Changing the Ground Rules to Cease Subsidizing Sprawl

In my last post, I took the post-recession temperature of sprawl.  I was checking the hypothesis that sprawl had succumbed to changing housing desires about the time the recession took hold.

Although I found evidence that that sprawl isn’t the dominant paradigm that it had once been, I also found evidence that it still lingered, ready to reassert itself given the opportunity.  (Voldemort comes to mind.)  The one battleground I described was a large development outside of Las Vegas where the developers were arguing that the public prefers the types of housing that sprawl provides, while urbanists were arguing that there was still insufficient choice in the marketplace to truly judge what the public prefers.  (And I argued that both sides were ignoring the roles of economic incentives.)

My conclusion was that we can’t consider sprawl to be securely in the rearview mirror, but must continue to have a strategy for dealing with possibility of sprawl reasserting itself.

The unabashed perspective of this blog is that sprawl needs to be curtailed for the long-term environmental and financial health of our communities and our world.  But that doesn’t mean that I want the curtailment to occur by government fiat.  Instead I believe that the primary reason sprawl has lived past its expiration date is because we propped it up with economic advantages when it began to falter and have continued to do so for far too long.

Ultimately, I believe that people who choose to live in sprawl settings should bear the true costs of those choices, just as one bears the mostly true costs of other aspects of life, whether travel, cuisine, or attire.

If someone chooses to pay the additional costs of living in a car-oriented location, that would be a decision that I wouldn’t make, but I believe in personal choice.  But if someone chooses to live in a car-oriented setting and expects that others should help cover the additional costs of their choice, that’s just wrong.  And yet that is what our system has become.

So, what are these additional costs and what adjustments can be made?  As thought exercises, how would the changes play out?  How would our world adjust to new economic signals?

My Exhibit A has always been the price of gasoline.  Early in the history of this blog, I linked an academic study that attempted to quantify the true cost of gas, including the environmental and geopolitical costs.  Depending on the assumptions used, the study found that the correct cost for gas should be between $6 and $15 per gallon.  The study was several years old when I linked it, so may now be nearly a decade in the past.  Over that time, the correct cost of gas can only have increased due to the increasing slide into climate change and the sharpening unrest in the Middle East.

For many years, I’ve argued that we need to push the price of gasoline upwards into that higher range.  Recognizing the social disruptions that would occur with this change, I’ve argued for a gradual, legislatively-fixed bump of 25 cents per year until a threshold, such as reduced gasoline usage, is met.

Given the long delay in adopting this approach, I could argue that 50 cents is becoming a more appropriate annual bump, although I also acknowledge the greater inevitable distress, especially to those of lesser means who have been pushed to the urban fringe by other policies and to whom the additional cost would be a particular burden.

To be clear, although I wouldn’t object to a bit of debt reduction, I’m not looking to create a tax windfall for the federal government.  Instead, I argue for a gas tax increase to be largely revenue neutral, with corresponding decreases in income and corporate taxes as some environmental and defense costs are shifted to gas tax revenues.

To me, a change to the gas tax of this magnitude would result in a steady increase in downtown development, probably coupled with stronger transit, bicycle, and walkability systems.  Also, there would be households, already on the financial thin edge, that would be over-stressed by the changes and would need assistance.  If others see other possible unintended consequences, please share.

However, changing the gas tax would require federal action, which is of course impossibly unlikely.  Perhaps more likely, although still on the far fringe of reality, is state-based action.  I’ll highlight two possibilities, which I suspect would work best in tandem.

First, impact fees on new construction, which are often close to $40,000 per home, differentiate only slightly between urban, easily served areas and suburban neighborhoods, which are more difficult to serve.

Second, property taxes have a one percent cap, despite the difference in municipal costs between urban and suburban locations.  (Here is a graphic showing the difference in one location.)

So, what if we combined those two situations into one possible fix?  Instead of a flat $40,000 impact fee everywhere in town, the impact fee would go to $80,000 on the suburban fringe and drop to $10,000 in the urban core.  At the same time, the maximum property tax rate would go to 1.2 percent on far-flung homes and drop to 0.8 percent on urban homes.

(Admittedly, this presentation assumes a dichotomy between urban and suburban when in fact there is a gradual shading between the two, but let’s keep the model simplistic for today.)

There would be a number of complex interactions between the two.  Suburban homeowners would likely see a home value bump as cost of the unbuilt homes near them would go up by $40,000, pulling up the value of built homes, but that increase would be partially mitigated by the prospect of paying higher property taxes.

One could justifiably argue that the package of changes wouldn’t be fair to many.  I’d agree.  But the system of subsidies that has existed for over a half-century has been even less fair.  It’s never easy to unwind from a long period of misguided policies.

