How To Ensure the Projects Your City Says “Yes” to Set It Up for Long-Term Prosperity
(Source: pexels/Olia Danilevich, with edits.)
For a local government to do its job well, it must be financially solvent. For a local government to be financially solvent, its revenue from taxes and utilities must be higher than the expenses to maintain its liabilities. For cities to function properly, running a profit and remaining financially solvent is essential. When a city is profitable, proficient, and prudent, it’s well on its way to enduring, which is a city’s primary goal.
An insolvent city doesn’t cease to exist. It will linger on, performing its functions poorly and failing to serve the people it governs. If we want to make wise decisions that put us on the path toward financial solvency, we have to start by doing the math and considering the long-term implications of the decisions we make today.
So, what can we do to ensure that the projects we say “yes” to put us on a path toward financial solvency in the future?
Is This a Good Project?
Not all projects that make a community money are good, and not all that cost more than they produce in wealth are bad.
What is most important is having an approval process that is not just transparent, but reflective of reality. Local accounting must reflect reality, not in an obscure, fine-print kind of way, but in a way that helps communities make good decisions.
Let’s explore the two questions that can be valuable filters for public officials, decision-makers, technical professionals, and others in the community to consider the benefits and drawbacks of any project so they can say “yes” to the ones that pave the way toward financial solvency.
Filter #1: Does the project improve the community’s balance sheet?
Most projects will cost the community some money. This includes money for infrastructure maintenance, police and fire protection, and facilities like parks and libraries. Before starting a project, a community must ask: Does the project create greater community wealth than the long-term costs and obligations it imposes?
To answer this question, we can use the mimic approach or the do-the-math approach.
The Mimic Approach
The mimic approach requires the city to have an understanding of what is already working. This may be a community-specific productivity analysis, or it may be a reliance on data from similar communities. Either way, if you choose the mimic approach, you are being asked to make a finding that the project being considered mimics another successful approach:
Does the proposed project mimic a pattern of development shown to be financially productive?
Does the project represent the next increment of development intensity for the site?
Does the project limit downside risk for the community?
If you can answer “yes” to those three questions, get going!
When we talk about streamlining approval processes for small developers and others doing incremental work, this is what it looks like. Let’s not get in the way of people ready to build wealth within the community.
If the project is more complicated than mimicking productive patterns, that’s okay. It might just take a touch more work to pass the filter. That is when we switch to a do-the-math approach.
The Do-the-Math Approach
The do-the-math approach offers two different ways to get to “yes” and gives a degree of flexibility to project approval while also ensuring the community is taking care of its financial health.
Doing the math can be as simple as answering “The Density Question”: Does the project create $30 in private wealth for every $1 in new public infrastructure liability?
If the answer is “yes,” then you’ve met the financial threshold and can say with confidence that the project improves the community’s balance sheet.
Filter #2: Does the project justify raising taxes on the entire community?
If a project costs more over the long term than it creates in wealth for the community, that does not necessarily make it a bad project. There are projects, like a new park or library, that the community values so much that they will support them through increased taxation.
Is the project critical, important, or so unique that it justifies raising taxes on the entire community to support it?
This question—even without specific numbers—is important to ask. Most bad projects aren’t worth any tax increase, so this will be an easy question to answer.
If the answer to the question is “no,” then deny the project. If the community is going to lose money and the project is not worth raising taxes on everyone, then why would you ever do it?
If the answer is “yes,” that’s great, too. You have a worthy project, one that the people of the community support.
Before you move from this second filter, take a moment to evaluate the project and see if you can improve or mitigate the financial impact on the community by answering these questions:
Are there ways to design the project to make it more adaptable, so that it has multiple future uses beyond the use currently being considered?
What can be done as part of the project to increase the measured value of properties directly adjacent to the project?
What can be done as part of the project to increase the measured value of properties within 2,500 feet of the boundaries of the project?
Are there ways to design the project to reduce or eliminate the community’s long-term financial commitment to the project?
Financial solvency starts with wise decisions today. The more questions we ask of new projects and the more we consider the financial implications before we begin, the better.
What It Looks Like To Do the Math
Let’s look at Lake County, Florida (one of our 2023 Community Action Lab communities), as an example. The left diagram is a heat map representing the value per acre of property tax, specifically actual ad valorem tax, collected on each parcel in Lake County. These are the long-term revenues collected to fulfill all municipal obligations. In this diagram, the green areas have the lowest value per acre, while the orange and red areas have the highest value per acre.
In other words, the red and orange areas of the map are the most productive areas in Lake County.
The right diagram shows areas of growth in Lake County. Growth that occurs farther away from developed areas requires new infrastructure. For these new developments to support themselves, the revenue they generate must be higher than the costs required to maintain them.
As we can see from assessing these diagrams side by side, there is very little correlation between the developed areas in pink and the productive areas shown in orange and red.
In fact, the pink areas developed between 2007 and 2017 that include new infrastructure liabilities are indistinguishable from the productivity of surrounding farm and agricultural land, which has little to no infrastructure liabilities.
This analysis illustrates that new development is generating the same rate of return for Lake County through property tax as the vacant farmland and orange groves these developments replaced. The only difference is that every new development, with its new infrastructure, is more expensive to maintain.
When we do the math on our current approach to development, we discover it isn’t profitable and doesn’t improve the balance sheet.
This story came out of one of our Community Action Lab communities. Learn how to accelerate transformation in your city or town in our upcoming informational webinar.
Lindsey Beckworth is the Curriculum Writer at Strong Towns. Lindsey fell in love with community activism during the eight years she owned a bakery in a small town with big potential in rural Georgia. As a passionate storyteller, she uses her journalism and copywriting experience to help Community Action Lab participants understand how they can apply Strong Towns principles, change the narrative in their communities, and create a prosperous future for the places they love. Lindsey lives in Greenville, South Carolina, with her husband, Chris, and an ever-growing garden filled with dahlias and peonies.