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Public Finance for Planners


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Public Finance for Planners
Jeff Levine
Adam Gaudette

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Public Finance for Planners

  1. 1. Public Finance for PlannersMassachusetts Association of Planning Directors2012 Annual MeetingSpringfield, MAPresenters:Jeff Levine, AICPDirector of Planning & Community Development, Town of Brookline, MAAdam Gaudette, AICPTown Administrator, Town of Spencer, MA
  2. 2. Why Should Planners Care?Adam’s Top 10 reasons:1)Finance Committees will seek budget line item explanations as part of Budget Process2)Revenues dictate the Town’s ability to fund your existing budget3)Revenues dictate the Town’s ability to increase your budget to fund new technology (GIS, etc.)4)Revenues dictate the Town’s ability to increase your budget to add staff to handle workoverloads5)Town’s borrowing position (ability to pay, reserves, etc.) will dictate cost of borrowing andwillingness to fund capital improvements – for that downtown revitalization project, for that sewerline to the industrial park, etc.6)Town’s financial position will dictate the need/desire to apply for grant assistance7)Town’s financial position determines ability to self fund or to rely on Regionalization efforts8)You will be asked about impact of possible new revenue streams (leasing land for Solar, Wind,Cellular; Recycling; etc.)9)You will be asked “What does Fiscal Impact Really Mean?”10)One day the Chairman of the BOS may ask you to fill in as TA because the TA just got fired!
  3. 3. The Role of the PlannerSo how does the planner affect all of this?Land use=moneyMost common model is thatnew development =new property or sales taxbut reality is more complicated.
  4. 4. The Role of the Planner (2)A recent debate on the MassPlanners listserv:“The ethical dilemma that Id love planners-at-large to consider is whether theres a "vested interest" in seeking "newgrowth revenues". With the huge pressure to encourage growth in tax revenue, there is huge pressure on the planner tohelp developers stuff as much building onto a property as possible, despite the impact to the community.Obviously, any humanistic planner would consider the cost to the overall community of "the growth" when "assisting theclient". But my observation is/was that planners spend a lot of time defending growth and convincing neighbors that therewill be little or no impact, and not much time helping reduce the number or size of the buildings. That may just be myobservation limited to what experience I may have.For example, I have noticed the MAPCs announcements focused on "accommodating" growth, "facilitating" andencouraging. And I ask myself...who exactly is going to pay for this growth. Certainly not the developers. And certainly notthe new tax payers.With so much pressure on the planners to create "new growth revenues" by managers who are trying to balance budgets,how can the planner really and truly consider the impact on the neighbors in terms of traffic and other negative valuefactors? In other words, with such vested interest is in growth, and shouldnt the question be whether planners should besubject to that pressure, when their "duty" is to serve all citizens, not just the developers and the town manager?Shouldnt that be the ethical question of the decade?With our cities crumbling after decades of the promise that growth will eventually pay, when are we going to stop thecharade? Theres obviously some kind of incentive tied to growth that goes beyond whether cash is trading hands in ashady bribe”.
  5. 5. The Role of the Planner (3)“Not only do elected officials concern themselves with the impact of growth on a community, but this is a definite concern ofPlanners.I think part of the dilemma is that who is it exactly that gets to decide whether growth is good or bad? I think that question isanswered based on the potential or experienced negative impacts of growth, which is not to say that growth is always anegative for a community. Also the question would be to what extent is a community willing to put up with the byproducts ofgrowth? Shouldnt the answer to this question be found in the Master Plan? Isnt that what Master Plans are for?I dont think its unethical for a Planner or a community to help a developer maximize the value of a property, or for thatmatter encourage growth, especially if the tradeoff is that other natural or historic resources get to be preserved. There isnothing wrong with the strategy to broaden the tax base, as long as the negative impacts of growth can be managed and/ormitigated.Not all decisions will be cost/benefit, the people in the community have the final say on plans and planning, and propertyrights always trump.”
