The delusions of an American Technopolis

March 6, 2014 — In the middle of the 20th Century, the Santa Clara Valley was known as the Valley of Heart’s Delight. Before the suburban tract housing and industrial parks, the land was covered in rows of fruit trees; the nickname came from the perennial bursting into color of the orchards at bloom time.

The decades after World War II visited changes on the region so complete as to utterly transform it. The first seeds were planted by the Cold War defense and aerospace research complex, in the form of federal dollars injected into Stanford and other institutions nearby. What we think of as Silicon Valley industry originated in this period, with companies like Hewlett-Packard and Fairchild Semiconductor employing the engineers and businessmen who would go on to found Intel, Apple, and the rest.

In a parallel process some 20 miles south, San Jose, until then a midsize agricultural and commercial town, entered a twenty-year paroxysm of growth. A city manager named Dutch Hamann set about expanding the city in an unprecedented frenzy of suburban sprawl. Between 1950 and 1970, San Jose’s population more than quadrupled, and its land area grew from 17 to 149 square miles. Hamann’s team came to be known as the Panzer Division, conquering territory by annexing community after community, building new sewers and roads, and subsidizing construction on a mass scale.

San Jose in this era was an extreme version of what urban scholars call a growth machine: a coalition of government, developers, and real estate interests pursuing the shared goal of intensifying land use and raising property values. According to Terry Christensen, the San Jose State University professor emeritus of political science, the city was a “developer’s paradise” endowed with the standard Sun Belt offerings: “a good climate, low taxes, plenty of land for low-rise, low-cost buildings, and an absence of unions.” San Jose continued to grow in the decades that followed, but never with the unrestrained abandon of the Hamann years.

As growth slowed somewhat during the 1970s, the city began to see a steady and eventually astronomical rise in property values. In “Net Loss,” a book about the sociopolitical consequences of technological change in Silicon Valley, Nathan Newman writes that this rise was fueled by technologies, most of them developed in the Valley, that allowed for global investment in property markets. “Investors in the United States and around the world were playing increasingly speculative games in the housing market, especially the booming growth cities of California,” Newman writes.

For a time, this translated to rising revenues for the city of San Jose. Indeed, had the city been able to rely on steadily increasing property taxes, it might have remained a fiscally sustainable bedroom community for the rest of the Valley. But that possibility was revoked, suddenly and sharply, with the passage of Proposition 13 in 1978. The referendum altered California’s politics and government finances profoundly.

Largely a response to the rising property taxes that came with the speculative surge in housing values, Proposition 13 capped property taxes at 1 percent of assessed value and prohibited upward assessments of land, other than inflation indexing, until property changed hands. Even adjustments to assessed value to account for inflation were capped at 2 percent a year regardless of whether the inflation rate was higher. Thus, even if a property’s actual market value skyrocketed, the assessable value tended to remain low on the governments’ books.

Lastly, Proposition 13 required voter consent (in most circumstances by supermajority) for the passage of any new taxes. The theory — which proved correct in practice — was that voters would be reluctant to take the active step of taxing themselves more. In short order, the law crippled the ability of every locality in California, and of the state itself, to raise revenues.

Almost immediately after California’s tax revolt, the Reagan administration oversaw a drastic scaling back in the funds the federal government provided to cities and counties for social programs. These changes ushered in an era of “selective fiscal austerity,” as described by Nari Rhee, a labor scholar and urbanist previously based at the University of California, Berkeley. (Rhee is now research manager at the National Institute on Retirement Security; she spoke with us in her individual capacity, not as a representative of her current employer.) The focus of local government moved decisively away from the provision of social services and toward “economic development,” or the competitive drive to win business investment. While resources for the former became scarce and dwindling, money for the latter, in the form of development subsidies and tax incentives, was never in short supply.

Following the neoliberal playbook

Tom McEnery, a Democrat and businessman from a prominent local family, was mayor of San Jose through most of the ’80s and into the early ’90s. In 1994 he published a book narrating his experience and outlining his philosophy of local governance. “The New City-State” reads like an enthusiastic handbook for the neoliberal American mayor. “The modern city is like the modern company,” McEnery wrote. “The new city-state is an entrepreneur.” McEnery framed his approach as a positive response to the drying up of federal money, dependence on which had made American cities “like a heroin junkie on methadone, or a welfare queen addicted to food stamps.”

The key mission of McEnery’s “start-up city” was to court, cater to, and emulate the private sector. McEnery relied on many of the standard means to achieve this, like keeping business taxes low, if not waiving them altogether, and fostering close personal relationships with luminaries of the business class. But he also made shrewd and innovative use of redevelopment, a state-level series of legal and financial structures designed to foster local investment in blighted areas.