Building Value or Building Debt?

Building Value or Building Debt?


The first Case Study of the “Plan to Build Value” series.

Lately, there has been much public debate about development incentives. People wonder how we are ever going to afford the services we ask our cities to provide if we keep deferring tax revenues. It’s an important question. If your neighbor was not paying enough to maintain their share of the streets and utilities, that wouldn’t be fair.

Imagine what would happen if most of us chose not to pay enough taxes to maintain the streets and utilities that serve our homes and neighborhoods?

You see where this is going?

Across our country, we are choosing to not maintain our public infrastructure. Highways, bridges, local streets, sidewalks, sewers and water lines are aging at a fast pace, and these utilities continue to crumble. Eventually, replacement will be the only option, at which point no one knows where we’ll find the financial resources that will be needed to rebuild what we aren’t currently maintaining.

Bridge in California

An aging bridge on the Pacific Coast Highway, north of San Francisco (Image credit: iStock).

Taking our city as a case in point: Kansas City, Missouri has 6,400 total lane miles of constructed streets and roadways, which is “equivalent to a two-lane road from Boston to San Diego” (1). This staggering statistic is for Kansas City only – it doesn’t include the larger metropolitan area.

map-blog-cropped

Of these 6,400 lane miles, 4,000 are neighborhood streets and cul-de-sacs. At a conservative estimate of $750,000 per lane mile, these streets have a replacement value of three billion dollars.

For the 2015/2016 fiscal year, Kansas City budgeted $13 million for street maintenance. Assuming all of this goes to neighborhood streets, this budget represents less than ½ of one percent of the three billion dollar replacement value. At this rate of maintenance funding, these streets can only be replaced every 200 years.

Civil engineers consider the life of a street to be less than 50 years, and many would advise 25. Concrete curbs break and deteriorate, while pavement potholes and cracks. Ignoring the annual cost of maintenance (spot repairs, overlaying streets, etc.), budgeting to cover the replacement costs for our neighborhood streets would require four to eight times the funding currently being set aside for street maintenance.

Pothole in the road

Big pothole caused by freezing and thawing during spring season

What if we increased property taxes to replace Kansas City’s streets every 50 years instead of every 200 years? Allowing four times the $13M currently budgeted for neighborhood streets would increase maintenance funds to $52M, adding nearly $39M more in taxes ($52M-$13M). Property taxes in Kansas City currently total around $120M , so quadrupling the neighborhood street budget would be about a 33 percent increase in property taxes. How many of us are ready to sign up for that? (See where the city spends its annual budget here: KCMO.gov).

While pondering that, here’s something else to consider.

We currently tax properties based on their value. Whether you live in a downtown condominium or a home in a subdivision, if your residence has the same value, you generally pay the same amount in property taxes, meaning your contribution to the street maintenance budget is the same.

For example, a four story condominium building may create a density of 50 dwelling units per acre, while a single suburban home could occupy a half-acre lot, but if both are valued at $250,000, both are taxed the same and pay the same amount to maintain the public infrastructure, no matter how many feet of street they use.

How is that fair?

a condominium juxtaposed with a suburban neighborhood

A residential condominium in San Francisco by Gould Evans housing 14 dwelling units on .14 acres (image credit: Tim Griffith) and requiring only 7 inches of street per unit, juxtaposed with a suburban neighborhood in Kansas City with 2.3 dwelling units per acre and 136 feet of street per lot (image credit: Google Earth).

If we adjusted property taxation to more fairly allocate the cost to build and maintain infrastructure, suburban residents would pay substantially more than residents in more densely developed areas. Wouldn’t it make sense that properties be taxed for the services and infrastructure they enjoy?

Let’s go back to the topic of street maintenance. On top of raising property taxes by 33 percent to properly maintain our streets, now add redistributing taxation to more fairly assign the costs of maintaining streets to those who enjoy the use of those streets. It’s possible that total property taxes for those living in less dense areas of the city could double, maybe triple once we get a better grip on the math. Would anyone sign up for that?

It’s worth mentioning that this has only been about streets. Similar challenges face our deteriorating sidewalks, sewers and other utilities, plus highways and bridges, trash pickup, police and fire protection. The math could get really interesting.

We have choices. We’re choosing to spend nearly $1.5 billion this year on our city, including new streets and infrastructures that will eventually need to be maintained. It’s interesting to hear discussions about city incentives – essentially public investments – on speculative projects, hoping for a return. But shouldn’t we also be concerned about investing to protect the wealth – the investment in public infrastructure – that we’ve already created?

So many love Kansas City and want it to thrive and prosper. It’s wonderful that we are thinking and talking about the best ways to invest in a city that will be valuable to future generations. Maintaining what we’ve build needs to be a part of that discussion.

The Kansas City Skyline

The Kansas City Skyline (Image credit: http://www.mnu.edu/mnublogs/go-school-kansas-city/).

What are your thoughts about the real cost of the infrastructure we build? Comment below.

To see more articles in the “Plan to Build Value” series, click here.

-The Kansas City Planning Studio of Gould Evans

 

(1) http://kcmo.gov/publicworks/snow/faq/

 

 

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