As our federal government continues to cut its fiscal responsibilities, more of the financial burden is being shifted to state governments, straining their budgets and forcing difficult choices. Cities and counties are raising their millage rates, charging user fees, rethinking how they can more efficiently manage programs, or cutting services altogether.
In many places, these budgetary woes are further exacerbated by city governments making zoning changes without understanding the direct and indirect costs to county and city budgets, particularly in the form of lost tax revenue. The total economic impact of any zoning changes must be calculated. Otherwise, cities and counties could be left in the unfortunate position of raising taxes and scrambling to recover lost revenue by cutting essentials like public works and fire services.
Cities often use zoning changes to advance their vision for local communities, including economic development and housing. However, when planning and zoning decisions are governed by primarily political considerations and calculation of revenues generated – and don’t take into account all of the costs – there are often unintended consequences.
Take the recent rezoning in Peachtree City. The city is a diverse, affluent Atlanta suburb with the most stringent planning and zoning in the state. Recently, the city reviewed rezoning 66 acres that weren’t a good fit for industry from light industrial and low-density residential to medium-density residential.
Various valid issues were raised concerning the change: Excessive tree removal, lack of amenity specifics, increased traffic, quality of life factors. But a much larger issue was not addressed: the effect on municipal, county, and school budgets caused by the negative change in tax revenue.
The developer had proposed building 160 houses on 66 acres, with each home averaging a cost of $360,000 and 1,600 square feet. The city tax breakeven point is $330,000 for a home; houses appraised over that amount bring in more taxes than are spent. Thus, we could expect that those 160 homes could bring in an excess property value of about $4.8 million. However, if 66 3,200-square-foot homes were constructed there instead and sold at $720,000 each, the city could end up with more than five times as much in “excess” taxes (i.e., tax revenue in excess of what services are costing the city and county) as the 160 less expensive homes.
In a solely economic sense, Peachtree City should have left the 66 acres low density, rather than change them to medium density. But due to pressure from developers and the lack of cost-benefit understanding by the city council, the medium-density project was unanimously approved. (Note that for the sake of brevity, I simplified the discussion of this model. Other key criteria, including housing affordability and diversity, could be present in other cases – factors that could offset the need for revenue maximization.)
As a former elected official, I know poor planning and zoning decisions are not the only cause of tax increases. However, as I communicated to the Peachtree City Council members prior to their rezoning vote, total costs must be considered. Otherwise, in the long term, with more and more rezonings down the road, milage rates will inevitably rise. That is just math.
Each planning and zoning review should require a separate budgetary analysis based on the specific facts of each case. Although it might require more staff work and training of planning and zoning commission members, city council members, and county commissioners, an inclusive consideration of both costs and benefits should be done before any final decisions are made. It is vital for the fiscal health and quality of life in our cities and counties – and doing otherwise could ultimately harm residents.
Article reprinted from Feb. 2019 Planning Magazine.