Saturday, March 24, 2018

NO! New Dense Development Will NOT help keep our Property Tax Rate Low

I keep hearing the same things over and over again from the defenders of dense residential development: Germantown must crowd new residential buildings together, thereby straining traffic and services and otherwise affecting our quality of life, in order to prevent our property taxes from soaring. We must, in other words, grow, and grow big, if we want to avoid paying higher taxes. But is there any evidence for this proposition? Or, is it simply a myth? 

Evidence establishes that it is indeed a myth. It is a false narrative that, I fear, will result only in higher profits for developers and land owners at the expense of taxpayers. The bottom line is that residential growth of all types, whether dense or not, is likely to cause our property tax rate to increase, rather than keeping it in check.

I came to this conclusion only recently because I had been previously unaware that the BMA, in January 2015, had approved an $85,480 payment for a Fiscal Impact Analysis to study the effect of residential development on the City's fiscal health. Alderman Massey, perhaps because of my extensive background in Finance, suggested that I take a look at the study. Here are the minutes of the January BMA meeting approving the contract to do the study:

And, here is the final study itself:  

The study was completed less than two years ago. The first thing I noticed about the analysis is that the original 25-year plan indicated in the minutes was changed to thirty years in the analysis. That seems like a small difference, but why the change? More on that later. 

Let me first offer a little background about the format of the study. Throughout the analysis, two different scenarios were studied: (1) current (2016) "status quo" pattern of new residential development over thirty years, and (2) new "dense" residential development over that same 30-year period. 

At times, the analysis addressed the impact of each of these two scenarios by taking into account current fiscal conditions. In so doing, the study added each scenario's effect to the current (2016) fiscal conditions, and projected out those effects over a 30-year span. At other times, the study focused only on the marginal fiscal impact of each scenario, again over a 30-year period. This is explained by the study thusly: 

I will now share the good news I gleaned from the study.  

Figure 1 (from page 9 of the report) shows, under each of the two scenarios, the net fiscal impact (total revenues less total expenses) over the entire 30-year period. As can be seen, when added to the "existing base" (2015-2016 is the base), under each scenario, the net fiscal impact, when measured over the entire 30 year period, is positive. The chart below depicts is the "growth plus existing development" referred to in the screenshot included above.

Figure 1 Cumulative 30 year fiscal impact

Two important points jump out from this chart:

1. First, as just noted, under either the status quo (2016) growth pattern or the dense-development growth pattern, when combined with the City's existing development, we see a positive net fiscal impact during the 30-year period. In other words, given the study's assumptions, we could expect a reduction in total property taxes over the 30-year period under either scenario. Of course, we just had a property tax increase, and if that increase is taken into account, the positive net fiscal impact would be even greater. Sounds like great news, doesn't it? Under either of the growth scenarios contemplated by the study, the average annual net fiscal impact over thirty years is in excess of two million dollars per year. Yea!

2. Again accepting the assumptions of the study, the dense- development scenario yields, over the entire 30-year period, a slightly higher net fiscal gain than does the status quo development scenario. The average difference per year would be $328,000. Compared to the overall size of  Germantown's budget, this difference is insignificant (likely within a margin of error).  

Now for the study's bad news.

Let's look at the rest of the same chart. It assesses only the marginal net effect of new housing units -- that is, the growth alone without consideration of already existing development. For each scenario, there is a negative fiscal impact. The lesson from this study, therefore, is that, if our goal is fiscal health, we should limit all types of residential growth, whether "status quo" or "dense".

Figure 2, again taken from Page 9 of the study--cumulative 30 year fiscal impact

Yes, you are reading this correctly. Per the study, residential growth in either of the scenarios has a negative impact on the City's fiscal health. Although, again, the average annual negative impact of the status quo scenario is  $328,000 (1,270,000-942,000) greater than that of the dense-development scenario, the residential growth assumed in each scenario negatively affects the City's fiscal health to the tune of approximately one million dollars per year over the 30-year period.  

To summarize the data from the entire chart appearing at page nine of the study: Although the City would not be headed for financial doom, the idea that we must grow rapidly and densely in order to avoid future tax increases is flat wrong. In fact, according to this study, the City's fiscal health would be better if we stop residential growth entirely.

Given the study's projection that there will be a negative marginal impact under either of the two residential-growth scenarios, I am perplexed by the Mayor's September 2016 call for new rooftops when he advocated for a Winchester school site.  By September 2016, the Mayor was surely aware of the results of the July 2016 TischlerBice study. Why, I ask myself, did the Mayor advocate for an unpopular school location in order to add new rooftops two months after the Fiscal Impact Study concluded that new residential development would generate a marginal negative fiscal impact? 

