Monday, September 15, 2008

Those Funding Mechanisms...

Tonight at the city council meeting... actually going on right now... the would be developers of the Kingman Crossing regional commercial development will be on hand to present an update on the status of their project during a workshop that actually proceeds the regular session meeting.

A column appears at the Phoenix Business Journal that speaks to this and the op/ed is appropriately titled (especially for the folks in Kingman... including those prepared and not prepared that reside on the current council).

You have to sign up to read the whole thing at the PBJ but here is the link with a preview...

We need an honest dialogue about infrastructure
Phoenix Business Journal - by Grady Gammage Jr. Phoenix Business Journal

The economic downturn reminds us of how much Arizona depends on growth. In fast-growing times, we can afford to worry about whether all that growth pays for itself. When things slow, we realize what a bonanza growth is and why cities promote it.

In Arizona, sales tax is our preferred public finance mechanism. Because sales tax is paid in small increments, we tend not to notice it as we would other taxes. Cities have promoted retail development to increase sales tax revenue, which pays for public services. Because retail follows rooftops, we also encourage housing. Houses and stores require infrastructure.

Once upon a time, cities used public dollars to build streets, pipes and other infrastructure for new development. After houses, offices and shopping centers were built, cities collected taxes to recover their initial investment. The public invested (either by saving up revenue or borrowing through bonds) well ahead of its payback.

This is risky, as development -- and, therefore, payback -- may be delayed. When the economy slows, government may be left waiting for expected revenue to materialize to recoup the funds it advanced.

All emphasis mine above.

There are some other interesting passages that readers should take note of as well. I'll copy a few...

About 25 years ago, cities began making developers pay for and build infrastructure. Developers can borrow money, make interest payments and generally work faster and more efficiently than cities.

Yet infrastructure costs often are disproportionately high for an individual developer to pay. In addition, the infrastructure built may serve a wider area (including others' land), and physical work may be required miles away from the developer's parcel.

Others' land in this case is OUR land, the Kingman resident owned 168 acres.

Thus, the reimbursement mechanism was born. Cities require developers to build infrastructure, borrow the money to do it and shoulder the risk of cost overruns. Eventually, the cities pay the developers back for a portion of those costs with future tax revenue. In this way, growth pays for itself and cities are saved the risk of investing public funds up front in infrastructure that may not provide returns.

Cities that do this are neither stupid nor corrupt; they're rationally limiting their risk and minimizing the burden of growth on existing residents.

Hopefully these rather easy basics can be understood by the many in the community that seem to have a hard time with easy to understand basics. Hopefully there will be an honest discussion, an open discussion, heck... even a reasoned discussion for a change in city chambers on a very important and key issue that will have an impact on the future of Kingman.

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