Which would you rather have in your community…. massive crowds of drunken, puking college kids like Fort Lauderdale….

by James A. Bacon

Promoting tourism is a major part of Virginia’s economic development strategy for good reason. Tourism supports jobs, expands the tax base and helps pay for amenities — restaurants, arts, cultural institutions — that can be enjoyed by the whole community. But it can create problems, too, such as crowding, traffic congestion, noise and tacky, haphazard development. Handled poorly, tourism actually can degrade a community’s quality of life.

It is critical to differentiate between mass-market tourism and what Edward T. McMahon, writing in the May issue of Virginia Town & City, calls “responsible” tourism. Mass market-tourism is all about putting “heads in beds.” It is high volume, high impact but low yield. Think Fort Lauderdale, the “spring break capital” of the United States, which attracted millions of college kids who slept six to a room and spent money on little but beer and t-shirts.

… or a recreational amenity like the beautiful Virginia Creeper Trail?

“Mass market tourism is … about environments that are artificial, homogenized, generic and formulaic,” writes McMahon. By contrast, “responsible tourism is about quality. Its focus is places that are authentic, specialized, unique and homegrown. … Think about unspoiled scenery, locally owned businesses, historic small towns and walkable urban neighborhoods.”

The challenge for Virginians, suggests McMahon,  a senior resident fellow at the Urban Land Institute, is to promote tourism without losing our soul. There is more to building a tourism industry than spending marketing dollars to lure visitors. It involves making destinations more appealing. “This means identifying, preserving and enhancing a community’s natural and cultural assets, in other words protecting its heritage and environment.”

Tourism that arises organically from the history, culture, architecture and natural assets of a community, I would argue further, make our communities more desirable places to live. They improve the quality of life and economic opportunity in ways that transcend the tourism sector. In effect, they become magnets for human capital.

McMahon proffers nine recommendations:

1.  Preserve historic buildings, neighborhoods and landscapes. McMahon quotes travel writer Arthur Frommer: “Among cities with no particular recreational appeal, those that have preserved their past continue to enjoy tourism. Those that haven’t receive almost no tourism at all. Tourism simply won’t go to a city or town that has lost its soul.”
2. Focus on the authentic. “Communities should make every effort to preserve the authentic aspects of local heritage and culture, including food, art, music, handicrafts, architecture, landscape and traditions. responsible tourism emphasizes the real over the artificial. It recognizes that the true story of a place is worth telling, even if it is painful or disturbing.”
3. Ensure that hotels and restaurants and compatible with their surroundings. “Tourists need places to eat and sleep. Wherever they go, they crave the integrity of place. Homogenous, “off the shelf” corporate chain and franchise architecture works against the integrity of place and reduces a community’s appeal as a tourist destination.”
4. Make your story come alive. “Visitors want information about what they are seeing, and interpretation can be a powerful storytelling tool that can make an exhibit, an attraction and a community come alive.”
5. Protect community gateways: control outdoor signage. “Protecting scenic views and vistas, planing street trees, landscaping parking lots all make economic sense, but controlling outdoor signs is probably the most important step a community can take to make an immediate visible improvement in its physical environment. Almost nothing will destroy the distinctive character of a community faster than uncontrolled signs and billboards.”
6. Enhance the journey as well as the destination. Getting there can be half the fun. Encourage the development of heritage corridors, bike paths, rail trails, greenways and scenic byways.
7. Get them out of the car. If you design a community around cars, you’ll get more cars, but if you design a community around people, you’ll get more pedestrians. It is hard to spend money while you are in a car.”
8. Create a “trail” with neighboring communities. “Few rural communities can successfully attract out-of-state or international visitors on their own, but linked with other communities, they can become a coherent an powerful attraction.” McMahon points to the example of Journey Through Hallowed Ground, which promotes nine presidential homes, numerous Civil War sites, more than 30 historic Main Streets and other historical and natural attractions.
9. Ask yourself, “How many tourists are too many?” “Tourism development that exceeds the carrying carrying capacity of an ecosystem or that fails to respect a community’s sense of place will result in resentment by local residents and the eventual destruction of the very attributes that attracted tourists in the first place. Too many cars, tour buses, condominiums or people can overwhelm a community and harm fragile resources.”

This is an excellent list. I would add only one important observation, as a corollary to “get them out of the car.” The way to get people out of the car is to create places where they can walk, bike or take mass transit. From Manhattan to San Francisco, Barcelona to London, people love spending time in places where they can immerse themselves in history, culture and architecture in a walkable setting. It is those very same characteristics that make those places among the most desirable in the world to live and do business.