As with the gas tax idea, I believe that these policies would lead to a renaissance in urban construction, along with stronger non-automotive transportation options, but the insights of others would be appreciated.

I love this subject and could likely continue to chat about it for another thousand words.  But I’ve already taken enough of your time.  If you have thoughts you wish to share, please do so.  I’ll engage in the comments section.

In my next post, I’ll circle back to the subject of induced traffic, noting that new lanes aren’t the only type of traffic improvement to be plagued by the problem of congestion that persists despite all efforts to reduce it.

As always, your questions or comments will be appreciated.  Please comment below or email me.  And thanks for reading. - Dave Alden (davealden53@comcast.net)

Urbanism and Senior Living: Making Downtown Options Happen

In recent posts, I’ve been writing about how walkable urban settings can be good places to live one’s later years.  Most recently, I offered a few insights about senior lifestyles that might find a home in downtowns.

It’s a subject of both general and personal interest to me.  I think having more seniors living downtown will make our downtowns and our cities healthier.  Also, I’m currently assisting a family member in a search for a new senior living situation.  I’m disappointed that there aren’t more urban options for her to consider.

Lastly, I know that there is a time when my wife and I will need alternative housing.  By then, I’m hopeful that more urban options will be open to us.  In thinking about my octogenarian self, I can conceive few prospects more pleasant than the possibility of walking to a hardware store to complete a small household repair or ambling to a bookstore to spend an hour browsing the options.  (Yes, I’m confident that printed books will still exist when I’m in my eighties.)

So, the topic for today is how to facilitate more downtown senior living options.

The path to more downtown senior living options is largely the same as the path to more downtown living options for all demographic sections.  And regular readers know the litany of urbanism obstacles that I often cite.  Gasoline prices that don’t include all environmental and geopolitical costs, so effectively subsidize life at the urban fringe.  Road maintenance costs that aren’t distributed according to actual road usage.  Construction liability law and mortgage practices that make downtown development more difficult.  And many more.

But rather than returning to an abstract description of obstacles to urbanism, I’ll recount an example of a failed senior living project with which I was quite familiar.  To me, it provides a wealth of insights about how cities can do better.

This account below is simplified.  It would take far too long to cover all the nuances.  Nor do I choose to provide the location of the project or the municipality, mostly to avoid arguing over the details.  But the outline of the story is accurate and the lessons to be drawn are valid.

A developer owned an attractive parcel of land, near a viable and active downtown.  The existing pedestrian route between the parcel and downtown wasn’t pleasant, but the city had a plan for a boulevard with wide sidewalks that new residents could use to reach downtown.  The developer, working together with the intended developer of an adjoining parcel, agreed to pay for much of the boulevard construction costs.

In addition to boulevard, the city plan called for a second street to be built within the project site, extending the urban street grid and giving motorists, pedestrians, and bicyclists more routes from which to choose.  And the boulevard would include a strong transit component, adding further to senior mobility options.

The developer planned for 200 residential units above sidewalk storefronts.  Eighty units were to be in a senior living facility. Nor did the developer choose to pay affordable housing fees, instead folding affordable housing into his project, side-by-side with market rate housing.

Having a mixture of seniors and others living in the new development was key to urbanism for at least three reasons.  First, it provided a range of sidewalks users, extending the daily period of urban vitality.

Second, it provided a mix of customers, leading the sidewalk businesses to more robust business models.  A café that served lunches to seniors at midday had to also please the 9-to-5 folks looking for an evening meal.

Lastly, it would provide a residential option for families split by old age.  One spouse could live in a senior facility, receiving needed assistance with daily life, while a devoted but healthier spouse could retain an independent life in a small apartment across the street.

I thought the proposal was exceptional.  The city appeared to agree and offered to help facilitate the project.  First, they agreed to help secure the land rights for the boulevard, some of which were still privately held.  Second, in exchange for a concession by the developer on a related land-use issue, they agreed to an expedited entitlement process as permitted under state law.  

And then, it all came unwound.  After a year of delay, and long after the developer’s concession had been banked, the city withdrew their promise of expedited entitlement.

After an unexpected staff shakeup, the city ceased assisting with land acquisition for the boulevard.  Relieved of the city’s jawboning, one property owner promptly increased his asking price by a factor of fifty.  The land was never acquired.

After having previously set reduced impact fees for urban development, the city reversed direction and adopted a new fee schedule that more than doubled the impact fees on the project.

As project finances worsened, the developer suggested the city take a role in the boulevard construction, but the city’s resources were committed to supporting drivable development.

And then the city missed the deadline for a key entitlement step, thereby violating state law and delaying the project several more months.

