Curbside Chat, continued with case studies

The Curbside Chat whizzed through a few examples of how some typical projects work.

Consider a typical road maintenance project in a relatively low density subdivision:

  • $354,000 = total cost of repaving the street
  • 79 years = time to recoup the public expense from the taxes paid by the properties adjoining the project
  • 46% increase in property tax rates would be required to breaking even within the life cycle of the improvement.

Question asked by an audience member: Since most infrastructure in new subdivisions is paid for by the developer, not by the city, doesn’t that change the picture?

Answer: only for the first life cycle of the improvement.  Then, when the city must finance the repair or reconstruction, the pattern above kicks in.

To elaborate on that answer a bit – Suppose a city gets a “free” (not paid for with bond proceeds or the city’s cash) improvement/development.  The good news is the city also gets additional tax revenue from the new property tax payers.  The bad news is the city also gets the obligation to maintain the infrastructure.  So, take the revenue from the new tax base.  If that new revenue were socked away in a savings account, the dollars would accumulate for about 25 years or until the first life cycle of the improvement comes to an end and replacement or extensive repair is needed.  The cost of the repair – the outflow for maintenance – may exceed the accumulated revenue.  Assuming continual growth, new growth can pay for existing obligations for awhile.  Cities then sell bonds to finance projects for which we do not have cash on hand (which is to say, all of the projects we do).

Here’s another really big project: the proposed (and hotly debated) St Croix Bridge (a smaller, alternative project has been supported by Rep. Betty McCollum)

$668,000,000 = estimated cost of the big new bridge

16,000 = cars per day projected traffic (3,000 more cars than the Stillwater Lift Bridge)

$5.48 = cost per river crossing to pay the debt service (financed at 4% over 40 years) solely from user fees.

There is no direct financial benefit to the taxpayers who will be paying for the bridge in exchange for this very large cost.   Benefits are reported as 6 times the cost, which sounds great.  “Benefit” is not financial, however.  95% of the benefit is savings in travel time and distance. Since most of the bridge users are commuters, saving travel time seems to incentivize horizontal development and building more infrastructure further into Wisconsin creating more financial liability for state and local government.  And, of course, taxpayers are on the hook for maintaining the bridge.

Anyone who reads this blog knows I’m always looking for ways to make development more dense and put more property tax payers on less infrastructure, so I am dubious about a project which seeks to make long distance commuting by car more convenient (I’m also skeptical about the benefit outweighing the impact on the Wild and Scenic St. Croix River).   And, of course, I’m asking whether any project makes long-term economically sustainable sense.

6 thoughts on “Curbside Chat, continued with case studies

  1. So it seems like ‘infrastructure’, although something cities must provide, is something that is not cost sustainable except by the ever increasing dollars coming in from ‘growth’. … sort of like capitalism, which must ever increase to survive?

    So a healthy street maintenance fund is a necessity; and big speculative , or ‘shovel ready’ developments, are never going to pay for themselves, or at least pay the taxpayers back for the initial infrastructure?

    All the more reason to take that 530 Acres NF so (IMO) foolishly annexed for development of a business park, and put it to work with some very smart specialty agricultural development… tractors don’t need roads and sewers.

    • Yes, Kiffi – you’ve summed it up very nicely – continual growth is required to sustain what we currently have. There are other pieces like how real estate prices rose out of proportion with increases in the overall economy so the property tax revenue system was skewed. Or how federal assistance comes for capital investment in new projects which distracts local government from considering the long term obligations.

  2. Betsey: your last sentence: “federal assistance for capital investments in new projects which distracts local government from long term obligations” really struck home with me…
    I instantly pictured the Bolton &Menk engineer… I think it was Chris Chromey… standing in front of the Council presenting engineering ideas to take advantage of Fed $$ that would be available for the area of Hwys 19&3…
    One was an east/westbound tunnel under the railroad tracks which are just east of M-O-M and just west of the Hwys 19/3 intersection…
    Jules Verne would have loved it!

    I can’t remember the cost to the City of that study for possible proposals, although I think it was not INsignificant … and although as I recall there was no Fed $$ awarded, the City engineer at the time said these were all good ideas for the ‘future’.

  3. Betsey,

    I agree that we need to look at infrastructure costs. But, we shouldn’t just look at infrastructure costs for green field development. For example, we spent $250,000.00 for 600 feet of bike path that is recreational. Or, how about $100,000 for a bathroom at the Archer House, or $100,000.00 for pavers on Bridge Square?

    • I agree, David. New infrastructure to serve greenfield development is an obvious cost, but certainly not the only place we should look at how we spend our infrastructure dollars. Of the three examples you gave, I’d say:
      Pavers: I agree. Since that money came from the Master development Fund TIF district, I think we could both think of other ways to have spent the dollars. Downtwon parking is where I’d like to concentrate those remaining dollars.

      Bike path: I agree there, too. I don’t know what the “recreational” status has to do with it; recreational trails can be good economic development drivers. In this case, I think a better choice would have been an on street solution until River Park mall could be redeveloped and a river side trail might be incorporated into that project (at a lower cost, perhaps, if the location of the trail could have been away from the river slightly so all the improvements to the river bank were not necessary). Unfortunately, too many people have great fear about safety for cyclists on the street which is not justified, so that option was not considered seriously. I could also argue that the pedestrian bridge is located very poorly and making it a genuinely useful connection will take even more money.

      Bathrooms: here I disagree. The city’s $100,000 helped leverage about 10 times that amount in private investment at the Archer house which, in turn, is expected to increase business downtown, help bring people to Northfield to spend their dollars, etc. The Archer House and the Historical Society bathroom projects take small amounts of public money to gain public amenities and spur much more private investment. A good deal.

  4. Betsey,

    $100,000.00 for a bathroom is absolutely ridiculous. No one would spend that kind of money for their own bathroom. Why should we spend taxpayer money doing it?

    $100,000.00 as an incentive to increase the tax value by $1,000,000.00 makes some sense (if you consider that the property taxes paid on the increased value). But, let us not kid ourselves about what the money is really buying.

    My main concern is that there isn’t an objective measure to gauge good public spending from wasteful public spending. For example, how do we determine if additional public parking is going to be a solid investment? The Streetscape Committee was recommending $750,000.00 to add about 10 additional spots. At $75,000.00 per spot there would have to be quite a bit of downtown spending.

    I decided to resign from the Streetscape Committee rather than see us spend money like drunken sailors.

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