When I moved to Madison in 1984, the downtown there wasn't much--despite the fact that it has lots of worker density from state government and the University of Wisconsin. But the city--and in particular its chief planner, George Austin--had the sense to see that Euclidean zoning was not compatible with downtown redevelopment. Downtown zoning was essential replaced with Planned Urban Developments. Ironically, I remember some environmentalists--people who want transit oriented development--opposed some of the plans on the grounds they would bring too much density to downtown. Oh well.
In any event, the transformation of downtown Madison has been astonishing. It now has very attractive condos, and a restaurant scene that is remarkably strong (I was going to add the caveat "for a city of Madison's size," but the caveat is actually unnecessary). The area is now lively, with people strolling even in cold that is now, well, beyond my personal limit of tolerance (I have gotten soft since leaving). The city also built a beautiful Frank Lloyd Wright inspired convention center that provides an anchor to the south end of downtown. Unlike many such places, it was designed to be a gathering place for the community, and it has worked magnificently.
When I first saw Pasadena in the early 1980s, it was actually a pretty unattractive place, with dilapidated commercial areas and an under-maintained housing stock. The air quality was terrible--I remember my nostrils stinging the whole time I was there--and I wondered why anyone would live there.
Two important changes have since happened. First, the air quality, while still not good enough, is much, much better. I can see the San Gabriel Mountains pretty much every day now; in the 1980s, it was hard to know that the place even had mountains. My colleague Chris Redfearn maintains that once air quality improved, people began reinvesting in the very beautiful pre-World War II houses that make up a good chunk of Pasadena (more evidence that environmental regulations that target real externalities are economically beneficial).
Second, the city set up a business improvement district in Old Town that operates much like a mall operating agreement. This allowed anchors such as Crate and Barrel to internalize some of the external benefits that they create by being a draw. An advantage regional shopping malls have had over traditional downtowns is that mall operators can create lease structures such that anchors can recover benefits from the traffic they generate for other stores. This is why anchors pay lower rents than in-line stores. In general, local government subsidies to businesses are not wise, but subsidies for anchor department stores may be an exception. Ideally, governments will set up districts in which merchants whose traffic is driven by anchors will subsidize the anchors, but to get downtowns started, governments themselves might need to give the subsidy.