  6. 6. The Role of the Planner (4)“” I would echo Rays comments, but add that what Master Plans do is identify the need for balancing public and privateinterests as the community proceeds toward its future, and how to achieve that balance. Professional developers andproperty owners (including neighbors) will always seek to maximize their own benefit and minimize their own costs (real orconceptual). They will always represent their own tribes interests first. Very few citizens are capable of keeping the widerpublic interest--the moving balance of community needs--in view. It is that moving balance that represent who "all citizens"consist of, not just the aggrieved neighbors who find intolerable the prospect of a different view out their kitchen window.There is as much danger to legitimate local democratic process from giving self-identified victims too much power as there isfrom letting development interests bulldoze the community. Neither represents the communitys true interest.For my part, maintaining that precarious balance between all of the legitimate interests is the real ethical question of thedecade, and in fact the challenge of this century. Without that balance, genuine local self-governance is frustrated. There isno functional difference between giving development interests too much latitude, and giving the minority of professional oravocational victims too much of a veto over the needs of the wider community. If there is no real balance, then none of it isworking and we are wasting our time.When we use balance as the template, then the choices are no longer unfettered slash-and-burn growth vs. perpetuallystymied growth. Self-determined smart (or even wise) growth becomes possible. While perfection will always be denied us,the key is maintaining that balance.”
  7. 7. The Role of the Planner (5)"There can always be a good debate about what a Planners role is or might be in the community development process andabout the ethics questions that revolve around that role. Obviously, bylaws and ordinances, rules, best practices, masterplans, and - yes - basic well established and publicized ethics rules are among the many things that guide a planners actionsand recommendations. In my work, I do not see special biases influencing outcomes such as pressures or desires tomaximize growth for revenues, or forces to thwart growth so as to avoid impacts. Sure, the voices are out there just like allthe many other sound bites for or against anything imaginable and debatable in our society - or like commercials just vyingfor attention. They do not influence me much individually. But, in the aggregate they probably do. After all, we humans actfrom within and in reaction to the times that we live in.”“Good responses so far to the value of master planning to help pre-determine priority areas for development and priorityareas for preservation. However, it is always site specific development that can spur controversy and I wanted to takeexception to the notion that planners help to maximize the density of development on a parcel. Yes the planners role is toguide applicants through the application process, but also to ensure that there is a public input component to that process,and to assist any abutters or other interested parties with questions about the proposal. However the size of the proposal isusually predetermined long before the planner sees it (speaking from 15 years in the private sector before jumping over thefence to the municipal sector in 1990). The developer hires an engineer/surveyor with a directive to design the biggestbuilding that can be built. The engineer reviews the various local requirements for setbacks, buffers, heights, FAR, parking,landscaping, etc and designs a concept for local approval. I see planners being pressured in the other direction, to downsizethe proposal or even make it go away (even in business friendly communities), but if allowed by the local zoning, then thebest you can do is condition it to minimize the impacts. The issues raised about community impacts are considered in thereview processes I have seen, and some communities are more successful than others in the extent of mitigation obtainedfrom developers. Planners do not defend growth so much as the bylaws that regulate land use and any master plans underwhich such bylaws were created. If there is general concern that submitted projects are too large, then you need to reviewand revise your zoning bylaw and other local regulations to better control the destiny of your build-out. Just because it hasbeen a tight economy for municipal budgets, the added suggestion that planners are involved in shady dealings is totallyuncalled for. Land use planning and decisions made thereunder are not a popularity contest, but a process based onspecific state and local rules and procedures, on top of which are a code of ethics that planners need to follow, which aresometimes at odds with what the public might want to be done. Planners and the boards we serve usually cannot say "no",so we have to focus on "how“. I think your observations on the role of a planner and the process of "how" decisions aremade are misinformed.”
  8. 8. The Role of the Planner (6)What is the role of planning in public finance?Is it our job to make sure it doesn’t all becomeabout money?What about long term vs. short term?What about net vs. gross?What’s so bad about revenue anyway?
