|Original Document: Bristol (3).pdf|
Text of Document:
Bristol, Tennessee Subdivision Incentives Review
by MTAS, October 2001
On behalf of the City Council, City Manager Tony Massey asked MTAS to review incentives related to subdivision development. In order to do so a number of interviews were conducted with various Tennessee cites, a review of the literature was undertaken, discussions were held with various MTAS consultants and experts from other agencies, and finally legal opinions were obtained through the MTAS legal office and a review of applicable Tennessee Attorney General opinions. This report is based on these findings.
Overview and General Discussion of Residential Incentives
In general residential development almost always comes as a cost to the city. That’s not to say it isn’t a vital and very necessary component of a healthy community, but it simply causes additional expenditures which are normally in excess of taxes paid. The opposite is generally true of commercial or industrial development. It normally produces revenues in excess of the cost to provide services.
This generalization normally (but not in all cases) holds true because the range of services which result from residential development are more extensive than those which result from commercial or industrial development. Some of these include schools, parks and recreation, water and sewer services with relatively low consumption rates, etc.
Because of this most cities don’t provide incentives for residential development. And in fact the opposite is increasingly true. Many cities now charge a developer for the full projected cost of development through mechanisms such as “impact fees.” Impact fees are an attempt to impose on the developer the ancillary costs of residential development, including the impact on police and fire services, parks and recreation, street maintenance, etc.
Legality of Incentives
In Tennessee it is not permissible to grant property tax exemptions to developers (see for example Thompson v. City of Memphis, 147 Tenn. 658, 251 S.W. 46). This would include payments to a developer in an amount equal to property taxes (since this is in essence abating taxes for a “private” rather than “public” purpose).
As mentioned earlier, very few Tennessee cities provide any form of incentives for residential development. And in fact, the greatest incentive the City can offer is its basic range of services. Such benefits as reduced homeowners insurance rates, increased police protection, schools, and other amenities form the basis for the City’s best incentives. One city, Signal Mountain, even provides a brochure to developers that details all of these.
But here are a few examples of what’s being done in some other cities:
1. Financing of certain fees - The City may “finance” certain fees such as water or sewer tap fees with payment for such fees coming at the time a parcel is sold. The City may forward to the developer a cash payment equal to the projected number of taps or provide a tap “credit” certificate which can be redeemed when connections are made.
Another similar method has the City providing the materials for water or sewer installation up to an amount equal to the cost of the taps.
2. Financing of infrastructure - The City may “finance” certain infrastructure components such as the installation of electric or water and sewer services. In one example the developer guarantees repayment to the City within a certain number of years or as lots are sold. The developer places a letter of credit with the City and may be placed on a mutually agreed upon repayment schedule (such as 20% per year for 5 years). When doing this, the City may choose only to charge the developer for the principle, not accrued interest.
It should be noted that the Comptroller will not let a City use borrowed funds for this purpose. The City must either use cash or money borrowed from TVA, which is not approved by the Comptroller.
3. Providing infrastructure - In some cases the City may actually choose to participate in the provision of certain infrastructure such as roads construction, water and sewer installation, etc. This has normally been done only in situations where specific criteria have been met, such as the elimination of blight, creation of jobs, etc.
4. Reimbursement for infrastructure - The City may choose to reimburse the developer for certain infrastructure improvements in order to encourage certain types of development or the provision of upgraded standards.
5. Providing materials - The City may provide materials for utility installation. In this case the City will require a bond of the developer. The City will then purchase the materials and oversee installation (which is the responsibility of the developer). Upon satisfactory inspection of the work the City will return the bond to the developer.
6. Reduction or waiver of tap fees - The City may reduce or waive tap fees for water or sewer.
7. Reduction or waiver of inspection fees - The City may reduce or waive building inspection fees.
8. Subsidy for special improvements - The City may subsidize certain improvements such as the installation of decorative lighting. In such a case the City can pay the difference in regular and special lighting. This concept may also be used for other improvements, especially those that may serve a more “public” purpose such as greenspace, walking or biking trails, etc.
9. Coordination of permitting/inspection/plans review/etc. process - The City may establish a “one stop shopping” or a “developer management” program which works to assign a specific staff member to serve the developer and assist with all city-related business such as coordination of permitting, plans review, research of standards, coordination of inspections, etc. These types of programs are often seen as being “developer friendly”.
It should be remembered that many of the above cited incentives come at a risk to the City. If the City provides a certain incentive in one case they will no doubt be asked to provide similar incentives in most other cases. Thus it may be hard to back off of an incentive program once it is started. So careful consideration must be given to defining specific parameters for developments which meet the City’s incentive program goals.
Also, some of the above cited incentives should be checked and approved by the City Attorney. Careful consideration must be given to ensure an incentives legality. In general, the expenditure of public dollars must meet the “public purpose” test, and should not merely benefit one private developer.
Finally, the best action a city can take to encourage residential development may be to simply focus on becoming “developer friendly.” That is, to ensure a constant positive dialogue between the City and developers, to continually work toward providing services which are easy to access and understand (such as the “one stop shopping” program described above), and to listen for suggestions for improvements. All of this is part of the process of communicating with developers without compromising the basic developmental standards on which the City has been built. In short, they need to know two things; how important they are to the City’s future and the role they play in contributing toward a high quality community with decent residential standards.