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Just read a great blog post from Mr. Money Mustache. Check it out The Happy City and our $20 Trillion Opportunity. It is a succinct description of the inefficiencies of our current development paradigm in the United States. It relates very directly to work I’ve been doing with Urban Community Partnership and the work of Strong Towns.

Mr. Money Mustache is a great blog and I’d suggest you check out some of his other posts. The blog is generally about creating personal financial freedom. Enjoy.

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This post was originally published as a guest post on the Strong Towns website.

Like many other cities in California, Santa Rosa is struggling with high housing costs and deteriorating infrastructure. Rents have risen 40% in the past 4 years. Median sale price has risen about 10% in the past year. Even with the economic recovery new home construction has been relatively slow. The cost of construction in Santa Rosa is similar here to the rest of the Bay Area. However, housing costs, while high, are generally higher elsewhere. So developers are developing where they get a larger return on their investment.

The City of Santa Rosa has $1 billion in projected infrastructure projects over the next 20 years. There has been limited discussion of where this money is going to come from short of changing the development fee structure which over the last 20 years has generated $230 million in revenue. Increasing development fees to offset this imbalance is not feasible and will only further discourage new housing development.

The City Council has been discussing these issues in recent months. In addition to considering changes to development impact fees the council has considered implementing rent control, which has been highly contentious. The city has commissioned a study to look at possible solutions to these issues which is due out this month. So far, no silver bullets have been found.

In addition to development impact fees the city also collects revenue through property and sales taxes. As readers of the Strong Towns blog know, development patterns have a significant impact on the amount of revenue generated through these two sources. To understand this dynamic further the city has contracted with Strong Towns and Urban 3 to undertake an analysis to look at the financial productivity of different development patterns across Santa Rosa with a focus on the differences between downtown and the surrounding neighborhoods. This study will help show city leaders the financial productivity of the areas of town developed in a more traditional manner of walkable mixed-use neighborhoods, to those that are more suburban in nature.

Santa Rosa, in addition to the 8 other incorporated cities in Sonoma County, has an urban growth boundary. The urban growth boundaries are complemented in the county by designated ‘community separators’. While these policies have been nominally successful in focusing development within city limits, the types of development that have been happening continue to be largely of the suburban sprawl variety. When voters approved the urban growth boundaries, city policy was not changed to encourage infill development within the boundary. Most policies continue to favor sprawl. City regulations make infill development difficult in part due to parking requirements, height restrictions, setback requirements, etc. We need to rethink these policies and encourage more infill development. Having the data from Urban 3’s analysis will help to refocus this conversation.

Sonoma-County-Master-Plan-2006_Greenbelt-Hillsides_700

Sonoma County is also anticipating the beginning of service on a new passenger train by the end of 2016. The SMART train system runs along the highway 101 corridor of Sonoma County from Cloverdale in the north to Petaluma in the south and continuing on through Marin County to eventually connect to the ferry terminal in Larkspur for connection to San Francisco.

SMART map

This is a $650 million infrastructure project whose success will depend on the development of the areas around each station. Santa Rosa has two stations: a station downtown in a neighborhood called Railroad Square and second station a few miles north of downtown. There is a large amount of vacant land in the station areas in Santa Rosa, and the rest of the county, waiting for appropriate development. This is a great opportunity to refocus development around the station areas into walkable, high-density, mixed-use neighborhoods. Proposed higher-density projects have been meeting resistance. However, the only way the train will be successful is if we develop the station areas appropriately. Low density, car-oriented development is not going to cut it. We need to get this right.

At a critical time when cities increasingly face the reality of unfunded infrastructure maintenance needs and of an acute shortage of affordable housing, we are confident that Urban3 and Strong Towns will provide very practical insights for addressing these concerns in a robust but fiscally stable manner.

I am a member of a new non-profit called Urban Community Partnership. Urban Community Partnership was established to facilitate this project with Strong Towns and Urban 3 but will we continue working to support developments that are financially productive places to live, work and play.  Urban Community Partnership will be using the Strong Towns/Urban 3 events to kick-off our next project which is going to look at the SMART station areas in more detail.

