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.  Ramsey_co_emv

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.

An Interactive Calculator for Business Improvement Districts

One of the reasons that the business improvement district is an increasingly popular mechanism to finance essentially public activity is its flexibility, which I discussed in late August here.  In Minnesota, State statute allows a district to assess charges to finance capital or operating activities on the basis of “a reasonable classification of the types of premises to which service is furnished, or on any other equitable basis” [emphasis added].  For business and property owners, and for local stakeholders generally, language this broad provides the material to create a structure that serves an area’s unique needs.

Minnesota Statutes, Chapter 428A spells out the terms for establishment and operation of a special service district (this state’s incarnation of the business improvement district).  Regardless of whether the most vocal advocates of a special services district are business owners, elected officials or other community leaders, they are ordinarily asked right away what will be the basis for assessing fees. 

The Donjek worksheet available here gives a user the ability to “rough out” your own special services district.  The tool allows you to choose an annual budget, select a basis for assigning fees (remember that these four alternatives are just a sample), and add information for up to twenty parcels if you choose.  Or use the data and assumptions already on the worksheet, and note how changing the basis affects the level of fees assessed.

If your community or business association is interested in exploring how a business improvement district could enhance your efforts to support retail and office activity, contact me about how this type of tool can be expanded and made even more dynamic for your key audiences.

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.

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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.

Making Your Region Distinct is Public and Private Work

Positioning

Nearly forty years ago, Jack Trout and Al Ries introduced the concept of positioning into the realms of marketing, public relations, and by extension, politics.  To position your product, issue, or candidate is to transform the way key audiences view your product, issue or candidate in the context of the competitive arena.  Today, positioning for regions and the communities that comprise them is more important than ever, as capital grows increasingly mobile and local governments receive less and less support from state and federal sources.  As with products and candidates, regions must differentiate themselves from the competition, and this requires action by the private, public and civic sectors.

Marq_univ_2 Saturday, October 6 was the final day of the national conference of the Trust for Historic Preservation, held this year in St. Paul.  I attended a lecture by Ed McMahon, Senior Resident Fellow at the Urban Land Institute, titled “The Dollars of Sense and Place.”  McMahon’s fundamental points:

• Forward-thinking development can bolster community differentiation and consequently a region’s competitive advantage.

• Differentiation creates dividends for business, neighbors and the environment – not one or the other.

McMahon’s perspective is largely physical, and he spoke persuasively about the necessity that a built environment reflects regional and local character, and shows a commitment to aligning both public and private investments with its uniqueness.  What does all that really mean?

Uniqueness:  The Physical

Relatively new housing subdivisions in Middleton, Wisconsin and Manassas, Virginia are distinguished by street width – twenty-four feet in Middleton versus forty feet in Manassas. The additional sixteen feet of street width in Manassas increased the cost of the houses between $5,000 and $7,000 each.  The volume of stormwater runoff from conventional asphalt is sixteen times that from the meadow on which the houses were built, increasing costs that the community will be forced to address in the form of public mitigation programs, likely using tax revenues.  And, McMahon noted, the narrower street employed in Middleton is four times safer than the wider streets due to the traffic-calming qualities of narrower roadways.  Why bear this chain of private and public costs with no benefit in return?

A joint study by the Urban Land Institute and the American Landscape Architecture Association summarized in Lloyd Bookout’s 1994 book, “Value by Design” found that investments by developers in site planning, mature foliage and landscaping increase returns on investment by five to fifteen percent.  The study also found these measures improved the absorption rate of units for sale and increased the likelihood of approval by planning and elected officials.

Isolated examples?  Perhaps.  But the underlying point here is that private initiatives and public planning should take place in a context of maximizing benefits and minimizing costs for the region, in the form of return to investors as well as return to the public.  Otherwise, as in Manassas, the public costs create drag for the region and hamper differentiation in a competitive arena.  This is the reason that major rating agencies consider the ability of regions to reach consensus on major issues as a criterion for evaluating municipal bond issues.

