TAXES vs SERVICES

TAXES vs SERVICES: A COST-BENEFIT EXAMINATION OF LAND USE

1. Introduction

 

Martin County generates a lot of heated discussion and polarization over the issue of growth. The Urban Services Boundary which calls for agriculture beyond the Urban Services Boundary calls for one dwelling on a minimum of 20 acres, add to that the recent Rural Lifestyle

Amendment and things really get heated. However, setting all rhetoric aside what makes economic sense for the taxpayers of Martin County? MCTA believes that cost/benefit tax policy should drive land use policy.

With that question in mind, MCTA looked around the country (and world) to see what land use scenarios are beneficial to the taxpayers and under what circumstances. There is a plethora of research spawning over fifty years which has seen the literature morph from discussion of three main categories: urban, suburban and rural to a focus today on “Smart Growth” within those categories.  What is “Smart Growth”? Smart Growth is a general term for policies that result in more compact, accessible, multimodal development, in contrast to sprawl, which refers to dispersed, urban fringe, automobile-dependent development. Smart Growth policies create transit-oriented communities, neighborhoods where high-quality walking, cycling, public transit and carsharing services allow households to minimize their vehicle ownership and use.

           

1. Cost Drivers

However, all the scenarios contain some common elements which drives the cost to the taxpayer; the common elements examined were: roads, police, fire, schools and public utilities.

Roads: This is a major cost driver for any municipality in both the construction and maintenance. The Brookings Institution researchers conducted a “Review of the Fiscal and Competitive Advantages of Smarter Growth Development Patterns” in 2004 and found that more compact growth patterns can reduce road-building outlays between 12 and 26 percent (Muro and Puentes 2004). However, even in the close-in areas where growth is directed under the managed growth scenario, local roads must often be widened by a lane in one or both directions to accommodate development, resulting in additional lane-miles.

Police: Another expense is police. Denser communities mean less travel time and the potential to aggregate police services versus further distances, longer response times in suburban and rural settings and the establishment of sub-stations. The offset is that higher density provides greater proximity between victims and criminals. It is no surprise that the crime rate is higher in cities.

Fire: A Charlotte, North Carolina study found that neighborhoods with low densities and disconnected streets require four times the number of fire stations at four times the cost compared with more compact and connected neighborhoods (CDOT 2012).

Schools: The main cost drivers of schools are the facilities, faculty and transportation costs. The greater the school age population, the more facilities and faculty are necessary. However, another cost is transportation. A study conducted for the city of Madison, Wisconsin, illustrates how school transportation costs tend to decline with increased population, due to reductions in the need to provide school bus services. In addition, Wisconsin Department of Public Instruction data show that school transport costs are high for low- density development (under 50 school pupils per square mile) and decline with density.

Public Utilities: The provision of water, sewer and waste disposal are major expenses for municipalities. Multifamily units are served by fewer laterals and require fewer outdoor sprinklers and less water use than single-family units Analyzing municipal budgets in 8,600 municipalities of Brazil, Chile, Ecuador and Mexico, de Duren and Compeán (2015) found that low-density development approximately triples per capita expenditures on public service, with the greatest efficiencies at approximately 90 residents per hectare (1 hectare=2.47 acres).

           

• Revenue Sources

The revenue sources for municipalities are primarily property taxes, sales taxes, utility taxes and/or fees, other fees, intergovernmental revenue (i.e., grants, etc.), and in some cases, income taxes. In 2010, local governments raised and spent $1.6 trillion. One-third was spent on projects and activities that were impacted by local development. Of that one-third ($525 billion), one-third was spent on capital projects (roads, water, sewer, schools, libraries, and utilities), the remaining two-thirds was spent on public services such as police, fire, road maintenance and public works support and maintenance. (U.S. Census Bureau. (2012, September). “State and Local Government Finances Summary: 2010.” Available at http://www2.census.gov/govs/estimate/summary_report.pdf)

A study conducted in Florida demonstrated that while city governments received slightly less than half of their tax revenue from the property tax, county governments received 75 percent from property taxes; townships, 93 percent; and school districts, 97 percent. Urban governments have found greater opportunities for revenue diversification than have rural governments. City governments received 29 percent of their tax revenue from sales taxes and 14 percent from income taxes. (MacManus, Susan A., with Charles J. Spindler, “The Real Impact of the Services Tax Repeal in Florida: A Fiscal Squeeze on Local Governments,” USF Public Affairs Reporter 2 (Summer 1988):3-6.

1. Land Use Categories

If we examine the three major land use categories in light of the cost drivers and revenue derived, we can see the effect in each of the scenarios.

