Wednesday, May 1, 2013

Street Improvement Districts

In the world of Minnesota transportation planning and finance, there’s been a bit of a buzz lately about Street Improvement Districts (SID). Cities love them (generally speaking), and so does the League of MN Cities; contrarily, property owners recently made aware that SID language has stayed alive in state legislative process are upset Why? No new taxes!

To take a step back, let’s first explore what a Street Improvement District is and is not. Per the language and authorization in the MN House omnibus tax bill (HF 745) which is currently in conference committee (as of April 29th), the legislation will enable statutory and municipal governments to establish the districts to fund future roadway maintenance, repair, and reconstruction. Currently, the bill’s language limits the fees that can be charged to no more than two times the fee of another property class within the district, a provision that came from a version of the bill introduced on April 24 by Rep Ann Lenczewski (DFL – Bloomington). The language of the bill also does not exempt tax-exempt properties from the SID fees.

The authorization prohibits the city from creating districts that overlap to include a property in more than one district, and requires costs of street improvements and maintenance to be apportioned on all parcels or tracts of land in the district on a uniform basis within each real estate classification. The city may elect to apportion the cost based on market value, tax capacity, front footage, or area, but regardless of the method chosen, no class of property can bear more than twice the cost that it would if the method used apportioned the cost uniformly across all classes of property.

Under the street improvement district requirements, the city would develop a street improvement plan, which would be adopted after notice and public hearing that identifies the district before the fee may be imposed. Fees must be imposed for a period of at least five years and no more than 20 years.

Advantages of Street Improvement Districts
Soften the financial blow of major reconstruction projects, especially in municipalities like Edina that require property owners to fund 100% of local roadway reconstruction costs
Provide a more reliable funding source than property taxes and special assessments
Allow municipalities to plan and fund maintenance, which is what many cities seem to struggling the most with, despite proven roadway maintenance benefits (approximately every $1 spent on preventative maintenance can save up to $7 in repair or replacement costs).
Preserve new infrastructure (through maintenance)
Responsibly investing in needs of future community, especially in terms of funding maintenance costs
Depart from the benefits test (Nolan v. Dolan) that frequently pushes special assessments into legal grey area
Provide cities a flexible policy and greater resources in order to meet growing demands for municipal  street improvements and maintenance

Disadvantages of Street Improvement Districts
Cap on fees (no more than twice a single family home) would allow some businesses to extract more benefit from this financing mechanism; this cap is too generic, and does not allow for cases where a property generates a disproportionate amount of trips or heavy-axle traffic
Could create a very political boundary drawing process (see above)
Creation of a SID does not necessarily require a city to eliminate special assessments; public perception right now is that it will be an added tax on top of existing assessments

I was surprised to learn that MN municipalities have stumbled over the legality of special assessments (and effectively tried to levy the same type of fees that could be charged under SIDs as special assessments) for many years, and the League of MN Cities has been lobbying language to create this enabling legislation for the last decade.

Professor David Levinson advocates for the adoption of SIDs here  and provides a bit more of an academic assessment of the 4 E’s here.

Of course, as a planner, I like to look at the picture a little more holistically; why limit “improvements” to measures that simply improve traffic operations and extend the life of the pavement. Instead of having such a narrow, traffic-engineering tunnel view, perhaps SIDs are an avenue to get more buy-in for projects that improve the feel of these public spaces. We could all benefit from a bit of a mental health boost that placemaking projects like these would bring: SIDs will be great for finance, but let’s make them an avenue (no pun intended) for turning a place into a great place to live.

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