Regional Positioning Requires Private and Public Alike

With good reason, much discussion surrounds how to measure the productivity of particular public investments.  What has made and continues to make places distinct, however, is both private and public investment.  The immense potential for history to contribute to a sense of place doesn’t distinguish between public-sector and private-sector initiatives – see the previous post on the Minneapolis Mill District as one example.  Tourism is a very significant economic base for many of the United States, but positioning and differentiation are about more than attracting visitors – they are about attracting and retaining new residents with skills and entrepreneurial perspectives to join existing boosters in making a place unique. For regions fully to invest in and differentiate themselves to thrive in a competitive environment, public regulation and private investment must be viewed as two oars in the same boat. 

And don’t forget to row in the same direction.

Photo:  Marquette University, Milwaukee, Wisconsin / Flickr

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Stormwater Management: Quantifying the Benefits

It’s been a wet, wet fall here in St. Paul.  I have rain on the brain.

In a previous post, I discussed storm water management techniques and the use of storm sewer service charges. Conversations about low-impact development (or “LID”) frequently include a claim that treating storm water on-site is cost effective.

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Intuitively, this seems sound:  Less water volume represents less demand for water system  capacity, less of the costly maintenance these systems require, reduced amounts of pollution released into rivers and lakes, et cetera.  But still, a number of planners have asked me, how much savings is there, and for whom?  Is this an issue of private investment for public benefit in the form of cleaner and less voluminous storm water runoff?  Perhaps a public investment for private benefits?  Recent, local evidence gives additional support to the notion that costs for both developers and the public are reduced by trapping storm water on site.

Tom Cesare is the Civil Group Manager with BKBM Engineers, and spoke recently about current policy set by the watershed management districts in the Minneapolis-St. Paul metro area.  The districts’ rules require developments over one acre in size to trap the first inch of rainfall on site as opposed to releasing it into the storm sewer system.  While roughly 60% of storms in this region deliver less than an inch of rain, this requirement is strict in a state and national context – and not simple to address in the development process.  In addition to volume, the rate of flow is also regulated.

Cliff Aichinger, Administrator of the Ramsey-Washington Metro Watershed District, noted last week that reduced runoff does deliver substantive benefits in the form of both quantity and quality of runoff.  For example, on-site infiltration of water through rain gardens, swales, and trenches and use of porous materials for parking surfaces can reduce the phosphorous content of storm water runoff by 90%.  But I have not yet answered the inquiry from planner colleagues:  Can we quantify the benefits?

The answer, put plainly, is yes.  Brett Emmons is a water resources engineer and a principal with Emmons and Olivier Resources, a firm that coordinated a comparison study of LID techniques designed to trap and treat water runoff.  The firm modeled rainfall scenarios ranging up to six inches (a 100-year event in this region).  The analysis compared three approaches:  LID, “conventional” (all quantity and quality control done through detaining water in ponds) and “built” (an improved conventional design where water control is achieved via ponds and a regional infiltration basin).

Om_cost_2The most essential finding of the analysis is that the on-site LID approach to water filtration is less costly to build than the “conventional” or “built” approaches.  In fact, the cost to construct the on-site treatment infrastructure was 10-25% less than the alternatives.  Extended to operations and maintenance costs, the analysis found that LID methods required a 20% higher investment than the built approach, but 16% less than the conventional approach, over thirty years.  The graphs included in this post convey these differentials.

Donjek’s focus is giving clients – urban planners, developers, municipalities and others involved in placemaking – more information about their projects using analytical tools and research.  Quantifying the dollars and cents of storm water management is valuable as you evaluate financial feasibility, but also as you communicate your project to partners and the public.

Harnessing analysis such as the Emmons and Olivier project allows placemakers to go well beyond the sketches and convey to a broad audience that on-site storm water retention and treatment produces public and private benefits.