How to save the general fund: bring development downtown

For years, Stockton has expanded outward, banking on the proliferation of single family homes and strip malls to keep the city’s coffers full. Last week, city leaders filed for chapter 9, making clear that this economic development strategy is no longer viable. Rather than a continued focus on expanding the city’s footprint, it actually makes more economic sense to focus on infill development. Building densely and reutilizing older buildings in downtown neighborhoods has provided other cities with a tremendous economic advantage outweighing the purported benefits of monstrous shopping centers and subdivisions. I have written before about cities on the East Coast that have reaped the windfalls of prioritizing downtown development, but can such a strategy work in the Central Valley, where sprawl has reigned supreme for 50 years?

Apparently, the answer is yes.

Joe Minicozzi, the developer from North Carolina whose data crunching revealed how building downtown creates a more efficient revenue stream for cities, has been touring around the
Central Valley espousing the virtues of dense downtown development. As noted before, Minicozzi ran the numbers in Modesto and found that downtown structures netted more tax dollars per acre than shopping centers on the edges of the city.  For example, Minicozzi’s work shows that a modest, three-story building in downtown Modesto, housing a sports bar and commercial space, brings in five times the property tax revenue per acre than Vintage Square Mall, with the downtown address netting the city $38,000 per acre compared to just $7,000 from the mall.

downtown development is a more efficient economic development strategy, bringing in tax dollars at a more efficient rate per acre than traditional commercial and residential developments on the outskirts of the city.

Of course, basing land-use decisions off of just one case study might not be enough for skeptics of infill development. Luckily, Minicozzi has recently expanded his analysis to other Central Valley cities, and the results echo his findings in Modesto. Just down the road in Turlock, Minicozzi revealed that the city’s average downtown building brought in 48.6% more tax revenue per acre than the local Wal-Mart. Moreover, the city’s Main Street properties are valued at about $1.6 million per acre, more than the per acre value of the much larger Monte Vista Crossings shopping center ($1.2 million per acre). In Merced, Minicozzi found that downtown buildings net 40.5% more revenue than the city’s mall. It’s also worth noting that Minicozzi’s research was not funded by these cities.

Stockton’s situation would appear to be no different, and the analysis provided by Minicozzi serves as a strong example of how a smarter development plan can help lift Central Valley cities out of the recession doldrums. Because of Stockton’s financial situation, using the infrastructure we already have in place makes far more financial sense than continuing to move the city outward, consuming more resources than are available. To be sure, this doesn’t mean big subsidized public projects are the way to go. Instead, Minicozzi’s analysis simply shows us that better land use decisions need to be made so that we are using the city’s resources more efficiently. These kinds of decisions involve bringing developers to the table to come up with a reasonable plan to balance Stockton’s growth to make full use of the space the city already has. As Stockton and other area cities grapple with the lasting effects of the housing bust, it would be unwise to ignore the work done by Minicozzi showing how a better growth plan can result in a more efficient use of land.

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Categories: Community Commentary, Development News

Author:David A. Garcia

David A. Garcia founded SCL in March of 2012. He holds degrees from UCLA as well as Johns Hopkins University and currently works as the Chief Operating Officer at Ten Space in Downtown Stockton, and previously worked as a researcher/analyst for a congressional agency in Washington DC. The views expressed here are solely of the author.

5 Comments on “How to save the general fund: bring development downtown”

  1. Ned Leiba
    July 3, 2012 at 5:46 pm #

    I am for infill and a commitment to retrofitting our existing, unique architectural and community assets. However, I am reticent to rule out development elsewhere. It seems there would be natural, significant economic advantages to development and redevelopment in the inner core, if there were not artificial, perverse disincentives.

    Building permit and other fees are $50-60k per unit so there is a substantial disincentive for new development or redevelopment activity anywhere in the city. The negative effect is greater for lower cost residential housing which, frankly, must be a big part of downtown and midtown development.

    Another factor. My friend Dan Cort has worked to develop downtown properties, and he has faced significant bureaucratic and other challenges. The claim is that the City is more cooperative, and more likely to provide abatements and benefits to developers and operators from outside of Stockton (e.g., Paragary’s), than home grown, more practical merchants of development such as Dan Cort.

    You need to carefully consider the limits of the Minicozzi study.

    You might need to control for property tax increments that flow unshared to the local redevelopment agencies, now dearly departed. Presumably local government receives more tax dollars from these inner city projects in redevelopment districts than from owners of outlying properties. Minicozzi says he looked at property tax revenues remitted to local governments, so I don’t know if the treatment of downtown properties in a redevelopment agency biased his results.

    You cannot simply compare property tax returns per square foot. How many square feet are available in downtown vs at the city limits (or beyond)? What development policy maximizes total property and other tax revenue that benefits “the community.”

    The community may be larger than just an incorporated city. The auto mall benefits residents in Lodi, Stockton and unincorporated parts of SJ County, and some of the sales taxes flow to the governments of the residence of the buyers not just the jurisdiction where the car dealer is located.

    What is the effect of sales tax. That is the justification for supporting the establishment of the outlying big box stores.

    The most important consideration: you want to know what the net revenue benefit is to the community, after adjusting for incremental costs. It certainly seems like providing services to downtown would be less expensive than providing services to new outlying areas. That is why it seems to me, that infill would yield significant overall economic benefits to the city if the regulatory and tax environment were accommodating; if taxes and fees were low.

    We have problems if we don’t look at the larger economic consequences. Ad hoc reports, that focus narrowly on one measure (eg property tax revenue per sq ft) can be very misleading.

