Denver's Urban Neighborhoods Subsidize Its Suburban Ones


Editor’s Note: Many of you found Strong Towns through our articles on the fiscal unsustainability of the prevailing American development pattern. A central theme of our work for ten years has been the observation that many of the places we’ve built aren’t making us wealthier over time. Rather, they are failing to even generate enough wealth to pay for the long-term maintenance of their own infrastructure. Put another way: the more of this stuff we build, the poorer we get. And it’s not hard to demonstrate this with a bit of data savvy. (For a beginner’s guide to tax-value-per-acre analysis, go here.)

Which is why we love to see advocates around the country #DoingTheMath in their own communities, sometimes in very creative and compelling ways. Logan Meyer, a mechanical engineer, lives in Denver’s Capitol Hill neighborhood and owns a historic triplex. He runs the blog Strong Denver, and he drew our attention to this analysis he conducted, which showcases which Denver neighborhoods have enough concentrated wealth and activity to pay their fair share for public infrastructure, and which ones don’t. The original post has been abridged and edited for a national audience. –Strong Towns staff.


Denver, like most American cities, has a lot of infrastructure debt that future generations, and urban dwellers in particular, are going to get stuck with the bill for maintaining and paying off. Perhaps more surprising, though, is just how many seemingly-wealthy suburban neighborhoods aren’t capable of covering the cost of their own infrastructure.

By far, the largest portion of a Denverite’s taxes goes to infrastructure (34%), and in an America that is addicted to traveling by cars and to the single family homes that require them, who is actually paying for these roads, sewer pumps, water lines, parking garages, storm water systems, parks, libraries, firehouses, and sidewalks extending into far-flung suburban neighborhoods?

While the costs for all of these pieces of infrastructure are relatively constant (a mile of road costs the same in one corner of the city as it does in another), the property tax is directly proportional to value. This property tax (20% of Denver’s revenue) combined with sales tax spent in Denver (34% of revenue), “Charges for Services” (20% of revenue), Operating Grants (9%), and Lodging Tax (5% – a 10.75% tax on AirBnBs and hotels) make up the lion’s share of Denver’s revenue (88%).

 

https://www.denvergov.org/content/denvergov/en/transparent-denver/revenue.html#

 

So with all this income, where is it getting spent? Thanks to Denver’s neat Tax Receipt Tool, we can see a breakdown of where our taxes are going. Denver uses an example of $56,258 for household income, with a $400,000 house and the tax receipt looks like this:

 
Click to view larger.  https://www.denvergov.org/content/denvergov/en/denver-department-of-finance/financial-reports/city-budget.html

Click to view larger. https://www.denvergov.org/content/denvergov/en/denver-department-of-finance/financial-reports/city-budget.html

 

As you can see, Infrastructure (also known as “Capital Projects”) makes up 34% of the spending and is composed of all of the roads bridges, and public facilities that makes living in Denver so great. This leads to the first realization: Property taxes alone don’t cover the cost of the infrastructure to access, service and enrich Denver’s properties. With infrastructure making up 34% of Denver’s expenditures and property tax only making up 20% of the income of Denver’s budget, Sales tax receipts and “Charges for Services” largely cover the 14% discrepancy between the expenditure and revenue. Ultimately, 41% of the Capital Projects budget comes from sources other than property taxes.

Takeaway #1: 41% of Denver’s infrastructure costs to access, service, and enrich residents are paid by a source other than property taxes.

We did a deep dive into Denver’s data sets to figure out which neighborhoods are contributing more or less toward the cost of infrastructure. Let’s start with the disparity in property value per square foot across neighborhoods:

 

Property tax paid per square foot by neighborhood. See here and here for zoomed in neighborhood detail…

 

Denver’s average paid tax is $0.62 per square foot of land. This is roughly the average value per square foot of the Sloan’s Lake neighborhood (pictured). That means that in addition to property owners overall having their infrastructure subsidized by other revenue streams, residents in neighborhoods with less concentrated value than the Sloan’s Lake neighborhood are additionally being subsidized by residents in more productive (typically more dense) neighborhoods.

Many of Denver’s largest neighborhoods (by number of housing units) tend to be overwhelmingly single unit. 56.1% of units and 86.2% of land is for single family housing in Denver.

Takeaway #2: Property that pays less than $0.62 of property tax per sq. ft. land is being offset by property that pays more than $0.62 per sq. ft. land. The more productive neighborhoods are typically closer to downtown, and have residents that are typically younger and more likely to rent, according to Denver’s last census and datasets.

Let’s add another factor. Infrastructure costs are not the same for every property or neighborhood. Larger land areas require more road and sewer infrastructure to serve. If we approximate infrastructure costs by land area, the 34% of the city’s budget that goes to infrastructure comes to $1.0254 of spending per square foot of land. (Also verified by 3.32 B total expenditures * 34% infrastructure / 1.07B sq. ft. of property.)

So what if Denver charged homeowners for the actual cost of infrastructure to access and service their homes? The result would look something like this:

 

Click to view larger. Neighborhoods above the break even line generate enough tax to pay for their true cost of infrastructure. Neighborhoods below the break even line create annual infrastructure liabilities for the City of Denver, despite their property taxes.

 

Here are zoomed-in views of the left and right halves of the above graph.

Overall, older and more dense neighborhoods closer to downtown tend to be more able to pay for their own true cost of infrastructure. Suburban-style neighborhoods that tend to not pay for themselves are those with low property value per square foot—which doesn’t always mean low property value, period. Notable among the least solvent neighborhoods are some relatively well-to-do ones including Virginia Village, Green Valley, and University Hills. This is in line with emerging national awareness of these problems as described by Chuck Marohn of Strong Towns.

The above values, while only as accurate as Denver’s public data sets, represent the annual cost or benefit of the neighborhoods in regards to paying for their infrastructure. And yes, the most egregious offender on this list is Montbello, a large neighborhood of suburban-style homes, creating a $44.3 million infrastructure liability each year, followed by Virginia Village creating a $20.7 million infrastructure liability each year. This is in contrast to Denver’s downtown neighborhoods: the CBD (downtown) more than paid for its infrastructure along with a $4.3 million surplus, followed closely by LODO creating a $3.9 million surplus.

Takeaway #3: Property owners paying less than $1.054 of property tax per sq. ft. land are not paying their proportional share of Denver’s infrastructure costs. The shortfall is being covered by more productive neighborhoods, and by revenue streams other than property taxes.

(Cover photo by Kent Kanouse via Flickr. Denver’s Five Points neighborhood.)