The delusion of easy money (aka: nothing is really free)

In Boca Raton, Fla., which faces a budget gap of more than $7 million, leaders are thinking about expanding the city’s size and annexing neighborhoods as an antidote. Sure, more residents would cost more in services, but officials hope the added tax revenues will more than make up for it.

A colleague of mine sent this quote to me on Monday from an article in the NY Times. Needless to say, I am aware of this level of ignorance, but it is a rare thing to see it displayed so clearly. It has compelled me to take a break from our ongoing Brainerd/Baxter Strong Towns laboratory to hopefully point out the folly here in terms that will dissuade other communities from such a short-sighted act of desperation. 

Let's first take a look at the motivation for the city, which is simple. Land is brought under city jurisdiction through annexation. The tax revenue from this land then flows to the city. The amount of revenue brought into the city exceeds the expenses the city will incur and, like magic, everyone is better off.

Or at least that is the standard dogma of engineers, planners and financial consultants. In fact, this is such standard orthodoxy it is stated as fact (no attribution) by the reporter from the Boca Raton Tribune in an article covering the city's discussion.

Annexation is the process of bringing county land into Boca city limits. Normally, it yields additional revenue because providing services to largely residential areas is less expensive than the amount of taxes generated. Also, many Boca city services are not as costly as county utilities.

Let me ask the obvious question nobody here seems to be asking. If "normally" it holds that "providing services to largely residential areas is less expensive than the amount of taxes generated", then why does Boca Raton have a $7 million budget deficit?

Boca Raton is largely a residential community. Their comprehensive plan shows that to be the case. If this development pattern generates a surplus, why do they have a deficit?

Currently the population density of Boca Raton is 4.8 people per acres (3,063 people per square mile). While not super-efficient, it is certainly a more cost-effective density than the area they are looking to add, which has only 2.1 people per acre.

Deputy City Manager George S. Brown explained to the council at a recent workshop that the total annexation package contains $1.575 billion in taxable property; 2,018 acres; a population of 4,319; 1,720 employed people; 2,478 homes and 48 commercial properties.

The maps I have been able to find here do not clearly designate this area and unfortunately I cannot find the annexation report online, but it is hard to imagine that this new land could cost less per household to service than the denser existing city (which is running a deficit).

So how are they determining that they will have excess revenue from this move? That is simple. Their consultants are looking at the immediate cost of service only. One side of the ledger is the new revenue - an easy number to calculate. The other side of the ledger are the new expenses, which likely assume an extension of services (some additional police, fire protection, transit service, etc...). The difference in this analysis is ostensibly "profit".

What is not included is the long-term cost of infrastructure maintenance that the city is assuming.

  • How many miles of street are there?
  • What is the condition of those streets? Do they meet the city's standards?
  • What is the cost for maintaining, repairing and upgrading those streets and when is that going to come due?
  • Ditto for sewer and water systems. I read somewhere that these areas have individual sewage systems...what is the cost to upgrade?
  • Factoring in maintenance and budgeting for long-term capital improvements required to actually service this area, does the city actually have a long-term gain as projected?

From a different article in the Palm Beach Post News:

The combined taxable value of the nine areas being considered for annexation is $1.5 billion. That would bring in about $6.7 million to city coffers under the current tax rate. But it would cost about $4.2 million to provide services to those areas.

Plus, the city would have to set aside about $400,000 a year for five years to upgrade the medians near the communities.

"Maybe that will be the trade-off," said Edward Haymes, president of the St. Andrews Country Club Property Owners Association.

His community has been asking Boca Raton to fix up the medians on Clint Moore Road for awhile, but the city said it didn't have the money to put in trees and shrubs, Haymes said.

What Boca Raton is doing, and what many cities routinely do to solve near-term budget problems, is engage in the Growth Ponzi Scheme. An increase in near-term revenue is traded for a greater, long-term liability. If Boca Raton's consultants pushed themselves a little bit harder and tried to honestly assess the long-term financial implications of this transaction, they would be forced to admit that the same underlying financial deficiencies that exist within the current city limits - deficiencies that add up to a $7 million deficit - exist outside as well. 

Getting bigger does not solve their problem, unless they measure the problem in months and not years. Only a Strong Towns approach, where the underlying financial disparities are corrected through an improved use of the urban space, can solve their long-term financial shortfalls. 

(As a final note, in reading through some of the documents produced by Boca Raton, I am impressed with their overall approach and a little puzzled as this annexation move seems inconsistent with their overall prudence. For example, in their recent financial presentation, the staff recommends such sound strategies as "continue emphasis on efficient use of existing resources" and "be very selective about service additions". This may just be happy-thoughts they have sprinkled throughout their work to sound intelligent, but hopefully not. We wish those in Boca Raton the best of luck and, if I've overlooked something unique to Florida, where I know they have exactions, please let me and our readers here at STB know what it is.)


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