Donjek :: The Cents of Place Blog

Strong Towns Releases Vulnerable Cities Report

The Cents of Place, since its inception in 2007, has addressed issues of public finance on levels ranging from specific projects to macro-level economic and policy issues. On the latter, I have been immersed since January in two efforts. In the first, I am managing the Brookings Metropolitan Business Plan initiative for partners assembled in the Minneapolis Saint Paul region; I introduced this project here in January, and will be posting draft business plan content for your review and comment within the next few weeks.

In the second, I co-founded Strong Towns, an entrepreneurial nonprofit organization calling for big change in American land use, last fall with Chuck Marohn and Ben Oleson of the Community Growth Institute. We’ve been producing research, building relationships and growing networks on Facebook and Twitter over the last six months. Our message – that current land use patterns are financially unsustainable and are eroding our ability to invest in our people and places – has been attracting attention of late. See us on the newswire at Planetizen and at the Switchboard at NRDC blog, and join us in developing these ideas by following us at Facebook and Twitter.

 Today, we have released a report titled “Minnesota’s Most Vulnerable Cities,” which addresses the following question: If federal and state aids disappeared tomorrow, and citizens wished to maintain existing services, how large a property tax increase would be required? How sensitive are our cities to the risk (and very likely eventuality) that state and federal aids fall?

View the report here. Make comments, throw darts, suggest solutions - help us develop tools to build Strong Towns.

@Strib Forum: Minnesota State Budget Stress Impacts Redevelopment

I continue to post regularly at the Star Tribune as a member of the Your Voices forum. My most recent post relates to the current state budget problems in Minnesota, where the Legislature and Governor continue to disagree about an appropriate fiscal response to recession and to the structural imbalance in the budget existing before the economic downturn.

Multi-billion dollar deficits don't come with easy fixes; plans relying exclusively on service cuts or tax increases are similarly painful to implement. This biennium, the Governor is using an executive power known as unallotment at an unprecedented level, to reduce spending unilaterally. From property taxes to transportation infrastructure, this approach is sure to impact those of us involved in redevelopment and placemaking.

Already, forecasts have been presented suggesting that this deficit is not a product of recession alone, but another iteration of a chronic budget imbalance. Jay Keidrowski, former finance commissioner, and nonpartisan Minnesota Senate Research analysis indicates the budget deficit for the next biennium (2011-12) to be in the $4.5 - $4.9 billion range.

Donjek Project: Minneapolis Downtown Open Space Initiative

The year's twilight is a good time to add a postscript to a previous item I wrote, at that time introducing work undertaken to help the City of Minneapolis evaluate the prospect of converting downtown land area to open space. Since that post in fall, 2007, Donjek has been engaged on projects in a similar vein in Little Rock, Arkansas and I have written a number of short commentary pieces on that project and issues surrounding parks.

The City of Minneapolis' Department of Community Planning and Economic Development (CPED) recently posted the full report of the multi-disciplinary team to its website and the document is available by chapter or as a whole here. There is never a "perfect time" to convert land from taxable to tax-exempt use (history suggests the same), and property and sales tax revenues are at a premium across the country today for core public purposes. Still, what is also evident is that other things equal, urban land stands only to become more valuable in the coming decades thanks to transportation logistics, energy policy and climate change. In economists' terms, the opportunity cost of failing to procure open space for downtown dwellers now stands to grow significantly in the future.

Photo: Courtesy of jpnuwat/Flickr.

Value Capture Finance: Seeing is Believing

One of the trends I've observed here over the last year, is that multiple factors are prompting more consideration of value capture finance - the mechanics of "capturing" development values and benefits to pay for elements of the development itself.  Among the drivers are:

• Diminishing public willingness to support funding for services traditionally considered to be core public functions; 
• Increasing gathering of data and readiness of access to this data; and
• Improving ability to use this data to measure property value, patterns of how people use places, and the economic health of small or large areas (just to cite a few examples) using geographic information systems (GIS).