Now, let me turn your attention to the study's population and residential-unit's growth projections for each of the scenarios.  
From Chart on Page 16 of Study

My eye is drawn immediately to the dense-development scenario, which projects that, over the 30-year period, 2,413 new residential units will be built. My jaw dropped and I almost choked on my coffee! You see, in making this projection, the study expressly assumed the same residential-growth projections as those used in the Small Area Plans. What a novel idea! Too bad the TischlerBice analysts apparently did not interview Planning Commission and BMA members. I remind you that the Planning Commission and the BMA, when voting on new developments, approved growth that greatly exceeded the recommendations of the Forest Hill Heights Small Area Plan.  Not only did the Mayor, when pitching for new rooftops in September 2016, ignore the conclusion of the TischlerBise Fiscal Impact analysis, the BMA and Planning Commission members also ignored that conclusion in their approvals of the recent new residential projects.

Let's do some math. The dense-development scenario assumes 2,413 new residential units over a 30-year period. This assumption may actually have been reasonable back when it was prepared. But, has anyone been keeping track of the residential units that actually have either been added, or  scheduled to be added, in the last two years? Here was my latest attempt to do just that, written a couple of months ago. In addition to the 1,188 rental units and 312 houses detailed in that post, there are now two more housing developments being planned in the Forest Hill Heights area. 

One of these developments is on the Reaves property. The BMA is in the process of voting to rezone this property from estate to residential, potentially at least tripling the number of housing units allowable on that property (and thereby tripling the negative fiscal impact?). The actual number of houses that will comprise the Reaves project has not yet been determined, but the ballpark number currently about 100 units. The second development, which is about the same size as the Reaves project, is now being planned on the Cheatham property. At this rate, it won't be long before the new Forest Hill Heights elementary school is filled and we will be faced with the prospect of building yet another school. Two years into the TischerBise's 30-year fiscal impact analysis, the City is already contemplating 1,700 new residential units. Remember: TischnerBise assumes only 2,418 units for the entire 30-year period that it assessed.  

Contrast this addition of 1,700 new units with the TischnerBice assumption that only 161 new housing units would be built in the first two years. We are thus on track, just within the first two years, to have ten times more new residential units than contemplated by the study.  Consequently, we are also on track to substantially increase the negative fiscal impact. Why have we allowed this to happen? 
Forest Hill Heights Area  Projects--Image Credit to John Peyton, Neshoba North Resident

And, also consider this: As pointed out in this January Blog post, Superintendant Manual stated that we might need an additional elementary school beyond the one being built now, given the pace of contemplated new development. But, TischnerBice's study assumed the City would need only one new school during the next thirty years. If, in fact, a second school does become necessary, this large capital expenditure would have to be considered in projecting future fiscal impact.  

Furthermore, here's another kicker. Not only does the study show that all types of residential growth negatively impact the City's fiscal health, it also tells us that the negative consequences are heaviest in the initial years. Some of us won't even be around thirty years from now, when, per the study, the fiscal impact finally starts to turn positive. Unfortunately, Page 8 of the study is unreadable on my pdf, but part of the graph below shows the projected negative fiscal impact that residential growth will have on the City's fiscal health for the first 25+ years of the 30-year period.

From Page 19 of the Study
In the above chart, the bottom two lines show the marginal fiscal impact of additional (new) housing--the green line is new dense growth scenario, and the blue line is new status quo growth scenario. As you can see, it is only past year 25 that either scenario shows a positive impact on fiscal health! I am compelled to conclude that this explains why the originally contemplated 25-year analysis changed to a 30-year analysis. Otherwise, no positive fiscal impact would ever have been shown in the study. And, as I have already noted, this analysis contemplates only one new school in the 30-year period. In addition, as I have also pointed out that, in year two of TischnerBise's study, the City is already contemplating approximately three-fourths of the residential growth projected for the entire thirty years covered by the study. If it turns out we do need another school, we probably will need  another Fiscal Impact Analysis, this time extended to sixty years, just so the City can project any positive fiscal impact at all, perhaps in year 55!

I could discuss other questionable assumptions in the study,  but I think I have said enough for this post. For those who want to further explore this, I direct you to page 12, just as an example. I take the following language to mean that the City can simply raise our user fees to help pay for new sewer infrastructure.  

Suffice it to say, I believe that the negative impact of new residential housing of all types is being underestimated. The possible need for a second school is just one of the reasons why I feel this way. In the meantime, please read the study yourself, and, unlike our leaders, pay attention to its conclusions. The analysis is quite well written and organized, and, except for the one page that is garbled, it is easy to understand. There thus is no need for me to delve into every single assumption of the study. 

