We understand that by paying our taxes we can leave our private home, in our private car, and drive down a public street, pull into a public parking space and enjoy a beautiful public park or shop on main street. Cities across the nation are trying to figure out how to finance the ongoing maintenance of these existing public services, utilities, streets and parks. This volatile political issue is in desperate need of innovative solutions as we only have two standard approaches today.
The primary approach, in overly simplistic terms, is cities providing citizens the “general benefit” of public infrastructure via taxes placed in its general fund. State funds and gas taxes fund a majority of our street maintenance. This year, our city of 1.3 million people will generate $1.18 billion in taxes/fees and will use approximately 18% of that to maintain 35,000 acres of parks and 2,800 miles of streets. Additional regional/state/fed revenues help to pay for streets along with new development fees and construction requirements. For reference, police and fire protection costs approximately 68% of my city’s total tax revenue.
The other approach Californians have is the ability to vote for Maintenance Assessment Districts (MADs). Assessed property owners are levied an extra fee on their annual property tax bill to pay for “maintenance of district-wide public facilities.” This increased service is called a “special benefit” beyond the City’s basic “general benefit.” These properties are paying for the public life.
The purpose of a MAD is to generate money to pay for public services. These include the upfront installation and long-term maintenance of parks, landscaping, rights-of-way, street lighting, security, flood control, and stormwater drainage. MAD districts are formed with a higher upfront tax to pay for installation, which is then dropped after two-years to pay for maintenance over many years. In 2015, the city of San Diego’s Parks and Recreation Department will spend $35 million maintains services 62 individual MADs in perpetuity.
The advantage of a MAD in California is that our property taxes are capped under Proposition 13, but MAD funding is outside of this cap so MAD revenues fund MAD projects, and not siphoned off to Sacramento. Another advantage of MADs is that these self-funded districts are protected from the economic pendulum swings that affect municipal budgets.
The disadvantage of a MAD is that a public vote needed to raise the assessment. It is always considered politically difficult to raise taxes. In addition, due to dropping assessments over time and keeping them at the same rate over many years, older MADs typically underfund the maintenance necessary to keep up with the expected quality of the service.
PARKS DON’T PAY TAXES
When planning a long-term investment, it is easy to lose track of how valuable public spaces are in terms of social equity, environment protection, and economic value. Frederick Law Olmstead conducted a study from 1856 to 1873 to track how the City of New York’s initial $13 million investment created a $209 million increase in property values on private land immediately adjacent to Central Park. This increased value stands today. As a rule of thumb, private property is 10 – 20% more valuable when fronting onto a civic space.
While we have well-known rules regarding a city’s inability to ‘take’ property value, we have fewer options for a city’s ability to ‘capture’ increased land values due to the public investment of a new public benefit. To spur economic growth cities tend vacillate between short-term direct financial incentives that subsidize private development (tax exemptions, loan programs, expedited entitlement processing, investing in convention centers and stadium for example) and longer-term investments in public infrastructure (via Development Impact Fees, acquiring land, and building new civic spaces for example). With California leaving the Tax Increment Financing (TIF) for Urban Renewal era, we are now on the cusp of a new self-taxing Infrastructure Financing era, which will need innovative models.
The first is a newer MAD model. Since 1994, California has allowed for Property-based Business Improvement Districts (P-BIDs), but few cities have participated in the program. Conventional Business improvement Districts (BIDs) generated revenues from business license fees. These property-based tax assessments are approved in shorter 5-year increments, and are therefore more flexible in increasing, decreasing or eliminating property assessments. These P-BIDs are also more responsive to funding building to maintenance and operation set in specific master plans agreed upon by local stakeholders and city planning departments.
Second, the governor just this week signed SB 628, to update our Infrastructure Financing District program. Cities are able to establish a district, adopt an infrastructure financing plan, issue bonds, and fund projects through tax increment financing upon approval by 55% of the voters. These are intended to be a new era redevelopment districts that finance public capital facilities, brownfield restoration, environmental mitigation, low income housing, transit priority projects, and projects to implement a sustainable communities strategy. With the new low voter threshold, from the 2/3rd majority, these districts should become very popular with cities working to leverage the value of its transit investments.
Third is the Lean Urbanism concept introduced by Andres Duany. Being Lean means to reconfigure the future of urban planning towards lighter, quicker and cheaper approaches to development and entrepreneurship in order to deal more agile with the limits of the 21st century. Lean Urbanism is about innovation and allowing City Halls to streamline the processes that hinder socioeconomic development. These types of places exist in slightly different forms in new Innovation Districts/Zones created in San Francisco and New York. These municipalities recognizes that to appeal to new technology markets it must act in a hands-off fashion as these innovative markets change faster than large municipalities can adjust to.
And fourth are Decision Districts. Admittedly my idea, these districts would reconfigure conventional top-down planning department entitlement and financing processes into neighborhood-based mini-planning departments that coordinate public realm streetscape elements (parking, street trees, walkways, signage, lighting, and encroachments) directly with adjacent private realm elements (building frontages, shopfront improvements, entrances and ground/upper floor building functions). Located one lot deep on a Main Street or neighborhood center, these Districts would self-permit and generate fees to supplement P-BIDs, economic development programs, and Main Street Associations. The goal is enable local authority to implement a specific district-level master plan over a set period of time.
Our cities have the opportunity to craft new financing tools that better reflect our cultural shift towards walkable, bikable, lingerable, sitable, and public transit supported urbanism. Moving from the older, larger-scaled, slum clearing, urban renewal models towards finer-grained financing tools is necessary to build and maintain more complex urban places. For we understand that building towards the social and cultural value found in parks, streets, transit stations and main streets enables our cities to continue generating economic value in the 21st century.