How Planners Can Rescue Virginia from the Fiscal Abyss

This is a copy of a speech that I presented to the Virginia Chapter of the American Planners Association Monday, with extemporaneous amendments and digressions deleted. — JAB

Thank you very much, it’s a pleasure to be here. Urban planning is a fascinating discipline. As my old friend Ed Risse likes to say, urban planning isn’t rocket science – it’s much more complex. Planners synthesize a wide variety of variables that interact in unpredictable, even chaotic, ways. In my estimation, you don’t get nearly enough respect and appreciation for what you do

OK, enough with the flattery. Let’s get down to business.

toastThis is you. You’re toast. Unless you change the way you do things, you and the local governments across Virginia you represent are totally cooked. … Here’s what I’m going to do today. I’m going to tell you why you’re toast. And then I’m going to tell you how to dig your government out of the fiscal abyss, earning you the love and admiration of your fellow citizens.

Why You’re Toast

old_people2Here’s the first reason you’re in trouble — old people. Or, more precisely, retired government old people. Virginia can’t seem to catch up to its pension obligations. The state says the Virginia Retirement System is on schedule to be fully funded by 2018-2020. But the state’s defines 80% funded as “fully funded,” which leaves a lot of wiggle room. The VRS also assumes that it can generate 7%-per-year annual returns on its $66 billion portfolio. For each 1% it falls short of that assumption, state and local government must make up the difference with $660 million. As long as the Federal Reserve Board pursues a near-zero interest rate policy, depressing investment returns everywhere, that will be exceedingly difficult. A lot of very smart people think 5% or 6% returns are more realistic. In all probability, pension obligations will continue to be a long-term burden on localities.

potholesSecond, the infrastructure Ponzi scheme — that’s Chuck Marohn’s coinage, not mine — is catching up with us. For decades, state and local government built roads and infrastructure, typically with federal assistance, proffers or impact fees with no thought to full life-cycle costs. State and local governments have assumed responsibility for maintaining and replacing this infrastructure. Well, the life cycle done cycled, and the bill is coming due. We’re finding that we built more infrastructure than we can afford to maintain at current tax rates, leaving very little for new construction.

accotinkThird, after years of delay, serious storm water regulations are kicking in. Local governments bear responsibility for fixing broken rivers and streams like Accotink Creek, showed here. (Yeah, that’s a creek. It’s having a bad day.) Best guess: These regs will cost Virginia another $15 billion. But no one really knows. And it may just be the tip of the iceberg. I recently talked to Ellen Dunham-Jones, author of “Retrofitting Suburbia,” and she noted that a lot of the storm water infrastructure that developers built in the ‘50s and ‘60s is crumbling. The developers are long gone. Someone’s going to have to fix that, too. Guess who?

property_taxMeanwhile, the largest source of discretionary local tax dollars – real estate property tax revenues – is stagnating. According to the Demand Institute, residential real estate prices in Virginia will increase only 7% through 2018 – the third worst performance of any state in the nation. Don’t count on magically rising property tax revenues to bail you out.

In fact, the tax situation is worse than it looks. Demand for commercial real estate is dismal, too. Consider what’s happening to the retail sector. We’re going from this…

shopping_centerTo this..


Every distribution center represents dozens if not hundreds of chain stores closing. It means more vacant store fronts, more deserted malls, less new retail development.

empty_officeDon’t look for help from new office space. Due to the rise of the mobile workforce, 50% of the desks, cubicles and offices in commercial buildings are vacant at any given time. Corporate America can – and will – save billions by downsizing their office portfolios. I recently heard one Washington, D.C., official refer to it as the “compression” of office space. He predicted that businesses will get by with 20% less space. As leases roll over, millions of square feet of office space will dump onto the market. Commercial real estate property values will stay depressed.

future_factoryFinally, you’re dreaming if you think industrial recruitment will bail you out. There may be a manufacturing renaissance in America but most of the investment is going to increasing productivity of existing plants rather than building new plants. Other than industries that feed off cheap and abundant natural gas – mostly along the Gulf Coast — the U.S. will see fewer greenfield plant expansions than in years past. … Admittedly, no sooner had I written these words in my rough draft then a Chinese paper company announced a $2 billion investment in Chesterfield County. OK, Chesterfield won the mega-million jackpot. Congratulations, Chesterfield! The rest of you won’t be so lucky.

screamThe bottom line is this: If we continue doing the same thing the same way, all is lost. The prosperity model that worked for Virginia in the 1960s, 70s, 80s and 90s is not working any more. If it’s any consolation, it’s not working anymore anywhere, not just Virginia.


budAn immense competitive advantage will go to those who reinvent themselves first. Fortunately, the early 21st century just might be the most exciting time ever to be involved in local government. Two broad strategies can make a huge difference if localities choose to adopt them… and the planning profession is positioned to play a pivotal role in making sure that they do.

