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Recent Studies Suggest that White Flint is the Remedy for County’s Revenue Shortfalls

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NEW URBAN NEWS, Volume 15, Number 6 – September 2010

“Best bet for tax revenue: mixed-use downtown development”

Studies in Florida and North Carolina show that dense urban development pays off for local governments. Big-box retail doesn’t.

At a time when local governments are struggling financially, two studies – one in Sarasota County, Florida, the other in Asheville, North Carolina – suggest the one of the best fiscal remedies is dense, mixed-use development.

                The studies, by Public Interest Projects, a real estate development firm in downtown Asheville, show that on a per-acre basis, sprawling single-use developments such as big-box stores do a poor job of providing governments with needed tax revenue. Dense, mixed-use development, usually downtown or adjacent to transit, is financially much more beneficial.

                Peter Katz, director of smart growth/urban planning for Sarasota County, commissioned J. Patrick Whalen, Jr. and Joseph Minicozzi of Public Interest Projects to analyze how much property tax is produced per acre by various kinds of development. Looking at specific properties – from high-rise buildings in the City of Sarasota’s downtown to big-box stores and shopping malls across the country – the researchers discovered that dense, mixed-use urban development is far superior.

                From a tax revenue-per-acre (versus per lot or per household) perspective, the properties that are typically occupied by retailers like Walmart, Costco, and Sam’s Club turn out to be very disappointing. They generate about $8,350 per acre – “maybe $150 to $200 more per acre per year than single-family houses in the city like mine,” Katz says.

                The county’s premier mall, Westfield Southgate, anchored by Macy’s, Dillard’s, and Saks Fifth Avenue, was found to produce almost $22,000 per acre – nearly three times as much as a big-box center. “This is not surprising, given that it’s a higher-quality building in a better, close-in location (actually within the City of Sarasota),” Katz notes.

                Yet even a top-of-the-line mall pales in comparison to the per-acre revenue obtainable from dense urban development. A 17-story mixed-use building occupying .75 acres on Main Street downtown generates $1.01 million annually in city and county taxes, according to Katz. That building, completed in May 2007, which has retail in its base, several floors of offices, and then condominiums in the upper levels, produces $1.2 million per acre in county property taxes alone. “It would take about 145 acres of Walmarts – or five of them, to be precise – to equal the contribution of that one downtown building,” says Katz.

                “Even a mid-rise mixed-use building – about seven to nine stories – in the downtown brings in a healthy amount per year, from the mid-$500,000s to just under $800,000,” he says. “Low-rise construction – just two or three stories, with housing or offices over retail – the kind of ‘town center’ redevelopment now replacing many older suburban shopping areas, can bring in around $70-90,000 per acre. The high end of that range is more than four times that of the county’s highest earning mall,” Katz emphasizes.

                Similar patterns were found in Asheville and Buncombe County, North Carolina. Per acre, the best generator of county property taxes in the Asheville area was urban residential buildings of six stories or more, says Minicozzi. Ranking below those as tax generators were mixed-use condos of 3 to 4 stories and urban mixed-use buildings of 2 to 4 stories.

ALWAYS HIGHER RETURN

                “Downtowns achieve a higher rate of return than an acre of suburban development could ever do,” Minicozzi says. The reason is simple: “Once you start getting two stories, you start getting twice as much value.” As buildings go higher while covering much or all of their ground, the revenue escalates.

                Minicozzi argues that a municipality should look at tax revenue per acre just as a farmer looks at income per acre: “Urban development produces a valuable yield, like that of a cash crop, while low-density suburban development is the equivalent of growing an acre of grass. By our estimates, suburban development doesn’t even cover the cost of the infrastructure that serves it in a reasonable period of time.”

                When land and buildings are included, the suburban Asheville Mall produces taxes of $7,995 per acre for the county. That’s slightly more than the yield from one- and two-story buildings in the central business district. But keep in mind that many downtown buildings surpass the mall in tax contributions.

Greg Trimmer

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