Here’s a simple business concept: Don’t sell at a loss.
But towns sell at a loss all the time when it comes to new development. For instance, in a low-density, mostly residential town like Payson — people who move into a new house often generate less revenue to the town than it costs to provide water, sewer, street maintenance, police, fire, parks and other services.
That’s why the once-a-decade overhaul of the town’s General Plan includes a whole chapter devoted to the “Cost of Development.”
The $200,000, consultant-drafted rewrite of the General Plan concludes, “The Plan includes strategies to maximize land uses, preserve the quality of place, and ensure development pays its fair share of improvements to provide necessary public services.”
The plan offers a different way to look at new development, with a sharp eye on the bottom line. So school districts with high property tax rates may long for more million-dollar homes in the country clubs — with few kids and high property taxes. But Payson, which controls the land use through the zoning ordinance, would rather see sales-tax-generating businesses — and maybe compact, high-density developments that don’t require the extension of water and sewer lines. On the other hand, from Payson’s bottom-line point of view, homes on one-acre lots at the end of long extensions of streets, water and sewer lines are big losers.
Payson gets 40 percent of its revenue from sales taxes and just 6 percent from property taxes. Another 16 percent of the budget comes from state-shared revenue, mostly based on population. Grants, fines and minor taxes account for the rest of the roughly $15.5 million in annual revenues.
As a result of the town’s heavy reliance on sales taxes, most residential developments are effectively money pits for the town. The residents need expensive water, sewer, police and fire services — but despite the hefty property tax payments going to schools, the town takes in little extra revenue to offset the cost of its services.
On the other hand, office, retail and industrial development all generate more revenue than they demand in public services and infrastructure.
That’s why the General Plan overhaul spends a lot of time focused on increasing job-producing industrial development and sales-tax-generating stores.
After all, someone has got to pay the bill for the $69 million needed for infrastructure, including streets, police and fire protection, water, parks, community development, libraries, airport operations and other costs. That’s the new infrastructure estimate in the town’s Capital Improvements Plan wish list for the period from 2012 to 2017.
Residents have seen the cost of the collapse of the home-building market in the past three years in the form of hefty increases in their water bills. Once upon a time, the town hoped to pay for the $50 million Blue Ridge pipeline mostly with a $7,500-per-house water impact fee imposed on new developments. But when building dried up residents had to foot the bill with a 25 percent jump in water rates.
Up until now, Payson has remained a residential and retirement community with an economy mostly dominated by the tourist industry. The town mingles neighborhoods dominated by mobile home parks, with older homes and two expensive country clubs. The town has a limited stock of apartments, very few year-round industries and a retail sector dominated by highway-fronting businesses dependent on out-of-town shoppers.
The town’s current zoning plan earmarks 6,735 acres for residential — about 55 percent of the land in town.
“Only in communities with significant property taxes does residential development pay for itself,” the General Plan update concludes. “In Payson, the net cost of residential development is subsidized by other revenue sources — like sales tax.”
The future land use map earmarks 1,260 of the remaining, undeveloped land for nonresidential development plus another 1,332 for mixed-use development that mingles commercial developments, office space, apartments and homes. The resulting 2,592 acres available for commercial development represents a doubling since 2003.
Much of the town’s focus in the effort to diversify and broaden the economy and make future development cover the cost of services focuses on the “mixed use” areas.
“The 1,332 acres designated for mixed use development is distributed in every section of town,” the report concluded. “It should host commercial activity that will provide direct benefit to the surrounding neighborhoods and to the town by capturing sales from pass-through travelers.