Nor were lenders enamored of the mixed-use model, particularly the senior housing component, noting that the project fell outside of their lending experience.

Lastly, the economy softened, further undermining finances that were already precarious.  Eventually the project faltered and then failed.  The developer had funded his entitlement expenses by mortgaging the property, so the bank assumed ownership.

In the years since the foreclosure, several buyers have approached the bank.  But none have wanted to resurrect the previous project.  Instead, they approached the city with various alternatives for eliminating the boulevard, dropping the transit, and converting the entire project into senior housing without the sidewalk retail, effectively transforming the site into a standard drivable suburban senior facility that happened to be a few blocks from downtown, but without a real connection to downtown.

To their credit, the city has thus far refused to consider the changes.  But the only result is that the property remains vacant, a reminder of a failed plan to strengthen the urban core and to bring seniors into a walkable setting.

There are many lessons that can be drawn from this story.  The most obvious one is that opportunities must be grabbed.  There seemed to be a city attitude that this project was one of many that would be offered and that the city needn’t make an effort to facilitate the project or even to comply with commitments that they had made.  The assumption was badly wrong, especially considering the senior living element, and deprived the community of a project that would have filled a need.

But the lesson on which I’ll focus today is impact fees.  I expect that most are familiar with the impact fee concept.  They are fees charged for various types of community infrastructure, streets, wastewater treatment, schools, parks, etc., that are set so that the infrastructure can be expanded to serve the new residents.

The general concept of impact fees is unassailable.  It would be unfair if new homes didn’t bear a fair share of the cost of their services.

But there can be a couple of flaws in the calculation of impact fees.  First, the solutions to current deficiencies are often be folded into impact fees, even though the problems must be addressed even if no further homes are ever built.  This is a deceit into which most communities fall, largely because Prop 13 has limited other funding options.  Faced with municipal needs that can’t otherwise be funded, decision-makers find a way to squint and to fold costs into impact fees that shouldn’t be there.

Second is the question of the allocation of impact fees across different types of development.  Let’s consider two residential units, a 3,500 square-foot single-family home on the urban fringe, located on a quarter-acre lot and likely occupied by a family of five, and a 400 square-foot independent living market-rate apartment in an urban core, likely occupied by a senior past the age of driving or a new college graduate trying to get by with a bicycle and transit.

What should be the relative impact fees for the two examples?  My intuition is the smaller urban apartment should have impact fees that are perhaps 30 percent of the large suburban home.  Others may intuit somewhat differently, but I expect that my judgment is within the range that others may set.

But for many cities, the impact fees for the downtown unit are 80 percent or more of the fees for the suburban home.  And cities are usually unwilling to adjust the fees, even when the unreasonableness of the fees is noted.

In essence, urban development is providing a subsidy for suburban development.  And most cities are content with that subsidy because of a prevailing belief that housing starts drive economic progress.

Of course, there are three problems with that belief.  After seventy years of following that model, our cities are teetering on the edge of bankruptcy.  Also, if a development form is so essential, why does it need a subsidy?  Lastly, what is the solution to the environmental issues posed by forcing everyone into cars?   Nonetheless, the belief persists and impedes urban development.

I could run further afield with this subject, but shouldn’t.  I’ve already claimed enough of your attention.  I’ll bring this back to the barn with the two key lessons I’ve tried to impart.  If we want seniors living in downtown, which I endorse heartily, we need to enthusiastically support development proposals that incorporate senior living.  Second chances may not come.  Also, we need to push cities to ensure that they’re not using urban development to subsidize drivable suburban development.

Next time, I’ll begin tackling the other half of the senior living question, how to bring beneficial elements of urbanism to seniors who remain in drivable suburban settings, either because they can’t sell their home for the price they need to live comfortably elsewhere or because their downtown offers few residential options.

As always, your questions or comments will be appreciated.  Please comment below or email me.  And thanks for reading. - Dave Alden (davealden53@comcast.net)

From Today to TOD – Impact Fees

Over the past few weeks, I’ve written about the hurdles of converting from drivable suburban to walkable urban, with particular reference to the pending Petaluma Station Area Plan.  I’ve discoursed on subjects as varied as parking, adjoining properties, and transitional uses.   Today, as I near conclusion, I’ll grapple with the thorniest issue, impact fees.

Impact fees are charges that are collected on new development and are intended to fairly assess new residents for their share of the infrastructure improvements needed to support a growing population.  Impact fees are usually collected at issuance of building permits, although alternative arrangements are sometimes permitted.

The breadth of possible impact fees are limited only by municipal imagination.  The most common fees are for roads, water, sewer, storm drainage, schools, and parks.  An impact fee can only be imposed if a study has been done justifying the amount of the fee.

