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MRSC has joined with Phil Olbrechts, Attorney, Ogden Murphy Wallace, Pat Dugan, Dugan Consulting Services, Arthur Sullivan, Program Manager of ARCH (A Regional Coalition for Housing), and Anindita Mitra, founder of CREÄ Affiliates, LLC, to bring you the "Planning Advisor" article series on planning and growth management issue affecting Washington Local Governments. The "Planning Advisor" will feature a new article each month with timely information and advice you can use.*
The Capital Facilities Balancing Act
October 2007
By Pat Dugan
Dugan Consulting Servcies
Introduction
Of its many promises, the Growth Management Act (GMA) sought to assure Washingtonians that new development could be effectively served by appropriate public services and facilities if that growth was better anticipated and managed. Many people also hoped that planning under GMA would reduce the costs of providing those public services and public facilities. How well these goals are achieved depends on how well GMA comprehensive plans integrate and balance land use plans with plans for supporting facilities, and the financial capacity of jurisdictions to pay for needed facilities and services.
One of the most important, yet least understood, parts of a comprehensive plan is the capital facilities plan (CFP) or element and its relationship to the land use plan. In adopting the land use plan the local government makes a commitment that the land use intensities and pattern of uses is appropriate for the community (I will refer to this as the land use “commitment” of the plan). The capital facility plan should address how that commitment should, or could, be supported by necessary facilities. The plan should then, in turn, address how those facilities will be financed.
In this edition of the Planning Advisor, I will explore the relationship between the land use commitment and the CFP and how a balance might be achieved between the land use commitment and the community’s ability to finance the public services and facilities needed to sustain that commitment.
Integrating finance with land use planning requires some caution. I’ve heard it said that there are two significant pitfalls to incorporating finance into the GMA planning process. The first pitfall is to involve the finance director in the planning process since the pessimism and cautiousness of the typical finance director will tend to dampen and constrain the “dreaming” about the future essential to a good visioning process. The second pitfall is to not involve the finance director because the plan may then become fiscally unrealistic and difficult to implement. When considering the role of financial planning in comprehensive planning, one always needs to remember that it is a question of how to balance “thinking creatively” about the future while simultaneously being concerned about how to pay for that future.
Land Use and Financing Relationships
Land use and public financing are interrelated, as illustrated on
the adjacent diagram. Planning for more development in the land use
plan requires more public facilities and services. These services
and facilities require financing. At the same time, more development
generates revenue to finance those facilities and services.
Development of public facilities can also affect these relationships
since adding infrastructure, such as new transportation facilities,
can attract new development.
A comprehensive plan should balance these relationships to assure that the land use commitment made in the plan can be financially sustained over time. The plan can achieve this balance by:
- Adjusting the amount, location, or timing of the land development (demand side);
- Adjusting the amount of public facilities and services or the level of service (LOS) provided by those facilities and services (supply side); or by
- Adjusting the amount of financing available.
Since these actions are interrelated, balancing between them can become complex. For example, while additional revenue can be generated by economic development, the additional demand from new development for more facilities and services needs to be taken into account.
Adjusting the Land Use Commitment
The opportunity for development established in the land use plan represents the “demand” side of the balance. The amount, location, and timing of this development (or the “land use commitment”) will drive how much money will be required to finance the facilities needed to support that commitment.
The impact of the planned amount of growth on the demand for public facilities and services seems self-evident. The more people residing, working, shopping, playing, or visiting in the community, the more public services and facilities that will be needed. Reducing the amount of growth planned usually reduces the amount of services needed. However, reducing the amount of growth will also reduce the amount of revenue that will be available through taxes from new development.
A great deal of growth management literature also recognizes the importance of where new development locates. One of the most influential growth management publications was The Costs of Sprawl, which found that higher density development is less costly to serve than low density sprawl. Similarly, it is not hard to demonstrate that locating new development where there is infrastructure capacity in place is less costly than locating the same amount of development in an area that must be served by new facilities.
The least recognized part of the demand side of the balance is that when new development occurs also significantly affects the ability to finance supporting facilities. Since more revenue is generated over several years than in a few years, usually it is much easier to finance new facilities to support that growth if the development is spread out over several years rather than occurring all at once.