At a critical time when cities increasingly face the reality of unfunded infrastructure maintenance needs and of an acute shortage of affordable housing, we are confident that Urban3 and Strong Towns will provide very practical insights for addressing these concerns in a robust but fiscally stable manner.  We hope that the events next week help start to change the conversation.  If you are interested in attending any of the sessions below please RSVP at our website.

Strong Towns/Urban 3 Public meeting schedule:

City of Santa Rosa Joint City Council and Planning Commission Study Session –  January 19 – 12:00-3:00

Santa Rosa  City Council Chambers, 100 Santa Rosa Avenue

The following evening  events will all be held at Bike Monkey, 121 Fifth Street, Santa Rosa

Curbside Chat – January 19 – 5:30-7:30

A look at the fiscal realities facing America’s cities. The way our cities have grown, and the way we have financed that growth, provides a short term illusion of wealth but leaves us with enormous long term obligations. A different approach can not only help us be more successful financially, it can actually improve our lives.

 Santa Rosa Study Results – January 20 – 5:30-7:30

Measuring the City, a look at how the ways we choose to measure information reflects our reality. We don’t measure automobile fuel consumption in miles per tank, but that is exactly what we do with land when we set up our taxing and development policies. A miles per gallon analysis of fiscal performance reveals many insights on what makes a place truly productive.

Transportation in the Next American  City – Next Steps – January 21 – 5:30-7:30

Thursday: Transportation in the Next American City, a look at the assumptions behind the American transportation system and how they impact the costs, performance and experience of getting places. Driving to a place and driving through a place are different objectives, yet our designs barely distinguish between them. By relating our transportation designs to the way we want our places to perform, we find that we can spend less money and get much better results.

Urban Community Partnership will also be presenting their plans for next steps including bringing Joe and Chuck back to look at development opportunities in the SMART station areas.

 

 

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Last week, the local newspaper ran an article about the city of Santa Rosa’s consideration of updating their development fees to spur housing construction.  The article explains how the city has hired an economist to review the city’s fee structure and advise how they can spur housing development to counteract soaring rents and home prices. Housing production has been minimal  and the economist reported that even though rents have been increasing, they are not yet high enough to encourage developers to start new projects. Average rent  in the city is $1.84 per square foot. The economist told the City Council that rents needed to be at least $2.50 per square foot for developers to be able to afford to build projects. The city is hoping to learn if adjusting their various impact fees will encourage new housing development.

The article notes that city impact fees are used to fund various infrastructure projects. Over the past 20 years, the city has collected $230 million in these fees. The projected cost of infrastructure needs over the next 20 years is about $1 billion.

The city is left facing a major dilemma. It needs development to pay for its infrastructure costs, but it also needs to invest in its infrastructure to make the city attractive for economic growth.

  • The Press Democrat

This perfectly plays into the message of Strong Towns. Strong Towns President Chuck Marohn describes the development process in the post WWII period as a Ponzi scheme (This is a great summary of the central argument).  Because cities typically fund infrastructure projects with development fees, they need more and more development to pay for the maintenance of their existing infrastructure. Strong Towns argues that what they refer to as the ‘suburban experiment’ is now a primary reason so many cities are finding themselves in financially challenging places. Suburban development patterns generate a small fraction of the revenue, in the form of property, sales and income taxes, necessary to maintain the infrastructure that supports the development (streets, water, sewer etc.). Strong Towns argues that a return to more traditional development patterns of mixed-use, walkable places will provide for more financially resilient communities. Traditional development provides much more revenue when compared on a per acre basis than sprawling suburban development.

Urban3 is an organization that specializes in evaluating development patterns in regards to tax production and infrastructure costs. Their work supports the Strong Towns thesis that traditional mixed-use urban development patterns provide much more revenue than sprawling suburban development when compared on a per acre basis. They have developed a fascinating way to graphically present data that really shows where communities generate most of their revenue. And on the flip side, shows how little the return on investment is for sprawling development patterns.