Virginia does a creditable job at building organic tourism. McMahon points out wonderful instances from the Virginia Creeper Trail to the Richmond Slave Trail, from dancing to bluegrass music at the Floyd Country Store to the Hampton Inn chain’s conversion of the old Co. Alto Mansion into a 76-room hotel near historic downtown Lexington. The article is a “must read.” McMahon has contributed the freshest, most original thinking about economic development in Virginia that I have seen this year.

Flood-prone areas of south Hampton Roads. Source: Virginiaplaces.org. (Click for detail.)

One more takeaway from the Resilient Virginia launch conference yesterday: All other things being equal, more compact communities are more resilient communities.

Like Bacon’s Rebellion, Cooper Martin, program director of the Sustainable Cities Institute, is a big fan of Joe Minicozzi and his maps and graphics showing how dramatically land value-per-acre varies between core urban areas, suburbs and the countryside. Densely settled urban cores have land values that are literally a hundred times higher per acre than low-density shopping centers and large-lot subdivisions.

In my commentary, I have focused mainly upon the fiscal folly of building disconnected, low-density development. The infrastructure — the roads, utilities, sidewalks and other amenities — are more expensive per household to maintain. But Martin added a new dimension when addressing the Resilient Virginia conference yesterday. Low-density development makes it more expensive to harden homes and businesses against disruption and catastrophe. When the taxable value of land is high, it’s easier to support expensive investments to protect that land than when the value of the land is low.

So, to take Hampton Roads, which I have written much about recently, resiliency planners need to take into account not only which areas are flood-prone, but which urbanized areas have land values high enough to make them economically justifiable to protect.

It’s going to be gut-wrenching and agonizing, but local officials must come to grips with the reality that much of the development that has taken place is fiscally indefensible. The region cannot possibly afford to protect every low-density subdivision in every flood-prone region — much less the roads and bridges providing connectivity for them — no matter how loudly unhappy homeowners howl at the prospect of being abandoned. The sooner local officials begin making these determinations, the sooner developers will stop building in indefensible areas and the fewer the naive homeowners who will be harmed.

As a practical matter, Hampton Roads municipalities will have to evolve to a pattern of denser development on higher land. Where development exists in flood-prone areas, there will have to be sufficient density to justify spending millions of dollars on protective measures. Fortunately, this is a slow-motion problem. The region has decades to adapt. But it needs to begin now — when complex and painful decisions must be made, decades can slip away in no time at all.

After a variety of conservative groups (including some funded by the Koch brothers) sent a letter to Congress opposing gas tax increases, the liberal and urbanist blogospheres were chock full of stories like this one, complaining that Congress can’t reach a transportation deal because (in the words of grist.org)  “of the right-wing and Koch network’s coordinated national attack on transit.”  There is certainly an element of truth in these stories; indeed, conservatives don’t like tax increases and are often not particularly supportive of public transit.

But this narrative misses a huge fact: It’s not just the far Right (or even the not-so-far Right) that hates tax increases, especially gasoline tax increases. For example, a 2013 Gallup poll asked respondents if they “would support a state law that would increase the gas tax by up to 20 cents a gallon, with the new gas money going to improve roads and bridges and build more mass transportation in your state.” Only 29 percent of respondents would support the new tax. It wasn’t just conservatives or residents of conservative areas who were against the tax either; only 40 percent of Democrats, and only 32 percent of northeasterners, supported the tax hike.  Even in Massachusetts, voters recently voted to eliminate a law indexing the gas tax for inflation.

In sum, if you think we need to spend more money on transportation, don’t blame a cabal of conservatives, blame the American people, who believe (rightly or wrongly)  they can have good roads and good transit without paying more money for them.  We have met the enemy and he (or she) is us.

(Cross-posted from cnu.org)

by James A. Bacon

Regency Square Mall, a failing, 39-year-old shopping mall in the heart of the prosperous “West End” of Henrico County, is expected to go up for sale by year’s end. While the sale likely will prove distressing to bond holders — nearly $70 million in loans are 70% secured by the mall, which is appraised at only $25 million, reports the Times-Dispatch – a change in ownership creates a tremendous opportunity for Henrico County to reinvigorate a major commercial district.

While Regency enjoys an excellent location and serves an affluent market, it faces tough competition from two newer, pedestrian-style malls: Short Pump Town Center and Stony Point Fashion Park. Regency has zero pedestrian appeal — it is a boxy building set in a vast parking lot, and it is largely surrounded by strip shopping centers, some of which are themselves getting long in the tooth. It is no longer a place where anyone enjoys spending time.

