FHWA Center for Innovative Finance Support - Value Capture Resources: General

Essential Nexus, Rough Proportionality, and But-For Tests
State of the Practice

May 2021

List of Figures

Appendix. Impacts of Sprawl

Infrastructure Liabilities Outpacing Population and Income

The following graphics were created by Joe Minicozzi of Urban3. They compare the growth in population, infrastructure and average income for Lafayette Louisiana from 1949 until 2015.

This figure shows changes in Lafayette Louisiana between 1949 and 2015. During this time, population grew by 350%. The amount of pipe (water/sewer) per person grew by 1000% and the number of fire hydrants per 1,000 people grew by 2,140%. — Figure 4. Lafayette Population, Plumbing, and Fire Hydrants, 1949 and 2015

In Figure 5, median household income is expressed in constant (inflation-adjusted) dollars.

This figure shows that median income in Lafayette grew by 160% between 1950 and 2015. Multiplying the growth in median income by the growth in population indicates a growth in total income by about 560%. But this is much less than the growth in feet of pipe per person (1000%) or the growth in fire hydrants per 1,000 persons (2,140%). — Figure 5. Growth in Population, Median Household Income, Plumbing Length, No. of Fire Hydrants

Here is a graphic from Halifax Canada, showing the different costs per household for various public facilities and services depending on whether the household was located in the urban core or in the suburbs. On average, the suburban costs per household are 2.5 times more than the urban cost per household.

This figure compares cost per household for a variety of public services between suburban and urban households in Halifax Canada. For all services combined, the average cost per household is $3,462 in the suburbs and $1,416 in the downtown. Because the cost of many public services is determined by distance, lower densities result in higher costs per household in the suburbs. — Figure 6. Costs per Household for Public Facilities and Services, Suburban vs. Urban

The difference in cost is primarily related to differences in density. In other words, for each suburban household, there are more lane miles of road, more feet of water and sewer pipe, more libraries and fire stations than for each urban household.

Does New Development Cover Infrastructure Costs?

The following illustrations are from the 1959 In City, Town, and Country by Paul R. Hanna (Scott, Foresman & Co.). Figure 7 shows the front cover.

This figure shows an illustration of a downtown with the central business district (CBD) in the foreground. The CBD includes tall, densely-packed buildings and a public park occupying at least two entire city blocks adjacent to each other. Across from the park is one three-story building that occupies half of an entire city block, with the remainder of that block used for parking and open space. — Figure 7. Downtown

In the next image, a property in the lower left corner has been highlighted.

This figure shows the same illustration as Figure 7, with the three-story building highlighted in yellow. — Figure 8. Downtown with Highlighted Property

The highlighted property occupies an entire city block. It appears to be an institutional use with substantial open space all around. On one side, across the street, there is a memorial park complex. Assume that this property is privately owned, and the owners decide to raze the building and construct a new set of office and retail buildings to replicate the development immediately above it in the illustration. In other words, several buildings of greater height and density, no setbacks and no open space. Such new development will intensify the use of this site. Users will consume additional public resources related to transportation, water, sewer, police and fire protection. But the water pipes are already there. The streets are already there. The police and fire department are already nearby. Transit buses are probably already operating nearby if not on one of the adjacent streets. The new development will pay more taxes, and that should cover the additional operating expenditures associated with the new development.

The next image, from the back cover, shows the urban fringe. Residential and modest commercial or industrial properties give way to farms and other rural land uses.

This figure shows an illustration of the urban fringe where suburbs end and countryside begins. The suburban area is shown as a street grid with city-sized blocks, subdivided into single-family homes and a few, low-rise commercial areas. The countryside is shown as farm fields that are interrupted only by a few roads, a railroad line, and electric power utility lines. — Figure 9. Urban Fringe

In the next image, part of a farm field in the center right is highlighted.

This figure is similar to Figure 9 except that a portion of one farm field, about the size of a city block, is highlighted in yellow. This highlighted field is not adjacent to any road nor to any utility lines. — Figure 10. Urban Fringe with Highlighted Field

Assuming this field is about the same size as the city block in the prior discussion, if the owner wants to put up a complex of office and retail uses identical to those that were proposed for the downtown city block, it will consume the same amounts of police, fire, water, sewer and transportation resources as the urban development. But the water pipes are not there. The roads are not there. The transit isn't there. And, if police and fire services were to respond in a timely fashion, they might require a new station nearby. Although the buildings will be identical (and have the same value and pay the same taxes as their urban counterparts), the value of the farmland is much lower than its urban counterpart. This lower value reflects, to a large degree, the lack of urban infrastructure at the site. Thus, this new exurban development will require not only an incremental addition of city services, but entirely new facilities. And, while the cost of public facilities and services will be more costly to provide here, this site will contribute less in taxes due to lower land values.

In the next image, the county creates a TIF to pay for a road connecting the proposed development and the existing county road and for a signalized intersection where they meet. The dotted line represents the rough location of the connecting road.

This figure shows the same illustration as Figure 10, except that there is a dashed line (about three city blocks in length) connecting the highlighted farm field to the nearest main road. — Figure 11. Proposed Road to Highlighted Field

Assuming that the tax increment will be defined in terms of the difference between property tax and sales tax revenues collected from this field before the project and the revenues obtained after the project has been initiated and that the tax increment will be sufficient to pay for the road extension and intersection signalization, where is the revenue to pay for all the other public facilities and services that will be required?

The demand for developed space is finite in an economic region at a given point in time. If the demand for developed space in this metropolitan area is limited and if the greenfield exurban TIF development occurs first, it might not be economically feasible to proceed with the downtown redevelopment project. In other words, the TIF subsidy may have simply shifted development from downtown to the urban fringe. In this example, although the new exurban development will create a tax increment for the county, it does so at the expense of an unrealized tax increment for the downtown.

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Essential Nexus, Rough Proportionality, and But-For Tests State of the Practice

Table of Contents

Appendix. Impacts of Sprawl

Infrastructure Liabilities Outpacing Population and Income

Does New Development Cover Infrastructure Costs?

Essential Nexus, Rough Proportionality, and But-For Tests
State of the Practice