Eeeeee! We’re Not Growing Fast Enough!

Here’s a novel predicament: Virginia Beach city council members are worried because they’re experiencing too little residential growth.

Reports Dierdre Fernandes with the Virginian-Pilot: “When City Council members approved increased development in the Princess Anne area, they assumed that hundreds of high-cost homes would quickly replace the woods and soybean fields and help pay for much-needed road improvements.”

That hasn’t happened.

In 2003, the City Council approved up to 3,000 homes for the transition area, 9,600 acres between the suburban north and rural south.

In the past four years, the council has allowed for 1,376 potential homes. But by the month’s end, 50 are expected to have been sold. That’s far less than the 700 homes Beach officials projected would be generating tax money by this point. …

The transition area funding plan had called for a portion of real estate revenue from projects … to be set aside for road projects in Princess Anne. A city analysis showed that the overall development in the transition area could pay for itself and create a $187 million surplus in tax revenue.

Residential development a good thing? Virginia Beach must be using a different econometric model from the localities in Northern Virginia. Somebody needs to revisit some core assumptions guiding their growth-management policies.

(Hat tip to reader Steve Horton for this story.)

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13 responses to “Eeeeee! We’re Not Growing Fast Enough!”

  1. Reid Greenmun Avatar
    Reid Greenmun

    If your City Manager is addicted to endless 8% to 10% annual increases in his $1.7B city budget, without adding any new $700,000 to $850,000 homes to the property tax rolls, his ponzi scheme of massive bond debt to fund nice-to-have “amenities” (such as a $209M Convention Center and $40M Performing Arts Theater) causes the whole house of cards to fall.

  2. Larry Gross Avatar
    Larry Gross

    “…and soybean fields and help pay for much-needed road improvements.”

    what are they smoking in Va Beach?

    ALL THIS DISCUSSION in BR.. all the ever escalating proffers, VDOT devolving itself of local roads, the GA pushing localities to adopt urban planning districts that would then allow them to use traffic impact fees… HOV, congestion pricing, etc, etc

    ALL of this… and Va Beach thinks that more residential housing is THE CURE to having enough transportation infrastructure.

    Now I understand why the folks in HR/TW fear their own MPO… and the Transportation Authority !!!

    and the folks in Va Beach… the ones who elected the guys who hired the City Manager.. what do they think? has the idea of throwing bums out of office surfaced?

  3. Ray Hyde Avatar
    Ray Hyde

    “and help pay for much-needed road improvements.”

    “A city analysis showed that the overall development in the transition area could pay for itself and create a $187 million surplus in tax revenue.”

    Interesting that VA Beach has one take on this, an many other groups seem to have another.

    It reminds me of Bertrand Russel’s comment on religions: “At most, one of them is correect.”

    I have stated many times that the usual formula for “proving” that residential development does not pay is probably incorrect. That is not to say that sprawl is good, but it may not be the end of the world, or the epitome of greed, either.

    The problem here seems to be, not that they approved more homes, but that they spent the money before they had it.

  4. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    “Life can get expensive in Norfolk for those just out of college,” Forbes said in ranking it 34th out of 40 cities. “Salary levels are among the lowest of the cities we measured, and costs aren’t cheap enough to act as a counter-balance.”

    That pretty much says it all.

  5. Larry Gross Avatar
    Larry Gross

    ” have stated many times that the usual formula for “proving” that residential development does not pay is probably incorrect.”

    then .. all of this stuff about proffers and VDOT turning over local roads and the GA granting road impact fees.. is … bogus?

    Do you think we’ve built too many roads and still have money left over because we charged too much for roads?

    All this congestion.. is a nefarious scheme where money collected for roads has been squirreled away or spent for other purposes?

    how do you reconcile your statement with the facts?

  6. Henry Ryto Avatar
    Henry Ryto

    With only homes $450,000 and above, Transition Area development was supposed to pay for itself. The entire hair-brained scheme is falling apart. Too bad Jim Reeve (father of the Transition Area plan) still isn’t on City Council to take the heat.

  7. Larry Gross Avatar
    Larry Gross

    As far as I know – and folks can correct me if I’m wrong…

    most of the proffer schedules by localities do not include very much for transportation infrastructure and that is because the “theory” was always that the locality would do “land-use” and VDOT would build whatever infrastructure was needed to deal with the growth.

