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.
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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.”
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“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.”
We can thank a well-intentioned State of Minnesota grant that would offset $700k by eliminating the potentially polluting septic systems. Yet, the residents are still saying that they’d like the city to subsidize more of the costs currently supported by assessments. “We need to be annexed — we want to be annexed,” [a homeowner] said. “But we’re asking for more assistance.”
In other words, the tax base necessary in this well-to-do neighborhood to support basic infrastructure just isn’t there. The problem is all the land and homes annexed by the city will get a quick infusion of cash, but this isn’t going to change the fact that in 25 years the maintenance obligations for this development will still be there, and will still be a net loss.
The neighborhood’s tax bill will increase after annexation, from around $2,000 to about $2,800. Does anyone think that extra $800 is going to help pay for the long-term obligations?
Let’s run some quick (admittedly) rough numbers:
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- $800 extra in city taxes annually x 61 homes = $48,800
- Multiplied by 50 years of infrastructure life = $2.44 million
Notice that $2.44 million is less than the $2.66 million infrastructure repair cost. Meaning, if all the additional tax revenue collected was put in an infrastructure bank for 50 years (and not a single dime went to any city services), the total still wouldn’t cover infrastructure.
Few seem to do the math to determine whether or not these transactions make sense. The City needs to do long-term financial analysis of the annexation, not just a cost estimate.
This isn’t an annexation. It’s a bailout.
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The question that is lurking over this conversation is “If not annex, then what?” For starters, we need to limit this type of development in the first place. Secondly, there isn’t a good answer. Not allowing them to hookup to city infrastructure will cause financial heartache, but hooking them up will do the same.
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