Among urbanists, it’s basically an accepted Truth that more compact development patterns reduce public expenditures per resident. Fewer lane miles and feet of pipe per resident means lower tax bills, while also making it possible for services to cover more residents with the same physical infrastructure (police or fire stations, etc). There’s a whole organization around the idea based in Brainerd, MN; perhaps you’ve heard of them. If not, some other urban advocacy groups shared this image to highlight the savings of a compact city over a more suburban one:
Here’s the problem. In the real world, it’s harder to prove this out. Minneapolis and St Paul–the most urban, walkable, dense cities in the metro–spend a good deal more per resident than basically any of our suburbs, with higher property tax rates to boot. Don’t believe me? Ask a typical Star Tribune commenter (for a more nuanced take, check out a previous streets.mn comment thread). Or, wait a few paragraphs while I lay some groundwork.
What’s Included, Property Taxes vs Revenue vs Spend
First, let me be clear that this post isn’t complaining about Minneapolis (or St. Paul) taxes. Maybe there are some inefficiencies to be found in City Hall or reforms to be made, but that’s a topic for another day. Second, I should also clarify that Minneapolis is not a high property tax city when compared to large cities across the country. This Lincoln Institute report [pdf] shows that for various homestead market values, Minneapolis tax rates are below average, while apartment, commercial, and industrial properties pay a higher rate than average (draw your own conclusions as to who this shift benefits to). But in general, tax rates in the city are neither outrageously high nor low relative to our peers.
My analysis doesn’t include the budgets of any school districts or transit services. This may not seem fair given 1) urbanists claim savings for school budgets and 2) public transit is a major mobility component for many urban residents (though perhaps not as many as possible) who would likely make those same trips by car in a suburb. However, given the K–12 school funding model in our state and my inability to accurately parse out shared transit costs to individual cities in our region, I left them out.
Finally, we need to acknowledge the difference between the city’s property tax levy, the city’s total revenue streams, and what a city spends per capita.
For Minneapolis, property taxes represent less than a quarter of total revenues brought in. Charges for services (waste hauling, water, etc.) make up a huge component outside your annual tax bill, and the city receives payments from the state (e.g., Local Government Aid), Uncle Sam, from permits, fees, assessments, and a host of sources. These funds may be required to cover costs of running particular business units (“Enterprise Funds”), or they may be dropped into the General Fund, over which the city council has a bit more discretion in how to allocate on an annual basis. Minneapolis’ revenue stream makeup will look different than Eden Prairie’s, but that’s how it generally works.
With that out of the way, how do the core cities stack up from a property tax perspective? I used the League of Minnesota Cities’ Property Tax Calculator to estimate a bunch of city taxes (not including school or county levies) within Hennepin County plus St Paul for good measure:
This analysis only looks at homesteaded properties (excluding commercial, apartments, and industrial) at various market values. It’s clear that Minneapolis is above average relative to its suburban peers. Someone with a keen eye for our region’s land use patterns would point out that more urban suburbs like Richfield, Robbinsdale, Golden Valley, and Hopkins also tend to be higher than their sprawly counterparts.
On the other side of the coin, we see that Minneapolis and St. Paul spend more per capita (in total) than their less dense suburbs:
I shortened the list of peers because digging through budget documents can be a chore. Minneapolis spends over 50% more than its Hennepin County peers at just over $3,000 per capita. I wanted to know more, so I separated out spending into buckets:
As an aside, this was very challenging. No two cities report spending by department the same way, so I had to make up categories that define general roles of government. I also went through each city’s capital spending and dumped them into appropriate categories (in retrospect, this may have been a bad idea as capital programs vary year to year, but I wanted to capture the type of ongoing capital spending that maintains streets, parks, and emergency equipment).
I was surprised to see that Minneapolis’ public works department spends a good deal more than many suburbs (this is an area where I thought the city’s inherent density would lower costs), and also surprised to see the parks budget very much in line with other municipalities given how many non-resident park users there are and the effort it takes to maintain such a well-regarded system.
So Why is Spending Higher?
At this point, we could just pack it up and conclude dense environments are inherently costly to serve. But I want to offer up a list of reasons why the core cities spent more per capita in 2014 than their suburbs. Some are more conjecture than others, and I hope it encourages some solid discussion in the comment section. I also roughly ordered them by (my perception of) their budget impact magnitude.
1) Infrastructure Age – Almost the entirety of Minneapolis was built-out before 1950 (with at least half before 1924-ish). This means we’re on the second or third lifecycle for every street, and we’re routinely doing major repairs or replacements to 80+ year old water mains, sanitary and storm sewers. Our parks are in a similar cycle of maintenance and major renovation. This simply isn’t the case for many suburbs in our region, even first ring ones like St. Louis Park and Edina. Major chunks of Eden Prairie and Bloomington haven’t had to replace their streets yet. This affects the annual Public Works budget in a major way, but how much exactly, I can’t say.
2) Mismatch in Provided Services, or Programs – There’s a long list of things Minneapolis and/or St. Paul provide that many suburbs do not (or, spend less per-capita). Additionally, core cities are home to more regional-serving infrastructure. Examples include:
- Garbage, recycling, and composting pickup
- Affordable housing
- The Minneapolis Convention Center (4% of Minneapolis expenditure)
- A park system that disproportionally serves non-residents
- Municipal ramps downtown serving regional employees
- Streets & bridges sized to handle vehicle traffic with a higher share of non-residents than suburban streets
We could debate how much of an impact each of these alone have on per-capita spending, and to what extent less dense suburbs do the same, but I’m willing to bet it tilts in favor of central cities.
3) Core Population Decline – Minneapolis once held 521,000 people, and it just crossed over 400,000 in the last couple years. I’m of the opinion that our city could handle over 650,000 with the infrastructure we have, but even dividing our current budget by 520k people brings the Minneapolis to average suburb spend ratio down to 20% rather than 50% higher.
4) Infrastructure/Service Quality – These are things cities typically provide but suburbs choose not to. Sidewalks on both sides of the street vs one or (more commonly) none and public street tree planting/maintenance (vs none) come to mind. These things are essential to creating a healthy walking environment, and suburbs mostly avoid the costs by simply not building this infrastructure. One could go a step further and point out that some suburbs choose to offer a lower quality emergency response service. My hometown, Lakeville, has a volunteer fire department which saves residents money, but has much higher average response times than Minneapolis. Minneapolis has publicly maintained alleys. In these cases, there is no right or wrong, just a set of expected outcomes.
5) Concentration of Non-Taxpaying Properties – Minneapolis and St Paul are host to quite a few universities, non-profit campuses, state and federal government buildings- places that don’t pay property taxes yet require streets and water and other services all the same. Those costs are passed on to residents and businesses, and I suspect this is more prevalent in the core than suburbs.
Depending on your ideology (or zip code), these may sound like “excuses” rather than “reasons.” I thin it’s fair to say that geometry is inescapable. A square mile served by the same area of pavement and feet of pipes will cost less per person at Minneapolis density than Eden Prairie’s. But we should also acknowledge that “public works” activities only account for about 30% of a city’s budget to begin with, and big cities choose to spend more on more, or higher quality, services for residents that suburbs just don’t feel are necessary.