    Ditto with property taxes. As far as I know.. very few counties in Va have a substantial transportation component in their property taxes. Maybe Va Beach is different.

    One mile of rural road can cost several million dollars and if it is arterial then 10-20 million or more per mile – yet the average person pays on the order of $300 a year in Virginia gasoline taxes.

    A locality of say 100,000 people would generate about 30 million a year BEFORE .. VDOT takes their cut.

    The numbers don’t add up.

    Any locality that tells it’s citizens that residential growth – high dollar or otherwise is the way to generate money for transportation is either a fool or thinks it’s citizens are fools.

    That argument – died 20 years ago in the Fredericksburg Area although I admit that for a number of years it was cited by local officials as the reason why it was “okay” to rezone land.

  8. Ray Hyde Avatar
    Ray Hyde

    “The American
    Farmland Trust (AFT) developed the COCS method and has conducted a series of studies across
    the nation over the past few decades. Many of the early studies were either conducted or
    sponsored by the AFT, but in more recent years, a number of studies have emerged that were
    conducted by local governments and other researchers.”

    “COCS studies typically show that for residential land, the cost of service ratio is greater
    than one. In examining a series of recent COCS ratios illustrated in the table below, you see that the average costs in these studies range from about $1.02 to $1.64 for residential development
    for every dollar of revenue generated.”

    Critics of the COCS methods point out the many assumptions underlying. For example the residential category frequently houses those that live or work in the commercial or agricultural categories, so the true costs of the housing category is overstated and the true costs of commercial and ag are undestated. Likewise commercial and ag are assigned none of the roadways costs, thus understating their true costs.

    “Despite widespread interpretation of COCS ratios, these ratios do not measure the costsof development, nor do they suggest that any one type of land use is better or worse than another.They also do not suggest that a town should follow a particular growth strategy. They simplyprovide the community with a baseline of information about the fiscal affects of different types of land use.

    Furthermore, these results are not predictive and should not be used to predict the impact of future developments, as they represent revenue-cost ratios for 2003 only.

    These ratios are meant to prompt discussion within communities on the role of different land use types in theplanning process and most importantly, to demonstrate the value of having a diverse tax base.A balance of land use types is necessary for the long-term health of any community as these ratios show how different land use types subsidize others.”

    emphasis mine

    Mary Edwards, Department of Urban and Regional Planning, University of Illinois, Urbana-Champaign.

    The COCS studies have been so widely publicized ( by a special interest with a dog in the fight), that they are widely accepted as a truism. They have achieved the status of urban legend.

    But they are no necessarily completely true, and to the extent that they are correct, they may merely point out inequities in taxation rather than the value of one type of development over another.

    Put it this way. Suppose I coule prove beyond a shadow of a doubt that residential growth more than paid for itself by a factor of two.

    First, you would say that such statistics were fantastic, and beyond belief, yet we accept just such numbers from AFT.

    But say I had the numbers cold, beyond any doubt. Would anyone here then turn around and embrace more development as a means to lower taxes?

    I didn’t think so.

  9. Larry Gross Avatar
    Larry Gross

    all the AFT numbers purport to show is that undeveloped land uses less costly services and infrastructure than developed land.

    Let’s stipulate for the sake of argument that AFT numbers are not relevant to the issue.

    This does not change the fact that developed land requires infrastructure and services and undeveloped land does not.

    Vacant fields don’t need water and sewer lines. They don’t need schools or fire stations or libaries. They don’t need roads and traffic signals.

    and yet .. we’re going to argue that:

    1. – that it’s not proveable that vacant fields cost less than developed land ?

    2. – that developed land truly does pay for itself through property taxes and so it’s wrong to charge for infrastructure..

    If this were actually true – the developers would be in court tommorrow challenging the proffer system – and successfully I might add but we all now that most localities can prove quite easily those costs that they base their proffers on.

  10. Tyler Craddock Avatar
    Tyler Craddock

    Actually, you can use the localities’ proffer methodology to make the point at which Ray is driving.

