Report: To meet infrastructure maintenance costs, local governments need to rethink land use policies

For better or worse, geographic boundaries separate local jurisdictions and define the parameters within which local governments can operate. Land and its value dictate tax revenue – land rich in natural resources, or close to important destinations, commands more value than one that is remote.

It is a limited resource that must be carefully managed. As localities densify and the world moves deeper into the digital age, outdated land management strategies are becoming increasingly evident. Land use plans often fail to take into account the monetary impact certain features will have in the long term, according to the latest paper published as part of the Rethinking Revenue Project, a joint venture of the Government Finance Officers Association and the ‘International City/County Management. in association with support from the American Planning Association, the National Academy of Public Administration, the National League of Cities, the Government Finance Research Center and the Harris School of Public Policy at the University of Chicago.

The project aims to rethink the way local governments fund themselves through new revenue ideas and alternative tax standards that are more in line with modern business practices. Previous publications have highlighted the problem with current revenue systems and developed a criterion for evaluating the effectiveness of proposed changes.

“Historic land use decisions did not provide enough taxable activities to pay for the cost of maintaining the infrastructure that was built to serve development,” reads the report, “The Root of Local Government Revenues “, which highlights the importance of land use, and unpacks the relationship between land and income. At least in part, this lack of foresight explains why “many local governments struggle to fund infrastructure maintenance and replacement.”

As an example, the report describes the expansion of the sewer system in South Bend, Indiana. In 1960, the system served a population of 132,000 people and expanded over the years by adding more lift stations and waterlines. Today, however, the population has shrunk to just over 100,000, and the city faces a challenge similar to that faced by many cities in the United States: “Land use patterns incompatible with long-term financial realities. Sprawling, low-density development patterns drive infrastructure growth beyond the city’s ability to generate revenue to maintain it.

In this modern era, it is incumbent on local governments to think beyond the immediate expenses of a given project, the report asserts. They must seek “a reliable, long-term solution to their structural income and expenditure imbalances” and “become more intentional in making financially wise land use decisions”.

A major hurdle that local governments face in expanding current land use practices revolves around priority: is it appropriate for governments to change the way they generate revenue? Traditionally, public services are seen by voters as entirely altruistic and for the general good. But while this perspective may be correct in theory, it does not take into account the mechanics of responsible stewardship practices.

Another sticking point, as noted in the document, is that “higher incomes per acre will generally require denser and more intensive development per acre than many communities tend to support. This historical aversion to denser development may lead to objections to local government using its regulatory power to encourage higher revenues per acre.

On its own, the private market may not evolve in a way that supports local government, and voters do not understand the complexities of municipal management, even when it is in their best interest or that of their children.

“In many communities, there is not enough revenue per acre in the community to fund the maintenance of infrastructure that has been built to serve less dense areas,” the report says. “These areas require more miles of lane, linear feet of water pipes, etc., to serve the same number of people. Insufficient revenue per acre means maintenance and replacement costs are passed on to future generations. Thus, current consumption is subsidized by future taxpayers.

Density is dictated by zoning, and the researchers argue that it is up to the local administrator to leverage regulatory power in ways that “promote a public policy goal of financially viable local government.” A local administration in good financial health and better maintenance of public transit, public safety and other public services.

To that end, the report outlines concrete steps local governments can take to improve revenue per acre: making financially savvy development the easier choice by changing it so that conventional development models are not the default. ; calculate revenue per acre for all areas to develop a baseline; encourage infill development and build rather than externalize; require a cost-benefit assessment for potential new development; understand the tax impact of building and zoning regulations, then adjust accordingly; identify areas where cross-subsidies occur and consider charging for them.

Cross-subsidization occurs when the cost of development in one area is subsidized by revenue generated in another area of ​​the community,” the report explains. “Sometimes cross-subsidization is intentional and acceptable. Other times it is unintentional and unrecognized. In the latter case, it may make sense to remove the subsidy, especially when the subsidy encourages unsustainable development models. »

These methods have been proven. South Bend, for example, changed its regulations to encourage density and the reuse of existing buildings, filling in unused areas of the sewer system. And Lancaster, California identified low-density development (the city had more infrastructure than its tax base could support) and was able to encourage denser development to even out the long-term gap.

Irrespective of policy changes, “local governments need to rethink how their approach to land use planning takes into account the financial impacts of development choices,” the report concludes. “Land use underpins a local government’s revenue system because property tax (and sometimes sales tax) is an important source of local revenue. If land within a government boundary is not productive to generate revenue, it will be difficult, if not impossible, for the local government to meet the costs of providing services and maintaining infrastructure.