Suburban Annexation is a Bailout

This story is not unique: a mid-sized Midwestern town is preparing to adopt a 50-year-old neighborhood. If you read between the lines, news of annexation often times read as case studies against low-density suburban development. This article from Mankato demonstrates (unintentionally) why these types of subdivisions can be so problematic.

All quotes related to the annexation were taken from the Free Press. I recommend reading it here first.

South View Heights No. 2 is not part of the city, everything surrounding it is. The 1960s subdivision has been leapfrogged by other development over the years, but has rejected opportunities to join city and receive services on the premise that taxes remain lower.

City v Not City

These are homes befitting the American Dream of the 1960s. The neighborhood has nice, modest homes and is surrounded by creeks and ravines. Nothing fancy, but residents genuinely care for their homes. Relative to the area, the homes in South View Heights are above average that range in value from around $170k to $290k. The median home price is approximately $213k, which is around $40k above the local average (thanks Zillow).

After the city adopts this neighborhood, the average house will pay around $2,800 per year in taxes (up from the current $2,000). Keep these numbers in mind and ask yourself, “Will the extra $800 in extra city taxes help cover the true long-term costs?” Water. Sewer. Roads. All in disrepair.

50 years has passed since homes in South View Heights were built, and as the newspaper accurately puts it; “The new addition to Mankato’s family of neighborhoods is handsome enough, but it’s showing its age.” 

“The water tower, obviously, is broken, and (roughly 85 percent of) the septic systems are non-compliant,” said [a homeowner]. “And we have a failing water line. And the road is shot.”

This is the end of the first life-cycle of infrastructure, and this hamlet of 61 homes is unable to tax itself the necessary amount to fix the things that need repair.
Homeowners petitioned the city to consider annexation. This move would hook the neighborhood up to city water and sewer lines and help fix the street. The City on Mankato estimates a hook up at around $2.66 million (approximately $40k per household).
“A recently completed feasibility report put the preliminary assessment against each property at $29,298 — which is down from earlier estimates that approached $40,000. (Most residents also will face several thousand dollars in costs for utility connections from their home to the city lines.)”

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27 Responses to Suburban Annexation is a Bailout

  1. Eric Anondson
    Eric Anondson January 18, 2016 at 11:23 am #

    I suppose annexing could be done in conjunction with a temporary assessment to pay for the costs of bringing up to standards and linking to the city system. Otherwise why should the rest of the city residents add on a losing bet? Adding these residents hurts those in the city right now.

    • Nathaniel M Hood
      Nathaniel M Hood January 18, 2016 at 11:51 am #

      It’s a precarious situation we’ve put ourselves in. I agree that we shouldn’t completely abandon people, but I also feel very (very) uneasy with bailing them out.

  2. Sean Hayford Oleary
    Sean Hayford Oleary January 18, 2016 at 11:31 am #

    I think Eric’s on the right track with assessments. In general, people should pay for public improvements that exclusively (or almost exclusively) benefit them, that preserve or increase their property value. That should probably include construction and maintenance costs for culs-de-sac, which unlike a traditional street grid, really serve only those who are immediately on it.

    After all, I’m sure there are similar areas within the city of Mankato already. This is just more convenient to reject since it needs to be annexed.

    • Sean Hayford Oleary
      Sean Hayford Oleary January 18, 2016 at 11:33 am #

      And to be clear — I realize there’s a big assessment up front. But doesn’t the city assess for regular projects (the ones 50 years out from now)?

      • Nathaniel M Hood
        Nathaniel M Hood January 18, 2016 at 11:53 am #

        There are connection fees that need to be paid up front (e.g.: sewer from the street ROW to the house). However, I believe most city’s will allow the increase to be added to the property tax bill over the course of 20 years (sometimes 30 years). This varies per municipality (that’s my understanding).

