Who knew that the sprawling nature of suburban development could bankrupt communities? While new homes contribute development impact fees to fund the infrastructure they require — including roads, utilities and parks — the true cost of maintaining infrastructure has never been accounted for. The reality is that the extensive infrastructure that knits a sprawling community together is inherently more expensive to maintain than in a compact community.
For example, Santa Rosa has collected $230 million of development impact fees in the past two decades, yet the projected infrastructure budget over the next two decades is approximately $1 billion. That fourfold increase includes ongoing maintenance expenses for existing infrastructure, which are unfunded.
This conundrum is the backdrop for the Santa Rosa City Council debate about lowering development impact fees to incentivize residential development and meet housing demand more affordably. A recent PD editorial offered no clear solution, noting that lower fees would further accentuate the city’s long-term infrastructure investment deficit, while higher fees would further depress developers’ appetite for new projects. There is, however, another approach to this dilemma.
In addition to one-time development impact fees, cities collect recurring property and sales taxes annually. Joe Minicozzi from Urban3, a firm specializing in property and retail tax analysis and community design, has studied the financial implication of such taxes on local governments and concludes that traditional mixed-use, higher-density development generates exponentially more tax revenue per acre than is generated by sprawled/low-density development.
The difference can be astonishing as demonstrated by a six-story urban building Minicozzi helped to redevelop. Minicozzi calculates that this development generates $413,000 per acre annually in property and retail taxes.
In contrast, he calculates that an existing big-box store, on a 34-acre site at the edge of the same town, generates $54,000 per acre in these taxes. This means the downtown building will be 7.5 times more financially productive in yearly tax receipts than the big-box stores.
Likewise, Minicozzi and Strong Town’s Chuck Marohn show that low-density sprawled developments produce only a small fraction of the tax receipts generated by denser mixed-use developments and require extended infrastructure that is costly to maintain. This is a major reason why so many sprawled communities are facing fiscal crises as they struggle with paying for aging infrastructure.
The Urban Community Partnership, a grass-roots multi-disciplinary collaborative, believes that transforming our approach to development is key to assuring financially resilient municipalities while promoting a healthier quality of life and reduced environmental impacts, including substantially less auto and water use.
That’s why we are working with Urban3 and Strong Towns to undertake a financial analysis of land-use development patterns in close proximity to the various SMART stations along the Highway 101 corridor.
After completing their analysis, Urban3 and Strong Towns will conduct a series of public workshops to explain their results.
Equally important, they will educate local officials on how to use their analysis to determine which development proposals will generate the highest and most-sustainable financial benefit for their respective communities.
The implication of such analysis — developing the surrounding train station areas as higher-density/mixed-use walkable neighborhoods — will synergistically maximize tax receipts while providing ridership close to the SMART stations. Furthermore, such development provides an excellent opportunity to increase the region’s stock of both affordable and market-rate housing.
By Paul Fritz, Mitch Conner, and David Petritz
Originally published in the Press Democrat on September 26, 2015