Magazine article Government Finance Review

Thinking Differently about Development

Magazine article Government Finance Review

Thinking Differently about Development

Article excerpt

Communities often experience some level of disconnect between economic development policy and ensuring sufficient tax revenue to cover the cost of the services the government provides. Suburban projects tend to be favored over denser downtown development, but data from more than 30 jurisdictions across 10 states' show that a municipality receives a greater level of revenue from its denser and more walkable urban patterns than its suburban pattern of development. Considering this information provides local government officials with an opportunity to consider development from a different angle.

The studies this article is based on cover municipal revenues per acre across states from California to Maine and Montana to Florida, including wealthy cities such as Mountain View, California, and less affluent towns such as Driggs, Idaho, and Dunn, North Carolina. The data consistently confirm that mixed-use, dense development produces greater revenues per acre than low-density patterns. In most cases, the proportion of revenue growth is exponential, not proportional, based on density increases. The "per acre" measurement is important; it is similar to judging the efficiency of a car in a "per gallon" basis. Both land and gasoline are finite resources, and comparing the consumption of the resource can be the easiest way to understand the efficiency of the product. This is especially true when annexation is difficult or impossible, limiting the amount of land available.

Exhibit 1: Costs Associated with Land Development Patterns



This map shows a notable lack of
consistency of land valuation on a
per-acre basis. The mall property
(A) is double the value of the
parcels across the street (B).
There are also notable outliers
in the residential neighborhoods.

CASE STUDY: SARASOTA COUNTY

Consider the example of Sarasota County, Florida (see "The Missing Metric," in this issue of Government Finance Review), which asked the following question: Can properties and cash-flow be isolated, geospatially, as revenue model? The state of Florida hired a consultant to assess the cost of public facilities for residential properties to help demonstrate the costs associated with spreading out land development patterns (see Exhibit 1). (5) Using this report, an apples-to-apples comparison was made between a suburban multi-family unit and a multifamily unit located downtown (see Exhibit 2).

Assuming a finite limit to the downtown example--if tax value and density were cut in half--the suburban ROI would still be much smaller. Projecting this kind of cash flow out 20 years puts the county in the red by $5 million, using the suburban model, while the urban model shows a profit of more than $20 million. (These numbers did not account for the revenues that go to the city or the additional services the city must provide.)

Decades of research indicates that municipalities do need to account for costs and revenues within a geographic location) In addition to accounting for administrative costs, jurisdictions also need to account for the cost of government "on the ground." A municipality can be looked at as a very large real estate development corporation; in that light, city administrators would be fund managers for (in some cases) multibillion-dollar portfolios. Although we don't think of running a municipality this way, there's something to the idea.

Following this logic, a "value per acre" analytic was applied to the entire city of Mountain View. This is the hometown of Google, and as an homage, the data were exported into Google Earth, allowing users to experience the value difference in three dimensions. The results were interesting, and logical. (See Exhibit 3.) The downtown area was expected to show a great deal of value, but the difference between that core area and immediately adjacent neighborhoods is dramatic. It should also be noted that the majority of downtown buildings have fewer than three stories. …

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