A simple idea on assessments
Wednesday, September 1, 2010 | Charles Marohn Whenever I give a speech or talk about Strong Towns issues with people, I typically get a vigorous affirmation on our analysis of the problems we face followed by a simple question:
Okay, so what do we do?
Of course, I always try to touch on this subject when speaking but my thoughts on it are complex and, admittedly, not as well developed as our analysis of the issues. My honest answer is that "it depends on the community", and I really mean that because the solutions are mostly local. Hyper-local, in fact. This is especially true since federal and state policies towards subsidizing our current development pattern don't seem likely to change anytime soon.
Our homogeneous approach to building communities masks a level of complexity that is difficult to fully comprehend. I laugh when each city's community plan has the obligatory statement about the "unique character" of that community, like their gas stations, strip malls and snout-houses are distinct from those of their neighboring town (let alone, a community on the other side of the country).
But the fact is, when one gets hyper-local, everything changes. There, the unique character of a community does matter. Regional centers have much different approaches than neighborhood centers. Auto-era communities have a different set of challenges than traditional neighborhoods. Farm communities differ from forest communities.
Today's approach of primarily greenfield development on the periphery has made zoning -- not planning -- the craft practiced by most planners. Changing that is not a one-size-fits-all solution.
For the sake of discussion (and please feel free to discuss - I would rather take the arrows here and have the flaws of this idea revealed), I would like to throw out a simple idea on assessments that may bring us closer to building Strong Towns on a larger scale.
In Minnesota (and I believe many other states), local governments are able to "assess" property owners for public improvements that are made that improve the value of their property. For example, if the property has no public water supply, when the city installs a new water pipe in front of the property and allows that property to hook up, the cost of installing the pipe and connection can be assessed to the property owner. The idea here is that the public purse should not be used to improve an individual's property values.
The catch that we use here in Minnesota, and I think it is applied elsewhere as well, is that the amount of the assessment cannot exceed the additional value added to the property. In my example, if the new water connection costs $10,000 but only increases the value of the property by $6,000, the remaining $4,000 would need to be paid by the city.
This all makes assessments for maintenance extremely difficult, if not illegal in most instances. If the property has public water service one day, and the next day the city installs a shiny new water pipe to replace the old one, the property is not going to sell for any more money. While a lot of cities assess some of the costs of maintenance -- typically just enough to bother but not enough to make it worth a lawsuit by the property owner -- most maintenance is paid from non-assessment revenues.
And that is the change I am mulling over; Let's authorize, or even require, local governments to assess the costs of infrastructure maintenance.
Right now, the initial cost of infrastructure is most often paid by one of the Mechanisms of Growth, thus masking the true cost for the property owner. In the transaction, the public trades a near-term cash-flow advantage for a long-term liability. The property owner pays taxes and user fees and expects the public to maintain the infrastructure indefinitely.
Of course, the numbers ultimately don't add up.
If maintenance costs were assessed, there would be a more direct connection between the property owner and the long-term costs of the pattern of development they have chosen. We're all for choice - this would make that choice real. I suspect over time that a more efficient, more market-based pattern would emerge. I also suspect that pattern would be more dense and have better urbanism than the pattern of development we have grown used to in America.
Assessing for maintenance would also open up some options for Gov't 3.0 initiatives, like individual or neighborhood sinking funds for infrastructure maintenance (think of a 401(k) for fixing your street) and increased public involvement (or actual devolved decision-making) on things like level of service, the value of preventative maintenance and the urgency of specific improvements.
It's a simple idea. I'd love to hear the problems it would create and collectively find out if they would exceed the problems they would solve.
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Reader Comments (5)
Chuck:
Your article on assessments or "special assessments" as they are sometimes called, caught my eye. It has been my experience that the concept of assessing the property owner for a public improvement that benefits them, such as water or sewer line, street improvement, etc, is somewhat accepted as an occasional property owner cost in metro and suburban areas, This does not mean they are not controversial, depending on the project, and since a public hearing is required, there are sure to be quite a crowd protesting the assessment.
