Washington state example shows property tax rates correlate strongly with population growth. [1] Image source: San Juan County Futures Information ResourcePreviously here I’ve debunked a number of myths concerning growth and so-called “development.” The very first was the myth that residential development brings in needed tax dollars. Despite the information provided here, however, what I hear around Mount Vernon suggests this is the myth in which residents and policymakers remain the most interested. No doubt the local growth machine would love to show that Mount Vernon is an anomaly, a community where residential growth does pay for itself. It is not impossible, after all, for development to pay for itself. Very specific forms of development sometimes do.
However, apart from biased or otherwise flawed studies (in my opinion, a very real risk in the local instance), their chances of showing that development pays for itself here are slight. Current local development is of a conventional suburban form. Most often, though, the developments which produce the best ratios of revenues to cost of services are more dense in design, often urban in nature, or perhaps sometimes classified as “new urban” or “smart growth.”
It shouldn’t even be an issue!
Of course whether or not development pays for itself should not even be an issue. As I’ve mentioned previously, even if development here did pay for itself, that fact would do nothing to mitigate the environmental destruction and deterioration in quality of life it will bring.
Moreover, the economic rationale for development is a logical train wreck. The idea seems to be that if it does pay for itself, then development becomes an important part of local government’s strategy for maintaining its economic health. That’s one of the most patently short sighted ideas imaginable! What do we do when we run out of room to develop?
Obviously, physical growth for economic gains is an unsustainable plan. It’s doomed to eventual failure. Wouldn’t it therefore make more sense, instead of focusing on physical expansion, to develop a sustainable plan for economic and community development? That way we avoid economic failure down the road and preserve our small town character and environment at the same time.
Might as well knock it down a little further anyway
Everything you’ve just read should tell you there should be no need for continued discussion of the economic pros or cons of local physical expansion. It’s a no-win plan any way you look at it. That said, given the stubborn interest in the notion that development might generate a net gain in tax revenues, it won’t hurt to pile a little more information onto that provided already to expose the myth status of this notion.
I’ll just draw from Fodor’s Better, NOT Bigger, paraphrasing some of his points with a bit of added commentary. Fodor looks at this question on pages 39-42. He begins with a summary statement from a Brookings Institution paper by Harvard’s Alan Altshuler and José A. Gómez-Ibáñez:
The available evidence shows that development does not cover new public costs; that is it brings in less revenue for local governments than the price of servicing it.
In fact, Fodor observes, size correlates well with per-capita tax rates. The bigger the city, the higher the rate tends to be. Knowledge of this is nothing new. In his famous 1976 paper, Molotch writes:
[It has long been] easy enough to observe that tax rates in large places were not generally less than those in small places; although it received little attention, evidence that per capita government costs rise with population size was provided a generation ago (see Hawley, Amos. 1951. “Metropolitan Population and Municipal Government Expenditures in Central Cities.” Journal of Social Issues 7 (January): 100-108.). But few took note, though the very rich, somehow sensing these facts to be the case, managed to reserve for themselves small, exclusive meccas of low density by tightly imposing population ceilings (e.g., Beverly Hills, Sands Point, West Palm Beach, Lake Forest).
Fodor describes a 1991 study of this phenomenon commissioned by DuPage County, Illinois Planning Director, Delip Bammi. Spurred by his informal observation that as the county grew taxes went up, not down as they were “supposed” to, the question was simply whether growth and taxes were in fact related. The results: (a) New development was associated with higher property taxes, and (b) the most rapidly growing communities in the county tended to have the largest tax increases.
Perhaps more interesting than the results — which should not be surprising to readers of the Small Town Project — was Bammi’s commentary. He mentioned that after the study made the front page of the Wall Street Journal, he had many calls from other planning directors who had noticed in their own counties that growth had meant higher taxes. They wondered, as well, how he managed to keep his job after revealing the study’s results. As Fodor notes, the implication that a planner’s job would be at risk for providing truthful information of this sort is “an ugly tribute to the power of the urban growth machine.” (p. 41)
In 1995 another Illinois study (summarized here), this one commissioned by the Metropolitan Planning Council and the Federal Reserve Bank of Chicago, looked at much the same question, this time focusing on a larger, six county area. Once again, population growth was associated with increased residential taxes. Moreover, the study advised, areas which grow without raising taxes tend to see reduced public services.
“The bottom line on urban growth,” Fodor concludes, “is that it rarely pays its own way.” (p. 42) I refer you to Fodor for more.
An idea: Buy the land instead!
To avoid the typical tax deficit produced by new development some cities and counties have opted simply to purchase parcels of land rather than allowing them to be developed. Fodor (p. 134) reports that communities which have chosen this option include Palo Alto, California; Closter, New Jersey; Yarmouth, Maine; Huntsville, Alabama; Londonderry, New Hampshire; and Pittsford, New York. A comprehensive list would be much longer than Fodor’s sampling.
In all these instances the community found it was in its best fiscal interest to buy land rather than let it be developed. Acquisition of open land for reasons of conservation is a familiar idea. That it is often the best financial move for a city, since it stops development and associated hikes in property taxes, is less well known.
[1] This graph illustrates past and projected property tax levels in San Juan County, Washington as they relate to population growth. Clearly, as of 1995, without intervention, residents there could expect property taxes to rise as population increased. For detail on the study please follow the link in the caption.