Smart Cities

smart_citiesThe first strategy falls under the rubric of Smart Cities – the application of information technology and communications to deploy sensors, collect vast amounts of data, store it on the cloud, and analyze it for far less than anyone imagined was possible a few years ago. That data can be used to cut costs, guide decision making and engage the citizenry.


Some investments are no brainers and there is no excuse not to make them. Smart street lights can cut lighting costs by 50%. Smart pipes can reduce water leakage by 20%. Building automation in municipal buildings can generate energy savings of 30% to 40%. Admittedly, those are investments that the Public Works department should be pushing for. But other smart-cities investments will never be made unless planners make the case for them.


For example: Variable priced parking. Here’s a picture of Jay Primus, manager of SFPark in San Francisco, who I visited back in April. Using smart meters and adjusting prices to reflect localized supply and demand conditions allowed San Francisco to reduce average parking prices, ensure that parking spaces were almost always open, reduce the number of people cruising around looking for parking, and generally make the city a more hospitable place to do business. Interestingly, San Francisco regards smart parking as an economic development initiative. Virginia planners should be pushing for this tool.

Another example: Traffic management. The cost is dropping to equip traffic lights with sensors, link them to a central control facility, and change the smart_trafficlighting sequences dynamically in response to traffic conditions. This is not a cure-all for traffic congestion but it can delay the necessity for undertaking super-expensive ROW acquisitions and construction projects. Virginia planners should be agitating for this technology.

Smart Growth

smart_growthThe second big strategy falls under the rubric of smart growth, although you also could call it fiscally disciplined growth. The labels are unimportant. What matters is understanding the fiscal implications of different patterns of development. It is axiomatic that denser, more compact growth requires less supporting infrastructure than scattered, low-density growth. Undertaking fiscally disciplined growth won’t balance your budget tomorrow but it will pay huge dividends year after year, pretty much forever. Just look at Arlington County, which has stuck to the strategy for 40 years. Arlington has done such a superior job with its transportation and land use policies its supervisors can afford to indulge in such questionable niceties as million-dollar bus stops and $30 million natatoriums.

analyticsIn an era of chronic fiscal stress, roads, utilities, public facilities and otter infrastructure are major drivers of local government spending. Local government financial officers lack the analytical tools to guide growth decisions. But those tools are out there – planners need to use them.

per-acreJoe Minicozzi and Peter Katz conducted a famous study in Sarasota, Fla., comparing the real estate tax yield per acre of different types of development. The findings were mind-boggling: Mid-density, mixed-use development yielded 50 to 100 times the property tax per acre of a new Wal-Mart. At the same time, the cost of providing infrastructure for compact development can be cheaper per acre. Compared to conventional suburban development, according to Smart Growth America, fiscally efficient development can save 38% in up-front infrastructure costs and 10% of the cost of supporting police, ambulance, fire and other public services.

Image credit: Urban3
Image credit: Urban3

Sarasota was not a fluke. The slide above comes from Joe Minicozzi who has compiled these numbers from a sample of 21 jurisdictions. Mixed-use development yields 20 to 40 times more revenue per acre than Walmarts and shopping malls, and 400 times that of low-density single-family dwellings. Higher revenues per acre, lower costs per acre – you can’t beat that combination. The single most important thing you can do to survive hard fiscal times is to promote in-fill and re-development at higher density than existing land uses and maximize utilization of the infrastructure already on the ground.

Now, let’s talk about the second most important thing you can do. Tattoo this on your forehead so you can see it every day when you look in the mirror:


interchangeTo pick an obvious example, highway interchanges like this one in Fredericksburg create economic value in nearby land, as measured by real estate property assessments.


