Sustaining our cities through sound fiscal stewardship
An introduction to methods and approaches Verdunity has created for cities to better steward their financial resources.
As humans, we have always built cities to elevate the quality of life for people. We all benefit from coming together for that common goal.
However, in recent decades, many cities have been prioritizing growth and perceived quality of life improvements in the short term without considering long-term impacts and resource constraints.
Whether or not our cities can withstand the test of time boils down to our ability to be better stewards of our resources, beginning with our land and our money. And this is where we see a profound opportunity for today’s city leaders.
At Verdunity we encourage cities to use fiscal sustainability as the foundation of your community’s vision and help you manage your financial resources with transparency and intention. We strive to unpack the city building process, how it impacts the fiscal future of cities and their residents, and what we can do together today to positively impact that future.
I. The challenge.
Aligning your development model with what citizens are willing & able to pay for.
Communities across the country are struggling to address growing needs with limited resources.
In most cities, the development pattern is not generating enough wealth (tax base) to pay for services and infrastructure. There’s a gap between what residents believe their tax dollars should cover, the true cost of these services and amenities, and the actual resources cities have available to meet these expectations.
We think there’s a better way to steward our resources so that service costs align with what citizens and businesses are willing and able to pay for now and in the future.
We encourage cities to use fiscal analysis to quantify and map the fiscal performance of their development pattern and then use this information to make more informed decisions on land use, infrastructure and economic development and better manage financial resources with transparency.
Here’s what that comparison looks like mapped out in 3D…
Want to see what the revenue-per-acre looks like for an entire county?
Click below for an interactive map (use the zoom buttons in the top left and your mouse to pan around inside the image)
Below is an interactive map of appraised value by parcel in Dallas County.
Just like the 3D maps above, parcels are divided into 6 equal value categories. The darker the green, the higher the value of that property. As before, larger lots tend to have higher values. But…
Compare that with this Dallas County map of revenue per acre by parcel.
We see the same trend as we did with the 3D example above: Larger lots do not translate to higher revenue on a per-acre basis. The picture looks very different when we focus on how efficient the land use is.
Interested in seeing what YOUR county looks like?
We have maps of 2017 and 2018 levy data available for several other counties in Texas and are continuing to expand our historic data.
We are currently prioritizing mapping for 2019 data based on interest and fiscal partners. If you are interested in participating in a model for your county, please contact us via the form at the bottom of this page.
Next, we add in costs to find out the net revenue performance of individual parcels. We can think of it like adding layers on top of each other.
Step 1. Revenue per acre.
We start with how much money is coming into the City’s coffers.
Step 2. Revenue minus budgeted costs.
Next we subtract the budgeted costs that are paid for from property tax revenue. At the citywide level, this will appear to be a net-zero equation because cities set their budget to equal the revenue they have coming in. But parcel-level mapping reveals that certain development patterns are in fact revenue-positive, while others cost more to serve than they generate in revenue.
Step 3. Subtracting additional unfunded service costs & liabilities.
This is where the picture really starts to change. Unfunded costs and liabilities are things that a city needs (or is expected to provide), but does not have included in their budget. Examples include additional public safety personnel and equipment, deferred street maintenance/replacement and increased maintenance and operations costs for existing municipal facilities. These costs often get deferred during annual budgeting, but in most cases, they do not go way, and in fact, the costs increase the longer they’re ignored. When we add in these unfunded costs, some parcels stay positive even with the additional costs, but others either go into the red or go even further negative.
Some of these costs can be eliminated or reduced with intentional planning and design, but some of them (like street replacement) have a significant negative impact on the community if left unfunded.
Another way of looking at it: Return on investment (ROI).
Another useful way to think about this is return on investment of taxpayer dollars. ROI maps show the value returned for every dollar invested.
Step 2 – ROI: Revenue minus budgeted costs
Just as in the revenue per acre maps above, green parcels are generating a positive return, while red indicates parcels that cost more to serve than they’re generating in revenue.
Step 3 – ROI: Subtracting additional unfunded service costs & liabilities.
III. Improving decisions.
How do we make sense of all this information?
Understand which development types pencil out — and which don’t.
Once the modeling is done, we can look at how different development patterns perform now and over time as the full development costs come online.
1. Contrast revenue per acre with average structural value
We've heard many conversations from city officials, staff members, and private developers trying to identify the average home value that generates enough revenue so that development pays for itself. It’s a misguided effort and completely the wrong metric to look at for cities. It’s an appropriate metric for developers, based on how they generate revenue to recoup costs. However, a city generates costs and revenues differently than a private developer. Many cities are trying to get bigger lots with homes in the highest price range possible. It’s a potentially dangerous effort considering the negative relationship between revenue per acre and lot size we’ve seen in our work.
In every city we've worked with, we find an inverse relationship between the revenue per acre and the average improvement value per lot for both single family residential and commercial properties, as illustrated in these two graphs.
Notice: as lot size increases, the structural value tends to go up, but the revenue per acre decreases — for both residential and commercial properties.
2. Performance by land use
In addition to maps, we also use the data to build some enlightening tables. This first table describes how development categorized by the state land use code performs. Appraisal districts assign properties with the use code for taxing purposes, so these categories more closely reflect what's been built than zoning or land use districts will. In this table we break down single family, multifamily, and commercial uses into lot size segments to reveal patterns in how lot size impacts fiscal performance.
Take notice of how these numbers reflect the trends illustrated in the charts shown previously. As the lot size increases the average improvement value (Average Imp Value) also increases, but the revenue per acre (Rev / Acre) decreases. You can also see how the different development patterns perform across scenarios A & B.
3. Performance by zoning type
We also run the same data queries for the zoning districts, land use plan districts, or both for a city we partner with. In this table you see how the City of Pflugerville's zoning districts perform when developed. We can use these trends to project how undeveloped land with the same zoning might perform fiscally.
IV. Closing the gap.
How can this be applied?
Every city is different and there are many ways our fiscal analysis can be applied. Here are a few of the more common scenarios and examples from cities we’ve worked with:
Establish fiscal sustainability as a critical metric for growth management, development character and budgeting
Bastrop, Texas: City leadership is using fiscal analysis to reinforce fiscal sustainability as a priority outcome and guide community-wide conversations and policy decisions on growth, development and budgeting.
Prioritize infill to close infrastructure funding gap & increase return on service investments
Brownsville, Texas: Used fiscal analysis to develop fiscal baseline for the city, understand how and where to invest resources to close their funding gap, and prioritize economic development incentive (TIRZ) opportunities that supported the City’s goal to revitalize the core downtown.
Explain the fiscal value of diversifying housing & commercial development patterns
Pflugerville, Texas: Used fiscal analysis concepts to build alignment within Council, expand the conversation around density and mixed-use development, plan for future infrastructure obligations, and maximize value capture of key development sites in a fast growth suburb.
Inform future land use & growth management plans
Crowley, Texas: Used fiscal analysis and context data to inform future land use, housing and infrastructure elements of Comprehensive Plan to position the city for a fiscally sustainable future after the growth phase.
Evaluate the fiscal impact of proposed development
Pilot Point, Texas: Used fiscal baseline and context data to show how a new small lot (higher density) development would help the city close its fiscal gap.
Interested in learning more about your community’s fiscal situation and making more transparent, informed decisions?
Contact us to learn more about what information we have available for your area and how we may be able to help.