Financial Productivity – How Urban Land Use Affects A City’s Wallet

Series: Urban sprawl municipal budget impact

Apart from its commonly known costs, suburban sprawl is hitting municipal governments with hidden costs as a result of misguided policies.

In a growing city such as Maple Ridge, BC, leapfrogging suburban developments are adding more inventories to the city’s asset base and making its infrastructure deficit worse than it already is.

A real life example is used to illustrate how the discipline of a business case analysis can and should be applied to determine the implications of a new development project to the finance of a municipality.

See how a blighted and run-down block built in a traditional pattern compars against a shiny and new auto-oriented block built for a drive-through fast food chain restaurant when it comes to tax revenues to the city.

Lured by no-money-down and an immediate boost in property tax revenue, a city often approves development projects which end up with negative returns down the road. This concept only becomes obvious after digging into the income and expenses over a lifecycle of a project.

Pop quiz

(Hint: these are not meant to be trick questions.)

traditional versus auto-oriented lot

Looking at the picture above with 2 same size lots almost side by side on a stretch of arterial:

Lot A: Blighted and old – built based on the traditional pattern populated with a collection of run down, marginal establishments and a vacant building, waiting to be demolished at some point.

Lot B: Shiny and new – brand new fast food restaurant chain built in an auto-oriented pattern with drive-thru lanes and ample parking in the front.

Question No. 1: If you are a city councilor, which one would you rather have in your city?

That wasn’t too hard, was it?

Okay, the next question is a bit more involved.

Question No. 2: How do the two lots compare in terms of tax revenues to the city?

  1. Shiny-&-new generates 100% more revenue
  2. Shiny-&-new generates 50% more revenue
  3. The two generate about the same revenue
  4. Blighted-&-old generates 20% more revenue
  5. Blighted-&-old generates 40% more revenue

 

Before getting to the answer, let’s have some more background info so you have an excuse of being inadequately informed if you guessed wrong. 🙂

Blighted & Old Versus Shiny & New

The above two lots exist in real life and happen to be in located in downtown Brainerd, Minnesota. The blighted and old lot was built prior to the era of auto-oriented development. This is how resident and advocate Chuck Marohn describes it in his blog:

The old and blighted area is a collection of run down, marginal establishments. There are two liquor stores, a pawn shop, a barber shop, a bankruptcy attorney, a campaign headquarters, a retail establishment, a cafe and a vacant building. This is not a desirable area. If the adjacent highway didn’t already ensure decline, local “improvements” have degraded what little pedestrian connectivity may have existed to the adjacent areas. None of it that remains is easy, natural or inviting. In the community’s eyes, this is an area that is waiting to redevelop, to transform itself fully into an auto-oriented pattern. That transformation has begun; note that the very westerly building, which is a liquor store, has turned two lots into a parking lot.

The shiny and new lot to its right, by contrast, contains only one owner – Taco John’s, a drive-thru fast food restaurant – with two drive-through lanes, good access to the adjacent streets, ample parking and on-site storm water retention for good measure.

The blighted and old lot, made up of 11 sub-lots arranged in the traditional development pattern along an incompatible pedestrian unfriendly arterial, has a combined tax base of $1,136,500.

The shiny and new lot, where Taco John’s is its sole tenant, yields a tax base of $803,200.

And here’s the author’s punch line:

At its nastiest and most decrepit, fighting the negative auto traffic speeding by and the absence of pedestrian connectivity, lacking all natural advantage from the neighboring land uses that would ideally accompany a traditional neighborhood design, the old and blighted traditional commercial block still outperforms the new, auto-oriented development by 41%.

Imagine how much more valuable this traditional block would be if the businesses were simply given some relief from the speed of the STROAD-induced [stroad = the author’s definition of a bastardised combo between a road and a street] traffic and/or provided some connectivity to the adjacent neighborhood, two things that could be done far cheaper than the millions the city has spent to make this area the dominion of cars.

 

Considering the fact that a traditional commercial district in a dense mixed-use walk-able neighborhood can be vastly more financially productive to a city than an auto-oriented single-purpose block designed for big boxes and national chains seems counter-intuitive and might bring cognitive dissonance to you dear reader, perhaps the concept of financial productivity can be best reinforced by way of another example.

Courtesy of the same author, this example is a tale of two towns – Baxter and Brainerd, Minnesota.

Baxter

Baxter’s highway strip of auto-oriented development

A highway through Baxter transformed what used to be a little sleepy town. Baxter is the embodiment of what success looks like for an auto-oriented development: Walmart, JC Penny’s, Home Depot, Costco, Best Buy, 4 gas stations, Arby’s, Taco Bell, Olive Garden, multiple hotels and car dealerships… along that stretch. Baxter, however, is now past the phase when it enjoyed rapid growth in development revenue, and is now struggling to maintain its infrastructure.

The neighboring town of Brainerd, where the same highway used to run, is now the sleepy little town. The places on the edge of town are in steep decline. In contrast, the core neighborhoods and its pre-auto downtown are holding their value, despite disinvestment and decades of neglect from the city.

The 3D map below plots the value per acre for each property in Brainerd and Baxter. The higher the rise, the greater the financial productivity is for that location.

What stands out from this graphical illustration is that on a per acre basis, the old downtown and its core neighborhoods of Brainerd still handily outperform that dream highway stretch in Baxter.

Baxter vs Brainerd

 Tax value per acre for each property for Baxter and Brainerd. (analysis by Urban-3)

Financial productivity

The above two examples should serve as more food for thought for those responsible for city development and planning. In their pursuit of bringing new businesses and employment into their community, it is important not to lose sight of land use and its implications on revenue and costs to the city.

A good analogy would be the methodology used to choose a fuel efficient car:  you don’t base your decision on how far a car can drive with a full tank of gas. Rather you consider how many miles it can travel per gallon (or how many liters it burns for each 100 km).

Revenue per acre of land use works the same way.

So for city planners and decision makers, given that

  • We don’t have an unlimited amount of land for new development
  • We don’t have an unlimited infrastructure maintenance budget
  • We don’t have infinitely patient taxpayers who would be agreeable to perpetually increasing property taxes

What urban land use decisions are you going to make to maximize the financial productivity to the city?

Would the incentives used to entice big boxes be better spent on improving existing business districts such as downtown where the payback would potentially be vastly higher?

Instead of trying to lure into town a major chain hiring 50 people, how about improving downtown so that 50 small businesses would each hire one additional employee? Which one would benefit the community more?

 

 

References

Urban planning

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