Contributed by Leonard Hamilton, PhD

Nature Sending the Bills Early to the Ratable Rich

The theory of ratables sounds good to municipal officials who are struggling to balance a short-term budget. If a commercial development pays more in taxes than it costs in services, then this surplus can be used to hold down the residential property taxes of the residents (their voters.) Officials are often mystified a few years later when their budget is still in trouble, so they seek out another infusion of funds from another good ratable. In many New Jersey communities, this cycle has spiraled out of control, transforming rural hamlets and semi-rural towns into sprawling corporate centers, mind-numbing housing developments, and sterile malls. The only things that remain constant are budgets in trouble and the misapprehension that a good ratable will solve the problem. Local citizens can protect their communities from these bad business decisions by playing an active role in local and regional planning.

The ratables chase starts out on the wrong foot—the very fact that commercial developers are willing to offer cash to communities in exchange for permission to locate within their borders signals the presence of a significant downside. The question then becomes, “Do commercial ratables pay enough to compensate for the negatives?” The answer is, “Almost never.”

A Local Study Hamilton & Wehn (1992) studied all 39 municipalities in Morris County, New Jersey calculating the accumulated value of commercial ratables added in each municipality during the previous 20 years. Here are the results:

■ The Top 13 ‘ratable rich’ communities together had added more than $4 billion in ratables and owned 58 percent of the county’s total assets.

■ The theory would suggest that they should be paying considerably more than 58 percent of the taxes (to help supplement residential taxes), but in fact they were paying only 57% of the taxes.

The “investment” in ratables had not yielded results. What is wrong with the picture? Why would such a simple idea—money for nothing – not work? In most cases, municipal officials focus their attention on the tax dollars that are coming in, but fail to make two very important additional calculations:

(1) The real long-term costs associated with commercial development.

(2) The real value of the open space that is destroyed by the development.

What are the costs of development? 

Most applicants claim that their commercial enterprise will cost the town virtually nothing, turning their large infusion of taxes into pure profit. Here are some of the hidden costs:

■ Increased traffic from commuters and their families increases road construction and maintenance.

■ Emergency services must be expanded to serve workers and their families.

■ Sewer use may trigger the need for an expensive expansion. 

■ Water treatment plants and water sources may need to be expanded. 

■ More houses will be needed and schools will need to be built to serve the children. (Current annual school costs run about $10,000 per child.)

■ Residents who are directly impacted by the negative influences of the commercial zone will tend to move, selling their properties on the cheap, and reducing the stability that long-term residents provide for a town.

Does open space have a financial value?

Whether it is agricultural or parkland, open space does not require services. True, it does not generate taxes either, but indirectly it does have a positive impact on the municipal coffers:

■ Residences that are near open space are often worth more than 30 percent more than comparable properties farther removed, and ultimately generate more assessed value and taxes.

■ Many forms of open space generate income directly through tourism and other recreational uses. 

■ These positive values need to be added to the cost of development when that development destroys it.

The Fragile Economy 

There is growing evidence that the ratables chase not only fails in its initial goal to balance the municipal budget, but also creates a fragile economy that, like a poorly conditioned body, cannot stand up against normal challenges. For example, in 1993, the nation’s economy flagged a bit and realtors from Morris County reported dramatic drops in the value of homes. A more careful look, however, revealed that these declines were clustered within the ratable rich communities. These Top 13 communities (see Table) collectively lost some $384 million in housing value, compared to a loss of $165 million for the middle tier and the 13 ratable poor communities actually gained $65 million in housing value. 

There are, of course, many factors that go into home values, but the same pattern emerged in the year 2000 when property taxes throughout New Jersey took a sharp turn upward. In Morris County, homeowners in the ratable rich communities were hit with an 8 percent increase, while the two lower tiers saw more modest increases of 5.7 and 5.5 percent, respectively (see Table).

This fragile economy should not come as a surprise. When open space is transformed into over-crowded housing, suburban sprawl, and frustrating traffic jams, all of the community’s resources are challenged. Former Secretary of the Interior, Stuart Udall, said it best in his opening chapter of The Benefits of Open Space when he pointed out that “nature has a good memory, and at times of her own choosing, has belatedly presented bills for this waste and mismanagement to later generations, just as the bills for our generations will surely be presented to our own children.”

The ratable rich communities are getting their bills early.

What can ordinary citizens do about all of this?

More than you think.

When commercial developers come before local boards, they bring along expensive professional planners and other experts to testify before the board. These experts are not exactly disinterested parties, and they do not go out of their way to bring in all of the negatives. And, far too often, the municipal officials do not take a stand against the corporate experts. There is almost never any formal discussion of the project in neighboring towns. This is where you come in: In many ways, it is the local citizen who is the real expert—you know your town.

Here are some of the things you can do:

Gather Information: ~Go to Town Hall or your local library and get a copy of the current budget ~Go to Town Hall and get a copy of all the information from the developers application file ~Go to Town Hall and get a copy of your municipal tax map ~Go to your County Planning Board office and get a copy of the current County Data Book ~Go to your School Board office or local library and get a copy of the school budget.

Put together a profile of the proposed commercial development: ~The number of workers ~The total worker population (worker + spouse + 1.5 children) ~Draw a circle around the likely commuting area ~The number of cars arriving and leaving per day ~The roads they will be arriving on ~Extra trips to local eateries/shopping areas, etc. ~Identify homes, neighborhoods, and public lands directly impacted

Turn the profile into tangible estimates of cost in both dollars and lifestyle in 2 ways:

(1) Convert the increased population (this can be done for both daytime population and resident population) into prorated costs. Budgets are very closely correlated with number of people (users). Go through the information that you gathered and, line by line, estimate the costs for such things as: ~Emergency services (police, fire, rescue) ~Sewage treatment ~Road maintenance ~School costs ~Local government operation ~Road widening ~Water treatment

(2) Convert the changes into a revised image of your town. Identify such things as: ~New traffic jam locations ~Destruction of open space ~Locations where new strip malls are likely ~Roadways that will go from two to four lanes ~New traffic lights ~School crowding

Bring this information to your local boards and your local newspaper

Conclusions

The fallout from poorly planned commercial development in Morris County is all around us. Mind-numbing traffic, skyrocketing school costs, ugly housing developments, endless strip malls, the wholesale destruction of the natural landscape—in a word, sprawl. Individual citizens are often reluctant to get involved with commercial development decisions, leaving that to the ‘experts’. This is a mistake. Ordinary citizens are the experts, because they know their towns. They have the ability to sit down and make reasonable estimates of the impact of change in the same way that they calculate the effects of adding two bedrooms and a deck onto their own house. Make the calculations. Make your views public. Make a difference.

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“Trying to save ecosystems has more to do with changing egosystems.”

~Don Rittner

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