In 2016, we updated the original Growth Ponzi Scheme article to explain how cities across North America were financially imploding—not because of a lack of growth, but because of growth itself. To experience growth, cities are encouraged to take on enormous long-term liabilities to fund short-term expansions. This fiscally unsustainable pattern eventually leads to insolvency. We are three generations into this economic experiment, and, as the numbers show, the system is breaking.
Few cities illustrate the consequences of this pattern as vividly as Houston, Texas. Houston has long been lauded as a pro-growth, free-market success story, a place where development happens fast, infrastructure keeps up with demand, and regulations don’t stand in the way of progress.
But underneath that reputation lies an enormous fiscal hole. Last year, Houston Mayor John Whitmire declared that the city is “broke,” citing a $160 million deficit. That’s a big number, but it barely scratches the surface of Houston’s real financial predicament.
The Growth Ponzi Scheme: A Recap
For decades, cities have chased growth as a way to generate prosperity. The premise is simple: build new infrastructure—roads, sewer systems, water lines—and let development follow. The rarely-questioned hope is that the tax revenue from new growth will be enough to cover both the initial investment and future service and maintenance. In the short term, this often appears to work. A city receives development fees, increases its tax base, and sees visible progress.
But underneath the surface, a dangerous financial pattern emerges. The cost of maintaining infrastructure doesn’t go away after construction—it only grows over time. Decades later, when pipes need replacing, roads need resurfacing, and public buildings need repairs, the original development fees are long gone, and the ongoing tax revenue isn’t enough to keep up. Cities then face a choice: raise taxes, take on debt, or chase even more growth to generate new revenue.
Of those three options, the most culturally palatable choice is growth—more of what seemed to be working—which only perpetuates the cycle.
This is the Growth Ponzi Scheme: cities take on long-term liabilities that vastly exceed the short-term revenue they generate. It’s a strategy that works only so long as the city keeps expanding at exponential rates, much like a financial Ponzi scheme that collapses when new investments dry up.
And now, in cities across the country, the bills are due and the fiscal stress is undeniable. This is especially true for a high-growth economy like Houston.
Houston: The Growth Ponzi Scheme on Overdrive
Nowhere is the Growth Ponzi Scheme more evident than in Houston. The city has grown from 600,000 at the end of World War II to 2.3 million today. In 1950, Houston was 113 square miles; today it is 640 square miles. In other words, they have grown their population by 380% by growing their land area by 570%.
The city’s explosive growth was accomplished through annexation, developer-driven expansion, and public infrastructure investments meant to accommodate continued outward expansion. Each of these outward leaps costs more than the last and provides a tax base that is, in comparison, less financially productive. As shown by the fiscal mapping geniuses at Urban3, Houston has the troubling value-per-acre characteristics of a typical North American city, albeit at a larger scale.