I know Regency well — it is located a couple of miles from my home, and I shop there by necessity. Despite a superficial design makeover a few years ago, the place has little appeal. The problem is that the mall and the commercial area surrounding the mall were designed in the 1970s heyday of autocentric suburbia. Everything has been sacrificed for the comfort and convenience of the automobile. There are sidewalks in the area but no one uses them; the design violates every tenet of walkability. Ironically, the Regency Square area doesn’t even work well for the automobile. There are so many ill-timed stoplights that driving through it is a nightmare — to be circumvented if at all possible.

Henrico County officials seem to understand, at least conceptually, the need to redevelop sections of the county along more urban lines, with mixed uses, higher densities and walkable streets. So far, though, they have been reactive, responding to private-sector proposals such as those emanating from the owners of the Innsbrook office park and the Libbie Hill redevelopment project. Regency Square provides an opportunity for the county to be proactive, to create a different vision for the 25-acre mall property and the larger commercial district of which it is a part.

The entire area needs to be transformed, and Regency has the critical mass to make it happen. Like the old Cloverleaf Mall in Chesterfield County, Regency Square needs to be torn down and the property re-developed from scratch. A fresh vision would allow for higher densities, mixed uses and walkable, bikeable streets connecting with adjacent residential neighborhoods. The vision would extend to adjoining commercial properties, which property owners likewise would be encouraged to re-develop.

Redevelopment would be good for the county — the same land mass would generate significantly more property tax revenue while requiring little more in the way of county infrastructure or services. Redevelopment would be good for property owners — higher density and mixed uses would make their land far more valuable. And redevelopment would benefit neighboring home owners. Instead of adjoining an unwalkable, congested and aesthetically ugly retail zone, they would adjoin a vibrant area that would provide them more convenient access to amenities and, most likely, increase their residential property values.

There is no time to lose. If Henrico wants to revitalize this important area, it needs to signal now that it is serious so that the mall ends up in the hands of an owner with the expertise and financial wherewithal to undertake a major re-development project, not some bargain-hunting bottom feeder. The county should convene a gathering of stakeholders — property owners, merchants, residential neighbors — to forge a new vision for the area and discuss how that vision might be achieved.

(This article was cross posted from Bacon’s Rebellion.)

Joe Minicozzi (left) and Chuck Marohn

Joe Minicozzi and Chuck Marohn, principals with Strong Towns and Urban3 respectively, travel the country telling cities, towns and counties how to build better communities while remaining fiscally solvent. I have borrowed heavily from both Chuck and Joe in my writing about land use, transportation and community building, and it’s reassuring to see that as their own thinking evolves, it has moved in concert with mine. Most recently, Chuck has blogged about the paucity of useful information cities have to guide them in make zoning and capital spending decisions. He makes many of the same points I did in my recent post, “How Planners Can Rescue Virginia from the Fiscal Abyss.” Writes Chuck:

Despite running corporations (most cities are “incorporated” municipalities) that have billions of dollars in assets and liabilities and annual cash flows in the tens, and sometimes hundreds, of millions of dollars, few ever ponder some shockingly simple questions.

• What are our total assets, the value of the tax base that constitutes our community’s wealth?

• What are the long term obligations for infrastructure maintenance associated with sustaining those assets?
• In terms of geography, what parts of our community have a positive Net Present Value (cash from long term assets minus the cost of long term liabilities) and which have a negative Net Present Value?

The answers to these questions constitute a community’s balance sheet, the most basic of accounting requirements for any family or business but one which cities largely ignore. … Since we don’t know the answer to these basic questions, we can’t even begin to ponder some more sophisticated, but obvious, things that all cities face.

• How does that tax base change in response to certain policy decisions?
• What types of land use patterns create the most wealth for the community?
• What types of land use patterns experience the greatest degree of volatility?
• How does a park impact Net Present Value? How far from the park does that effect extend?
• How does a stroad impact Net Present Value? How far from the stroad does that effect extend?
• Where can we deploy limited resources to have the greatest overall impact?

Keep up the good work, Joe and Chuck! – JAB (Cross posted from Bacon’s Rebellion)

Odds are if you show up at a family reunion and try to convince your parents and siblings that congestion pricing is good, you’ll be lonely pretty quickly. People want the freeways to work but they hate paying tolls! If you are reading this, then you’re probably part of the choir. My goal isn’t to convert the converted as much as to provide new arguments and sound bites when talking to others.

So, how do we reach others? Millions must be convinced to put down their pitchforks long enough to test the theory and decide for themselves if congestion pricing is worthwhile. Elected officials are afraid to take a position contrary to polls, and polls are overwhelmingly dominated by uninformed opinions.