      • Nick January 18, 2016 at 11:56 am #

        I seem to recall reading something recently (Strib article maybe?) about cities ‘adopting’ private roads in subdivisions. The key point in that article was that cities were only willing to absorb the infrastructure once it was brought up to ‘average’ standards. So, rather than an assessment, the city could tell them to figure out a way to fix the pieces that are broken and then ask for annexation. That might get them to think about maybe connecting for water an sewer first (which may not require annexation but would be expensive), and then fixing the street later.

        Possible side effect: maybe they end up stepping away from annexation once they get water and sewer? Not sure if that’s a benefit or drawback.

        • Nathaniel M Hood
          Nathaniel M Hood January 18, 2016 at 12:28 pm #

          Adopting subdivisions (especially cul-de-sacs) is the opposite of what most towns should be doing.

      • Monte Castleman
        Monte Castleman January 18, 2016 at 3:13 pm #

        That’s my thought too- if the streets need repair in another 25 years they could have another assessment like just about every other city does to any other neighborhood. That’s doesn’t factor in to the articles math. Pretty much every other neighborhood would lose money for the city too if you don’t count in assessments.

    • Nathaniel M Hood
      Nathaniel M Hood January 18, 2016 at 11:57 am #

      You use a very good word to describe this example: “exclusively”

      This particular neighborhood is a closed network of cul-de-sacs. There might be a stronger case for annexation if there were some greater road (or sewer) network connection to the greater community.

  3. Emily Metcalfe January 18, 2016 at 2:11 pm #

    Is the county the current local governing body for this subdivision? Are their roads considered private, and therefore not under county maintenance? And the water system is completely private?

    • Nathaniel M Hood
      Nathaniel M Hood January 18, 2016 at 2:21 pm #

      County, yes. Road and water system are private. They have a water tower (small one), but it is apparently in disrepair and causing issues. Fixing / replacing the water town is not within the subdivision’s budget.

    • Sean Hayford Oleary
      Sean Hayford Oleary January 18, 2016 at 2:22 pm #

      Nathaniel might have more details, but usually in these situations, the roads are township roads, which the county may do some maintenance for (depending on the township/county). But in general, the level of improvement is up to what the homeowners are willing to pay for, since standard town roads are typically just gravel. It is quite rare to see township roads fully improved with curb and gutter, since even a small internal stormsewer system requires regular maintenance. I’ve seen some other variations, too, like township roads with private/association-maintained street lights (a subdivision south of Northfield).

      Some subdivisions might do private roads, but in this case (according to Blue Earth County’s public GIS site, they are public roads.

      Dunno if they have some coordinated water system, but it sounds from the article like each house is doing their own septic. They may well each have their own wells.

      • Adam Froehlig
        Adam Froehlig January 19, 2016 at 9:02 am #

        According to MnDOT GIS data, these are township roads and not private. Also complicating things is that the subdivision is in two different townships. Eastern half is in Mankato Township, while the western half is in South Bend Township.

  4. Jon Davis January 18, 2016 at 7:48 pm #

    Good article but you left out one point. What is in it for the city? By getting rid of the non-compliant septic systems and installing city water and sewer service they eliminate a major source of groundwater pollution just upstream from the city center. For the difference in financing, using your math, of $220k that may be a good deal in the long term.

    • Alex Schieferdecker
      Alex Schieferdecker January 18, 2016 at 8:16 pm #

      This might be part of their calculus. But man is it a bad look, because it comes back to the same essential principle: the city is being forced to pay for the destructive decisions of a group of people who wanted nothing to do with the city when they were on top, and now come begging for a handout when their poor choices come back at them.

      • Eric Anondson
        Eric Anondson January 18, 2016 at 8:32 pm #

        If this were industry coming to the city asking the city to annex their plot of land in order to using the city’s budget clean it up and make the land pollute less we’d all be throwing the squint eye at why that should happen.

        • Sean Hayford Oleary
          Sean Hayford Oleary January 18, 2016 at 10:09 pm #

          For whom and for what does the city exist? Presumably, the health and prosperity of the people who live there (“there” perhaps being a little fuzzier than corporate limits).