This article comes at a most opportune moment. I’m part of a committee that is bringing Urban3 and Strong Towns to Sonoma County to complete an analysis of land use and development patterns with a focus on the areas around the SMART train station areas. The SMART train will run from northern Sonoma County into Marin County to the south where it will connect to the ferry terminal at Larkspur for those wishing to continue on to San Francisco. The train is scheduled to start service late 2016. The areas around the train stations need to be developed as high-density mixed-use neighborhoods to provide the ridership needed for the train to be financially successful. So far little, if any development has occurred in the station areas. And some of the projects that have been proposed are facing backlash against the proposed densities. If we don’t develop the areas around the stations correctly, the train is not going to be able to survive on rider fares and will require more subsidies.

It is crucial that we get this right. The data to be provided by the Urban3/Strong Towns team will provide hard data for decision makers to understand the importance of developing the station areas in a manner that will support this expensive piece of infrastructure. But also, how to create more resilient communities overall. At the culmination of their analysis, Urban3 and Strong Towns will conduct a series of public workshops and a ‘Boot Camp’ to explain their results and teach local officials how to use the analysis tools to study the impact of future development proposals. We need to take a long hard look at how we are building and the associated long-term costs. To develop in a manner that will create truly resilient places, we need to fundamentally transform the way we develop and grow our communities.

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Here is an interesting editorial from the local newspaper about housing and the cost of sprawl.

Golis: Can we change how we think about | The Press Democrat.

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This is an interesting blog post that discusses good and bad density. Many people, particularly in small towns like where I live, are very resistant when you mention density. But when advocating density in a town like Sebastopol, I’m not talking about skyscrapers or even multi-family type buildings. Single-family neighborhoods can be dense as discussed in the post. And can create walkable, human-scaled places.

Building Dense Does Not Have To Be Dense.

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There is a growing body of evidence that shows how sprawl is bankrupting communities that cannot keep up with the maintenance of all the infrastructure required to serve the sprawl. New infrastructure (streets, water, sewer, electric, gas) is often conditioned on the developer to install, but they have no obligation to maintain it. That responsibility falls on the local jurisdiction. However, the taxes generated by sprawling developments come nowhere close to being able to pay for the maintenance on the infrastructure. The infrastructure put in place to support the past 70 years of sprawl is needing replacement and many cities are finding themselves without the financial resources for that maintenance.

Chuck Marohn, of Strong Towns, discusses this issue at length and travels the country repeating this message. He compares our post WWII method of growth to a Ponzi scheme. We need continued growth to pay for our long-term liabilities which is simply not sustainable. That’s generally how it’s worked over the past 70 years. Cities approve new development, collect development fees and use those fees to maintain the previously installed infrastructure. They need to continually grow to keep up with maintenance demands. When growth slows, so does infrastructure maintenance.

Part of the problem is that the tax revenue generated by sprawling development is not sufficient to maintain the infrastructure that serves it. Chuck wrote an article comparing a traditional pattern of pedestrian-friendly small-town development with a new auto-oriented fast food development. He analyzed the tax base value of each and found that the traditional development pattern, even though it was ‘old and blighted’, was 41% more valuable than the new auto-oriented development. Read the full article here. That article serves as the inspiration for this post. I was also inspired by the work of Joe Minicozzi of Urban 3. At the New Partners for Smart Growth Conference session I attended he introduced me to the idea of looking at property taxes on a per acre basis to give an apples to apples comparison of how ‘valuable’ a property is to a community’s coffers. A good summary of his work can be found in this Planetizen article.

So I’ve looked at property tax data from 2013 (available from the Sonoma County Treasurer-Tax Collector website) for 2 types of development found in downtown Sebastopol. The first type is a traditional Main Street development pattern of small lots with buildings built out to the front and side property lines. Most of the buildings along this block are single story structures. The predominant use is retail. There is very little mixed use. I compared the amount of property tax generated by these ‘traditional’ properties to three ‘sprawl’ type developments adjacent to the traditional development (yes, 3 sprawl shopping center type developments right on Main St!). The first of these two properties contains a Rite Aid. I think this store was constructed in the 1960’s. It’s a single store sitting at the back of the lot with a parking lot fronting Main Street. The second property was developed more recently (1980’s?) and contains a Safeway, again sitting at the back of the lot behind a large parking lot fronting Main Street. The third is the Whole Foods shopping center which I also believe was built in the 1960’s.

