This isn't an annexation. It's a bailout.

This story is not unique: a mid-sized Midwestern town (Mankato, MN) is preparing to adopt a 50-year-old neighborhood (South View Heights No. 2).

If you read between the lines, news of annexation often reads as a case study against low-density suburban development. This article from Mankato demonstrates (unintentionally) why these types of subdivisions can be so problematic. I recommend reading the whole article here.

South View Heights No. 2 is not part of the city while everything surrounding it is. The 1960s subdivision has been leapfrogged by other development over the years, but has rejected opportunities to join city services in exchange for lower taxes.

South View Heights No. 2, Mankato, MN 56001

South View Heights No. 2, Mankato, MN 56001

These are homes befitting the American Dream of the 1960s. The neighborhood has nice, modest homes and is surrounded by creeks and ravines. Nothing fancy, but residents genuinely care for their houses and take good care.

For the area, these are above average homes that range in value from around $170k to $290k. The median home price is approximately $213k, which is around $40k above the local average (thanks Zillow).

After the city adopts this neighborhood, the average house will pay around $2,800 per year in taxes (up from the current $2,000). Keep these numbers in mind and ask yourself, "Will the extra $800 in extra city taxes help cover the true long-term costs?"

Water. Sewer. Roads. All in disrepair.

50 years has passed, and as the newspaper accurately puts it

The new addition to Mankato's family of neighborhoods is handsome enough, but it's showing its age. "The water tower, obviously, is broken, and (roughly 85 percent of) the septic systems are non-compliant," said Grant Moody of 15 Capri Drive. "And we have a failing water line. And the road is shot."

This is the end of the first life-cycle of infrastructure, and this hamlet of 61 homes is unable to tax itself the necessary amount of money to fix the things that need repair. Homeowners petitioned the city to consider annexation. This move would hook the neighborhood up to city water and sewer lines and help fix the street. The City estimates the cost of a hook up at around $2.66 million (approximately $40k per household):

A recently completed feasibility report put the preliminary assessment against each property at $29,298 — which is down from earlier estimates that approached $40,000. (Most residents also will face several thousand dollars in costs for utility connections from their home to the city lines.)

We can thank a well-intentioned State of Minnesota grant that would offset $700k by eliminating the potentially polluting septic systems. Yet, the residents are still saying that they'd like the city to subsidize more of the costs currently supported by assessments: "We need to be annexed — we want to be annexed," [a homeowner] said. "But we're asking for more assistance."

In other words, the tax base necessary in this well-to-do neighborhood to support basic infrastructure just isn't there. Here's the problem:  All the land and homes annexed by the city will get a quick infusion of cash. But, this isn't going to change the fact that in 25 years the maintenance obligations for this development will still be there, and will still be a net loss.

Neighborhood residents' tax bills will increase after annexation, from around $2,000 to about $2,800 each. Does anyone think that extra $800 is going to help pay for the long-term obligations?

Let's run some quick (admittedly) rough numbers:

  • $800 extra in city taxes annually x 61 homes = $48,800

  • Multiplied by 50 years of infrastructure life = $2.44 million

Notice that $2.44 million is less than the $2.66 million infrastructure repair cost. Meaning, if all the additional tax revenue collected was put in an infrastructure bank for 50 years (and not a single dime went to any city services), the total still wouldn't cover the infrastructure. Kudos to Alex Cecchini for more analysis on these numbers.

Few seem to do the math to determine whether or not these transactions make sense. The City needs to do long-term financial analysis of the annexation, not just a cost estimate.

This isn't an annexation. It's a bailout.

The question that is lurking over this conversation is, "If not annex, then what?" For starters, we need to limit this type of development in the first place. Second, there isn't a good answer. Not allowing them to hookup to city infrastructure will cause financial heartache, but hooking them up will do the same. This a tough decision that will need to be made.

While decisions shouldn't be motivated by this factor, an element of justice looms over many of these annexations. To quote a contributor of, "It comes back to the same essential principle: the city is being forced to pay for the destructive decisions of a group of people who wanted nothing to do with the city when they were on top, and now come begging for a handout when their poor choices come back at them."

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