The timing of development is often closely linked to its location. Trying to support a lot of development, all at once, in several locations, takes far more resources (needed sooner) than directing development to a few, appropriate locations where facilities can be efficiently provided. For example, extending or improving water, sewer and street facilities out to one location may efficiently serve four hundred new housing units in that location, but locating those same four hundred units in four batches of one hundred units each in widely different locations would require more costly extension or upgrading of those facilities in order to reach four different locations at the same time.
Since the timing of development has a very strong influence on the ability of the jurisdiction to finance facilities, many people advocate “phasing” of development in different areas at different times in order to effectively manage costs.
Adjusting the Supply of Facilities and Services
The manner in which new development is served impacts the costs of those services, thereby affecting the balance between the land use plan and the ability to financially support it.
A basic concept in capital facilities planning is level of service (LOS). While LOS can be measured in many ways (park acres per capita, response times for emergency vehicles, sophisticated measures of traffic congestion, gallons of water capacity per equivalent residential unit, and so on), the concept boils down to a question of how much facility or service is necessary to be “adequate” to support a given amount of development? Sometimes there are fairly objective ways to answer this question, such as in the case of how much water pressure is needed to provide adequate fire suppression. Most often, however, the answer is more subjective: is five acres of parks per thousand population adequate or should it be ten? The cost of providing parks to new development would double if the answer is the latter rather than the former. How much congestion can the community tolerate? Is transportation level of service “C” really necessary or can we get by with LOS “D” or even “E,” especially if we must tax ourselves heavily in order to maintain “C”?
While the quality of services provided is an important aspect of a community’s quality of life, maintaining a high level of service can be costly in a rapidly growing community. Some of the most important decisions in a planning process can be whether to raise taxes or manage growth differently in order to maintain a desired level of service.
Adjusting the Amount of Financing Available
The ultimate determinant on the supply side of the balance is how much can the jurisdiction afford?
No comprehensive plan can be carried out unless the supporting infrastructure can be financed. This reality should compel jurisdictions to make an accurate assessment of their financial capacities and limitations. While this is potentially a complex task, it should involve several basic questions:
- Evaluating Financial Capacity: How much wealth does the community have? How much assessed value or sales tax volume is there? What are per capita incomes? What is the jurisdiction's debt capacity? Does the jurisdiction have capital reserves and how much are they?
- Understanding Tax Effort: How effectively is the jurisdiction accessing (or how much is it straining) its financial capacity to provide ongoing services? What are the property tax rates and are all available taxing authorities being utilized? How much of the debt capacity has been used? How willing is the community to support being taxed for new services? Are some tax revenues reserved for growth related capital?
- Analyzing Trends: What are the revenue and expenditure trends? Are revenues keeping up with the expenditures, and why or why not? How well has the jurisdiction competed for grants? What has the jurisdiction's bond issue experience been? What facilities in the community might be supported by voter approval and what types of facilities could not be supported in tax levy?
- Understanding Basic Financing Tools: How can debt be effectively used to finance facilities? Are there tax authorities not being used and who would pay the tax under each of those authorities? How can more financing be contributed by developers using various developer finance tools (such as impact fees, local improvement districts, developer agreements, mitigation payments, etc.)? How much revenue can be generated by all of the various tools?
Answering these questions should provide an understanding of how well the community can respond to the needs identified in its plan. This understanding can become the basis of the financial strategy that should be the heart of the capital facilities plan.
While some financial management training might be needed to fully understand and interpret the answers to those questions, a planner working with the finance staff can often develop basic insights.
Understanding the Community
In achieving the balance between the land use commitment in a comprehensive plan and the community’s ability to finance the needed services and facilities, it is important to recognize that "one size" does not "fit all" in capital facilities planning. For example, the needs and capacities of a rapidly urbanizing suburb on the edge of a metropolitan region are very different froth the needs and capacities of a small, rural community.
