.

This inability to think and act regionally is now the central challenge for the Washington economy. The days when the region could accommodate growth by sprawling are pretty much over. If cooperative ways are not found to manage growth within the footprint we have, then voters have made it clear they will opt for no growth at all.

It is unlikely local officials will step forward to lead this march toward regional governance -- most of the political incentives militate against it. The push will have to come from a business community that has the most to lose from no-growth policies, but itself remains largely balkanized along industry and political lines.

Steven Pearlstein can be reached

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