(Note: “Impact fee” is a generic term for this type of development charge.  It is also the term used in California.  However, other states use alternative terms.  In Oregon, these fees are called “system development charges” or “SDCs”.  I was involved in setting the SDC rules for the Oregon community where I lived before moving to the North Bay.)

By law, an impact fee can only consider the incremental impact of new homes or businesses.  It can’t be used to remedy existing infrastructure deficiencies.  However, that’s a fine line that is often erased by shuffling feet.

The StrongTowns theory tells us that many communities are increasingly victims of infrastructure maintenance shortfalls and are dependent on the fees from new development to cover the gap.  As a result, city councils and their consultants often struggle with the distinctions between new impacts and existing deficiencies.

Transit-oriented development (TOD) further confuses the question.  Although the point is rarely noted, most impact fees studies include an implicit assumption that new development will follow the same pattern as existing development.  That each new single-family home will generate the same ten vehicular trips as existing homes, will water the same area of lawn, and will produce the same number of school children.

What should a city do about impact fees when new development is targeted toward residents who prefer to make trips by transit, by bicycle, or by foot, rather than by car?  Who generate fewer school children because they are predominantly millennials or seniors?  Or who live in smaller spaces because much of their social life is conducted in the public realm?

Looking at Petaluma, as least as seen through the lens of the proposed Petaluma Station Area Plan, the answer is unclear and potentially unsatisfying.  Early in the station area planning process, the consultant team determined that the current impact fee structure would overburden the station area, with the result that development might not be financially feasible.  Combined with the knowledge that TOD residents generally require less infrastructure to live their daily lives, this put a burden on city staff to reassess the impact fees.

(Note: There is also a time factor to the infrastructure demands for TOD residents.  Early in the life of a TOD, residents may make nearly as many car trips as other city residents because the commercial elements of the TOD are still evolving.  But as the TOD begins to meet more daily needs, these car trips will likely reduce.  The impact fee standards don’t address this possibility.)

Concurrent with the findings of the consultant team on the impact fees for the station area, there was a growing concern in Petaluma that the impact fees were too high for all development.  The recently adopted General Plan included infrastructure improvements that were to be funded by impact fees.  Many argued that the resulting impact fees were stifling development.  (Once again, there were hints of the StrongTowns-predicted conflation of infrastructure needed to support new development and infrastructure needed to sustain the existing community.)

The city decided to reduce impact fees throughout the community.  The reduction for residential housing was about 30 percent.  The station area planning consultant was directed to reconsider the financial viability of the station area plan with the lower fees.  The results of this update haven’t yet been released.

This impact fee reduction was likely appropriate and the city should be applauded for taking the step.  But it sidesteps the question, which is fundamental to this discussion, of whether people who live in a TOD should be subject to the same impact fees as those who choose to live on the urban fringe.

To be fair, there is a distinction in the impact fees between single-family homes and multi-family homes.  Thus, the average TOD residence will have somewhat lower impact fees that the average residence at the urban fringe.  However, the impact fees remain the same between walkable TOD multi-family units and apartments at the urban fringe which are surrounded by parking lots and require a car for nearly every daily task.  And that seems flawed.

I concur that it would be an overly difficult task for a city to finely tune impact fees to each set of circumstances throughout a city.  However, the burden on cities under the California Government Code, Section 66020, is to make “proper and valid findings that the construction of certain public improvements or facilities, the need for which is directly attributable to the proposed development”.  “Directly attributable to proposed development” would seem to require acknowledgement of alternative types of development such as TODs.

There is one other point on which TODs differ from other types of development.  Like most cities, Petaluma’s impact fees are the same regardless of the size of the residence.  This feels appropriate for most situations.  From personal observation, a 1,200 square foot home is likely to have a similar number of residents as a 3,500 square foot McMansion.

However, many TODs include a new size of residence.  Micro-units of perhaps 300 to 400 square feet that are intended for a single person.  If the impact fees remain the same for these units, the incentive for a developer is not to build micro-units, because the fees per square foot might be four times greater than for conventionally-sized units.  And yet micro-units can fill a housing niche and add vibrancy to a TOD.

The station area consultant recognized this conundrum early in the process and suggested that impact fees for TOD units be scaled to unit size.  Thus far, the suggestion hasn’t been acted upon.

I won’t pretend that setting impact fees is an easy task.  Indeed, it’s complex and multi-faceted.   But the ultimate goal is the fair distribution of infrastructure costs.  I’m not sure that we’re yet approaching that goal when it comes to TOD.

As always, your questions or comments will be appreciated.  Please comment below or email me.  And thanks for reading. - Dave Alden (davealden53@comcast.net)