  9. 9. Municipalities as ChoicesMunicipalities can be seen as a “packagedeal” you can “purchase”For $x a year, you can get a certain set ofgoods and services. Some will pay more to getmore, some will pay less to get less.You can change a package from within (byvoting for change) or by choosing a differentpackage (by moving.)
  10. 10. Tiebout HypothesisAlso known as the Tiebout Model, Tieboutsorting, etc.Coined by economist Charles Tiebout in 1956Basically views communities as baskets ofgoods and that people choose their basketbased on their preferences.Assumes a lot- perfect mobility and perfectinformation.
  11. 11. Mobility by VotingYou can change the community you live inwithout moving- by electing officials you agreewithSolves issue of having perfect mobility but stillneed perfect information- how will that personactually change things (or not.)
  12. 12. Mobility by MobilityIf you don’t like the place, move!People do this all the time for one particularpublic service, often without perfectinformationWho moves?Those with moneyThose who feel comfortable in a variety ofcommunitiesThose who aren’t tied to a specific place
  13. 13. Municipalities as ClubsSimilar to the Tiebout HypothesisPeople like to be with people they are likeExplains “peoples’ republic” communities likeCambridge, Madison, AustinNot just a fiscal issue – but has fiscal impacts(tend to affect expenditures and also how localregulations affect the market.)
  14. 14. INPUTS OUTPUTSProperty Tax Public WorksExcise Tax EducationRooms Tax Public ServicesMeals Tax Public SafetySales Tax Building InspectionsFees PlanningFinesIntergovernmental TransfersBorrowingInputs and Outputs
  15. 15. Types of Inputs●Annual receipts – estimated in prior year●Long Range Financial Forecasts –estimated several years in advance●Grants (usually received annually)●“Leftover” money – such as Free Cash●Bonds and other borrowing – need to becredit worthy
  16. 16. Types of Outputs●Operations●Capital●Reserves●Generally operations should be funded outof funds received annually and capital froma mix of sources. Reserves are designed tosmooth out rough patches such as revenueshortfalls
  17. 17. Town of SpencerHow does a Town Budget work?
  18. 18. Types of Revenue:Property and Sales Tax1) A town’s only guaranteed revenue is tax levy (state aidand local receipts not guaranteed). Collection success rate iskey!2) Economic market dictates the ability of taxpayers to paytheir taxes.3) Economic market dictates the ability of taxpayers to funddebt exclusion requests (major capital expenditures)
  19. 19. Property Tax Limits●California did it first with Proposition 13 in1976.●Massachusetts passed Proposition 2 ½ in1980 (went into effect in 1982)●Many more followed and continue to follow●Limit levy, rate (mills) increase, and/orexpenditures
  20. 20. Proposition 2 1/2●Limits total levy increase to 2.5% a year●Also limits increase in rate to +2.5 mills/year●Exceptions: voter override; “new growth”●In practice, background growth ingovernment spending goes up more than2.5% a year●What are the planning implications of this?
  21. 21. Brookline New GrowthFY New Growth98 $ 1,144,30899 $ 1,475,51600 $ 1,741,77301 $ 1,727,66402 $ 1,908,92903 $ 2,491,97904 $ 2,491,07305 $ 2,386,25106 $ 2,232,94507 $ 1,989,68308 $ 2,584,68009 $ 1,828,26110 $ 1,762,21211 $ 1,829,08412 $ 1,984,224
  22. 22. Spencer New Growth
  23. 23. FY07 FY08 FY09 FY10 FY11Meals Tax 504,079 915,797Hotel/Motel Excises 799,339 742,744 788,531 907,474 1,244,887Meals Tax and Hotel TaxBrookline Examples
  24. 24. Types of Revenue:Fees, Excise Taxes, Bonding1) Economic market dictates the ability oftaxpayers to pay user fees – sewer & water . Again,collection success rate is key!2) Economic market dictates excise tax income,building permits, etc.3) Bond rates and Investment Income – cost ofborrowing is low, but trade-off is return oninvestments is low, or even non existent.