Too many citizens “learn” the issues of the day in 30-second television spots. Even those who make an effort to stay well informed are not the best ones to ask.  There are many fine teachers, dentists, and doctors with intelligent opinions but if you ask them about Congestion Pricing, most would focus on a single point – “double taxation.” Because no one listens long enough for a good explanation, politicians conform to polls of the uninformed rather than risk trying to change public opinion.

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This is the fourth part of a four-part series.

Part 1        ◊       Part 2
Part 3        ◊       Part 4
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Geeks and used car salesmen

Congestion Pricing’s true believers are insiders who spend years exploring how market mechanisms can solve our transportation headaches. Typically, they are “nerdy engineer” types and Ph.D.’s at universities. They come up with great ideas but their main focus is convincing other geeks. Peer-reviewed articles loaded with incomprehensible equations and data may be good stuff and true, but the world will never move out of the congestion morass until the world “gets it” at the lowest-common- denominator level of things that matter to them.

Many geeks know Congestion Pricing is worth billions but they’re poor at delivering the message personally. So they set aside “public awareness budgets” that are embarrassingly tiny relative to the potential payoff. That’s like hiring a used car salesman to deliver the message. That approach may persuade a few but it won’t convince your mom – it won’t even reach your mom. Great ideas need great enlightenment efforts.

Evangelists and professional marketers

When the Wright Brothers invented the airplane, they actually had a hard time selling it. Everyone was intrigued, of course, but few understood how it could help them in a way that was worth the price. The airplane seemed like an exciting new toy that could kill you! So the Wrights became evangelists. They met with government officials and anyone else with the means and potential motive to buy, and sold them hard on dozens of potential uses. Now we could scarcely imagine the world without planes.

Think of the Bible. Many find it very difficult to read and hard to get excited about. But some people are very passionate about the bible, and very gifted at translating its meaning to large crowds. Congestion Pricing and Freeway Optimization have been peddled mainly by geeks and insufficient public awareness efforts. Are we really surprised that people are skeptical?

Gifted evangelists are essential but so is “Hollywood.” By that, I mean it takes people who have figured out how to sell stuff to people. We need marketing artists who can place an object in the hands of a big star, then watch that object fly off the shelf in the following month. For ideas worth billions, we should spend millions to attract the top-notch marketers, and give them a budget to craft emotionally persuasive visuals and sound bites.

Suppose you are a government official who has spent a career studying the good and the bad of freeway optimization and have concluded it is a great project concept worth a lot more than it costs. You may be reluctant to spend public funds on advocacy. It is controversial after all, and advocacy seems like propaganda and social engineering. So don’t let it be propaganda or even advocacy. Engage “Hollywood” not to manipulated people with one-sided arguments but to shortcut the learning curve. If people learn both the good and the bad honestly, they still may be skeptical but should be willing at least to support limited experiments.

Words Matter

Part of the trouble with congestion pricing is that the first ones to invent it called it congestion pricing! Congestion and pricing are both negative words that no one likes. Of course the pricing is to cure congestion, but the immediate first impression is that the government is just here to take more of your money. It is not intuitively obvious that pricing optimizes freeway flow – both speeds and 30% more throughput per hour.

As noted in part 1, preventive ramp metering can also optimize flow. So I prefer to not focus on “congestion pricing” as the only means to the goal. I think it is the best means because it catalyzes sustainability better, but people will listen for longer if they realize there are other ways.

If we focus on “Freeway Optimization” and its sustainability benefits, people may start to see that generating money for infrastructure is incidental to the real purpose of pricing. It is about using the free market to allocate a limited resource and get things moving again without getting mired in Big Dig debt!

(Cross posted from Bacon’s Rebellion)

Thank you very much, it’s a pleasure to be here. Urban planning is a fascinating discipline. As my old friend Ed Risse likes to say, urban planning isn’t rocket science – it’s much more complex. Planners synthesize a wide variety of variables that interact in unpredictable, even chaotic, ways. In my estimation, you don’t get nearly enough respect and appreciation for what you do

OK, enough with the flattery. Let’s get down to business.

This is you. You’re toast. Unless you change the way you do things, you and the local governments across Virginia you represent are totally cooked. … Here’s what I’m going to do today. I’m going to tell you why you’re toast. And then I’m going to tell you how to dig your government out of the fiscal abyss, earning you the love and admiration of your fellow citizens.

Why You’re Toast

Here’s the first reason you’re in trouble — old people. Or, more precisely, retired government old people. Virginia can’t seem to catch up to its pension obligations. The state says the Virginia Retirement System is on schedule to be fully funded by 2018-2020. But the state’s defines 80% funded as “fully funded,” which leaves a lot of wiggle room. The VRS also assumes that it can generate 7%-per-year annual returns on its $66 billion portfolio. For each 1% it falls short of that assumption, state and local government must make up the difference with $660 million. As long as the Federal Reserve Board pursues a near-zero interest rate policy, depressing investment returns everywhere, that will be exceedingly difficult. A lot of very smart people think 5% or 6% returns are more realistic. In all probability, pension obligations will continue to be a long-term burden on localities.

