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Wednesday
Jan112012

Adding insult to injury

It is difficult to imagine the story of the traditional commercial block versus the redeveloped, auto-centric commercial block getting any more insulting to our senses. Today I will stretch your imagination.

A timeline of decline.

Decades ago, the Department of Transportation, in the name of growth, builds a highway through a traditional neighborhood. The highway maintains its character -- high speeds, wide lanes, channeled traffic -- despite going through a developed urban neighborhood.

The city embraces the highway and the promise of prosperity it holds. Over the years and at tremendous expense, the city's traffic engineering department converts the local streets to auto-centric corridors, widening lanes, removing on-street parking and eliminating sidewalks.

The city's planning department promotes a "modern" land use code, complete with use-based zoning that reinforces a hierarchy of streets (local/collector/arterial), the need for off-street parking and makes much of the traditional development pattern non-conforming.

The state reinforces the horizontal growth pattern with subsidies for new infrastructure on the periphery and a property tax system that rewards dis-investment and decline with lower rates of taxation.

The federal government adds subsidies for single-family homes, energy and transportation to the mix, further reinforcing the horizontal nature of local growth.

In response, the city's traditional neighborhoods stagnate and decline. The growth that is a natural byproduct of successful is now directed to the periphery. This only reinforces the dependency on the automobile as, perversely, residents of once-walkable neighborhoods with a variety of commercial options are now forced to drive to the periphery.

Further dis-investment. It makes no sense to live in a traditional neighborhood, or own a business in one, if you must drive everywhere anyway. There is no spatial advantage. When a person of modest means can get a larger home, a larger lot and have the same conveniences -- if not more -- outside of town while paying lower taxes, it is rational that they will do so. Why stay? Further decline.

As the transformation from traditional to auto-centric continues, parking becomes more valuable for those establishments that remain. Commercial businesses that in another era would have been expanded or rebuilt at a grander scale as the community grew are now more valuable being demolished for parking. The same thing is happening to the homes throughout these neighborhoods. They are being taken down in favor of garages and "buffering". Neighborhoods originally designed to define space are now becoming space.

These changes are devastating to the tax base. Where the public has made the greatest investments in infrastructure (and has the greatest obligations for maintenance) the neighborhoods stagnate. But nobody has the job of worrying about the tax base throughout the existing neighborhoods. The traffic engineer worries about moving cars. The public works director runs the utilities and is primarily concerned with new connections. The planner administers the zoning code and is particularly zealous about parking ratios.

This all devolves into a farcical feedback loop. More people driving means that more transportation improvements are needed. There is a greater need to channel cars, to control the flow, to improve the capacity of the transportation system. The more the public realm is given over to cars, the more people must drive. The more people that drive, the more cars on the road. Etc. Etc. Etc. Nobody realizes that we're not actually adding cars. We're all just making more trips.

To keep things moving, more automobile capacity is needed. As a society, we've come to believe now that somehow more space dedicated to cars means more growth, even though one can essentially go anywhere at high speeds and reach any location in minutes at any time of day parking just outside the destination. The only way to create more capacity is literally to tear down more of the city.

We'll get it all, eventually. Or die trying.

As the decay accelerates, in a move reminiscent of James Taggert in the book Atlas Shrugged, the local officials look at the owners of the remaining buildings with disgust. They brand them "slum lords", somehow believing that it is they that are causing the decline. (Note that this is a reverse of the way they believe that Walmart is creating the growth -- both are simply reacting to what is given them.) The city goes so far as to create an ordinance limiting the number of rental properties, as if there is some alternative, viable use that the market will magically bring to bear.

So what do we do when we find ourselves in this desperate situation, surrounded by stagnation and decline, a budget stretched to the max and completely at the mercy of aid from outside the community

Do we examine the commercial blocks of our traditional neighborhoods -- the last remnants of the hard work and ingenuity of our ancestors -- and notice that they have actually retained their value -- actually have value greater than their planned replacement -- despite our efforts to destroy them?

Do we examine these same blocks and see that they provide a myriad of opportunities for the many hard-working, entrepreneurial residents of the city?

Do we get professional assistance from people expert in creating value in our community to give us coherent advice on how to start leveraging our remaining resources?

Unfortunately, no.

What we do is turn to our economic development official and ask them to salvage the situation. And we give them a blunt instrument to do it.

Tax. Increment. Financing.

Tax Increment Financing (TIF) is the devil's tool of decline. There are two things necessary to make it "work" (and by "work" I mean as a way to corrupt your community's soul). First, the city must reconfigure as much of the community as possible in an auto centric manner so as to make it very advantageous to develop on bare ground on the edge of town. Then -- and these work together -- the city needs to continue policies that devalue neighborhoods to the point where decent commercial or residential activity is no longer viable.

