Thursday, March 29, 2018

Forest Hill Reaves Property--Costs, Benefits, and the City's Fiscal Health

Thank you to the citizens of Forest Hill Heights who spoke at the BMA meeting Monday night, and helped educate me  about the issues the neighborhood is facing. After carefully considering what was said, I feel that the Reaves property should maintain its estate-sized zoning for three reasons: 

 1. Changing the character of the neighborhood is contrary to the City's own Vision 2030 emphasis on wellness and natural resources, 

 2. For ethical reasons, the City's promises to the area when annexed and in subsequent years should be kept, whether or not there are legally binding agreements.  

3. Most importantly, rezoning to denser development from estate zoning impacts the City's fiscal health negatively. 

I discuss each of these three reasons below:

After listening to the residents of the Forest Hill Heights area speak passionately to the BMA this past week, I could not help but connect emotionally with their issues. What is it about a dead beaver in someone's front yard that got to me?  Well, I grew up in an area similar to the Forest Hill Heights area. Looking back on it, my Texas suburb was a bit of a magical place, with frogs in every mud puddle after it rained. I fed carrots to the horses across the street, and played field sports with neighborhood kids in an extended area of our backyard that we called "pony lot". 
I also learned astronomy from the dark night sky, not videos. After living in Memphis for decades, I feel almost back home again after moving here, even though I live in the western part of our beautiful city in a condominium. I am still close to nature, with Poplar Estates Park and the Greenway within walking distance. As one person pointed out in Citizens to Be Heard, what the Forest Hill Heights area is now facing is contradictory to our City's own Vision 2030, with its emphasis on wellness and natural resources. Let's be consistent when we talk about applying plans to neighborhoods!

The residents of Forest Hill Heights also speak of broken promises by the City - promises that the same estate-sized zoning would be kept. When past promises were broken they were replaced with subsequent promises such as the ones embodied in the Forest Hill Heights Small Area Plan, and we know what happened to those plans. Now the City openly states that past promises mean nothing, and only legally binding agreements will be considered when making zoning decisions. Some of us may have ethical issues with that approach. 

But, suppose we drop all the emotion! I am quite capable of that. And by all means, drop the ethics! I never acquired a fear of numbers, and can easily apply my math skills to a word problem. Plus, I heard two citizens call for cost/benefit analyses of various residential projects. We hear about them for the developers, but we don't ever hear about the fiscal impact for the City as a whole, one citizen stated. I hereby shed my emotional response, my inclination to be ethical, gear up my left brain for action, and apply skills gained from my public education to the following word problem-- 

Which Zoning Scenario for the Reaves Property Yields the Best Fiscal Outcome?  

As you can see, the Reaves property is 36 acres. It is currently zoned for estate-sized one acre lots. If it is developed using current zoning, 36 houses would be built.

Using the assumptions and conclusions of the City-commissioned $85,000 July 2016 TischlerBise Fiscal Impact Analysis, thoroughly discussed in this post, I compute the marginal fiscal impacts for three different scenarios. Apologies to all of my previous Finance professors - I am not using a "discounted cash flow" model for the simple reason that the TischlerBise Analysis assumes that there is no "time value" of money. In other words, a dollar today is worth exactly the same as a dollar thirty years from now. Note to detractors: this analysis would come out much worse for dense growth if I added any time value of money to the analysis.

a. This scenario is the easiest, as the area keeps its estate zoning but for whatever reason there is no development on the land. The marginal fiscal impact for the City's finances is zero. No math! And the best fiscal outcome.

b. In this scenario, we assume that the current zoning is kept, and 36 homes with one acre lots are built. The closest TischerBise assumption of cost/benefit of this scenario is the "status quo" growth scenario:  The status quo development net fiscal cost in Tischler Bise was an average annual negative ($1,270,000) over thirty years for 1,886 residential units. Each "status quo" residential unit built therefore costs the city an annual average of ($673) for the next thirty years. 

