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).
$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.