Metro stations like this one in Arlington create economic value.




parkParks, even small ones like this one in Richmond, create economic value.




bike_lanesBike lanes create economic value.




(Click for larger image)
(Click for larger image)

Walkable, bikable, people-friendly “complete streets” create incredible economic value. People are willing to pay incredible premiums to live, work in play in places like this, as opposed to…



(Click to enlarge image)
(Click to enlarge image)

Places like this…

Stroads like this one destroy economic value. Stroads are street-road hybrids. They do a worse job than roads of moving cars and they do a worse job than streets of creating places where people like to live, work and shop. Most stroads in Virginia can be found along old state and national highways. They arose as businesses began using them as de-facto main streets and local governments failed to limit access and protect their integrity as highways. They are neither walkable nor drivable, and they will take billions of dollars to fix. Sadly, this pattern of wealth destruction is endemic across Virginia. By permitting this stuff, we are running our communities into the ground. A number of counties have created ambitious plans to “revitalize” old, decaying segments of these corridors but I can promise you, unless you convert them into people-friendly streets, you are totally wasting your time.

pigPutting a tutu on a pig does not make him a ballerina.



Toward a New Fiscal Analytics

This question is fundamental: Are zoning codes and capital investment plans in your city or county creating taxable wealth or destroying it? There’s a key metric that every planner needs to know about their jurisdiction — total assessed value of real property. Do you know how the total assessed value of your jurisdiction? A senior planner not knowing the answer to that question is like a Chief Financial Officer of a corporation being unable to tell you how much revenue his company generates. How can he possibly do his job?

(Click for larger image)
(Click for larger image)

I pulled the numbers for Henrico County where I live. The number was about $32 billion in 2012. Admittedly, this is a crude measure. Total assessed value is influenced by things out of your control like interest rates, housing trends and economic conditions. But it is still a useful proxy for how good a job you’re doing at running your city or county. If you pursue policies that create wealth, homeowners and businesses will invest more in maintaining their properties, and new enterprises will expand, and property values will rise. If you create places that people shun, your property values will decline.

(Click for larger image)
(Click for larger image)

Let’s take a closer look. It’s possible to display assessed property values graphically in ways that convey an awful lot of information. This map from Joe Minicozzi shows Orange County, N.C. The spikes represent taxable real estate value per acre. Look at the difference between Chapel Hill, Carrboro and Hillsboro. Sure, Chapel Hill has a big advantage over the other two because the University of North Carolina sits right in the middle. But the town also has permitted development at higher densities that throw off lots of tax revenue without a lot of offsetting liabilities. Do you know where the spikes are in your city or county? Can you tell if any given property is a net contributor or drain on the tax base? Do you know where property values are increasing in your jurisdiction and where they are declining? Can you predict the impact – pro or con – of public investments on the local tax base?

Cities and counties have finite resources to invest in public projects. You don’t have the luxury of throwing money away. It is imperative that you analyze the fiscal return on investment – how a capital expenditure will impact the assessed value of real estate and the revenue it throws off vs. the expense you will incur to maintain infrastructure on a full life-cycle basis. Without this data, you cannot possibly make informed decisions.

stadiumPerhaps you’re familiar with the minor league baseball stadium proposed for the Shockoe Bottom neighborhood of the City of Richmond. Mayor Dwight Jones wants to invest $80 million in public funds to build a stadium and parking deck, contribute towards a slavery museum, and install flood control infrastructure. He argues that the project will “pay for itself” by stimulating commercial and residential development around it. City Council is not convinced. Neither side can make a fully convincing case and the result is a stand-off in which nothing gets done. In all the hoopla, however, there is one question no one is asking – is this the best expenditure of $80 million that the city can come up with? When you spend $80 million on Project A, you cannot spend it on Project B. Can Richmond get more bang for its buck developing the riverfront? Or creating complete streets? Or building bike lanes? Or investing in Bus Rapid Transit? Or building a new stadium at the current site? We simply don’t know because the city has no methodology for comparing Return on Investment on different projects. We’re fumbling in the dark.