Conclusion: 36 homes x ($673)= ($24,228) 

The estate growth scenario, over thirty years, erodes the City's finances by an average annual $24,228. 

c. Now let's assume the densest growth contemplated for the thirty six acres, which involves rezoning the property to higher density residential zoning, and possibly adding a PUD. I believe I heard that the density could be 108 units on this property.  Although this still may also be closer to the "status quo" growth scenario in the Analysis than the "dense growth" scenario, for the sake of argument I am going to give the developer the benefit of the doubt, and go with the seemingly less costly "dense growth" assumptions. The dense growth development net fiscal cost in TischlerBise was an average annual negative ($942,000) over 30 years for 2,413 residential units.  Each "dense growth" residential unit built therefore costs the city an annual average of ($390) for the next thirty years.  

Conclusion: 108 homes at ($390)= ($42,120) 

The dense growth scenario, over thirty years, erodes the City's finances by an average annual $42,000.  

Fiscal Health Conclusion - 

A buildout of 108 residential units harms the City's fiscal health almost twice twice as much as a buildout of 36 residential units on the Reaves property. No residential growth, at zero marginal impact, is the best fiscal outcome for the city. 

Overall Conclusion: Consistency with Vision 2030, ethical considerations, and the fiscal health of our city all dictate that the City needs to preserve estate zoning on the Reaves property. If we are considering the best whole health of all concerned, why are we even contemplating denser growth for the area?



  1. Your analysis is, sad to say, incredibly inaccurate. First, in scenario “a” where there is no development on the land, there is in fact a fiscal impact on the city’s finances. The property still provides a source of taxable value to the city and the city still provides the property services. As for the rest, your model is entirely based on financial assumptions not defined. What was the composition of the residential uses in the TB report? Different residential uses are assessed and taxed at different rates. You assumed that TB’s model is entirely based on detached single family homes. Was that the case? Does the fiscal impact of a detached single family homes produce statically significant different fiscal impact when compared to a condominium unit, a senior housing unit, or a for rent garden apartment unit (the answer is decidedly YES!).
    The point here is not that you offended your professors by using a discounted cash flow model, after all, people are biased and are inclined to support their opinions with said bias. More likely they would be horrified by your utilization of figures which you did not define from a potentially politically motivated and thus flawed financial analysis to support an outcome that was heavily weighted by your opinion from the outset. In the pursuit of this predetermined outcome, you cast aside ethics along with any mention of data, variables or important information that might have produced a more honest result. A truly independent and impartial analysis would have sought to understand the assumptions employed by the TB analysis and then compared them to the plethora of other studies which have analyzed the same issues within the region, state and nation. But- you know- that might have gotten in the way or your opinion.

  2. In the first place, this is a "marginal" analysis. The first scenario has no fiscal impact because it is not "different" from what was happaning. That is why there is no fiscal impact. It is evident from your questions that you have not carefully studied the TischlerBise Analysis. They used two growth scenarios ONLY. So I used each of those. I can't write a new $85,000 analysis in a blog post, so I used their two growth scenarios. Of course there are different types of housing in each scenario. The point is that both MARGINAL growth scenarios have a negative fiscal impact. I did not have to define anything because all my assumptions came straight from the report, which you did not read, apparently. It is fine if you do not like the report we spent $85,000 on. But you should at least read it. If you think it is flawed, well I think it has some issues too. If anything it underestimates the costs associated with residential development. If the City does not like the TischlerBise Analysis, shouldn't they try to offer an alternative? Why no fiscal analysis? The reason they ordered the report was likely because they wanted to justify denser development. Dense development on a per unit basis costs the city less than status quo development. When you consider it on a per acre basis rather than per unit basis the dense development scenario is more expensive. Again, I was using the two different scenarios in the Analysis. In truth, I could easily have used the "status quo" development net fiscal impact on each of the Reaves Property zoning scenarios. If I had, the 1/3 acre plots, because it resulted in more units being developed, would have come out looking much worse than it did in my scenario. If it had been worth the effort, I could have done a discounted cash flow model, and the result would have been "off the charts" negative fiscal impact for the smaller plots. If someone wants to pay me $85,000 I guess I could try to come up with another report with all the variables you suggest. However, even in the long FischlerBice report they only use two different growth scenarios for comparison purposes.