Once these two conditions exist, TIF can be awarded. Simply demonstrate that it would be cheaper (for the developer at the moment -- not for the taxpayer over multiple life cycles) to build outside of town than to redevelop the blighted property in town and -- bam -- a tax subsidy can be awarded for the difference, if not substantially more, as an enticement to redevelop the blighted property.

Bring in the planner and the engineer to ensure that the new property conforms to the auto-centric design and you have successful redevelopment. Overlook the fact that it took decades of painful decline, millions of dollars of public malinvestment and that the final product creates less value than what would otherwise be there. This is something the politicians can crow about, the public can see improve in short order and the economic development team can put in their annual report.

As we call it in America: progress.

In the case of Brainerd and the two blocks -- one traditional and one auto-centric -- that we have been comparing and contrasting these past two weeks, you can probably guess by now that Taco John's received Tax Increment Financing for their new building. 

So not only is the block with the national chain restaurant valued less than the traditional block of local businesses, it is receiving a tax subsidy for the next 26 years. In the year 2033 the city of Brainerd will begin collecting taxes above and beyond what it collected in 2007 from this property.

All that for drive through tacos.

As a final note, readers should know that to grant TIF an application must pass a "but for" test. "But for" the TIF subsidy, this redevelopment wouldn't happen. When you get beyond the immediate transaction and understand the full picture of what is going on, you realize that this is a little like an alcoholic hitting the bottle and saying, "but for...." TIF is the co-dependent enabler of the suburban experiment.

And our lifestyle clearly makes us the drunk.

I want more than anything for us to sober up and start building value again in our places. We can do it if we want. We have the resources and the capacity. Let's work to make our places into Strong Towns.

 

If you find this material interesting and would like to know more about how to apply this thinking to your community, join us at the Strong Towns Network, a social enterprise for those working to implement a Strong Towns approach.

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Reader Comments (11)

Gotta disagree with you on Tax Incremental Financing as a bad tool. A mis-used tool maybe, a mis-understood tool, but not a bad tool. Application of the tool is the issue. The Second issue is our dependency on an archaic tax and spend system. Lastly, is the continued definition of suburban sprawl as "urban" when one deals with statistical collection and data in general (ie Micropolitan is considered suburb and exhurb and our friends at Brookings often view the agglomeration of suburban areas around the city as part of the defintion of Metrolpolitan area). TIF's can be a fundamentally good tool and should be applied in such a way that the investment made benefits all concerned and not just one governmental entity (city v school board) or developer. TIF's should be used to invest in the public good that creates sustaianable and resilient vertical development.

January 11, 2012 | Unregistered CommenterScott Dadson

In my city, Grand Rapids, MI, our Downtown Development Authority uses TIF as a tool to redevelop our traditional downtown neighborhoods, rather than extend the outer parts of town -- even as downtown has become less auto-centric through the addition of bike lanes and pedestrian improvements. I guess I'm wondering: if TIF is used in the urban core, do you think that this is soul-sucking in the same way that it is if used outside of it? Is TIF always a bad tool?

January 11, 2012 | Unregistered CommenterTyler Doornbos

Chuck, I think you're missing something here, namely that TIF and Redevelopment are not always the King and Ace in this deck. It is possible for a town to have stronger preservation standards, form-based coding and desire for an urban setting that will allow TIF to actually be used for the benefit of a strong town. We are using TIF to create a Revolving Loan Fund in our downtown in which the building owner can take out a 20K, 10 yr 2.5% interest loan to do anything that improves the taxable value of the building, so long as it conforms to the Downtown Design Standards (part of the city zoning code).

Another benefit to TIF zones (and I'm not saying there aren't downsides or that all situations are going to be the same) is that they lock in tax values, meaning you can stop decline. The property owner can't reduce their property tax just by letting the building go to crap, they need to keep it to a minimum level of quality to collect the rent needed to pay the taxes.

January 11, 2012 | Unregistered CommenterMarty

Thanks to you and the people at Strong Towns Chuck, we are sobering up. Common wisdom is being challenged and we will make our world a better place.

January 11, 2012 | Unregistered Commentergml4

I'm not suggesting that TIF shouldn't be part of the toolbox any more than I'm suggesting that someone shouldn't have a drink after a hard day at work. But if you come home and say that your job sucks, your marriage sucks, your life sucks and your only solution is to drink more and more, well....you're not really addressing the underlying problems, are you?

TIF is a coping mechanism that we've used to pretend that the decay and decline we've created is somehow part of the normal cycle of cities. We don't take any steps to deal with the causes of decline (in fact, we perpetuate them in the name of growth) while we create every incentive for our economic development officials to administer TIF so we can all feel good about the job we are doing.

When you look at a TIF redevelopment project in the context of the history of our suburban experiment it becomes clear that TIF is nothing more than an acknowledgment of failure gift wrapped in a veneer of growth and progress. Sure, TIF is misused, but that's not the problem I'm trying to help everyone understand. The problem is the decades of bad choices and policies that have made TIF -- itself an extension of those bad choices and policies -- the apparent solution.

