PLANNING AND FINANCE SERIES: THE PRICE OF SPRAWL: PERVERSE CITIES

Ms. Blais believes that planning efforts to control sprawl are doomed to fail unless the subsidies for sprawl are reduced. In fact, she seems to believe that the problem of sprawl can be almost entirely eliminated if we can eliminate the subsidization of sprawl.
— Patrick L. Dugan, Everett, Washington

by Patrick L. Dugan, Everett, Washington

Fellow Western Planner (Canadian variety), Ian Wight,1 recently recommended a book by Pamela Blais, Perverse Cities. 2 This book presents an excellent analysis of urban sprawl and why our planning efforts to curtail sprawl have tended to fail. Her thesis is that financial incentives that encourage sprawl outweigh and frustrate our planning measures. Ms. Blais focuses primarily on the financial incentives and subsidies for urban sprawl that are provided at the local level, and not just the incentives that are provided by national programs such as housing finance programs and subsidies, and freeway development. While she draws heavily, but not exclusively, from the Canadian experience, much of her analysis can be easily applied to the United States. Perverse Cities provides a thoughtful, cohesive analysis of key factors that cause sprawl (some of which I have noted previously in these columns), and offers guidance on how we, at the local level, can better understand and address urban sprawl.

My review of this book only touches the surface of her excellent work and I would recommend it as required reading for any planner or finance official involved in managing urban development. While I may not agree with all her points and arguments, she raises many important issues that warrant consideration.

Subsidizing at the Local Level

Many of Ms. Blais’ arguments are derived from noting a difference between the public costs of development and the price that is paid for services by the development. The public costs are those that are incurred by the public sector and private utilities in providing and maintaining the public services and infrastructure (streets, public and private utilities, etc.) to serve development. The “price” for those services are the funds collected by taxes, fees (including impact fees), and rates. 

Although an estimated 38 percent of local service costs may vary by location of the development,3 the “prices” for all services tend to be set without regard to location. As noted in a range of studies cited by Ms. Blais, higher density, compact development located close-in to an urban center is economically efficient and costs considerably less to serve than inefficient, sprawling, low density development located on the periphery of an urban area. However, prices for services are almost always set by averaging costs across the entire community, so communities tend to attribute the same costs to compact development located near the center of an area as sprawling development. Property tax rates, utility rates, service fees, and often impact fees are set the same for all development irrespective of the where the development is located. In such cost averaging, compact developments that have low service costs are charged more than the actual costs to serve it, while sprawling developments are chargedless. Consequently, compact, efficient development subsidizes inefficient sprawling development, providing an economic incentive for sprawl relative to compact development.4  

While most studies on the “costs of sprawl” focus on the costs of providing the infrastructure in assessing the costs to serve development, Ms. Blais would include ongoing and maintenance costs as well: it costs more to maintain pipes and roads over large distances to serve sprawl than shorter distances to serve compact development. Similarly, she also would note that it costs more for police to patrol sprawl, and to provide fire protection.5

Ms. Blais uses two examples that are particularly important: development charges (as impact fees are apparently called in Canada) and property taxes.

Although impact fees are intended to capture the costs of infrastructure development to new development, Ms. Blais observes that these charges tend to be set by averaging the costs of providing new infrastructure to the entire community rather than the costs of providing infrastructure to different areas. So counter intuitively, even impact fees tend to force compact development to subsidize sprawling development.6

Ms. Blais is particularly critical of the property tax system. First, the amount of property tax paid is based on market value of the property. Since the market value of property close to the urban center is higher than outlying land, efficient close-in compact development is actually charged more in taxes on that higher value (a higher price) than outlying sprawling, lower-value development. Second, in the typical property tax system charges the same rate to improvements as land. For somewhat complicated economic reasons, this tax tends to discourage intensive development of any particular property. As such it promotes less dense, and more sprawling, development.7  

Ms. Blais provides many ideas as ways to reduce the incentives for sprawl. Space prevents detailing all of them here, but one in particular is worth accenting. She argues that planners and finance officials need to work closer together to reduce the problem of subsidizing sprawl, noting: 

“While the city planners were busily envisioning a more compact, mixed use urban form… down the hall the finance advisors were concocting financial instruments that would encourage and subsidize sprawl.” 8

Conclusion

Ms. Blais believes that planning efforts to control sprawl are doomed to fail unless the subsidies for sprawl are reduced. In fact, she seems to believe that the problem of sprawl can be almost entirely eliminated if we can eliminate the subsidization of sprawl.9 While I agree with Ms. Blais that these subsidies are an important part of the cause of sprawl, I am not sure I share her optimism that their elimination will solve the problem. Too many people would still be willing to pay the price of sprawl even if we could price it right. Nonetheless, there is no doubt in my mind that urban containment strategies would be far more effective if coupled by strategies to reduce the incentives for sprawl. I also wholeheartedly concur with her accenting that we need to think spatially10 and that finance officials and planners need to work closer together. 

Patrick L. Dugan has been a city planning director and a city finance director. During the last 30 years, he has held various financial and planning positions in cities, counties, and regional agencies in three states. He has shared his views on public finance and planning with articles in The Western Planner since 1995. Now a private consultant in Washington, he can be reached at consult.dugan@frontier.com.

Endnotes

  1. Ian Wight PhD MCIP, Associate Professor, City Planning, Faculty of Architecture, University of Manitoba.
  2. Pamela Blais, Perverse Cities, Hidden Subsidies, Wonky Policy, and Urban Sprawl, UBC Press, Vancouver/Toronto, 2010
  3. Blais cites Kitchen, Harry. “Canadian Municipalities, Fiscal Trends, and Sustainability.” Canadian Tax Journal 50,1 (2002), pp 156-80.
  4. Also see “Still Tapering Off,” The Western Planner, April/May, 2001
  5. Interestingly, Ms. Blais notes that parks are not locationally sensitive in price (page 192). By a different logic I would include parks, see “Thinking Geographically, or The Distance Factor in Public Finance,” The Western Planner, March 2001.
  6. My observation of how impact fees are set in the US coincide Ms. Blais observations in Canada. See “Impact Fees and Location,” The Western Planner, June 2001.
  7. For a more detailed discussion see either her book or “The Influence of Property Tax on The Structure of Land Development,” The Western Planner, December 2000.
  8. Page xi.
  9. Pages 226 and 230.
  10. Page 164.
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