Money, It’s a Gas: New Economy development financing

In startling alignment with James Howard Kunstler’s stark predictions, ULI’s 2012 Report, ”What’s Next: Real Estate in the New Economy,” bubbly concludes: “The real estate world is hurtling into a different place and time. Change is coming at a faster pace with more uncertain consequences. Success will take on different forms and risks will increase. Standing pat or ignoring new realities is not possible. Notably, investment will gravitate to places that welcome business and view public investments — in education, infrastructure, and innovation — as prerequisites for progress and economic sustainability.”

I interpret ULI’s analysis as:

  1. World hurtling into a different place/time (Yeah, like 1890);
  2. Change is coming fast (Conventional tools are not applicable today);
  3. Success takes on different forms (We realize we need the predictability of Form-Based Codes);
  4. Money will be invested in:
  5. a. Places that welcome business (Free market – less rules);
    b. Places that welcome public investment (But, provide subsidies – So, we’d appreciate more local/state/fed funding with less rules attached…);
    c. Places that welcome education, infrastructure, innovation (We realize that Richard Florida’s creative class theory is now a law).

The changes we were looking for have finally arrived. Due to the economy, our nation’s primary development pattern will now be small-scale infill development in our first tier streetcar neighborhoods. An interesting anecdote is the regional apartment builder building their standard 150 unit rental products on multiple lots in multiple buildings in a historic San Diego neighborhood.

Recognizing such, municipalities are finally looking to new models modifying their decades-long reliance upon suburban planning tools to enable infill redevelopment. Just as suburbia was built with now vanishing state and federal subsidies, the following financing tools are available to tilt the playing field towards the difficult chore of building infill redevelopment.  We* essentially have the following four options:

1.0 Land

Redevelopment agencies (RDAs) have long subsidized, condemned and assembled private lots (land) in order to make larger urban projects work. With California closing down RDAs, there are other ways to make new land available (without Kilauea nearby). All government agencies — such as cities, counties and school districts — and nonprofit institutions — such as universities, hospitals and churches – located in urban areas tend to be land-rich. Without giving away their land, these agencies and institutions are now equity partners in a redevelopment public/private partnership project. These land-rich entities are able to commit their land up front at no cost to an infill development deal in exchange for a later financial payoff.  In addition, surplus state land could be made available to cities to help make urban projects work.

Vacant Lots - Austin, TX. Image courtesy of photolitherland at www.skyscraperpage.com.

Vacant Lots - San Diego. Image courtesy of photolitherland at www.skyscraperpage.com.

2.0 Urban Planning Policies and Urban Design Regulations

2.1 Neighborhood-scale Planning: Cities can also help by creating “master plans” for whole urban neighborhoods that front-load the environmental and community review process so individual developers can then construct projects more quickly at the back end. These plans should focus efforts on easily funded policies, such as complete streets and sustainability practices and healthy community design principles.

El Cajon Boulevard, Community of North Park, San Diego.
Photo By: Sam Hodgson (Voice of San Diego).

2.2 Rezoning: In exchange for building bigger than what is otherwise previously allowed, builders pay a fee to cover a public project. Rezoning towards a publicly vetted neighborhood-scaled master plan allows that community to capture the value of increased intensities and build for infrastructure deficits without the use of condemnation.

2.3 Streamlined processing. Programmatic environmental impact reports, covering not a project but an area where growth or revitalization is to occur, speed up the review process and reduce the cost to builders.

3.0 Local Tax Districts

3.1 Landscape Maintenance Districts and Business Improvement Districts: Local property and business owners vote to charge themselves extra to build and maintain better sidewalks, parks and other local amenities.

Little Italy Neighborhood - San Diego, CA. Photo by: Liz Giffen.

3.2 Community facility districts: Local property vote owners raise their taxes to fund schools, new streets or utilities. Originally used in “greenfield” master-planned communities, these are self-taxing districts and may be applied to contiguous growth.

3.3 Infrastructure facility district: Cities are able to divert a set percentage of property taxes from a specific development zone to build anew or improve basic infrastructure deficits.

4.0 City-wide Tax Tools

4.1 Sales-tax increment. Bill Fulton states the because redevelopment laws only affects property taxes, some cities also have aggressively used tax-increment financing drawn from sales-tax generating projects — essentially, committing a portion of the future revenue stream to pay for infrastructure or subsidize development. Another example of a suburban tool to fund strip centers and auto dealers, this technique could assist urban projects with a retail component or an employment center that generates a lot of taxable business-to-business sales — an often-overlooked source of funding.

4.2 Developer impact fees: Builders pay a one-time fee to cover the cost of their project’s impact on transportation, recreation, library and other public services. However, these fees cannot be adjusted to make up for past sins or deferred maintenance issues.

4.3 Budgeting: The city devotes a portion of its general fund revenues from sales and property taxes, hotel taxes and other sources to capital improvements — at the expense, however, of operating costs. Most improvements to streets and streetscape are allowed to use general fund monies and represents another ‘land’ option for redevelopment in an overly engineered right-of-way.

4.4 Tax abatements: Cities reduce or eliminate property and sales taxes in exchange for a developer’s construction of a road, park or other community need.

In addition, a state’s policy actions can help local efforts by providing, for example, aggressive guidelines to streamline environmental review or link subdivision rules with transportation and planning standards, in order to expedite and fund local master plans and neighborhood planning efforts. With the need right now to forge new territory using both new and old tools, this is a great time to be in the place making business. Municipal redevelopment is being reframed as a public/private strategic coordinator of public policies and funds to promote well-designed infill development and urban revitalization opportunities.

*(I need to thank Former City of San Diego Planning Director Bill Anderson, and current Smart Growth America Vice President, Bill Fulton, for borrowing heavily from their recent articles).

–Howard Blackson

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Comments

  1. PlaceMakers and Chuck Marohn of StrongTowns joined the pantheon of Original Green heroes such as Tom Low (light imprint) and Galina Tachieva (sprawl repair) tonight in my preso to ULI Charlotte. I love you guys, IOW, but you need to work on something I’m working on: keeping posts to 500-750 words.

    Have more to say? No prob. Just don’t constrain yourself to speaking one partner per week! You guys, of all people, should understand that, being such fountains of great ideas!

  2. Oh, wow, then the very next day you start going to two-a-week! Can you say “fortuitous comment timing”?

  3. I fuss at you guys, then do an 1,100-word post myself… go figure!

    http://www.originalgreen.org/blog/costs-of-sprawl—the-speed.html

Trackbacks

  1. [...] right-of-way. In San Diego, 40% of our entire land mass downtown is ONE-WAY STREETS! We also have a lot of vacant land, so I believe San Diego can greatly improve over the next 100-years, as can Salt Lake City. [...]

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