Development of carefully planned new communities sounded like a good alternative to uncontrolled suburban growth when Congress launched federal financial aid for construction of new towns in 1968.
Fifteen years and $570 million later, nine out of 16 new communities developed with federal aid have failed and only one is a financial success.
Looking back on that record of failure, the Reagan administration has decided to close down the program at the end of fiscal 1983. Urban planners who worked with the program in the past admit that it had serious problems but they contend that many of its goals are still valid and they claim that the administration has no other plans to meet them.
"The act was very well intentioned," said Warren T. Lindquist, general manager of New Community Development Corp., the agency within the Department of Housing and Urban Development that administers the program.
"The purpose was to provide an alternative to haphazard and costly sprawl, the kind of growth which had proceeded at a great pace after World War II, the growth of the suburbs at the expense of the cities," Lindquist said. Under the program, the corporation guaranteed taxable bonds, made grants and provided housing assistance to help developers build racially and economically mixed new towns.
When the Reagan administration took office in 1981, the program already was considered a failure. Congress had halted new finance commitments in 1975, and the New Community Development Corp. had begun liquidating the assets of communities which it had acquired when they no longer could meet their debts.
The Reagan administration expects to finish the liquidation process and shut down the corporation within the next 10 months. "I think we've demonstrated that the government doesn't belong in this business, and I hope we have learned that and don't try to do it again," Lindquist said.
In the seven years it was active, the corporation guaranteed the debt of 13 communities and certified three others to receive grants and housing assistance. By President Reagan's inauguration day, nine of the communities with guaranteed financing had failed economically, and the corporation had acquired their assets. Lindquist said that the corporation has liquidated the assets of all but one of those communities, Shenandoah, Ga., and it will liquidate that one this year.
The corporation has arranged to avoid foreclosure with the developers of three other communities that are considered socially and environmentally viable, but which cannot pay their debts. These towns include Harbison, S.C., Maumelle, Ark., and St. Charles, Md. The corporation also is terminiating its relationship with the three communities that received grants but did not receive financing guarantees, including Park Central, Tex., and Radisson and Roosevelt Island, N.Y.
According to the corporation, the entire program will cost the government about $570 million, including $160 million in grants, and reflecting income of about $190 million from the sale of the assets of the failed communities. "We were stuck with property and we were stuck with debt which we had to swallow, minus what we could get for the assets," Lindquist said.
"One and only one community was financially successful, and that was The Woodlands, outside of Houston," Lindquist said. Unlike the developers of other new towns, Mitchell Energy and Development Corp. had the wealth of its naturalgas holdings to help ensure the viability of The Woodlands. The generally high income of the town's 16,000 residents and its proximity to Houston also have contributed to its success.
Opinions differ on why most of the towns failed, but Lindquist blames government inefficiency and red tape. Even if the government had developed the expertise to properly underwrite the financing it guaranteed, the program would have failed because of political pressures and overregulation, according to Lindquist. Final applications for new-town financing guarantees require documentation two feet thick, [TEXT OMITTED FROM SOURCE]
The developers had their failings, too, according to Lindquist. "For large-scale development, three things are required: location, real knowhow, and adequate capitalizaiton, otherwise expressed as 'deep pockets,'" he said. "The only one that had all three was The Woodlands."
The developers also faced huge economic odds, which were aggravated by recession. In St. Charles, Md., for example, the developer had to sell roughly 200 lots for single family homes just to pay the annual interest on $38 million in debt. It took sales of another 100 or so lots per year just to meet operating costs.
Government bureaucracy had a lot to do with the failures, said William J. White, general manager of the corporation under President Carter from 1977 to 1979. But White put more blame on the structure of the program and mistakes in planning individual towns. First of all, the government should have subsidized or deferred repayment of the interest on the developers' debt and should have had the ability to restructure the debt when developers got in trouble, he said. Because they incurred huge amounts of debt at market rates, "All projects, no matter how good, were in immediate financial difficulty," White said. "It was like a sinking ship from there."
In many cases, developers did not anticipate the extent or the direction of growth in adjacent existing communities, he said, noting that plans called for huge sites, forcing developers to assemble land that was too far from existing growth centers.
But the program may have been doomed from the start, White said. "Had this concept come into play right after World War II, it would have been an ideal time for the program.... By the time it got going, that whole push was pretty much over. The suburbs had already been built."
Charles C. Allen, a private urban planning consultant who helped develop the new community of Soul City, N.C., in the mid-'70s, agreed with the assertion that the size of the debt burden on new community developers, coupled with government red tape, made the program unworkable.
Whatever the reasons for its poor record, Lindquist draws a simple lesson from the new-community-development effort. "The government cannot encourage the development of free-standing new towns by doing what this program tried to do," he said. "The role for government is to provide the opportunity for development in existing cities and around growth centers." The Reagan administration is proposing to do that with federal and local tax breaks to encourage businesses to locate in urban "enterprise zones."
White and Allen agree that the new community program no longer is workable, but they said it did result in some worthwhile development. They also called for a continued role for government in planning large-scale development and land use.
"The Reagan administration's philosophy is basically opposed to government regulation of land," said Allen. "They want a free-for-all, laissez-faire approach, but we no longer have the economy or the resources to support that kind of thing."
White sees a continued role for a scaled-down new-towns program to encourage planned development of "new towns in town" such as the redevelopment of the South Bronx, and boom towns in energy exploration areas. There no longer are any federal programs to do that, he said.
White and Allen agree on the need to encourage reinvestment in existing cities, but they are critical of the administration's enterprise-zone proposal. "What cities need now is tax revenue, and when you come in with the enterprise zone and ask for local tax breaks, I don't see where they're going to restore to local communities the ability to provide services," Allen said. "I see a great benefit to the businessman, but I don't see an equal return to the community."