How land use drives city budgets

Rochester is not broke, actually far from it, but we will be facing tremendous tax increases if we don’t clean up our act. Small businesses will continue to get smacked with disproportionate tax increases if city leaders continue to allow and even subsidize sprawl. Right now Rochester’s fiscal policy when it comes to housing development is: “lose money on every one and make it up in volume…”

We tend to think that broke cities have two options: raise taxes, or cut services. Minicozzi, though, is trying to point to the basic but long-buried math of our tax system that cities should be exploiting instead: Per-acre, our downtowns have the potential to generate so much more public wealth than low-density subdivisions or massive malls by the highway. And for all that revenue they bring in, downtowns cost considerably less to maintain in public services and infrastructure.

Since 1966 we have little more than doubled our population but our land use has increased 5 fold (11 square miles to about 55 square miles). This means that the second half to the population we have added in Rochester consumes 4 times as much infrastructure as the first. Actually it is worse because that second half is almost entirely car dependent because we spread out uses. As such they create far more of a burden on our shared infrastructure.

In the last week staff allowed a presenter from the National Association of Home Builders to take council time to make a pitch that indicates that suburban sprawl single family homes are profit center for the community. The only problem is this is totally false. They arrive at their numbers by significantly understating the real costs of infrastructure and over estimating city tax revenues. Here is that presentation: NAHB Rochester MSA data

Among the numerous issues that I have with this, is that the MSA data paints an unrealistic picture for Rochester.

  • The average new house price of $175,000 is not correct for Rochester. In fact for a home to be considered affordable the sale price must be less than $160,000 of which we are basically producing zero. Further there is probably no way to produce single family detached homes in that range, to achieve this we will need higher density townhouse or condos.
  • The raw lot price of $6,000 is not correct for Rochester.
  • The average property taxes of $2,420 is misleading. First it is actually low for Rochester since that average price is actually higher. 2nd that includes Schools, City, & County levy. The city is less than 1/3 of that total.
  • The model shows $5.5 million in local impact fees, which may be true, however those fees are less that the cost of the services provided.
  • Most of the model assumptions of benefits occur regardless if a new home is single family attached, detached, or multifamily. Many benefits also accrue if the properties are rental or ownership. If the lower total costs of ownership between housing costs, transportation costs, and energy costs are lower with rental properties that may have a better economic impact.
  • The model acknowledges that average property taxes do not cover basic city services ($2420 vs. $4445) however they significantly understate the actual city expenses. Excluding functions that are either covered by utilities or other levels of government we are left with Police, Fire, Local Roads, Recreation and Culture, and maybe 1/3 of general government. In reality when we look at Rochester 2015 costs we get each household is responsible for about $1200 and annual city costs while probably paying about half of that (the remainder comes from businesses or state aid). BUT that is just the operating costs…
  • The annualized capital maintenance / replacement costs for our streets is far more that estimated. The model claims a 1 time infusion of $851 with annualized maintenance costs included in the yearly amount. In reality, there is an ANNUAL cost of about $300. (Much more coming as we continue to analyze this figure).
  • But it gets far worse for single family detached, especially in suburban areas with 3 units per acre or worse. Remember the average household is costing 2 times the amount of revenue it is creating. But single family detached is far worse than the average. Apartments, townhouse, condos, mixed use, and other higher density development generates far more in income per acre with less in expense.
  • Housing preferences is 100% separate from housing reality. Survey data suggests 75% of millennials want a single family home. This may be true; just as a similar percentage might want a wealthy supermodel spouse. However when costs and tradeoffs are considered many are choosing NOT to purchase the large lot single family home because it is expensive and they can’t afford it.
  • I question the wisdom of city staff & council members who feel that an industry sales pitch is important, but getting an update on an affordable housing plan (now 1 year late) is not.

Bottom line is housing is good for the economy and important, but continued propagation of neighborhood after neighborhood that costs far more than it produces is not sustainable. We should support smart housing growth, we should never accept any development that can’t financially support itself. We should also invite independent sources like Joe Minicozzi to provide us good information, not organizations that lobby governments.

These numbers are subject to be refined as we continue to study them, however the story of how sprawl is destroying budgets and raise taxes is well understood.


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