Urban: Segal and Srinivasan (1985) and Lillydahl and Singell (1987) found that per capita costs for capital facilities, roadways, police protection, education, and total public spending declined with increases in density; they also suggest the potential for growth management policies to increase property values across the region. Several studies have found that when the supply of housing is constricted, housing prices increase (Katz and Rosen 1987, Fischel 1990, Glaeser and Gyourko 2002). Others have suggested that the increase in housing prices is due to the creation of heightened convenience, better public transport and lower service costs. It is probably a combination of both. Silver Creek Township, Minnesota found that “It is fiscally sound to concentrate growth around areas with existing infrastructure and to discourage growth on large lots in farming areas.” While many previous studies found costs decreased with density for roadways and fire protection, Jeremy Mattson’s study (Relationships between Density and per Capita Municipal Spending in the United States) also found the same for sewer, water, solid waste, and parks and recreation.

An interesting aspect of urban development can be found by breaking down the types of development and their fiscal impact. Residential housing for the elderly has a smaller cost impact than similar housing for families with school-age children. The revenue-to-cost ratio will vary depending on the type of development. An office park will be a positive contributor to the tax base, whereas inexpensive three-to-four-bedroom townhouses populated by families with children will have a negative impact.

            Suburban: Often referred to as a Suburban Sprawl, this form of development is costly and was borne out by numerous studies. Duncan’s team examined the total public facility expenses associated with eight actual developments in Florida. These case studies represented five different development patterns (compact, contiguous, satellite, linear, and scattered). The result: The public capital and operating costs for close-in, compact development was much lower than they were for fringe, scattered, linear, and satellite development. To be specific, the costs per dwelling unit ranged all the way from a low of $9,252 for downtown Orlando (1989 dollars) to a high of $23,960 to serve new homes in Wellington, which at that time was a low-density fringe development. (Duncan and others (1989).

A University of Kentucky analysis compared the relative costs of government in 10 Kentucky counties, and associated large differences in service costs with the counties’ growth patterns. This assessment reveals that the per unit costs for police, fire, highway, schools, sewer, and solid waste services were consistently lowest in counties whose growth was more concentrated in established areas between 1987 and 1997, and highest in the counties with the most dispersed growth. Among counties containing center city of a major metropolitan area, households in compact Fayette County (which includes Lexington) actually save $1.08 in service costs for every additional 1,000 new residents in their community while those in spread-out Jefferson County (home of Louisville) see their taxes go up by $36.82 every time their sprawling county accomodates1,000 new residents. Similarly, the arrival of 1,000 new residents in Shelby County (a relatively focused suburb) costs each household $88.27 while in dispersed Pendleton County it costs households $1,222.39. And in small-town counties the results are the same: Warren County (with growth focused in Bowling Green) can accommodate 1,000 new residents at a cost of $53.89 per household while in sprawling Pulaski County such growth costs each household $239.93. The bottom line: More established places accommodate growth at lower costs than newer, more spread-out ones, with fire protection, schools, and police driving much of the result. (Bollinger, Berger, and Thompson (2001).

Tod Litman in his study, Understanding Smart Growth Savings, Victoria Policy Institute, 19 April 2023, summed it up succinctly, “Sprawl has two primary impacts: it increases per capita land consumption, and it disperses development which increases the distances between common destinations, and therefore the costs of providing public infrastructure and services, and the travel costs required to access services and activities.”

Density-Related Public Costs (American Farmland Trust, 1987) found that for every dollar in tax revenue received by Loudoun County $1.28 in services were delivered and then contrast that to farmland in the same county which received $0.11 in services for every dollar of taxes collected.

            Rural: In numerous studies, the experience of Loudoun County was replicated to varying degrees, but in all cases farm and open land provided more in tax revenue than they required in services.  A study of eight Pennsylvania townships demonstrated that residential land costs taxpayers while farm, open land, industrial and commercial all paid more in taxes than services received. While not all residents appreciate the benefits of farms, all taxpayers benefit from farm and open land. The revenues from these properties help to keep the taxes low in suburban and urban areas. When farmland is lost to suburban sprawl, the land may be converted from a net contributor to a drain on the tax base.

When viewing urban, suburban and rural, the table below demonstrates the positives and negatives on the tax base versus service costs. (Fiscal Impacts of Different Land Uses: The Pennsylvania Experience in 2006, updated October 2017, by Timothy Kelsey, PhD, Penn State College of Agricultural Sciences)

1. Fundamental Principles

Perhaps a starting point in any discussion is to come to an agreement on some basic principles.

• Todd Litman advanced the idea that “A basic principle of good planning is that individual, short-term decisions should support long-term, strategic goals”.
• Compact neighborhoods generate shorter trip distances than suburban or rural neighborhoods.
• Land is a scarce and valuable resource.
• Reducing impervious surface areas helps to preserver natural hydrologic functions such as surface water flows and groundwater recharge.
• Lane-mile local road capacity is related to population distribution and density.
• Rapid growth will drive an increase in lane miles as road capacity is increased to meet expected service levels.

