The missing metric.

• Author: Katz, Peter

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Although use-based zoning is widely employed across the United States and Canada to regulate development and manage its impacts, its effectiveness often comes at the expense of the municipality's bottom line. With local governments still reeling from the recent recession, some are looking for ways to systematically evaluate the anticipated fiscal performance of proposed developments when they are considered for approval. Peter Katz shares groundbreaking research on the subject and suggests a new way for municipalities to proactively manage and grow their tax base.

The development review, for a 290-unit office and residential project, took place in spring 2004, at an hour when most of Millville's citizens were already asleep. The name Millville is fictitious, but this story could have taken place in any of a thousand American towns and cities during the boom years of the early 2000s.

The council chambers were packed with citizens, most of whom were there to oppose the proposed development, citing too much density and traffic congestion. They were worried that the project would strain the town's overburdened road system. Another smaller group of citizens had come to support the application. That contingent included members of a regional smart growth coalition, whose comments were focused mostly on the jobs that the new development would bring, along with affordable housing.

An affluent community, Millville once looked like any of a number of fairly ordinary small towns in the region; but while the quiet, tree-lined streets of those other places gave way to urban decay and sprawling strip malls, Millville's small-town fabric had somehow remained intact. One unfortunate result of its appeal, however, was a lack of affordable places to live. Few of those who grew up in the town had the means to stay and raise their families.

In their three-minute testimonies, project supporters pushed back at the opponents of the development, touching on a wide range of fairly technical subjects. They explained how the project's "internal trip capture" might actually reduce vehicle traffic, or at worst, keep it stable, even as the town added thousands of square feet of residential, retail, and office space. Although project backers had hired a respected national consultant to research the data, few of the naysayers believed the traffic counts he presented. City staff said they would need more time to evaluate the numbers.

In the end, the review board turned down the mixed-use development, deeming it "just too dense" for that part of Millville. The project was only a few blocks from several of the town's most established single-family neighborhoods. Observers saw the decision as a classic tradeoff between Millville's cherished quality of life and the perceived impacts of development.

Reviewing the video of the proceedings the following day, the town's chief financial officer, who rarely attended such sessions in person, noted to her staff that there was little, if any, discussion about the revenue that the development would have generated over its projected life. With a significant decline in the town's commercial real estate revenues, she knew that property taxes paid by the proposed development would be critical to maintaining current service levels in any number of key areas--roads, parks, sewer service, and libraries.

But there was another issue at stake, related to the town's self image. A discussion about revenue as a primary goal of development might have seemed too mercenary to some of the town's citizens. After all, Millville was an upscale community that prided itself on setting a high bar for development quality. Less affluent surrounding municipalities were known to let the quest for additional revenue--particularly sales tax revenue--drive their decision to permit high-impact commercial and industrial uses such as big-box shopping centers. Such projects were usually sited near municipal borders, where they could attract outside customers but offload transportation-related impacts and costs to neighboring jurisdictions, one of which, of course, was Millville. This practice irked Millville's civic leaders, but without a functioning regional planning framework or another forum for resolving intergovernmental disputes, there was little the town could do to address the problem.

Revenue-related issues had come up previously, such as when the review board was considering multi-family developments with units of more than two bedrooms. Reviewers feared that such projects would bring a flood of schoolchildren to Millville's highly rated public school system. The rejected project tried to steer clear of that challenge by limiting its offerings to smaller units aimed at singles and retirees. But that tactic, suggested by the applicant's attorney, did little to assuage community fears about the development's size and intensity. Even though the demographic makeup of the surrounding region had become much more diverse in recent years, Millville still saw itself as a "single family kind of place."

LESSONS FROM MILLVILLE

During the years leading up to the early 2000s real-estate boom, both strategies--siting big-box retail near the edges of town to push infrastructure costs to neighboring municipalities, and biasing the housing mix to discourage families with children--were widely practiced as part of an approach known as fiscal zoning. Today, these strategies are seen as problematic because they foster unbalanced settlement patterns. But while the practice of fiscal zoning may be discredited, the problem it was meant to address remains very much with us.

The problem stems from a fundamental characteristic of use-based zoning that's hard wired into the system, not just in Millville but also in the 80,000 other municipalities across the nation that employ the approach. With so much of zoning's focus on managing the impacts of surrounding development, and the main strategy for dealing with such conflicts during the approval process to be simply lowering development density/intensity to more "acceptable" levels, it's not surprising that the overall economic return in the form of property taxes paid by new development to local governments has suffered.

During the boom years, it was easy to ignore this fundamental characteristic of zoning. But in the lean times that have followed, such issues are increasingly important to municipalities. There is certainly much discussion today about the causes of such problems--"legacy costs" (a euphemism for pension fund liabilities) and a range of so-called "financial causes" are among the culprits most often mentioned by journalists who write on the subject. At the same time, the nearly ubiquitous pattern of low-density suburban development, and the regulatory practices that enable it, are not considered. Until we recognize the significant burden that such practices impose on us, and make changes accordingly, municipalities will continue to struggle to achieve financial stability.

Revenue return from property taxes is the missing metric for communities that want to grow in a way that is healthy, balanced, and economically sustainable. To restore balance to a system that is now strongly biased in favor of infrastructure intensive low-density sprawl that does not pay its way over the long-term, communities like Millville need to evaluate fiscal performance along with the other factors that they consider when determining the suitability of a proposed development for approval. At the same time, such an evaluation needs to take place within an objective and consistent scoring system. That system, in turn, must mesh effectively with the larger framework of planning and development regulations (1) in use within the community.

CONTEXT: SARASOTA COUNTY IN 2008

Sarasota County, like many other Florida counties, saw a wave of suburban development in the boom years from 1995 to 2007. In those years more than 31,000 acres of land within the county and its incorporated municipalities came under development. As with many other local governments during that period, there was a focus on absolute dollars flowing into the county from large-scale, single-use developments at the suburban edge. But with money coming in from a variety of sources--property taxes, sales taxes, permit fees, impact fees--it was difficult for administrators to determine the contribution of any one development, and to calculate whether revenues received were actually covering the costs local government incurred to accommodate a specific development.

During that period, the county participated in an ambitious program, sponsored by Florida's Department of Community Affairs--a study that was intended to help localities better understand the fiscal impacts of future development. Indeed, most local governments had few tools for understanding the long-term obligations they were taking on when constructing elaborate infrastructure for the low-density suburban development that was consistent with approved comprehensive plans. Unfortunately, according to the former county administrator, the models used in the DCA study were too coarse to enable an accurate comparison of alternatives.

Responding to state growth management policies and seeking to discourage future sprawl, county officials enacted an urban services boundary in 1997. Its purpose was to channel future growth into areas where the Sarasota County was planning to provide urban services and infrastructure. A citizen-led initiative in 2008 strengthened the growth boundary, requiring a unanimous vote of the county commission to enlarge the land area within it.

Although the boundary constrained the county's supply of developable land, the three home-rule cities in the county --Venice, North...