Second, the infrastructure Ponzi scheme — that’s Chuck Marohn’s coinage, not mine — is catching up with us. For decades, state and local government built roads and infrastructure, typically with federal assistance, proffers or impact fees with no thought to full life-cycle costs. State and local governments have assumed responsibility for maintaining and replacing this infrastructure. Well, the life cycle done cycled, and the bill is coming due. We’re finding that we built more infrastructure than we can afford to maintain at current tax rates, leaving very little for new construction.

Third, after years of delay, serious storm water regulations are kicking in. Local governments bear responsibility for fixing broken rivers and streams like Accotink Creek, showed here. (Yeah, that’s a creek. It’s having a bad day.) Best guess: These regs will cost Virginia another $15 billion. But no one really knows. And it may just be the tip of the iceberg. I recently talked to Ellen Dunham-Jones, author of “Retrofitting Suburbia,” and she noted that a lot of the storm water infrastructure that developers built in the ‘50s and ‘60s is crumbling. The developers are long gone. Someone’s going to have to fix that, too. Guess who?

Meanwhile, the largest source of discretionary local tax dollars – real estate property tax revenues – is stagnating. According to the Demand Institute, residential real estate prices in Virginia will increase only 7% through 2018 – the third worst performance of any state in the nation. Don’t count on magically rising property tax revenues to bail you out.

In fact, the tax situation is worse than it looks. Demand for commercial real estate is dismal, too. Consider what’s happening to the retail sector. We’re going from this…

To this..

Every Amazon.com distribution center represents dozens if not hundreds of chain stores closing. It means more vacant store fronts, more deserted malls, less new retail development.

Don’t look for help from new office space. Due to the rise of the mobile workforce, 50% of the desks, cubicles and offices in commercial buildings are vacant at any given time. Corporate America can – and will – save billions by downsizing their office portfolios. I recently heard one Washington, D.C., official refer to it as the “compression” of office space. He predicted that businesses will get by with 20% less space. As leases roll over, millions of square feet of office space will dump onto the market. Commercial real estate property values will stay depressed.

Finally, you’re dreaming if you think industrial recruitment will bail you out. There may be a manufacturing renaissance in America but most of the investment is going to increasing productivity of existing plants rather than building new plants. Other than industries that feed off cheap and abundant natural gas – mostly along the Gulf Coast — the U.S. will see fewer greenfield plant expansions than in years past. … Admittedly, no sooner had I written these words in my rough draft then a Chinese paper company announced a $2 billion investment in Chesterfield County. OK, Chesterfield won the mega-million jackpot. Congratulations, Chesterfield! The rest of you won’t be so lucky.

The bottom line is this: If we continue doing the same thing the same way, all is lost. The prosperity model that worked for Virginia in the 1960s, 70s, 80s and 90s is not working any more. If it’s any consolation, it’s not working anymore anywhere, not just Virginia.

An immense competitive advantage will go to those who reinvent themselves first. Fortunately, the early 21st century just might be the most exciting time ever to be involved in local government. Two broad strategies can make a huge difference if localities choose to adopt them… and the planning profession is positioned to play a pivotal role in making sure that they do.

Smart Cities

The first strategy falls under the rubric of Smart Cities – the application of information technology and communications to deploy sensors, collect vast amounts of data, store it on the cloud, and analyze it for far less than anyone imagined was possible a few years ago. That data can be used to cut costs, guide decision making and engage the citizenry.

Some investments are no brainers and there is no excuse not to make them. Smart street lights can cut lighting costs by 50%. Smart pipes can reduce water leakage by 20%. Building automation in municipal buildings can generate energy savings of 30% to 40%. Admittedly, those are investments that the Public Works department should be pushing for. But other smart-cities investments will never be made unless planners make the case for them.

For example: Variable priced parking. Here’s a picture of Jay Primus, manager of SFPark in San Francisco, who I visited back in April. Using smart meters and adjusting prices to reflect localized supply and demand conditions allowed San Francisco to reduce average parking prices, ensure that parking spaces were almost always open, reduce the number of people cruising around looking for parking, and generally make the city a more hospitable place to do business. Interestingly, San Francisco regards smart parking as an economic development initiative. Virginia planners should be pushing for this tool.