  25. 25. Fees- Brookline ExampleFY Sign/Façade Subdivision/ANR Preservation ZBA Fees Plan Review TOTAL2007 NA NA $ 4,812 $ 15,300 $ 45,315 $ 65,4272008 NA NA $ 4,605 $ 10,125 $ 54,445 $ 69,1752009 NA $ 1,200 $ 5,565 $ 15,095 $ 81,355 $ 103,2152010 $ 19,695 $ 1,235 $ 4,268 $ 20,650 $ 28,232 $ 74,0802011 $ 18,514 $ 2,235 $ 5,675 $ 27,600 $ 41,947 $ 95,9712012 (to date) $ 7,175$600 $ 2,607 NA NA $ 10,382
  26. 26. Fees- Spencer Example
  27. 27. Local Aid- Spencer Example
  28. 28. Types of Revenue:Special Assessments, DIF’s, Capital Planning1) Special Assessments and DIFs2) Capital Planning – reliance of Free Cash tofund capital programs when turnbacks and fees arelow
  29. 29. Free Cash - Spencer Example
  30. 30. Looking at Fiscal Impacts ofDevelopment1) Lack of user fees in Massachusetts2) Student population – changes in Ch. 703) Impact on municipal services, ability tohandle (sewer capacity, etc.)
  31. 31. Mullin’s Strengths•Removes emotion from discussion- thatproject won’t bankrupt the schools or publicsafety•Also can dispel notion that all growth is good,esp. under property tax caps where growthallows an exception
  32. 32. Mullin’s Weaknesses•Need to know what you are doing•Need to have credibility•Useful on larger projects where margin is lessambiguous – not for a single-family home•Need for political, social and environmentalfactors that can’t be easily quantified•Also- though he doesn’t mention it – theinherent need to point out uncertainty.
  33. 33. Mullin’s Methods•Average Costing Methods vs. MarginalCosting Methods•Average costing methods- per capita; servicestandard; proportional valuation (fornonresidential)•Marginal Costing Methods- Case study;comparable city (good when no precedent);Employee anticipation technique
  34. 34. Local Costs•Schools, schools, schools – Both marginalcosts of new students and fixed costs of newstudents. Books and paper are marginal;buildings are fixed; teachers are somewhere inbetween. Can use an average cost per studentas a combination•Public safety costs- how many fire and policecalls will take place? Will ne building type neednew equipment?•Fixed costs can be financed
  35. 35. Local Benefits• Property tax revenue• Excise tax revenue• Sales tax revenue• Consumer power• Value of human capital• Usually just the tax revenues…
  36. 36. Exacations• Pay to play• If your project is going to cost my city money,I want you to pay for it• Some see as an end-run around taxes, butits as much an attempt to assign costs directlyto those requiring that the city incur thosecosts.• Also sometimes used as a growthmanagement tool.
  37. 37. Brief History• As old as Euclid vs. Ambler Realty Co.• Only began being used for costs external to aproject (roads, schools, parks) in the 1950’s• Picked up steam in reductions in federal aidand as taxes became less of an option• Linkage fees (such as inclusionary housing)are the newest trend in exactions
  38. 38. Types of Exactions1. Dedications (donate for public uses)2. “Tap fees” (to hook up to utilities)3. Fee-in-lieu (if you need a park but can’tprovide it)4. Linkage fees (such as inclusionary)5. Impact fees (pay for an appropriate fractionof a need)
  39. 39. Federal Basis for Exactions• Nollan and Dolan• Nollan- 1987 case Nollan vs. CaliforniaCoastal Commission ruled that someexcations could be takings if no “reasonablerelationship”•Dolan- 1994 case Dolan vs. City of Tigardruled that there needed to be a “rationalnexus” between what was exacted and theproject, and the amount given had to be in“rough proportionality” to the impact
  40. 40. In other words…•Don’t just shake them down, have a plan forexactions•Study what your costs really will be and askfor a proportional cost with a nexus to theimpacts.•Thus the need for good fiscal impact studies.