streetcarIn Arlington County, there’s a huge controversy over construction of a $360 million streetcar line on Columbia Pike. Supporters say the project will pay for itself by increasing property values and bolstering investment along Columbia Pike. Foes question that argument. People on both sides of the debate tend to believe whatever they want to believe and can’t be convinced otherwise. Maybe the street car line will pay its own way, I don’t know. But Arlington faces a bigger question that nobody seems to be asking: Is this really the best investment of finite tax dollars compared to alternatives, either a different mega-project or broken up as a lot of smaller projects? Would $360 million generate higher returns elsewhere? Arlington planners, as savvy as they are in many ways, cannot answer that question.

dawnLocal government finance departments aren’t set up to deal with these issues. Basically, they’re bean counters. Their job is to balance the budget. Public works departments can’t do this either – they’re engineers focused on cost. Someone in local government has to ask the higher-order questions that are, by their nature, inter-disciplinary in scope. You planners are best equipped to do this. If you don’t ask these questions, no one else will. If you do ask those questions, and if you develop the tools it takes to answer them, you will dominate the local government decision-making process. Remember, information is power. If you have the information, you will have the power. You will set the agenda. Everyone will look to you to dig local governments out of their fiscal holes. You can be the heroes. Go for it!

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20 responses to “How Planners Can Rescue Virginia from the Fiscal Abyss”

  1. larryg Avatar

    this is a bit of a confused article that mixes and matches different levels of governance and their respective fiscal issues although I do agree with the thought that govt, in general, tends to bean-count rather than be focused on innovation and thinking out of the box on services and their costs.

    and we continue the confusion over roads and who built them for what purposes and who uses them for what purposes.

    US-signed roads as well as Virginia Primary roads were not originally designed nor built for local use much less “stroads”. They were built for the same purposes of the Interstates – to enable people to travel from one place to another without having to navigate each cities internal streets. There were then and remain now – specific design standards to maintain them for that original purpose. VDOT has advised localities that if they want “local” city streets to build them – parallel to the access managed thoroughfare.. but leave the US signed road to continue to serve it’s original purpose – e.g. US 29 through Charlottesville and similar.

    VDOT actually prioritizes funding for UDAs – compact development – provided the localities actually require connectivity between parcels and connecting internal streets.

    Why people persist in insisting that the US-signed road is the only road that the locality can “use” rather that protecting and preserving that road while building parallel adjacent city-type streets – is beyond understanding.

    with that kind of logic – we’d turn the interstates into local roads also… as, in fact, you might notice when you’re travelling on interstates near cities – people get on at one exit and get off at the next – essentially using the interstate as a local road. VDOT and FHWA encourage localities to put C/D lanes adjacent to the interstates – for this reason because of the weaving that occurs when local traffic uses interstates.

    I’ll start a new comment for my other comments.

  2. larryg Avatar

    Localities and the State have to balance budgets although I’ll admit the way that pensions are funded have been loose but newer, stricter accounting standards are coming into play – and at least locally – schools are starting to understand – that the cost of teachers is not only their salaries but their health care and pensions and are choosing to let attrition downsize the total staffing.

    because of the requirement to balance their budget – localities will choose to stay within their budget by making cuts – that may even include degrading service standards or discontinuing services or charging for them or let the private sector do them.

    Local schools, for instance, have contracted out the food services and have effectively reduced employee staffing and benefit costs. Admittedly, the contractor does not provide the same salary and benefits.. which now are aligned to the private sector rather than school standards.

    I simply do not buy Jim Bacon’s gloom and doom vision for government – at the local level where most cities, towns, and counties in Va are run fairly fiscally conservatively… even if some of them go for street cars and expensive bus shelters. At the end of the day – the tax rate has a direct effect on property owners who, in turn, can – and do – remove from office those who spend more than taxpayers want to pay for.

    yes – there are “Detroit” examples… but there are thousands of cities, towns and counties in the US that are _not_ bankrupt nor even close to it – yet we continue to focus on the worst offenders and portray them as indicators of other cities similar troubles.

    I just don’t see it but I could be persuaded – for instance, if Jim would produce a list of the 10 most fiscally-stressed cities and counties in Va – of which also has a number of AAA and AA cities and counties.

    Don’t get me wrong – I’m not saying there are not problems – there are – especially with things like storm water which like combined storm sewers are expensive things that have to be dealt with but will inevitably be stretched out over time like the Chesapeake Bay cleanup effort.