    In most cases, the proffer methodology involves an assessment of the average gross capital cost of providing services to a residential unit as reflected by either a) an actual bricks-and-mortar cost OR b) each unit’s pro-rata share of the locality’s CIP. From that, credits are applied for the average unit’s future contribution to debt service through real estate taxes (usually based on the proportion of real estate tax revenue that goes to debt service). Then, it is simply gross minus net for the proffer amount.

    OK, here’s where it gets interesting. Most localities only credit the new home for 15-20 years of revenue. Why? Well, if you credit 40 or 50 years, which seems realistic, then the resulting number is a positive integer and that is not what the politicians are seeking.

  11. Ray Hyde Avatar
    Ray Hyde

    Thank you, Tyler.

    I’m glad to see someone is listening. I don’t have a problem with proffers, but I do think they are overboard, confiscatory even. Even if you took thirty years you would have a number that people could live with, rather than one that creates housing shortages and artificially high prices.

    I don’t know what the right number is, and don’t claim to. If Larry wants to argue with the PhD’s, I have a lot more references.

    Sure, vacant land costs less for the government to service. But what does it generate? The profit on an acre of soybeans is less than 25 dollars. Fauquier County has a lot more vacant land that Loudoun County, but the per capita net wealth and per capita income is much lower. If you look counties that are really rural as opposed to faux rural, the differences are stark.

    Lets face it: Fauquier county is to agriculture as Nantucket is to whaling.

    It isn’t an issue of whether vacant fields cost less. It is a matter of the ratio of costs incurred vs wealth supported. Government’s job is to help the people AND conserve resources.

    If it is true that developed land pays for itself through taxes, then aren’t we already charging for infrastructure?

    Isn’t the problem partly that we spent the money on other stuff? Isn’t part of the problem that we failed to increase the charges as fast as inflation?

    Most localities can prove quite easily those costs that they base their proffers on, because they only have to prove them in their own courts. You cannot get to state or federal court until your case is “ripe”: meaning that you have exhausted all administrative options. That means all adminsitrative options for every conceivable land use, and most people won’t live that long.

    Going to court over land use is the biggest catch 22 there is: you can;t get there, and if you do, then you will wish you hadn’t.

    Federal courts are loathe to interfere in local issues. If you rwead the chapters in “Economics of Land Use” by Fishel on this topic, you will want to throw up.

  12. Larry Gross Avatar
    Larry Gross

    re: longer term financing of infrastructure as opposed to collecting the money “up front”.

    A new school cannot be deferred and it also normally cannot be financed for more than 30 years and that assumes that the locality has adequate credit and cash flows to pay the loan back.

    At about 10K per new school seat –
    …if we follow TC’ and Ray’s logic – in high growth areas, you’d have raise the property taxes everytime a new school is built.

    What would be the likely outcome of a county attempting to do business that way?

    Why don’t we do water/sewer that way?

    Why don’t we provide water/sewer hookups as county-provided and paid for by existing property taxes?

    If the proffer approach is so wrong – then why can the developers with their superior lobby influence in the GA – have proffers outlawed?

    Forget the courts – just appeal to the elected GA for relief.

    The answer is right smack in front of you. If you put localities in this situation – they will have no choice but to take all legal actions to shut down growth which would include more downzonings and routine denial of rezones.

    I think we SHOULD have the DIALOGUE but as per my usual – let’s avoid the disengenuous and deal with the realities.

    oh .. and don’t forget – you do have a question on your plate –

    why don’t we do water/sewer as county-provided via property taxes?

    and then.. let’s talk about schools and roads… using a similar logic…

  13. Larry Gross Avatar
    Larry Gross

    I assume folks have seen this:

    “The Prince William County Board of Supervisors plans to impose the impact fees on 50,000 houses that have been approved for construction but not yet built. The fees would average $38,000 per each of the 50,000 houses.”

    The article alludes to the probability of a lawsuit .. HA HA HA!!!

    but .. it will be interesting to see how PW justifies the money and especially so in PW’s case because they use LOSS – Level of Service Standards for their roads which means that they require full mitigation rather than allowing degradation to lower LOS levels.

    what this means – in part – is that roads can either be widened or intersections grade-separated – either path.. not cheap.

    So, if they can tie the cost of new homes to the cost of maintaining the LOS of the roads that serve them – it could get interesting…

    and I’d love to see the developers put in the position of arguing that growth requires acceptance of lower LOS… for infrastructure and services.

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