Another example: Traffic management. The cost is dropping to equip traffic lights with sensors, link them to a central control facility, and change the lighting sequences dynamically in response to traffic conditions. This is not a cure-all for traffic congestion but it can delay the necessity for undertaking super-expensive ROW acquisitions and construction projects. Virginia planners should be agitating for this technology.

Smart Growth

The second big strategy falls under the rubric of smart growth, although you also could call it fiscally disciplined growth. The labels are unimportant. What matters is understanding the fiscal implications of different patterns of development. It is axiomatic that denser, more compact growth requires less supporting infrastructure than scattered, low-density growth. Undertaking fiscally disciplined growth won’t balance your budget tomorrow but it will pay huge dividends year after year, pretty much forever. Just look at Arlington County, which has stuck to the strategy for 40 years. Arlington has done such a superior job with its transportation and land use policies its supervisors can afford to indulge in such questionable niceties as million-dollar bus stops and $30 million natatoriums.

In an era of chronic fiscal stress, roads, utilities, public facilities and otter infrastructure are major drivers of local government spending. Local government financial officers lack the analytical tools to guide growth decisions. But those tools are out there – planners need to use them.

Joe Minicozzi and Peter Katz conducted a famous study in Sarasota, Fla., comparing the real estate tax yield per acre of different types of development. The findings were mind-boggling: Mid-density, mixed-use development yielded 50 to 100 times the property tax per acre of a new Wal-Mart. At the same time, the cost of providing infrastructure for compact development can be cheaper per acre. Compared to conventional suburban development, according to Smart Growth America, fiscally efficient development can save 38% in up-front infrastructure costs and 10% of the cost of supporting police, ambulance, fire and other public services.

Image credit: Urban3

Sarasota was not a fluke. The slide above comes from Joe Minicozzi who has compiled these numbers from a sample of 21 jurisdictions. Mixed-use development yields 20 to 40 times more revenue per acre than Walmarts and shopping malls, and 400 times that of low-density single-family dwellings. Higher revenues per acre, lower costs per acre – you can’t beat that combination. The single most important thing you can do to survive hard fiscal times is to promote in-fill and re-development at higher density than existing land uses and maximize utilization of the infrastructure already on the ground.

Now, let’s talk about the second most important thing you can do. Tattoo this on your forehead so you can see it every day when you look in the mirror:

To pick an obvious example, highway interchanges like this one in Fredericksburg create economic value in nearby land, as measured by real estate property assessments.

Metro stations like this one in Arlington create economic value.

Parks, even small ones like this one in Richmond, create economic value.

Bike lanes create economic value.

(Click for larger image)

Walkable, bikable, people-friendly “complete streets” create incredible economic value. People are willing to pay incredible premiums to live, work in play in places like this, as opposed to…

(Click to enlarge image)

Places like this…

Stroads like this one destroy economic value. Stroads are street-road hybrids. They do a worse job than roads of moving cars and they do a worse job than streets of creating places where people like to live, work and shop. Most stroads in Virginia can be found along old state and national highways. They arose as businesses began using them as de-facto main streets and local governments failed to limit access and protect their integrity as highways. They are neither walkable nor drivable, and they will take billions of dollars to fix. Sadly, this pattern of wealth destruction is endemic across Virginia. By permitting this stuff, we are running our communities into the ground. A number of counties have created ambitious plans to “revitalize” old, decaying segments of these corridors but I can promise you, unless you convert them into people-friendly streets, you are totally wasting your time.

Putting a tutu on a pig does not make him a ballerina.

Toward a New Fiscal Analytics

This question is fundamental: Are zoning codes and capital investment plans in your city or county creating taxable wealth or destroying it? There’s a key metric that every planner needs to know about their jurisdiction — total assessed value of real property. Do you know how the total assessed value of your jurisdiction? A senior planner not knowing the answer to that question is like a Chief Financial Officer of a corporation being unable to tell you how much revenue his company generates. How can he possibly do his job?

(Click for larger image)

I pulled the numbers for Henrico County where I live. The number was about $32 billion in 2012. Admittedly, this is a crude measure. Total assessed value is influenced by things out of your control like interest rates, housing trends and economic conditions. But it is still a useful proxy for how good a job you’re doing at running your city or county. If you pursue policies that create wealth, homeowners and businesses will invest more in maintaining their properties, and new enterprises will expand, and property values will rise. If you create places that people shun, your property values will decline.

(Click for larger image)

Let’s take a closer look. It’s possible to display assessed property values graphically in ways that convey an awful lot of information. This map from Joe Minicozzi shows Orange County, N.C. The spikes represent taxable real estate value per acre. Look at the difference between Chapel Hill, Carrboro and Hillsboro. Sure, Chapel Hill has a big advantage over the other two because the University of North Carolina sits right in the middle. But the town also has permitted development at higher densities that throw off lots of tax revenue without a lot of offsetting liabilities. Do you know where the spikes are in your city or county? Can you tell if any given property is a net contributor or drain on the tax base? Do you know where property values are increasing in your jurisdiction and where they are declining? Can you predict the impact – pro or con – of public investments on the local tax base?