    I strongly suspect that with lower government fees and taxes, and less regulation, Stockton would naturally experience an increase in downtown development. And I believe, but I am not certain, that infill development would result in significantly greater net revenues to our impecunious city, than the alternative of relying on a policy of “urban sprawl.”

    • Stockton City Limits
      July 7, 2012 at 10:59 am #

      Ned,

      Very strong points, I’ll see if I can respond to them all. As you know, I am a big proponent of infill, however, this doesn’t mean that there is no place for development anywhere else. Obviously, as the city grows, expanding the footprint should be considered, though the larger point I try to make is that building out should not be the first place we look when considering expansion, as seems to be Stockton’s current policy.

      You are right, the permit process is a big disincentive to infill development and the city really should come up with a policy that encourages redevelopment. I have read a lot about Dan Court, he does great work. I would be interested to see what he would have to say specifically about the barriers to redevelopment in Stockton as he has probably the biggest developer in town in terms of infill development.

      As far as the Minicozzi studies, I think there is a lot of merit to what he has provided. His analysis is more thorough than simply dividing property tax by acreage as he also includes sales tax and the cost of maintaining new infrastructure in several of his reports, though it is unclear if this level of analysis was conducted during his recent trip through the Central Valley. Also it is important to remember that because there is limited space downtown, developers are forced to reuse old buildings or build more efficient structures whereas sprawling property is generally developed in an inefficient manner because there is seemingly unlimited space. You can read a little more about what Minicozzi has done in other places here:

      http://www.theatlanticcities.com/jobs-and-economy/2012/03/simple-math-can-save-cities-bankruptcy/1629/

      I am not sure about the TIF factor, which could very well bias results. I do know that Minicozzi’s analysis has been replicated in several cities with similar results and because TIF rules vary space state, it is difficult to understand the overall effects unless one has a strong understand of all TIF policies. Also, in California, many redevelopment agencies were dubiously run and had very loose definitions of “redevelopment,” so we can’t really say all “redevelopment” projects were worthy of TIF funding.

      As far as sales tax goes, I have written before in my Wal-Mart articles that big box stores generally do not lead to a substantial icnrease in revenue for cities. While an automall is unique, because it does bring in patrons from other areas, most big commercial projects don’t bring in more revenue, but instead simply reappropriate sales tax dollars that were already being spent in the city. For example, a new Wal-Mart just means people who were already shopping at the old Wal-Mart will now continue to do so, just at the location closer to them.

  2. July 9, 2012 at 8:49 pm #

    I really enjoyed the posting, and great points Ned. We typically don’t get into retail because it can be hard to get that data in some states. Additionally, the focus of the studies attempt to simplify the discussion to one value point and not get too deep in the weeds. They’re intentionally “down and dirty” and quick. If anything, its to provide a metric of common analysis – the acre – as a unit of thought to help understand cities. Its the same logic a farmer uses in their land use economics.

    But, if we get the cooperation with the entities that have access to that data, we like to look at it. Every state is different. In CA’s case, we did see a considerable amount of retail sales coming from the malls and boxes, but those numbers should be taken with some caveats. For one, in most cases, there is a string of retail establishments that are “tired”, and become negative values to the community. These are the dead malls or boxes. So not only do they lack retail sales, but their property tax values are even more depressed than a typical new box. So it is debatable that the retail sales are just ‘transferred’ and not “created” by the new retail. That’s a much broader discussion, and there are some great studies folks have done on the economic effect on small businesses as well. And as I said earlier, you can get in the weeds, rea quick. However, in the case of Turlock, the per acre retail sales in its downtown were quite respectable considering that it is hardly a commerce center that, for instance, my hometown Asheville is at the moment. So, if Turlock were to continue on its path of regeneration in its downtown, it will see nice gains in retail as well as property tax. The key point in the study is to get an understanding of the density of value return.

    Additionally, in our analysis of the three SJV communities, we found that the average County Property Tax yield (for General Fund + Mosquito Abatement) was about double the City’s portion of the property tax. In finding that the density of property tax revenue was greater in the core of the city, it left the question in my mind that downtown revitalization is a huge opportunity for the County, more than the City. I can send you the spreadsheets if you’e interested.

    Finally, I agree with your point on regulation. This isn’t to suggest throwing out all regulation, but reframing the method of approach. We heard from Fresno that they are adopting a Form-Based Code (FBC) approach. I have found that FBC is typically a more predictable and streamlined approach to land-use regulation. There are other policy items as well. But putting everything on the table for discussion is a good thing, and if anything can be taken away from our studies, my hope is that communities better understand and communicate the math behind land-use decisions. Having an open conversation on the financial aspects behind land use choices, is key to keeping communities out of tricky situations. I know Stockton is under tremendous stress, but there is a silver lining. Stockton is blessed with assets that we didn’t see in the other communities, but it has to work to leverage those assets for positive community revitalization. And a crisis can sometimes help to focus decisions on what is important and necessary for effective change.

Trackbacks/Pingbacks

  1. Report: Demand for infill development rising while support for sprawl wanes in Central Valley « Stockton City Limits - January 24, 2013

    […] steer this retail into more compact areas within the city, creating a more efficient use of space. As I have explained before, compact retail and commercial development is incredibly more efficient compared to your typical […]

  2. Smart growth or Socialism? Debunking the myths of Agenda 21 | Stockton City Limits - March 12, 2013

    […] suburban shopping center or subdivision. Minicozzi has performed this analysis locally as well in Modesto, Turlock and Merced, with similar results. In an interview with Minicozzi, he said that Stockton’s downtown […]

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