Project: Estimating the Impact of a Highway Bypass on Tax Base

What will happen to property values and the tax base of a
community when it redirects most of its auto and truck traffic around town, or
chooses to widen a highway through downtown to four lanes? Recently, I concluded a project in Pequot Lakes, Minnesota, and provided
analysis to address this difficult question.

A town of nearly 2,000 residents located roughly one hundred
miles north of the Minneapolis-St. Paul metropolitan area, Pequot Lakes is in the heart of one of the
state’s lakes regions and is an increasingly popular destination for visitors.Pequotuses_3

Hence, the premise of the project. Annual average daily traffic (AADT) on State
Highway 371 at Pequot Lakes is projected by the Minnesota Department of
Transportation (MnDOT) to double over twenty five years. Congestion and safety conditions along the
highway, which runs north-south through the center of town, are expected to
deteriorate without infrastructure improvements. Since 2000, the City and MnDOT have been
engaged in evaluating the costs and benefits of expanding the highway to four
lanes in its current downtown alignment, or constructing a new bypass
alignment. The bypass alignment would follow
an alignment less than one mile to the east of the existing downtown alignment,
at first diverting 2/3 of the existing traffic volume. The new route would also create a different
form for the City as depicted in this graphic prepared by planners at the Community Growth Institute.

Starting with analysis of broad trends experienced by the
community ranging from market values, population and school district
enrollment, I built on existing research conducted by State transportation
departments across the country, to gauge the impact of a bypass or expansion on
land values and tax capacity. While most
of these studies parsed property into three to five categories, I created ten
to reflect the range of economic activity in Pequot Lakes. Light manufacturing, timberland and
agriculture, local commercial businesses and tourist retail are all well
represented in Pequot Lakes. 

After classifying the property into these ten categories, I
modeled impacts for each type of property based on the literature of similar
studies and other related research. The
findings included a projection that the alignment through downtown Pequot
Lakes would boost aggregate
property values and City tax capacity slightly higher than under the bypass
alignment scenario.

However, the acquisition and construction costs associated
with the expansion of the road through downtown are projected to be
significantly higher than the bypass scenario. With these costs included, the analysis suggests the bypass alignment is
a more cost-effective approach. The Region 5 Development Commission is,
at the time of this writing, completing survey work for both the business
community and the citizenry of Pequot Lakes, after which the City Council
will proceed with naming a preferred route.

Source documents: The
final planning report is located here
, and related draft and final
environmental impact statements can be found here
, or view the brief version of a bibliography of bypass studies I’ve annotated here.

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