Downtown Sebastopol showing properties compared in this post.

Downtown Sebastopol showing properties compared in this post.

Block of Main Street with traditional development, although not much mixed-use and mostly single-story buildings

Block of Main Street with traditional development, although not much mixed-use and mostly single-story buildings. This block generates $45,059.08 per acre in property taxes.

The traditional block contains 12 properties fronting Main Street with lot sizes varying from 0.05 acres to 0.36 acres. These 12 properties generated $91,920.53 in property taxes in 2013. The total acreage of the 12 lots is 2.04 acres. In contrast, the Rite Aid property generated $29,531.62 in property taxes and is 1.35 acres. The Safeway property (actually 2 separate parcels) generated $65,199.17 in property taxes and is 3.64 acres in total. Whole Foods’ shopping center generate $44,042.60 and is 1.64 acres. Safeway looks like it generates a good deal of money for a single business, but when you look at it on a per acre basis the picture is quite different.

Rite Aid which generates $21,875.27 per acre in property taxes.

Rite Aid which generates $21,875.27 per acre in property taxes.

Safeway generates 17,911.86 per acre in property taxes.

Safeway generates 17,911.86 per acre in property taxes.

Whole Foods center generated $26,823.10 per acre in 2013. This property is directly across the street from the Basso Building

Whole Foods center generated $26,823.10 per acre in 2013. This property is directly across the street from the Basso Building (below)

The traditional block of Main Street generated $45,059.08/acre in property taxes in 2013. Rite Aid generated less than half that at $21,875.27/acre and Safeway generated even less per acre – $17,911.86/acre. Whole Foods center generated a little more than half the traditional block at $26,823.10/acre. Better than Rite Aid and Safeway. (Part of the reason for the higher per/acre value of this shopping center can be attributed to it’s much lower ratio of parking than Rite Aid or Safeway as anyone that tries to parking in this lot can attest.) I’d like reiterate that the traditional Main Street block is a very low density development with mostly older 1-story buildings and little mix of uses. The newest building on the block, which was built roughly 11 years ago, is a 2-story building sitting on 0.36 acres. It generated $42,775.17 in property taxes in 2013 for a per acre rate of $118,819.92!

The Basso Building on Main Street generated $118,819.92 per acre in property taxes, a whopping 6.6 times more than Safeway!

The Basso Building on Main Street generated $118,819.92 per acre in property taxes, a whopping 6.6 times more than Safeway!

This higher density (and it’s only a 2-story building) generates 6.6 times the property tax per acre than Safeway! Imagine if the whole block were developed to this value. Why would a city allow a Safeway-type development? We certainly need places to buy groceries and I have nothing against Safeway per se, but what if it were part of a mixed-use development? What if Safeway had offices or residences above it? What if the building was up at the sidewalk, with structured parking behind? It would generate a great deal more in property tax revenue than in its current sprawling configuration. So in addition to contributing a fraction of the property taxes of more traditional development Safeway and Rite Aid properties completely kill the pedestrian-oriented function of the Main Street block to the south.

The City of Sebastopol will be conducting a public meeting to get input on ideas for the development of a prime 2+ acre property in the heart of downtown. The property is privately owned, but the owner is interested in selling and is open to hear what ideas the community has for it’s future. It will be important to keep the value of a new development in mind when considering what to build there. It is obvious to me from this analysis that it is imperative that this parcel should be developed as a mixed-use multi-story project. It will be crucial to get this right. We cannot afford to approve a single-story, single-use structure on this property. It was never discussed in this manner, but it is another argument against the proposed CVS/Chase project located a block away.

This is the property to be discussed in a public workshop. It is directly across the street from the town plaza. It used to be a lumber yard and is not a tractor sales store. Not the highest and best use of a property in the center of downtown.

This is the property to be discussed in a public workshop. It is directly across the street from the town plaza. It used to be a lumber yard and is not a tractor sales store. Not the highest and best use of a property in the center of downtown.

This was an easy analysis to complete and I’d encourage others to do the same in their communities. It’s really eye-opening to realize how much better traditional urban development patterns contribute to a communities tax base. And it’s a conversation that is long overdue.

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