A healthy local economic development approach looks at the entire system -- planning, engineering, maintenance, administration, economic development, community development, parks and recreation, schools, public health, social services, etc... -- and focuses them all on the same objective: creating places of value. If you do that -- if you adopt a Strong Towns approach -- you may need TIF along the way from time to time, but you'll get to a point where it is not the primary economic development tool it is today, if it even has to be used at all.

Use TIF if you must, but we should be shaking our heads in shame when we have to, not congratulating ourselves on our resourcefulness and innovation.

-Chuck

January 11, 2012 | Unregistered CommenterCharles Marohn

Thanks for the good discussion. Chuck and I may not entirely see eye to eye on TIF, at least as its been used in an urban setting.

Minnesota law provides for a number of different TIF districts, including the redevelopment district cited. Redevelopment districts have been used for site remediation, assembling parcels together, and other costs of preparing for redevelopment. Having mechanisms to fund these kinds of uses is important to try to make the playing field between previously developed sites, and greenfield sites. There is a redevelopment TIF district near my office, which helped finance denser, mixed-use development connected by transit - from a site previously polluted and totally underused.

Like Chuck said in his comment, TIF should be part of the toolbox. The broader point of the post, in my view, is that we need tools beyond TIF to encourage smarter development patterns.

January 11, 2012 | Unregistered CommenterJon Commers

I would agree with you, Jon, but point out that as a community evolves into a stronger financial position through implementing a broad set of reforms to the auto-centric approach, the need to use TIF to get things going would hopefully diminish in favor of natural demand for being in a prosperous location. I'm not aware of how frequently a city like London, Paris or Amsterdam uses a tool like TIF in a traditional neighborhood but I would venture to guess that it is not a primary tool like it is here.

My hope is that ove time we would be doing many things to strengthen the health of a community and so there would be less need to resort to TIF to address market failures.

From windy North Dakota,

-chuck

January 11, 2012 | Unregistered CommenterCharles Marohn

Charles,

I am happy to see you getting around to this topic of TIFs. I apologize for not responding to your earlier discussion group comments (and those of your colleagues) regarding my own call for help on the TIF dilemma in my area (Easton, Pa.).

Unfortunately - between a minor illness, end-of-year workload and the holiday rush - I was unable to submit my comments as a member of Easton's Planning Commission to the neighboring municipality (Palmer Twsp.) by the deadline regarding their zoning map changes to facilitate the TIF recently approved their.

As you and others mentioned in your comments to me, it is probably a done deal and better to work towards preventing more of it in the future. My intention is still to submit something to the local editorial page so as to be on the record regarding what I predict to be this TIF project's long-term failure.

As an aside, the issue of the TIF is still alive in local politics due to a dust-up concerning a note that was passed around by elected officials at the TIF county council meeting insinuating that a bribe may have been involved in it's approval...Pretty funny. Here is a link to the news story:

http://www.lehighvalleylive.com/joe-owens/index.ssf/2011/12/northampton_county_council_bac/4153/comments-newest.html

I will re-engage the discussion group on this topic as soon as time permits, but wanted to tell you that you're doing a great job.

DRL

January 11, 2012 | Unregistered CommenterDennis R. Lieb

My previous comment had a link to a news story about the TIF in my area but opens only to the reader comment section. Click on the headline to read the whole story.

Sorry about that.

DRL

January 11, 2012 | Unregistered CommenterDennis R. Lieb

Perhaps part of the TIF problem is actually a "layering" problem. It's locally administered, with mostly local/regional consequences- but it's designed/regulated by the state, within a context where some of the biggest drivers of fringe development (the mortgage deduction, transportation policy, etc.) are determined at the federal level. It's just not built to address those larger structural issues.

Interestingly, it's not used too frequently in New York State because our statutes exempt school taxes from the process. I'm not sure if that's good or bad, but perhaps it prevents some of the abuses that are often seen elsewhere?

January 12, 2012 | Unregistered CommenterAndrew Obernesser

Chuck,

Value capture, of which TIF is one form, isn't new or limited to use in the US. Here's one piece with global reach from a division of the UN: http://www.dag.org.za/docs/2010/GTNScopingStudyOct10.pdf.

ULI also compiled a nice piece examining potential value capture strategies in Europe: http://uli-europe.org/sites/all/themes/ULI/files/publications/ULI%20Value%20Capture%20Finance%20Report.pdf.

In my professional opinion, it doesn't matter what transportation mode is dominant, or what the zoning is, or how much discretionary income there is in nearby neighborhoods - if there's serious soil contamination, a site will be underutilized or at least delayed in its full development. And there is a public interest in putting the space back into productive use. Ala Strong Towns.

Jon

January 12, 2012 | Unregistered CommenterJon Commers
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