Financing issues associated with an older “inner-ring” suburb will be very different from those of a newly developing “outer-ring” suburb. The outer ring suburb will probably need to develop strategies to finance new facilities that open undeveloped areas for development. The inner ring suburb, in contrast, may need to develop very different strategies to finance retrofitting facilities to support infill. Similarly, while the capital facilities plan of a rapidly growing suburb may involve complex issues requiring sophisticated techniques and a range of financial measures, the plan of the small, “built out” community can be quite uncomplicated and relatively easy to afford for the community.
The effectiveness of various financing tools will frequently vary between communities. Impact fees can be very effective in circumstances where they complement other revenue sources, but in other circumstances, these fees may not generate enough money to actually do something. Similarly, Local Improvement Districts (LIDs) might be very effective in developing an undeveloped area, but be very difficult to do in infill situations.
Conclusion
The land use commitment of the comprehensive plan is a commitment that the local government and its residents will need to live with over the life of the plan. The capital facility element should address how well the community will be able to “live with” the financial obligation to support that commitment.
The ability to balance between the land use commitment in the comprehensive plan and the community’s ability to support it financially can be improved:
- By planning the amount, location and timing of new development with an eye toward the ability to finance that growth in different locations at different times;
- By considering the levels of service that are needed to serve new development; and
- By understanding the fiscal capacity of the community and the tools available to finance needed facilities and services.
Balancing land use decisions with financial strategies to fund the supporting infrastructure is growth management. If we achieve a sustainable balance, we should find it easier to ensure that needed public facilities can be provided at the time of development and at lower costs than without this planning. If we do not achieve this balance, we cannot be successful in providing the benefits many people hoped would be provided from the Growth Management Act.
Pat Dugan has a unique combination of experience in both planning and public finance, spanning 35 years. As a planner, he has been a planning director in two cities (Auburn and Burien), and two regional planning agencies in Oregon and Washington; and was a planning manager in Goleta, California. In public finance, Pat has served as the chief financial officer in four public agencies including the Cities of Auburn and Lynnwood, and the Snohomish County Public Works Department. He has written extensively on financing capital facility programs and on public finance for planners. Pat now offers planning and public finance consulting services and in his own firm, Dugan Consulting Services in Everett and can be reached at consult.dugan@verizon.net.
Anindita Mitra, AICP is the Founder of CREÄ Affiliates, LLC a planning and urban design consultancy that focuses on creating awareness of unsustainable practices, and offers a platform for affected parties to openly communicate and collaborate to arrive at creative sustainable solutions. She is also one of the Co-Chairs of the Climate and Sustainability Initiative of the Washington Chapter of the American Planning Association. Anindita's current interests include the development of sustainable master plans and streetscape designs; establishing sustainable community indicators and their integration into comprehensive plans and governance; identifying creative solutions directing communities towards energy-independence; preparing communities for the challenges potentially brought upon by the Climate Change phenomenon; and advancing the integration of transit and non-motorized travel solutions into community land use planning. She has worked throughout the United States for both the public and private sectors.
Phil Olbrechts is a member (similar to partner) and elected member of the board of directors of Ogden, Murphy, Wallace, LLC. Phil focuses his practice on land use law and currently represents seven municipalities as either City Attorney or Hearing Examiner. He has taught over a dozen credits of land use law at the University of Washington, has taught numerous land use continuing legal education courses and has made over 200 land use presentations to elected and appointed officials throughout Washington State. Phil has served on the Seattle Planning Commission and in the past served as the Planning Director for two municipalities.
Arthur Sullivan is the Program Manager of ARCH (A Regional Coalition for Housing). ARCH is a coalition of 16 public jurisdictions located in East King County. Its purpose is to facilitate efforts of public jurisdictions to create a full range of housing, with an emphasis on affordable housing. In 2004 ARCH was the winner of the inaugural Ash Institute / Fannie Mae Foundation Innovations in American Government Award in Affordable Housing. Previously Arthur was a Senior Manager at BRIDGE Housing and planner for Environmental Impact Planning. He holds a B.A. in Planning from the University of Washington, and a Master of Planning from UC, Berkeley.
*The Articles appearing in the "Planning Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.