Cities and counties have finite resources to invest in public projects. You don’t have the luxury of throwing money away. It is imperative that you analyze the fiscal return on investment – how a capital expenditure will impact the assessed value of real estate and the revenue it throws off vs. the expense you will incur to maintain infrastructure on a full life-cycle basis. Without this data, you cannot possibly make informed decisions.

Perhaps you’re familiar with the minor league baseball stadium proposed for the Shockoe Bottom neighborhood of the City of Richmond. Mayor Dwight Jones wants to invest $80 million in public funds to build a stadium and parking deck, contribute towards a slavery museum, and install flood control infrastructure. He argues that the project will “pay for itself” by stimulating commercial and residential development around it. City Council is not convinced. Neither side can make a fully convincing case and the result is a stand-off in which nothing gets done. In all the hoopla, however, there is one question no one is asking – is this the best expenditure of $80 million that the city can come up with? When you spend $80 million on Project A, you cannot spend it on Project B. Can Richmond get more bang for its buck developing the riverfront? Or creating complete streets? Or building bike lanes? Or investing in Bus Rapid Transit? Or building a new stadium at the current site? We simply don’t know because the city has no methodology for comparing Return on Investment on different projects. We’re fumbling in the dark.

In Arlington County, there’s a huge controversy over construction of a $360 million streetcar line on Columbia Pike. Supporters say the project will pay for itself by increasing property values and bolstering investment along Columbia Pike. Foes question that argument. People on both sides of the debate tend to believe whatever they want to believe and can’t be convinced otherwise. Maybe the street car line will pay its own way, I don’t know. But Arlington faces a bigger question that nobody seems to be asking: Is this really the best investment of finite tax dollars compared to alternatives, either a different mega-project or broken up as a lot of smaller projects? Would $360 million generate higher returns elsewhere? Arlington planners, as savvy as they are in many ways, cannot answer that question.

Local government finance departments aren’t set up to deal with these issues. Basically, they’re bean counters. Their job is to balance the budget. Public works departments can’t do this either – they’re engineers focused on cost. Someone in local government has to ask the higher-order questions that are, by their nature, inter-disciplinary in scope. You planners are best equipped to do this. If you don’t ask these questions, no one else will. If you do ask those questions, and if you develop the tools it takes to answer them, you will dominate the local government decision-making process. Remember, information is power. If you have the information, you will have the power. You will set the agenda. Everyone will look to you to dig local governments out of their fiscal holes. You can be the heroes. Go for it!

(Cross posted from Bacon’s Rebellion)

by Charles Marohn

Unless you are a modern day Istanbul and sit at the crossroads of trade and commerce with the ability to skim margins off the goods flowing through your community, why would a city rely heavily on the sales tax? The only reason is that it is easy. Unfortunately, for building a strong town, easy is not always productive.

The sales tax does a number of destructive things to your community, the worst of which is the way it devalues residential properties, and people in general, except in their role as consumers.

For the local government financing itself with sales tax, there are mostly negative financial implications from residential and other non-retail development. A new residence simply costs money. Same with a new office building. At best, they are loss-leaders in an effort to secure more sales tax revenue, although there is no way to track return-on-investment or correlate revenues with expenses.

The sales tax fails to align the interests of a local government and its residents, putting them in tension with one another. The optimum outcome for a local government reliant on the sales tax is for residents to spend their money prolifically then, when they run out, borrow money to spend more. Then, when the household is completely broke, move out of the community and make way for someone else who will spend more.

Housing and people….what a burden. Photo by Andrew Jameson (click for licensing), via Wikimedia Commons

If residents are thrifty and attempt to build their wealth, local government revenues are harmed. Better to encourage those on fixed incomes or with frugal minds to leave and cater to those with more discretionary income and free spending ways. Some might argue that this doesn’t happen, yet the incentives are all in place to promulgate it.

Like a bad bank in the run up to the 2008 financial crisis, cities reliant on the sales tax find it hard to be concerned about the long-term implications of present actions. Operations become transactional because transactions are what keep the city flush. At least today.

The sales tax is also quite volatile, especially when it is narrowly applied to discretionary items. These things – automobiles, jewelry, electronics and the like – are the first thing consumers put off purchasing when economic conditions tighten.

