Low return on public costs

Low return on public costs

November 3rd, 2012 in Opinion Times

The tax revenue implications of Chattanooga's urban redevelopment opportunities haven't been given much thought the past few years, if at all. But given frequent debate on the direction of Chattanooga's urban future - consider the proposed big-box Publix on North Market - it's a topic ripe for serious discussion.

Why? Because tax-revenue income should directly reflect the immense public infrastructure investments and tax value that go with the appealing, multistory, multiuse buildings in the downtown area, as compared to the relatively meager public value-and-tax return on one-story, single-use buildings downtown - and often in the suburbs, especially those big-box stores surrounded by a sea of asphalt.

Joseph Minicozzi, an Asheville, N.C., urban planning advocate and tax-revenue explorer, usefully pointed out the tax anomalies in several meetings here earlier this week. He does the math. A few examples of his 2012 tax revenue profiles per acre for some local developments amply illustrate what he finds.

A good return on investment

The North Shore condos at the toe of the Market Street bridge, an attractive five-floor brick building with a Sun Trust Bank branch on the first floor, sits on 3.23 acres and is valued at $63.3 million, or about $19.6 million an acre.

By contrast, the property tax value of Hamilton Place, at $154.4 million on 67.2 acres, yields a considerably lower per-acre value of roughly $2.3 million. Put another way, the North Shore condos are 8.5 times more valuable per acre on the city and property tax roles than Hamilton Place.

True, we can't overlook the jobs and sales tax income at the mall, but we can't overrate them either. Three-quarters of the sales tax proceeds go to state government, not local government. And while higher tax assessment valuations on commercial property are pegged at 40 percent, as opposed to the 25 percent rate for residential property, most of the sales jobs at a shopping center are low wage with few benefits.

In any case, the comparison suggests the immensely greater value of multistory, mixed-use commercial and residential property as opposed to suburban big-box development. Other comparisons demonstrate that dynamic.

The Cherry Street townhouses downtown, a three-story brick development of townhouses each built on 0.08 of an acre, yield a property tax value of $800,000 per townhouse. At that ratio of value per 0.08 an acre, a comparable townhouse development covering 2.6 acres would equal the $17.3 million property tax value of the 67-acre Eastgate Mall and parking area.

Both examples serve to illustrate Minicozzi's readily documentable theme: local governments generally place little value on the land and public infrastructure itself in dense urban areas, as opposed to the buildings. And they simultaneously ignore the per capita taxpayer costs, revenue and losses per mile of extending expensive infrastructure.

For example, a mile of sewer and water lines generates far more taxpayer revenue in a dense urban area, where there are a lot of users on a mile of pipe, as opposed to the same-cost mile of pipe in suburban and rural areas, where there are far fewer users to pay the pipe-laying costs and public service requirements.

A value/quality equation

Undervaluing the tax and public value of land and infrastructure downtown, in turn, creates a disincentive for developers to build higher-value, multiuse buildings downtown. Look at Buffalo Wild Wings' building at the south end of Market Street bridge, or Chili's and Applebee's fast-food restaurants on opposite corners at Fourth and Market. Wild Wings will be a tear-down building in 15 or 20 years, and its cheap-labor jobs and puny local sales tax returns won't generate nearly as much economic and tax revenue value as a multistory, multiuse building on the same plot of land would have generated.

The same goes for the Publix proposal on the North Shore. The state gets the lion's share of the sales tax revenue; the jobs will be mostly low wage; and the massive parking lot won't generate much tax revenue at all. Conversely, dense urban residential use and along with the kind of multistory, multiuse retail building the North Shore C-7 guidelines actually mandate for that site would generate far more tax revenue - along with better and more sustainable quality of life.

Minicozzi's tax revenue studies ought to put the Publix proposal down. It's as a much a question of doing the math as it is of valuing the quality we want on the North Shore. The tax revenue Publix would generate isn't nearly as high as the development the North Shore C-7 guidelines would generate, not to mention the quality of life it would sustain.

In the broader view, Minicozzi's tax revenue comparisons certainly should generate, at last, new city zoning and building requirements for quality, multistory, mixed-use development downtown and in the surrounding urban area. Such requirements should be considered the minimum we would allow in respect for the massive the public investment this community has rendered to create the city's renaissance.