In rural areas and small towns, however, I have found that the mere mention of a special assessment as part of a project financing package, will be met with wailing and gnashing of teeth. I think part of the extreme opposition is that it is a financing mechanism that may have never been utilized, therefore, being new and different, it is opposed. It also shows the cost in stark relief, not hidden in a yearly property tax or utility rates to pay the annual P and I on a bond issue, The members of the governing board are also sometimes not familiar with how the assessment would work and are apt to cave if there is organized opposition to the assessment.
That being said, I would agree that assessments may have a role to play in paying for the incrrasing cost of infrastructure maintainance. Local governemts are notorious for not charging enough for utility operation and maintenance due , in part, to the fact that many are trying to "catch up" from years of nearly stagnant rates and fees. The governing body often finds it politically difficult to raise enough funds because the rates and fees have historically been so low, that raising them makes them "too high"
One idea may be to mandate that for any local government to be eligible for a loan or grant to build new infrastructure, have a city Capital Improvement Plan, that addresses how the new infrastructure will be paid for, including long-term maintenance costs...
Mark A. Baker
The rule that assessments can't exceed the increase in property values is Constitutional; assessing more than the "special benefit" is considered a taking of property without just compensation. Taking a step back, the theory is that general taxation, applied to all taxpayers of a city or county, exists to pay for all public goods. Assessments are an exception to that rule allowing for certain public goods to be billed to only a subset of taxpayers because it's shown that those taxpayers receive a benefit (increased property value) above and beyond what the general public receives (the ability to drive past your house). As such, it's not a rule that's amenable to change.
The trouble with assessing maintenance projects is the stubborn refusal of the real estate market (or real estate appraisers, depending on your perspective) to assign any value whatsoever to the maintenance of infrastructure. Instead, it's binary: if it exists, there's value; if it doesn't, there isn't. The actual quality or condition of the infrastructure almost never factors into the analysis. To take your example above, the appraisers for the City and the appraisers for the landowner might argue all day over whether connecting the property to City water confers a $6,000 or a $12,000 increase in property value. Ask either of them whether a property connected to a 10-year old City water system is more or less valuable than one connected to a 40-year old City water system, and you'll get blank stares. With water and sewer, you have the additional problem that the infrastructure is not "visible" to the prospective property buyer. Even massive upgrades to the service (say, doubling the size of the sewer line) are not assessable because the impact of the work is lost on buyers - again, the sales brochures generally only say "sewer" or "septic." As a result, the landscape for assessing maintenance looks like this: cheap road work like mill and overlay is generally OK; road reconstruction can be assessed if the road's bad enough to hurt property values; only catastrophic failures of the water and sewer systems which eliminate service are even arguably assessible; and stormwater projects are virtually impossible to assess. Of course, anything can be assessed if all property owners are on board with the project, but areas with that level of local investment aren't the places we're talking about, are they?
All that said, the issue isn't really with assessment law, but whether a city's residents have any idea what infrastructure maintenance costs them. Following assessment procedure requires cities to hand property owners an itemized bill. Nothing prevents cities from doing this with projects ultimately paid by general-fund revenue or infrastructure funds, but the added admin expense and lack of a requirement to do so means that it doesn't happen. Instead, project costs disappear into the "debt service" levy, the larger public works budget, or the decision to raise sewer/water service fees. They all eventually get paid for by taxpayers, but as you've long noted, almost nobody makes a mental connection between their property taxes and any particular infrastructure project. Forcing people to acquaint themselves with maintenance costs is the real issue here.
"Forcing people to acquaint themselves with maintenance costs is the real issue here." - Trevor Oliver
That is the key, in my mind. Without making the costs clear to people, there will always be a tendency to over-consume infrastructure and the services they provide. Even beyond that, there needs to be mechanisms in place to not just make clear the true cost, but also to involve neighborhoods in deciding how much a particular service is worth to them and whether they want more of it or not.
The water line example Chuck used may not be the best way to illustrate this, since you don't really scale up water service. It's either there or it isn't.