Value capture finance, in summary, is a method of using future financial or economic benefits precipitated by a development, to repay part or all of the debt incurred to create the development in the first place.  A typical example is tax increment finance (TIF), authorized in forty-eight U.S. states, which allows increased tax revenues (property and/or sales) generated by redevelopment to be channeled to the project’s debt service or other uses.  A less typical example, not currently contemplated in Minnesota law, is the financing of public fixed-rail infrastructure through commercial districts, using neighboring properties’ increased tax revenues caused by enhanced access to LRT or streetcar service. 

I’ve just completed some analysis for the Midtown Community Works partnership pursuing this line of inquiry:  If state law could be amended to allow for a "transit TIF" district, for example, what kind of value could be captured in future years?  How much capital could be raised by borrowing against these future tax receipts?  What planning and equity issues demand consideration in exploring such an approach?  

This concept may strike some readers as marginal to the planning and public finance worlds.  I don’t agree.  The three forces described above are at the root of analysis commissioned by the Minnesota Legislature earlier this year, and continuing economic impact analysis of the state’s first LRT line, the Hiawatha.  Identifying what value is created by transit infrastructure is a critical step in leveraging this value for investment in a regional system, and made more feasible by improvements in GIS technology. 

And regardless of whether the infrastructure is constructed by a private, public or public/private entity, the end outcome - investment in places that work for people - represents an increasingly important competitive advantage for regions in the U.S. and abroad.

The Urban Engine, or Trading Places Part 1

Welcome to the first in a short series of three posts inspired by three very different places.  I’ve spent today immersed in national and global issues thanks to the Federal Policy Forum hosted by the International Economic Development Council here in Washington, D.C. The second and third posts, as you’ll see, will address local development issues in a mid-size and small community.

Between the articles I read on the airplane, the content of the sessions and accessory conversations with other participants, I have notes on papers small and large hanging from folders and pockets and briefcase.  It’s all related to a notion I sketched out in a post about regional differentiation a few months ago, but I’d like to summarize a new line of inquiry related to the conference.

Bank of America CEO Ken Lewis and Pennsylvania Governor Edward Rendell have led an effort described in the publication of Retooling for Growth: Building a 21^st Century Economy in America’s Older Industrial Areas (see a summary of the book here).  The content is unabashedly “metrocentric” in light of the following metrics outlined in a session today.  The nation’s largest one hundred metro areas:

• Use 12% of American land area;

• House and employ 65% of our population;

• Are home to 74% of college graduates;

• Generate 78% of patents; and

• Create 75% of gross domestic product.

In the words of Paul Brophy, a consultant who hatched the project, the metro areas are engines for economic, social, scientific and cultural development despite the increasingly conspicuous absence of a significant federal role or resources.  In particular, he says, to move the U.S. forward it is critical to harness and foster entrepreneurship, human capital, infrastructure and what he termed “quality of places” in our urban centers.  A few thoughts on the prospective form of such infrastructure and placemaking improvements:

• Establishment of a National Infrastructure Bank to provide coordinated, significant, long-term dollars for urban infrastructure reinvestment, with accountability measures in place for both the local and federal partners involved.

• Perhaps as part of or independent from the infrastructure bank, aggressively fund urban transportation networks, including transit.  Spendy, yes.  Essential to be competitive, definitely.  This month’s Urban Land magazine reports that the City of London’s Crossrail project will extend subterranean Underground lines at a cost of $30 billion.  The business community, in a testament to the project’s competitive potential, will fund much of the investment.

• Adoption of local, state and federal policy that recognizes the missed opportunity that vacant and polluted urban land represents, and enables its reuse as developed property or open space such as parks.

• Perhaps most germane to the Cents of Place forum, standardization of the development process and fundamental property tax reform is also in order.  In Minneapolis and St. Paul, Minnesota – contiguous and mutually dependent municipalities – zoning codes and the development process continue to remain estranged.  And, as documented by a property tax report I authored last year, the current property tax system stifles the concentration of tax base upon which the health of our urban areas (and the states that rely on them) will rise or fall.

• Adoption of at least a regional, and at best a statewide approach to subsidies that seek to attract businesses location.  This idea is hardly new:  See the Economic War Between the States report published by the Minneapolis Federal Reserve in 1994.