    1. Larry, I never implied that Virginia localities face bankruptcy or a Detroit-style situation. What I stated quite clearly is that they face chronic fiscal stress — an inability to meet the existing demand for government services at current tax rates.

  3. larryg Avatar

    At the state level – finances are a bit more murky but Virginia tends to be a lean state except for higher education which basically amounts to a subsidy for parents/kids who want to attend college – at the same time we tend to underfund Career and Technical Centers and Community Colleges for the half to 2/3 of kids who need to become employed, tax-paying members of a workforce that is requiring increasing core academic knowledge and skills in a higher tech world.

    but the state has to balance it’s budget also and in general – most states are not in terrible fiscal condition… though there are some –

    the narrative here sometimes seems to be to point out the bad examples and claim that the rest are also headed that way – hell and damnation style…

    If that’s a real trend – then let’s see some data … that shows that the trendline actually is downhill … rather than just a gloom and doom, glass half-empty narrative.

    You can bet your bippy if Columbia Pike gets street cars at the same time other roads turn into cobble piles.. that people will notice .. and action will be taken!

  4. larryg Avatar

    Finally – at the Fed level – which is the most problematic in some respects because many people clearly feel that it is out of control fiscally and there is little way that voters can actually effect change other than vote for hard-line tea-party types who promise to not only de-fund but actually dismantle government.

    the Feds are ripe for cuts – but the problem is – like with health care and immigration and other things – we cannot seem to find a middle ground that a majority can get behind.

    Folks might remember – we USED to allow the interest on car loans to be claimed as an itemized deduction – but no more.

    but how on Gods Green Earth can we justify mortgage deductions – not just on basic homes but 3000 square foots homes, second homes, beach homes, RVs, etc – as well as the taxes on them?

    how many people could even itemize their deductions at all if they did not have a mortgage and real estate tax deduction?

    the question is – why do we do this – when the amount of income taxes lost are significant – and a large part of our current deficit?

    it would seem to be an obvious reform similar to reforms to subsidized flood insurance.

    which is more important ? letting people write off their home mortgage deductions for $400K homes and second homes or deficit reduction?

    we are the problem… not the elected.. it is US who really have gotten more and more into sound-bite blame games … for the deficit, i.e. – it’s the fault of “entitlements” – not ours mind you – but others. Protect my mortgage/reale state deduction but get those people off of welfare!

    1. Regarding the federal government, Larry says: “We cannot seem to find a middle ground that a majority can get behind.”

      That’s exactly what I’m trying to do here. Not once do I say that we need to cut, cut, cut. I accept the proposition that there are core services that state-local governments must provide. I accept the political reality that local elected officials are extremely reluctant to raise taxes. But right now, local governments are caught in a bind — either raise taxes or cut services. I say that’s a false choice. But we have to change the way we think about things if we want to avoid it.

      1. larryg Avatar

        but you’re sorting mixing up all 3 … local, state, and Federal… in my view and they are different.

        at the local level – what they do about finances in terms of balancing the budget is separate especially with regard to what they “might” do about future Smart Growth … they still have to pay the bills no matter what kind of settlement pattern they have now…

        and what you seem to be saying is that if they don’t adopt these new things you advocate – that they will suffer financially and/or go broke and you then cite things like storm water and pensions and stroads, etc…

        I don’t see them as being financially-threatened if they don’t adopt new ways of thinking – they can – and do – always raise taxes, cut back spending to get to a balanced budget – separate from future innovations to “save money” and even then those innovations are not drop-dead, sure-fire ways to better finances…. they often involve tremendous new investments in fact.

        compact development takes infrastructure and lots of it – that many localities just don’t have the money to start with…

        the focus seems to be – “change your ways or you’ll go broke” – you won’t be able to fund your pensions and your revenues will plummet from existing real estate…


        1. Wrong.

          This is not Boomergeddon for State and Local government. I suspect that’s how you’re reading it. I’m not saying anyone will go broke. I’m just saying they face unremitting fiscal challenges. The 2010s are not a re-run of the 1990s when money flowed into local governments faster than they could spend it. If local leaders don’t change the way they do business, they face an unpalatable choice of raising taxes or cutting spending. I’m showing them how they can avoid that trap.