  41. 41. Public-Private Partnerships1) Infrastructure (Assembly Square MBTAstation, Gateway East/Village Squarecirculation)
  42. 42. SUCCESSFUL PUBLIC-PRIVATEPARTNERSHIPS• An oft-abused term that can often be aeuphemism for public subsidies of privatedevelopment•Key is negotiating a good deal, with goodmeaning more than just good to the bottomline•Good may mean accomplishing publicpurposes, having positive externalities, orcontributing to quality of life.
  44. 44. ExamplesCASE STUDY- WIFI IN BROOKLINETown offered lease for public poles forTown-wide wireless. Company sets it upfor free, offers public safety and parkingmeter access. Subscribers pay for monthlysubscription except in certain free spots.Only works if demographics are right.Town becomes dependent of privateinfrastructure.
  45. 45. Federal Grants Over Time2007Enacted2008Enacted2009Enacted2010Enacted2011Enacted2012EnactedEntitlement $2,592,790 $2,510,501 $2,544,477 $ 2,758,902 $2,307,224 $2,058,763Non-Entitlement$1,111,196 $1,075,929 $1,090,490 $ 1,182,386 $988,810 $882,327Insular $6,930 $7,000 $7,000 $6,930 $6,916 $7,000Total CDBG $3,771,900 $3,865,800 $3,899,999 $4,450,000 $3,302,950 $2,948,090(in thousands of $$$)
  46. 46. ExamplesFisher Hill Reservoir – BrooklineTown offered surplus Town reservoir site as asite for mixed-income housing at a set price(below market) with Town subsidies foraffordable unitsSale price paid for design and development ofpark on adjacent propertyWho held the risk? Who gained?
  47. 47. Intergovernmental Transfers,Redistributive Policies1) Reliance on grants to fund operatingcosts (Spencer examples – library, police, fire,COA, etc.)2) Community Development Block Grantfunds
  48. 48. Tax Exempt Institutions1) The big scary monster in the room2) Solutions- depend on how much leverageyou have• Land leasebacks• Binding agreements• PILOT’s• Strategic planning and zoning
  49. 49. Capital Improvement Programs•What is a Capital Project? Long livedinfrastructure, durable goods like vehicles,housing developments, land acquisition.•Can be anything over a certain cost, oranything designed to last for more than 1 year.•Can a study be a Capital Project? Yes, ifexpensive enough, in some municipalities
  50. 50. How do you Determine One?•What are your Capital Needs?•How much money do you have to pay forthem?•How do you put them together?•Generally they are fiscally constraineddocuments for a 5 year period. Year 1 is “real”and the other years are enlightened guesses.
  51. 51. Who Runs the CIP Process?•Usually Public Works and Financedepartments.•In Massachusetts the Planning Board istechnically responsible for the CIP, but inpractice it is usually delegated to a CityManager’s office
  52. 52. How Common Are They?More common in a City Manager form thanstrong Mayor. Any idea why that might be?When they do exist, often loose connection toland use planning.When they do exist they may not always befiscally constrained.
  53. 53. Recommendations for Planners inCIP process (Elmer)1. Establish policies linking CIP to land useplan2. Develop support for land use plans throughcapital investments3. Influence others’ capital facilities(externally)4. Use conservation and other strategies forenvironmental benefit5. Increase public participation in process
  54. 54. Public Finance for PlannersMassachusetts Association of Planning Directors2012 Annual MeetingSpringfield, MAPresenters:Jeff Levine, AICPDirector of Planning & Community Development, Town of Brookline, MAAdam Gaudette, AICPTown Administrator, Town of Spencer, MA