• Focus on retaining the talented people who arrive in your region from Bangalore or Missoula or Moscow, to pursue educational experience.  See the integrated approach Philadelphia has taken to housing, employing and engaging students before they graduate and leave.

Resolving these underlying finance and policy issues is a priority that simply can’t wait.

Still with me?  Then, dear reader, indulge yourself and browse over one other publication I encountered today:  The 2007 State New Economy Index compiled by the Kauffman Foundation.

Photo:  Musely, Flickr

Looking Back at Yesterday's Property Tax

It's 1896.  The Presidential campaign involving William Jennings Bryan and William McKinley is heavily colored by the Panic of 1893 – the worst economic depression yet experienced in the U.S. Susan B. Anthony and Elizabeth Cady Stanton are championing the right of American women to vote, a campaign separated from success by twenty more years of hard organizing.  In St. Paul, “empire builder” James Hill is at the peak of his influence as a railroad monopolist.  Near the Cathedral in September, future literary master F. Scott Fitzgerald is born.

And finally (lest I neglect the dictum that only two things resist change), the St. Paul City Council in 1896 passed a measure establishing what became known as the “St. Paul method” of assessing property taxes. 

The method streamlined the process of assessing property in the city for tax purposes, by establishing values per foot of frontage on various types of streets.  In other words, with certain exceptions, the core assumption was the wider a lot on a given street, the higher the assessed value of its property.  In the modern discussion around property tax, this comes close to what is now characterized as a land tax.  In theory, builders and property owners of the time would have been encouraged by this tax system to plat narrower lots and build higher, longer structures, rather than lower, wider structures.  Over the last year, my efforts to engage a full GIS analysis of this dynamic have been stymied for lack of records indicating when the St. Paul method was forced out of use by the state, which at some point likely mandated a more uniform statewide assessment system.  View an 1896 article describing the system by clicking here.

Still, I have run some initial analysis.  Below is a graph (click on it for a larger version) showing citywide property data, and plotting the year each parcel was built versus its floor-area ratio (“FAR”).  FAR represents the total square footage of a building divided by the total land area, and serves as a measure of the density of building on the property.  The blue dots represent buildings constructed in a given year, and the red line represents the annual average FAR for the year.  Unfortunately, it’s difficult to draw conclusions around the impact of the St. Paul method without an end date, but the trend of density in the city is certainly of interest. 

1896 is, in fact, a high point, and the years that follow suggest a significant drop in the density of buildings constructed, which lasted until the end of World War I.  However, a range of issues may explain these dynamics beyond the impact of a property tax regime:

• The cost of labor and/or materials related to buildings more than one story;

• Availability of desirable land as the city became more continuously developed;

• Changes in the streetcar and auto transportation system.

Also notably, the current year’s property data have a significant inherent bias, in that many buildings of low and high density have been demolished over time, and so the available data by no means represents a full accounting of when and how construction occurred in St. Paul. But while imperfect, this exercise does suggest how powerful contemporary analysis may be in tracing success and failure in past development and policy.

Parking: More Expensive Than We Thought

A dramatic reuse of an aging church for the new Stepping Stone Theatre required a variance of 104 parking spaces, or 92% of the requirement stipulated under the zoning code in St. Paul, Minnesota, meaning only 8% of the requirement is directly provided by the theatre's property. Do the City’s parking requirements create a structural oversupply of parking in the city? It’s likely. I will revisit parking requirements in coming months, during which city planners and stakeholders will engage the future of local parking policy. The focus of this post is to consider the public cost associated with requiring developers to meet the parking requirements currently in place.