An over-reliance on sales tax also creates an unnatural competition between cities. Desperate for transactions, local governments use the very revenue they are trying to obtain to bribe retail businesses to move to their communities. The goal here is to steal revenue from neighboring communities with consumers (note I did not call them “residents” or “people”) and state/regional transportation authorities subsidizing the transportation costs. This is not survival of the fittest but a race to the bottom, one that savvy retailers know how to exploit.

Note that states get their sales tax revenue regardless of which local government shares it. Healthy competition is the cornerstone of a healthy economy, but states that micromanage local governments and allow them only a sales tax are creating all the wrong incentives. The sales tax system works for large corporations too, just not local governments.

Understand that the optimal outcome for a local government funded by sales tax is to have all of the area’s strips malls, big box stores and auto dealerships within their boundaries and all the residences, offices and service businesses in the neighboring cities. How can that possibly be considered healthy, let alone stable?

An otherwise healthy and prosperous city, one that has a mix of housing in good proximity to a downtown full of professional services, trades and crafts (but not necessarily heavy on retail) would be a major loser in a place reliant on the sales tax. Even a traditional town with a Main Street surrounded by walkable neighborhoods – the mainstay of civilization for thousands of years – would fail if it was funded exclusively with a sales tax.

So why do so many local governments rely so heavily on the sales tax? Why have so many states found it so convenient to give local governments only this kind of taxing authority? Simple: the sales tax is both stealthy and a real cash cow. Those two attributes are really seductive for places caught in a cycle of bad financial decisions.

Sales taxes do have a role to play. It is a really good source for funding one-time expenditures or items that are discretionary from year to year. Sales taxes just shouldn’t be the sole or predominant mechanism of funding for most local governments.

Whether or not officials are conscious of the distortions brought about by reliance on the sales tax, they exist. With a sales tax, there is little to no correlation between the financial health of the community and the financial health of the local government. Reliance on the sales tax is not how strong communities are built.

(Cross posted from Strong Towns.)

by Ron Beitle

Last night at the township Board of Commissioners meeting a colleague, Commissioner Ryan Conrad, asserted that Tax Increment Financing (TIF) is not “corporate welfare.”

It’s important residents understand where commissioners stand on issues. This is because every four years we receive a job review from constituents in the form of an election. Therefore, I would be remiss if I didn’t clearly state that disagree with Mr. Conrad’s assertion in the strongest of terms.

“Corporate welfare” in this instance has been used as a rallying cry for residents who by and large support the project but without the 20-year tax forfeiture. Some institutional supporters have tried to use semantics and word games to insist this doesn’t qualify as corporate welfare. This is a disingenuous game.

The facts remain:

1. If Lower Macungie participates in the TIF, 50% of the developer’s incremental taxes are siphoned away from the township.

2. These taxes are funneled away from residents of Lower Macungie. The money is instead siphoned back to the developer and other private interests through Lehigh County Industrial Authority where it is allowed to be used to pay back construction bonds for improvements that are required of developers seeking to do business in the township.

3. TIF tax money is very clearly forfeited by taxpayers. It will be used to pay for what otherwise would be the responsibility of the developer, in this case the bare minimum improvements required by Penndot to build a shopping center of this magnitude.

4. The bottom line is that this pads the developers bottom line. TIF increases profits for private interests and decreases the return received by taxpayers. It is preferential treatment for one chosen developer. It is a subsidy of both the seller and the buyer. It is a distortion of the market and it will hurt other local businesses.

5. While you can argue that creating the TIF district could pull the plug on the entire TIF, (including the school district) the township’s participation (remember they are two separate ordinances and two separate votes) is purely symbolic and will have absolutely zero impact on the developer building the project. In other words, with or without the township participating in the TIF this shopping center is coming. This is a certainty. I can’t be anymore clear about that. There have been attempts, it seems, to blur this line. That is wrong.

Lower Macungie’s participation in the TIF gives one developer special treatment for purely symbolic reasons. We are a relatively affluent township with a healthy and robust economic climate, therefore TIF is unnecessary and borderline egregious to even consider.

A vote for the TIF is absolutely a vote taking money out of the pocket of Lower Macungie residents and funneling it to private interests over a 20-year period. If any commissioner believes this is the right thing to do, then they should stand by that and not try to rationalize it by making statements like, “The developer still pays 100% of it’s taxes,” while ignoring the fact that half those taxes are siphoned away from the township back to the developer by padding their bottom line through the Lehigh County Industrial Authority. Or no “corporation is receiving a direct subsidy. Last time I checked TCH development and The Goldenberg group are in this to make money. They are indeed a private business who will benefit from TIF. No, the “nameplates” Costco and Target aren’t the direct beneficiaries but private interests are the winners in this shell game. Taxpayers and other local businesses are the loser.