          1. larryg Avatar

            re: ” they face an unpalatable choice of raising taxes or cutting spending.”

            that’s always the choice – even in boom times… though and there are many, many existing towns already compact and “smart” – even stereotypical that have the basic issue – i.e. what can we afford?

            I just don’t see a come-to-Jesus predicament… preach that sermon to Fredericksburg, Va for example and you’ll get “what..the”…

          2. larryg Avatar

            one of the interesting things maybe worth delving into further – is the fact that localities in Virginia do not maintain or administer pensions for their retirees – the State does.

            so why is that?

            and is the State doing that job – better than letting each locality do their own including schools?


  5. virginiagal2 Avatar

    Question – I know near zero interest rates adversely affect bonds, but for pensions, you are largely relying on stock investments. Wouldn’t near zero interest rates increase, rather than decrease, your portfolio yields in those circumstances?

    If I remember the Times-Dispatch article correctly, last year’s VRS income was around 15%.

    1. When interest rates go down, you get a one-time bump to stock prices as market multiples (price/earnings ratio) expand. If interest rates stay low, that does nothing to further expand the market multiples — at that point stock prices are driven mainly by earnings. However, if interest rates are at record lows right now, they have nowhere to go but up. If that happens, stock multiples will shrink and pension investment stock portfolios will shrink.

  6. Cville Resident Avatar
    Cville Resident

    Great presentation. This is why your blog is so worthwhile.

    I definitely believe the future is going to be about local gov’t. The Feds are simply exhausted/ineffective and the states have become nothing more than pass-through redistribution mechanisms. (Either take fed’l $ and redistribute it or take state taxes from the Urban Crescent and give them to SW and Southside VA.)

    I know you’re not the biggest fan of the Cville region, but I’d encourage you to take a visit this fall. There’s definitely a lot going on that meshes with your presentation. A very dense city that is getting a lot denser with the “redevelopment” of West Main. In fact, Atlantic Research Group is working on plans to move from the County into a new mixed-use facility on West Main! While you won’t see it this fall, there are a lot of plans in the works for the area of 29 that goes from Hydraulic up to the Albemarle Square Shopping Center. A lot of talk about transforming the area into a denser, walkable community. It will take years, but it’s worth keeping an eye on.

    1. larryg Avatar

      I sort of have a basic question about “expansionist” Fed policies and interest rates.

      but let’s start simple. in a free market (pretend there is no “expansionist” Fed) – what would drive up interest rates paid on savings?

      wouldn’t the demand for the money be the driver of higher interest rates?

      but where would that demand come from ? who would want to borrow that money and pay interest on it?

      I’d say off the top of my head (which has some ignorance like most) – that if companies are not expanding – that they’d not be borrowing money and driving interest rates up.

      and we sorta know this is true because they’re not hiring either… most are hunkered down – cutting costs and trying to maintain.

      so is it really the Fed alone that is depressing interest rates ..ergo the demand for money?

      1. The Fed does not have total control over interest rates. Market conditions play a role. The demand for credit is an important variable. The greater the demand, all other things being equal, the higher the interest rates. So, a weak economy contributes to weak demand for credit, which helps hold rates down. But the Fed’s intervention in the marketplace over the past few years is without precedent. That’s not a partisan statement. That’s just a fact.

        1. larryg Avatar

          RE: ” But the Fed’s intervention in the marketplace over the past few years is without precedent. That’s not a partisan statement. That’s just a fact.”

          can you explain how it works….I’m unclear.

  7. jalbertbowden Avatar

    have you considered how adopting a culture of openness would benefit all levels of government? open data, open source, open gov, etc?
    they’re all surefire ways to reduce costs exponentially, while adding value, to each of the topics you touched on.
    especially smart cities and smart growth. actually the open source community is where the majority of the tools that locals are lacking reside.
    open budgets help educate the populace about where their money is being spent, and open meetings force our leaders out from behind the closed doors.
    good article, just trying to add more to it.
    openness is the future.

    1. Yes, openness is the future. I’m all for opening up government information and databases to the public (with protections for individual privacy). I hope to be writing about this in the future.

      1. larryg Avatar

        here’s a question I hope Jim Bacon will address:

        Why do we have VRS at the state level for pensions for localities and yet not a similar capability for health insurance for localities?

        why do we centralize pensions but not health insurance?

        1. Good question — I don’t know the answer.

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