Stepping Stone Theatre is a success story, providing children with training and experience in acting and stagecraft. Shows in the new theatre on Victoria Street
are sure to be well attended, leading the reader to ask:  How will the neighborhood accommodate the parking needs during performances? The theatre has arranged for patrons to park in existing surface lots at William Mitchell College of Law, located across the street, and at the House of Hope Church parking lot at Holly and Avon Streets one block away. A few scattered observations about the area we can use for housing or other uses, due to the shared parking arrangement in place for Stepping Stone:

• Each parking space requires 200-300 square feet of space. If the theatre had been required to purchase and renovate a site allowing them exclusive control and use of 113 spaces, surface parking would represent between 0.52 acres and .78 acres of land committed to a conspicuously low level of land use and productivity. This area is equivalent to between five and nine residential lots for single-family or duplex homes.

• A mixed-use development recently built in St. Paul, with structured parking underneath, is valued at $157/square foot of the lot; at this level, the area equivalent to 113 parking spaces would represent between $3.5 million and $5.3 million of market value. In the theatre’s new location, a site this size might accommodate 20-40 units of housing or mixed use development, leading to enhanced property and perhaps sales tax base.

The car is here to stay, so devising intelligent ways of storing cars during their many hours of non-use is essential for cities serious about their future vitality and financial wherewithal. Ideas worth exploration on this issue abound, but one in particular deserves note: Adoption of a payment-in-lieu-of-parking program. A sample of potential benefits:

• Allow building owners unable to satisfy a parking requirement to make payments to the City, parking authority or business improvement district, in return for parking credits

• Proceeds would be devoted to capital financing for structured and/or shared parking, and pay a parking liaison charged with connecting parties for shared parking arrangements

• The City could be separated into a number of “parkingshed” zones, so that payments would fund parking infrastructure and agreements in relative proximity to property owners paying the fees

• Potentially, a local market for parking credits could be established, further enhancing the efficiency of the program.

Parking policy is a confluence of real estate development, public finance, transportation and land use, and hence advocates in each of these realms get involved in parking discussions. In the theatre’s shared parking arrangements lies one critical tool for cities, the leadership of which must be absolutely focused on concentrating tax base with redevelopment and forward-thinking approaches to land use.

Photo: Courtesy of Stepping Stone Theatre.

Include Financial Sustainability in Comprehensive Planning

Sustainability will get lots of ink in this decade’s comprehensive plans for local governments.  And, to be sure, as is evident from past posts, I agree there are many good reasons for planning and development to reflect environmental costs and other externalities ignored by previous generations.

Still, one critical form of sustainability will remain largely invisible:  Financial sustainability. 

As cities allocate resources to develop workforce, cultural amenities, quality schools, housing stock, multiple modes of transportation and other initiatives, comprehensive plans must establish an approach for financing these core public functions.  Not only is this as critical as ever, it is also potentially at its most difficult.  Two suggestions for how planners and citizens engaged in this work can consider financial sustainability:

Developing alternatives to the property tax will strengthen cities’ financial stability for years to come; failing to do so will be at a community’s own risk. Beyond the anecdote that seniors are on fixed incomes and are therefore more sensitive to property tax increases, this fall’s polling for school referenda reveal a heightened antipathy to this funding source by voters ages 45-65.  Evidence from the 2006 elections nationally suggests that property taxes are a watershed issue for voters – and the stakes are high for candidates who promise to “solve the problem.”  Long-term public planning needs to include both some analysis of alternatives to the current form of property tax as well as concerted education about the fact that public services aren’t free. 

The relationship between local governments and their state and federal counterparts has shifted in recent years, and the shift may be long term or permanent in nature.  In Minnesota, local government aid (“LGA”) reductions have received much attention as the source of diminished services and increased property taxes; a list of Minnesota cities and the LGA received from 2002-2007 is included here.  The infrastructure and services required for future urban development (in a physical sense and in terms of human resources and capacity) are in Minnesota provided primarily by cities, counties and school districts:  Streets, stormwater and wastewater, to start.

More quality analysis is available today than ever before that reveals the many factors contributing to a robust residential tax base.  Data is available to evaluate the impact of physical amenities integral to formation of a comprehensive plan, on property values and tax base.  For example, view articles examining a comparison of high-profile, big-ticket arts investments to neighborhood arts facilities; the impact of a quality K12 system on local property values; and how nearby parks boost home values.  The volumes of data available through residential listing services even allow valuations of a single mature tree (in 2002, its minimum value was estimated to be $10,000) in a residential yard.