          The city shouldn’t bankrupt themselves, and these residents should pay for their share — living on a large plot of land with city services is a luxury product, and should be priced accordingly. But I don’t think it’s simply fair to say it’s not a money-maker and abandon it — in the same way we might for a hypothetical industry seeking a subsidy for a new type of development.

          (Ironically, I think many cities would offer generous subsidies to an industrial company doing exactly that. Whether that’s a good idea is perhaps shaky.)

          • Nathaniel M Hood
            Nathaniel M Hood January 19, 2016 at 11:30 am #

            These are all important questions. And this is why I love the streets.mn comment section. I don’t know many places with this quality of dialogue.

  5. Kareem Smith January 19, 2016 at 8:16 am #

    This is an unfortunate story. The risk a community took in the 1960’s to have their version of the “American Dream” as an oasis, rather than a community, has now put them in a rough spot. I wonder how many of the original owners of the homes still live there. I’m betting its few if any. I’m sure most of the current homeowners had no clue how poor the infrastructure would be. A 40% additional assessment is huge, but as one commenter above said, it doesn’t even cover the total cost. It doesn’t sound as if its that big of a concern to the city of Mankato’s residents, or they just aren’t involved. Point being, the current subdivision residents shouldn’t be punished for the actions of their (likely) predecessors, and the current residents of Mankato hopefully are understanding of the financial burden they’re about to take on.

  6. Alex Cecchini
    Alex Cecchini January 19, 2016 at 8:57 am #

    I’m a little confused on the math here.

    The city *is* assessing the property owners $29,300, plus a few thousand in utility hookup fees (which go toward covering some of the extension capital costs), right? So, at 61 homes, the properties are paying a collective $1.8m of the project’s $2.66m in cash, today (or, more likely, the assessment will be added to their tax bills over 10-15 years). Yes, the city is lucky the state is giving the $700k grant – this is a cost that is not borne by the users of the septic systems that are causing the damage, and it should be realized in the price they’re paying now (ie, these homes didn’t collectively pay the state $700k over the past 50 years for their actions).

    But even if you amortize the gap between the assessment and cost of improvement/hookup (~$860k, this hypothetical assumes the state didn’t give the city the $700k grant) over 50 years at 4% interest, you’ve got a per-household annual amount of $652, less than the $800 the city plans to tack onto the tax bills. I don’t know that $150 is enough to fund each home’s share of fire, police, city administration, etc. Probably not, but also not a huge shortfall. When you run the same scenario with the $700k grant, each home is on the hook for their share of $160k over 50 years, or $121/HH/year. I’d guess the remaining $780 per household covers the generic city services they now receive. Which tells me the big bailout isn’t from the city itself, but from the state. And this is for annexation of lots between 0.5 and 0.65 acres – what would the math look like for typical suburbs with quarter acre lots?

    • Nathaniel M Hood
      Nathaniel M Hood January 19, 2016 at 11:31 am #

      Great points Alex. Thoughtful comment as usual. I’m re-working this post for Strong Towns and will include your points (as well as the points of others above).

  7. David Markle
    David Markle January 19, 2016 at 12:00 pm #

    This article in the NY Times provides an interesting contrast.

    http://www.nytimes.com/2016/01/17/us/in-maine-local-control-is-a-luxury-fewer-towns-can-afford.html

    • Nathaniel M Hood
      Nathaniel M Hood January 19, 2016 at 8:59 pm #

      David – Thanks for sharing. Interesting take.

  8. Wayne January 19, 2016 at 1:53 pm #

    Why don’t they just call their local Howard Roarke and have him magically capitalism up a solution for themselves?

    • Nathaniel M Hood
      Nathaniel M Hood January 19, 2016 at 9:00 pm #

      Wayne – For most people, capitalism is great until it isn’t.

  9. Dave January 24, 2016 at 12:46 am #

    There is this thing called special assessments. They could be quite useful in this situation.

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