Urban Forum on Urban Fianance

The speaker last night for the Urban Forum lecture series was Peter Katz, from various places in the US. His focus is on New Urbanism. Not the fake new urban stuff of an isolated subdivision built with cute porches and picket fences, that still functions as part of a car-focussed larger environment, but on New Urbanism on a larger scale.

He’s had a book out for a number of years: New Urbanism which may predate his new focus on the larger scale. 

His topic last night was city finance. Whilst working for Sarasota in Florida, a city hard hit by falling property values, abandoned properties, and plummeting tax revenue, he and his colleagues did a study on how much the County-level of government made from various types of urban development. (The County in this case is a larger geographical area that would be akin to our former regional government two-tier model).

First they looked at house types, eg the small ’40’s to 60’s bungalow, larger suburban singles, and towns/stacked towns/walk-ups. They then looked the tax revenue per acre for a Walmart-type big box store on a large lot; and various shopping malls. Finally, they looked at some downtown-ish mixed use buildings in the 7 to 17 storey range.

The urban mixed use developments generated a wildly disproportionately large share of taxes. In terms of payback, it takes a new suburban area about 43 years to pay back, in taxes, the costs of servicing the development (when new). It took the mixed use development only three years.

O-la-la, that’s a huge difference. Proof that pay-as-you-go Nepean et al were really Mayor Bernie Madoff Ponzi schemes? Not so fast.

It was very tempting to draw conclusions from his talk about the desirability of fostering mixed use urban developments as a better payoff financially for the government. And that is what he was definitely encouraging us to conclude.

But I found myself very mistrustful of his numbers. There was a distressing lack of detail. For a guy going around speaking to councils, planning teams, urban enthusiasts, planning students (a bus load of Queen’s U planners were there) I expected a bit more than generalities. Detail. Not hundreds of pages of detail, but enough supporting detail to be confident he was talking about relevant things.

Like, what does Sarasota provide those new developments? In Ottawa, local development roads are charged back to the developers; do they do this in Sarasota or does the County provide those roads? Without knowing something about the County INPUTS to the development, it is risky to generalize conclusions about the payback period that was such a big feature of his spiel. And he was totally silent on the inputs (costs) side.

I also found myself wondering about measurement. It’s easy to compute tax revenue per acre; not unexpectedly it will show low density uses generate less revenue than high density uses.* When calculating the big box mall site, did the acreage include the surrounding roads necessary to service it? Did the six-houses-per-acre suburb include or exclude local roads (which are about 35% of the area)? And did those two big mixed use projects in the downtown include only their block, measured inside the sidewalk perimeter, or did it include some of those space-gobbling freeways that service the high density downtown? All those things were skipped over, so I would like to have had just a few words about methodology.

Speaking of methodology, I wondered about a few other things. Was it the high density mixed use itself that generated the revenue, or was it because it was located downtown?

Would a suburban mixed use development have had a three-year payback?

And it is always very dangerous to extrapolate generalities from a small sample size And Mr Katz’s sample size was small. Very small. Two buildings. In one town. Both of which consisted of condos selling in the million dollar range. Ouch. The suburban developments on the other hand were not identified as to their selling value. Maybe, just maybe, the high tax revenue came from the value of the housing units themselves? In which case, let’s rule out the poor (something municipalities used to be good at; Nepean and other suburbs, when indie, used to have numerous ways of doing this, like minimum lot sizes, minimum house sizes, requirements for brick frontages, etc).

Now the focus of his talk was on municipal finance per se. I outlined some of my misgivings on generalizing from his sample size, possible confusion by property location, and value of the house units. But there were some other concealed messages. It’s all very well for a municipality to rah-rah mixed use buildings in the downtown, but these case study ones  were affordable only to households earning $350,000 a year and up. Those stick built bungalows and towns that didn’t generate so much revenue were sellable to households with incomes of $30,000 and up. Hmm. Back to the 50’s and exclusionary planning…

And I haven’t covered things like builder oligopoly, because larger buildings (such as those mixed use downtown high rises) are buildable primarily by larger builders, and new builders start with the small projects. Restrict those, and you’ve landed in the smart growth=unaffordability trap by virtue of a highly constrained market.

Despite these quibbles, Mr Katz’s very worthwhile message to municipalities was to know what your land uses generate in tax revenue, and what the payback period for each type is. You’d better know your costs too, but he didn’t cover that.

As for Sarasota, I wonder if it will change its ways, and become a downtown of high rise mixed use buildings of very expensive condos, with a narrow surround of low rises interspersed with mega-malls (these are profitable for the municipality), and no industry because industrial parks don’t pay back fast enough. Would I want to live there? Is Bean Counting the new Urban planning model?  You read it here first.

In the meantime, I’m hoping that some bright beanie at City Hall finance dept is calculating right now the real return from different types of municipal growth.


*Back in my days at Transport Canada I had long running battles with guys about transportation safety and efficiency. Airlines love to use safety per passenger mile; not coincidentially, that one measure is the one that most naturally favours airlines. And they excluded short haul flights, because those had more take off and landings per trip, which are the dangerous parts. Include those and their stats go into the dumper. Auto safety would be much more attractive if we excluded short trips, since most accidents occur with 5 miles of home. You get the idea. Since then, I always ask myself why a particular unit of measurement was chosen for a comparison. Is it fixed?

3 thoughts on “Urban Forum on Urban Fianance

  1. In the late 90’s/early 00’s, a local consultant developed a software that would calculate infrastructure costs that are to be borne by the municipality once the securities etc are all returned to the developer. The software was demonstrated to many of the former municipalities with only a test project or two done for different land use scenarios in Barrhaven. Generally, the municipalities in this area were not interested in knowing what the long term costs (and this is often a blank on City planning reports where they say there are no financial implications of the development) and sales of the software were concentrated outside of this area. Randall Denley viewed and raved about it in a column of his.

  2. The City has, in their defence, done some of this analysis (albeit on a more general scale):

    “However, when the net costs of providing municipal services and the assessments
    that new developments generate are considered together the net results by location
    change. Development inside the Greenbelt continues to demonstrate a “positive”
    net result. Urban development outside the Greenbelt comes close to meeting net
    expenditures. For rural areas, because new houses tend to generate high per unit
    assessments, the comparatively high costs of providing municipal services are in the
    case of scattered development largely offset although less so in village
    development. The table below summarizes the results.”

    I would think there should be another category – inner city (defined by a certain density per acre) – I would say this is Centretown, Glebe, Dalhousie, Hintonburg, Sandy Hill, Lowertown and Vanier.

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