Is downtown development possible without subsidies?

It seems like you can’t get anything developed in downtown Minneapolis or St. Paul without some sort of tax deal.

It’s not difficult to find an example: Pillsbury A-Mill, Izzy’s, Central Corridor development, Vikings Stadium, St. Paul Saints stadium, St. Paul’s Farmer’s Market Lofts, the Pentfield Lund’s, the American Academy of Neurology and that’s just scratching the surface. Whether you politically agree with these tax subsidies doesn’t matter, what matters is we acknowledge that we can’t keep this as the status quo for much longer.

The new economy will require multiple players who can produce small-scale, incremental development. This is how urbanism will be accomplished in the next 20 years, but it will probably need to occur outside of contemporary channels. This means creatively circumventing tradition lending methods, avoiding approval through out-dated bureaucratic methods and zoning approval processes, and by avoid the single developer mentality.

This is a small barber shop in Excelsior, Minnesota. It’s kind of ugly, but it is what we want! We put too much emphasis on large buildings and one developer coming in and developing a city block. This is one of the reasons developers feel they need the subsidies, because they are being asked to take on big initial financial risk. That’s precisely why they ask for subsidies (the other reason is that we offer them in the first place) and we shouldn’t necessarily blame developers for taking these subsidies. We should be blaming ourselves for giving it to them. I don’t fault the developer asking for $11 million in tax-exempt bonds to fund 550 parking stalls when the public is actually willing to subsidize at a rate of $20,000 per parking space!

The question is; how do you make these buildings (like the barber shop above) become a reality?

1. It happens on its own.

To me, this is the least satisfactory answer. If left to its own devices, I do believe this type of development will happen (eventually). The cost of gasoline, electricity and desire for authentic walkable, urbanism will increase to the point where we’ll make the transition.

It was not New Urbanism that killed suburbia. It was the financing of suburbia, struggling economy and jobs market and high gas prices. If these trends that crippled suburbia continue, which I believe they will, the development I’m referring to above will happen on its own. The problem is that I don’t think we can wait that long.

A lot of capital left with the financial collapse. Traditional methods of private financing that could have helped build what we’re talking about will likely be hard to come by. That means local governments, local businesses and local economies need to get creative.

2. Local Building / Infrastructure Bank

The idea of a nation-wide infrastructure bank has been thrown around in the media lately, but it’s concentrated on large-scale projects like high-speed rail and highway projects. I’m interested in seeing it happen at a hyper-local level for small development projects. My idea goes something like this:

Get local/ downtown businesses together, map empty and under-used properties in a particular area, create a development plan and get the city (or other entity) involved to add a small ‘special assessment’ to property owners. Let this ‘bank’ add up until you have enough money to develop. All the properties that accepted the special assessment would have an ownership stake in the new building- and profit from it being leased or sold. A collective organization could then manage and lease that property, returning any profit to those who paid the assessment. This also creates an environment where all building owners and tenants in downtown have a shared interest in its success.

3. Revising property tax

One problem that Minneapolis and St. Paul have is that of open-surface parking lots in downtown. Besides our love of the automobile, a reason I believe that they still exists (and continue to exist despite a ‘small‘ downtown building boom) is because of our system of property taxation. We put a tremendous burden on the buildings themselves and their capital improvements. The problem with this is obvious; parking lots don’t have buildings to be taxed (besides small wooden shacks). The answer to this is to tax land at a greater emphasis, based on proximity and other amenities, and not punish small land owners for putting up the type of buildings we’re looking for.

By modifying this element of our tax code, we are essentially incentivizing people to use their empty lots and encourage them to create better places. Of course, this seems nearly impossible to do under our current circumstances, so I am thinking it would be best to advocate for a ‘property-tax modification zone’ – with this, you’d simply draw up an area, similar to what you’d do with a  tax increment financing area, but make it a zone where land is taxed at a higher rate, but capital improvements are not.

4. Code-free zones

This idea of drawing a downtown zone and modifying the tax code could be plausible, and to add to it – what if we made it ‘code-free’ zone? Again, instead of the government granting TIF (or some other subsidy/tax break) to a particular area, it creates a ‘code free zone’. Now, there would need to be stipulations: it wouldn’t be “code free” per se, but more so a list of aims and objectives that would need to be reached.

Aims and objectives would be things like:

1) good urban design
2) added density
3) transit-accessible
4) walkability
5) decent architecture

In a sense, we’d be trying to achieve a version of Form Based Coding, minus the innate building regulations like bedrooms larger than 250 sq ft must have outlets placed 8 feet apart on all four walls, etc. I’m certain we can come to a societal consensus on what’s a good code and what’s a bad code. My rule of thumb is when you look at a code you can’t immediate pinpoint who lobbied for it.

The reason the ‘code-free’ zone is important is because its more people than just developers would be able to add to our built environment. One of the strengths that developers have is knowledge of building codes, how to get community and government approvals, etc. They know the system. If you were to have, for example; a hardware store owner, to build a new building, they may not have the know-how to build a structure or trust a builder/contractor to do so. But, if they knew they weren’t going to be fined / construction halted because they choose door frames 1/8 of an inch to short, my thought is that they would be more comfortable building something outside of a developer.

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This article is cross-posted between Streets.MN and Thoughts on the Urban Environment. I’d love to hear your ideas. Leave them in the comments section …

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5 Responses to Is downtown development possible without subsidies?

  1. David Greene May 29, 2012 at 12:07 pm #

    Your #3 is known as Land Value Taxation and it's a very good idea. Cities like Harrisburg, PA have had good success with it. We need to stop subsidizing people that sit on their land.

    • Nathaniel M Hood
      Nathaniel June 1, 2012 at 2:07 am #

      David –

      I'm looking to do an entire post on each point. I really like Land Value Taxation, too. I'm confident that it'll be able to help us transition to the place we need to be in 20 years. Thanks for reading. -Nate

  2. mides June 7, 2012 at 7:40 am #

    Working in the non-profit sector of development it seems that both cities lack the ability to make the subsidy (the provincial carrot) be tied to the things that they actually want to achieve in good urban design and well functioning buildings. Resources are hard to come by for even the smallest two story mixed use project. Subsidies will always be needed and sought out by potential developers and end users. So why not tie them to the things we want to achieve.

    1. No or little parking restrictions. How many projects stop dead cold because of variance issues around parking.

    2. fast track process for site plan approvals (lots of time and money get wasted at this stage).

    3. Point system for car share spaces, bike racks, and street furniture.

    4. Make the process easy and simple for that small project 1-4 stories usually mixed use.

  3. Nathaniel M Hood
    Nathaniel June 7, 2012 at 9:57 am #

    Mides – I'm not against some subsides, but they need to be tied to good urbanism, walkability, etc. They play a role, but I feel that it has become the rule, and not the exception. I would agree with your four bullet points, things like parking restrictions and the approval process can make for a long process.

    One side note; even without parking restrictions (read as minimums), I think there is still a market for parking downtown and developers will likely try to provide as much as economically possible. In my opinion, a lot of this deals with those wanting to live downtown, but having reserve commutes.

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