1. What does this mean for Martin County?

The Martin County Comprehensive Growth Management Plan: In 1975 Florida passed the Local Government Comprehensive Planning Act to which Martin County responded by developing the Martin County Comprehensive Growth Management Plan, aka The Comp Plan, in 1982 and revised in 1990. This plan which placed a four-story height limit on buildings and outlined the Urban Services Boundary.

The goals of the plan are to protect the quality of life, conserve natural resources, promote balanced economic growth, provide prudent fiscal management. The fiscal management goal is elaborated on to state “Impact fees, enterprise fund user charges, connection fees, and other user fees paid by new development shall be reviewed every two years to ensure that provision of capital improvements needed to address the impact of future development will not increase ad valorem tax rates.” Growth will occur, but it should not be a burden on the taxpayer.

The Comp Plan addresses land and the pressures that growth will bring to bear. “Urban development located outside existing urban service areas to take advantage of low land costs results in higher future costs. This leapfrog development requires extension of public services past undeveloped land, which can be very costly in both dollars and energy. Isolated single-use developments, such as large single-family subdivisions removed from commercial or industrial centers, force residents into needlessly long trips for shopping, public schools and services.”

The drafters of the plan recognized the value of agricultural land and so stated “As population growth continues and available land suitable for urbanization along the Coastal Ridge declines, development pressure will heighten on significant interior agricultural areas. This pressure can come in the form of higher land values for urban use, resulting in speculation and conversion to urban development. The loss of agricultural lands through urban encroachment adversely affects this export industry, as well as the entire service industry, which employs pickers, processors, refiners, shippers and similar workers. Agricultural land is not viewed by Martin County as vacant land use. Agricultural activities are vital to the continued diversity and health of the community. Lands used for agricultural purposes are to be protected for future benefits and community identity.”

 

The Comp Plan recognized that growth cannot out-pace the infrastructure and the need to not degrade the quality of life through a diminishment of public services and facilities. In addition, it encourages many of the principles of “Smart Growth” i.e., encouraging redevelopment and in-fill, encourage pedestrian friendly neighborhoods that reduce the reliance on automobiles while providing residents a variety of housing choices. Recognizing that businesses and manufacturing facilities are positive contributors to the tax base, the Comp Plan attempts to promote existing business expansion and new business attraction while attempting to minimize travel time between work, home and services through the zoning and planning process. A goal of the plan is to promote tourism which is a contributor to the economy while utilizing minimal services.

      As Maggie Hurchalla succinctly stated in an article in 2018, “In many ways Martin County is a poster child for control of urban sprawl”.

            The Rural Lifestyle Amendment: The Martin County website stated that “Rural Lifestyle is a designation in the Martin County Comprehensive Plan intended to provide guidelines for developing self-contained rural communities with an emphasis on maintaining and enhancing open space and protecting land and water.” After a challenge and appeal, the Governor and Cabinet found that it complied with the Comp Plan and approved it on 23 May 2023.

            Opponents of the Amendment suggested that development outside the Urban Services Boundary would disrupt the $1.45 billion agriculture industry which employs approximately twenty five percent of the county’s jobs and that the extension of services to rural areas will be a drain on the county taxpayers. Let’s examine the facts.

            The amendment requires the following:

1. A minimum of 1,000 acres 
2. Placing 70 percent of the 1,000 acres in permanent open space (defined by the county as “clear from ground to sky”) 
3. Placing another set-aside parcel in Martin County–which must be at least 50 percent of the land mass designated for development, or a minimum of 500 acres–into permanent agriculture or conservation preservation 
4. Ensuring that set-aside is preserved permanently by covering it with a conservation easement controlled by the landowner, local government and existing nonprofit with an established track record for conserving land 
5. Dedicated funding source to properly maintain and manage the preserved land 
6. Creating a third-party reviewed economic study showing the project’s financial benefits to Martin County 
7. Potentially allowing water/sewer to the site, but limiting them to the site so no neighboring property could automatically hook up 
8. Strict Planned Unit Development agreement that contractually ties the landowner to all obligations 

 

GAI Consultants of Orlando provided an Economic and Fiscal Impact Analysis dated November 2021 which projected Ad Valorem tax receipts at full build-out and did so using a Low-Moderate-and High range. To be conservative and using their Low range, tax receipts were projected to be approximately $12,429,000 using an overall millage rate of 17.2990 (10.2668 for the County General; 3.4734 for Fire Rescue, Parks & Recreation, Stormwater and Road Management which is projected to generate $5,389,700 in revenue for the county; and 7.0322 for District 3 MSTU, School board, Children Services Council, SFWMD, and FL Inland Navigation District which would generate and additional $5,052,700 at full build-out). (page 23 of the GAI Analysis)