Roads are a better example - particularly with local streets. Say that the city decided that its base level of service for local streets was to have 26-foot widths (essentially one driving lane with parking on both sides) rather than the more traditional 32-foot widths (which allow for two lanes of traffic plus parking on both sides). Say you ask each neighborhood whether they want a wider road - noting that if they do, there will be X cost for the extra pavement, Y additional cost for the additional plowing/street sweeping time, and Z for the additional stormwater treatment capacity necessitated by the additional pavement. If they do, you set up a special service district for them. If they don't, they pay no more than what they were already paying in general taxes.
My knowledge of special service districts is admittedly limited and there may be legal challenges with this kind of policy as well. The larger point though, is that unless we find a way to involve neighborhoods in both knowing the costs of increased services and deciding whether to incur those extra costs, there will be little to prevent the continued overconsumption of infrastructure services.
A couple thoughts.. ('ll try to poke some holes in this idea for you):
1. The assessment question will raise a lot of equity issues. The special service districts Mpls sets up for streetscape improvements in commercial areas are a good example. Wealthier districts (uptown, 50th & France) have chosen to assess themselves for higher-quality improvements and can afford to do so. Less wealthy districts (Cedar Riverside) or areas with very few businesses to assess (38th & Hiawatha) can't afford the same level of assessments.
But is the bare-minimum 1960s' style 6' sidewalk with no trees, green or anything else be the minimum standard for all areas? Will that discourage investment in this area in the future? Should everyone that walks down the streets of the less wealthy districts not be able to enjoy street trees that provide shade because the business owner did not want to be assessed or could not afford the assessment at the time of the reconstruction?
Similarly, what if the property owner is an industrial use or a dying mall at the time of the street reconstruction project and doesn't care about the redevelopment of their site? Especially in areas where there is new transit investments or has strong redevelopment potential, it may be worth putting in nicer sidewalks, trees, etc. to encourage redevelopment.
2. If it's optional, some people will chose not to make necessary repairs until things collapse since they don't think about long-term issues. I.E., if someone is laid off, they probably care a lot more about saving money to pay bills than the fact that their street may need reconstruction someday. If it's mandatory, that might be more politically difficult.
4. What about collector streets that do not have any houses facing them? Is the whole neighborhood of local loop and lollipop streets that use the collector then assessed?
5. The Mpls stormwater utility fee requires users to pay based on the amount of impervious surface on their property. It's not perfect and hasn't led to much if any decrease in impervious surface, but it might be a useful model to consider.
I agree, more attention needs to be put on funding long-term maintenance liabilities though.
Good points Faith. The equity issue is something I've always struggled with a bit. There is that possibility of "disparities" between neighborhoods occurring, but I would offer the following observations to further this very good discussion we are having (thank you everyone - we always hope for discussions to be sparked with our posts):
1. Equity is not equality. Equity does not require that every neightborhood have street trees or the same width of road or whatever else. To me, the challenge is to establish a base level of public investment that every neighborhood will have regardless. The "optional" investments need to be those that may enhance value of properties, but are not essential to public health, safety and welfare.
2. Education debates have talked about the "dumbing down" of text books and educational expectations as we try and provide the same level of education opprotunities to everyone. I see a different, but related, phenomenon with our attempts to provide the same level of infrastructure to everyone. Once we establish that no one should get fewer street trees than anyone else and that no neighborhood should be able to have a wider street than another or that everyone should be able to expect a fire truck to reach their home in 3 minutes, it tends to ratchet up the costs over time.
3. Right now, we have no economic/financial signals in place to help people understand that their choice of where to live comes with various costs. We want the highest level of service we can get and when the general taxpayer covers those costs, there is nothing that forces us to make tradeoffs between cost and level of service. Thus, the ratcheting up of costs over time to a point where now, it is becoming unsustainable.
4. If we are not willing to lower some of the expectations that people have for the level of public service or infrastructure they get, how will we ever keep costs manageable? Yes, we absolutely need to set a floor below which no resident will fall, but we are well beyond that point with what we build and provide now - at least in terms of the road width issue that I was highlighting.