In summary, our leaders are ignoring the conclusions of a taxpayer-funded study, and, in so doing, are risking the financial health of our community by continuing their inexorable march toward rapid residential growth. Since the study's July 2016 issuance, the number of new projects approved has been mind boggling. Even though there is an apartment moratorium currently in effect, its benefits have been undermined by the exclusion of both multi-family units and apartment projects that had already undergone part of the approval process prior to the adoption of the moratorium. Furthermore, rezoning the Reaves property will triple the number of single-family houses allowable on that plot, potentially tripling the negative fiscal impact from that particular housing increase.  

The political narrative offered by the City's leaders should be supported, not contradicted, by the available evidence - in this particular case, evidence paid for by the taxpayers. Don't be misled by the narrative that we must accept rapid and denser residential growth in order to avoid increased taxes. As the study commissioned by the City itself shows, limiting residential growth, not rapidly expanding it, offers the best chance to achieve fiscal health and protect our way of life. Let Germantown be Germantown. 


  1. Today, if you drive north on Exeter to the intersection of Neshoba, you can now see a 4 story, 378 unit apartment complex towering over the soon to be completed mixed use project nearby. If this is Smartgrowth, we should abandon the idea completely. Or soon we will be what many areas around Nashville have become....high density developments ruining what was a charming residential area.

  2. I have made several posts only because I find land-use issues very interesting, specifically when they involve moratoriums supported by an existing population in a effort to keep others out.
    What were the assumptions which defined the higher density residential development patterns in the report? Did the report (or you) differentiate the impact of different TYPES of residential development? Considering the volumes you have posted on this topic, surely you realize that the basis for assessment of value and tax rates are differentiated between properties that are detached single family homes, multi-family for sale and multi-family for rent. This matters because I see no mention here that states that “higher density residential development” consisted of garden walk-up apartments, a mixed-use high-rise consisting of condominium units over ground floor retail, or narrow lot detached single family homes (or a mix thereof). Seeing as you indicated a background in such matters, I would have expected you to understand that a true base line cost comparison would have assumed the same number of units for both scenarios with scenario 1 depicting the units at a low density and the same number of units at a much higher density. I find it interesting that a few individuals in Germantown believe that they have discovered the truth regarding development value and density, a market truth which apparently runs counter to the experience within essentially every other city in the United States! And to think, it just so happens to happily support the opinions reflected on this blog. Amazing coincidence.

    "Some of us won't even be around thirty years from now"- so you are saying this is really all about you and the short term, not what is best for the city's long term health? You see, some of us will be here in thirty years, or even if not, we want to make sure Germantown is a city that appeals to our children and our grandchildren. I suppose we should be taking a more self-centered view of life seeing as so many others in Germantown seem to prefer such an outlook.

    1. Well Barf, it is quite obvious that there are lots of folks in Germantown do not want all of the high density developments. They are not opposed to all developments and many of the BMA would like to think.

      The City of Germantown was built on very strict guidelines, from color schemes, small sign requirements to the heights of buildings. Not to mention the excellent public services that we recieve. But the current administration wants to throw all of that out to satisfy the need or greed of developers.

      Thanks, but no thanks. I don't want it and there are many others that don't either.

  3. Please read the report to get their assumptions. I have issues with some of their analysis but I cannot replicate an $85,000 Analysis in a blog post. The thirty year analysis was not even supposed to happen. The BMA voted on a twenty five year analysis! It appears to me that it was extended only because residential development never should any definitive benefit in the study until after year 25. The main issue that I have with the whole thing that supposedly in 25 years we only require one new school. At the growth rate in residential housing we are experiencing now, we could need another new school in year 5! Please read the analysis which was commissioned by the City. A significant part of the cost was related to school construction. Because fewer school aged kids come per unit from the dense growth scenario, that is one reason the per unit negative fiscal impact is lower in the dense scenario. But all residential units have a negative fiscal impact. When we make zoning decisions for a plot of land, we need to compare one zoning scenario to another. Therefore a per unit comparison is not appropriate. Even though there are fewer school kids per residential unit in an apartment complex than in single family homes, the apartment complex takes up less room. So, on a ten acre plot of land with apartment complexes, there will be more school kids than that same ten acre plot that is zoned single family. Therefore the negative net fiscal impact is greater if we zone that plot of land for apartments than single family homes, even though the per unit net fiscal impact is less for dense growth. Our SMSA is not growing, so we are not compelled to zone more densely to fit more people into less space. What is the point? All residential growth has a negative fiscal impact. You just can't get around the results of the analysis. Read it.

  4. Another great article Pauline! Thanks for your efforts