In evaluating the cost of services, GAI went on to break the tax contribution down to a per FTE (Full Time Equivalent) basis and estimated that the Atlantic Fields would add 674 FTEs based on 2.4 persons per household to the county’s population base of 145,995. Using these numbers, they took the county revenue and expenses from 2020 and determined the tax contribution and costs on a per FTE basis. In 2020, the county ran a deficit of $47/FTE. Using the Low range of revenue generation, GAI projected that Atlantic Fields would generate $7,992 per FTE while consuming $2,449 of government services for a net contribution of $5,543 (page 19 of the GAI Analysis).

In essence, it appears that this first case of the Rural Lifestyle Amendment will benefit Martin County financially and will not be a drain on the taxpayers. The negative is extending water and sewer to the site and with the expectation that no neighboring property can “automatically” hook up. Once the lines are extended, it is a 3-2 vote to make an exception and the pressure will be there. The Comp Plan in Objective 10.1C.1 outlines the criteria for extending sanitary sewer lines and it appears contradictory in that it states that services shall not be extended into the Secondary Urban Services District but can be extended if it is in the public interest. The positive tax contribution is definitely in the public interest.

 

Live Local Act: On March 29, 2023 the Live Local Act was signed into law which earmarked $1.5 billion over the next ten years to support affordable housing policies in the state. This Act has many facets but it impinged on local prerogatives in that it:

1. Requires local governments to authorize multifamily and mixed-use residential developments as allowable uses in any area zoned for commercial or mixed-use if at least 40% of the units are affordable for at least 30 years and serve incomes up to 120% adjusted median income (AMI).
2. Prohibits local government from requiring a proposed multifamily development to obtain a zoning or land use change, special exception, conditional use approval, variance, or comprehensive plan amendment for building height, zoning, and densities.
3. Prohibits local government from restricting the density of a proposed affordable housing development below the highest allowed density on any unincorporated land in the county where residential development is allowed, in the case of a county, and on any land in the municipality where residential development is allowed, in the case of a municipality.
4. Requires each local government to make its inventory list of lands owned or controlled by the local government appropriate for affordable housing publicly available on its website.
5. Requires each local government to have a policy containing procedures and expectations for expedited processing of affordable housing building permits.

These are a few of the zoning and land use elements of the Act as it also addresses financing affordable housing. Of particular interest is that the act provides $100 million in nonrecurring funds to implement the Florida Hometown Hero Housing Program, which provides home mortgage support for eligible frontline workers, such as educators, police officers, health care providers and childcare workers.

• Summary:

We are truly fortunate to live in a county that was ahead of the curve when it recognized that planning was necessary to preserve the balance between the environment, growth and fiscal responsibility. Martin County was practicing “Smart Growth” before the term became fashionable. The county government responded to the Local Government Comprehensive Planning Act by developing the Comp Plan. We are also fortunate that we have citizens who recognize that we need to fight Suburban Sprawl and maintain the integrity of the Urban Services Boundary and also citizens that recognize the need to respond to the influx of new residents and are willing to propose change. Any change to our existing Comp Plan has to be fiscally sound, supported by the infrastructure and be a positive contribution to the tax base of our community.

• Resources:
  1. Investing in a Better Future:
     A review of the fiscal and competitive advantage of smarter growth development patterns by Mark Muro and Robert Puentes: A Discussion Paper Prepared by The Brookings Institution Center on Urban and Metropolitan Policy, March 2004
  2. Washington County Minnesota/Appendix E: Housing Development and Fiscal Impact
  3. Understanding Smart Growth Savings, by Todd Litman, Victoria Policy Institute, 19 April 2023
  4. Does Farmland Protection Pay? (American Farmland Trust, 1992)
  5. Density-Related Public Costs (American Farmland Trust, 1987)
  6. Relationships between Density and per Capita Municipal Spending in the United States by Jeremy Mattson, Urban Science, 15 September 2021.
  7. “Review of the Fiscal and Competitive Advantages of Smarter Growth Development Patterns”, Brookings Institute, 2004
  8. Conventional Development versus Managed Growth: The Cost of Sprawl, by Robert W. Burchell, PhD and Sahaan Mukherji, BS, American Journal of Public Health, September 2003
  9. Fiscal Impacts of Different Land Uses: The Pennsylvania Experience in 2006, updated October 2017, by Timothy Kelsey, PhD, Penn State College of Agricultural Sciences.
  10. Martin County Comprehensive Growth Management Plan
  11. Economic and Fiscal Impact Analysis, Prepared by GAI Consultants for Becker B-14 Grove, LTD, November 2021