With multiple chapters to update, it’s difficult for municipalities to explore each issue in detail.  Moreover, readers will fairly note that social and political issues transcend municipal boundaries, making efforts to reduce reliance on property taxes (for example) very difficult. However, with federal and state support ebbing, local governments cannot afford not to consider financial sustainability in their long-term planning process, property taxes and all.

GIS map courtesy of Prof. Paul Lorah, University of St. Thomas.

Donjek Tools: Tax Increment Financing Made Visual

Planners, architects and developers have long been masters of the visual.  It’s difficult to deny the power of a colorful drawing to communicate design, use and how changes to the landscape can improve the spirit of a place; projecting the image on a large scale can further amplify this kind of communication.

The financial mechanics that underlie any plan are not only more difficult to convey in a physical sense – they also place a presenter in jeopardy of alienating and boring an audience.  Still, an understanding of how master plans and site plans will be financed, and how their development will affect the larger financial health of a community, are critical issues that require public discussion before moving ahead.  Full understanding of these issues by key members of your audience will streamline your process and align expectations with reality. 

Tax increment financing (“TIF”) districts are a redevelopment tool employed in every U.S. state except Arizona.  While publicized abuses have tarnished the political image of this tool, it remains a critical mechanism, trapping incremental property tax revenue from redevelopment for repayment of the debt used to finance the improvements in the first place.  Structuring a TIF district requires a discussion of variables ranging from the state’s tax treatment of different types of property to the post-redevelopment value of parcels, projected appreciation rates, absorption of redeveloped space into the market, and the cost of capital.  See the eyes of the audience glazing over?

The Donjek InstanTIF decision tool allows audiences to engage TIF in an interactive way thanks to a number of attributes.  The tool:

• Allows a presenter to show the various parcels in a proposed TIF district as a map on a screen, with colors to reflect assumptions about appreciation in the future.

• Illustrates the essential items for calculations, allowing a presenter to convey more detail if desired.

• Gives members of an audience real-time feedback about how changes to one or more variables would change TIF cash flows and consequently the amount of borrowing the district can sustain.

• Can be presented in tandem with graphic data layered through GIS software, to illustrate demographic and market trends of significance.

The InstanTIF tool is custom tailored for each proposed TIF district.  Moving forward, consider this decision tool for future discussions with investors, public officials or community members, and extend the communicative power of pictures to project finance.

InstanTIF software design, text, graphics, and mechanics are Copyright 2007 by Jon Commers. ALL RIGHTS RESERVED. Any use of this software, including reproduction, modification, distribution or republication, without the prior written consent of Jon Commers, is strictly prohibited.

Interview with Author John Crompton on Property Value and Public Investment

Investment in public facilities – whether in transportation, water treatment, education or open space – is an influential dynamic in urban real estate markets.  A prominent voice on the interaction between park amenities and property values is Dr. John Crompton, Distinguished Professor of Recreation, Park and Tourism Sciences at Texas A&M University.  John is author of fifteen books on this and related subjects, and has written a multitude of articles exploring the economic impact of green spaces.

 

In addition to his analytic work at the university, John was elected to the College Station City Council in 2006.  I reached him in College Station for an interview yesterday, focusing on the challenges associated with understanding the relationship between public investment in parks and healthy tax base.

Notably, John’s list of publications is growing this month, with the release of his recent book, “Community Benefits and Repositioning:  The Keys to Park and Recreations’ Future Viability.”  The publisher’s notes describe the content, which promises to be powerful for public and private interests working to leverage the economic and other benefits of open space:

Crompton demonstrates that the success of park and recreation agencies in securing tax funding will depend on the extent to which they are perceived by elected officials to contribute to alleviating high priority community problems. He identifies nineteen community-wide benefits that park and recreation services can deliver and provides a concise three-page executive review which summarizes the scientific findings supporting each of those claims.

Listen to a seven-minute excerpt here; the file is nearly 1MB.

Photo of Amsterdam Museumplein courtesy of Jos Mecklenfeld.