Wieffering whiffs parks proposal polemic

Minneapolis has too many parks

In today’s Strib, normally capable columnist Eric Wieffering opines that Minneapolis’ proposed development impact fee, which would pay for parks, will make the cost of development in the city too high.  He repeats a threat by Arnie Gregory of Greco to drop “four projects he’s involved in” if the fee goes through.

Inconveniently for Wieffering’s argument, the 2010 census showed that Minneapolis had a greater net gain in housing units than any other city – a much greater gain, half again more than even boomburbs like Woodbury and Blaine.  If Weiffering is right that “building housing or office space in Minneapolis is never easy or cheap,” there are lot of people willing to pay.

There are some scary numbers in the article though:

In St. Paul, a developer who wants to build a 56-unit apartment building on the city’s East Side would have to pay about $11,000 in park dedication fees. The fee for a similar project in Minneapolis would be $84,000 — payable before construction begins — if the city’s new fee system is approved.

However, the proposed fee in Minneapolis is much less than other cities mentioned in the column:  Minneapolis (which added 9,681 units in the last decade) would charge $1500 per new unit, while Woodbury (added 6,027 in the same decade) currently “charges about $3600 per unit,” and Blaine (added 5,752 units) charges $2,435.

I actually agree with a lot of right-wingers about regulation being too much of a burden on businesses – it’s a problem in any representative government that a rule is added in response to one crisis and forgotten by the next crisis, repeating over and over until the red tape resembles Darwin’s twine ball.

But fees and taxes, while they may hurt to pay, have a valid purpose.  In the case of development impact fees, it actually has a direct benefit to the payer, whose property values increase in response to better parks.

In the title I say that Wieffering whiffs his polemic, but he is persuasive when he suggests the fee be based on property value instead of number of units.  I don’t think it would make a difference in his example above comparing the dirt-cheap East Side to most of Minneapolis, but it may be relevant to the North Side (although I believe affordable housing and city-assisted development would be exempt).

With the center cities racing ahead of the suburbs in building again after the recession, it seems unlikely that a fee is going to derail the process.  It may be prudent to adopt the less impactful impact fee for now, with the option of upping it later – but this fee will be a good thing for the city.

 

 

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12 comments on “Wieffering whiffs parks proposal polemic

  1. Spencer says:

    I tend to agree with Wieffering’s article. Why add additional costs to redevelopment when a.) Minneapolis needs to grow simply to stay afloat financially, b.) the Park Board can’t afford to adequately maintain its existing stock of parks, and c.) development in Minneapolis is already signficantly more expensive than in others areas that do impose park fees.

    Inconveniently for Wieffering’s argument, the 2010 census showed that Minneapolis had a greater net gain in housing units than any other city – a much greater gain, half again more than even boomburbs like Woodbury and Blaine

    I dont see how that affects Wieffering’s argument that a large park fee would tend to deter additional development by increasing its cost. If anything, it supports his argument, as Minneapolis (without a park fee) added more housing units over the decade than did other communities that do impose such a fee.

    But fees and taxes, while they may hurt to pay, have a valid purpose. In the case of development impact fees, it actually has a direct benefit to the payer, whose property values increase in response to better parks.

    I dont follow this logic. If that was the case, then new parks should be funded through special assessments on properties that will actually receive the benefit of the park (i.e. properties located near to it). A flat fee on any new development anywhere in the city imposes a cost that all developers must pay regardless of whether their property is actually near the location of a new park.

    • Sure, Wieffering could have made the argument that Mpls saw more housing added in the last decade because it didn’t have a development impact fee, but he didn’t – from the first sentence he asserted that it’s already too expensive to develop in the city. I’m saying that it may be expensive but it apparently is worth it, and that may be in part due to good parks.

      A quality parks system benefits the entire city, and likely in a financial way through higher property values. If the entire city is within a half-mile of a park as the park board claims, then everyone benefits from proximity, too. Feel free to produce a study disproving me – I would be interested to see numbers. If you have numbers on Minneapolis being significantly more expensive to develop, it would be cool to see those too.

      Regarding parks maintenance – the proposed fee fee would pay for the operation of parks as well.

      • Spencer says:

        Minneapolis Trends has numbers on construction costs on page 18. They are substantially higher in Minneapolis for single family, and marginally higher for multifamily. http://www.ci.minneapolis.mn.us/cped/docs/4Q-2010trend_report.pdf
        Then of course there are land costs, which are substantially higher in the city on a price per square foot basis, and property taxes, which are already high in Minneapolis and likely to get higher as the state cuts more LGA.

        Regarding parks maintenance – the proposed fee fee would pay for the operation of parks as well.

        Actually, the ordinance specifically stipulates that none of the revenue from the fee can be used for operation. Per the ordinance: “Such funds shall not be used for ongoing operations or maintenance.” http://www.ci.minneapolis.mn.us/council/2010-meetings/20100924/Docs/Ordinance.pdf

        Im not arguing that more parks are a bad thing. But this funding mechanism makes no sense given that Minneapolis needs to encourage, not deter, new development.

        • Thanks for the links – I read Minneapolis Trends every quarter but apparently ignore that page. Sorry but I don’t think it supports your claim that it is significantly more expensive to develop in Minneapolis – even 2 of the 5 quarters listed show similar or lower cost for SFH in Minneapolis. And sure, real estate is expensive in Minneapolis relative to Andover, but not relative to Edina or even Golden Valley. There is no point in Minneapolis competing with greenfields, but it can compete with suburbs, and I think it does pretty well.

          Sorry about my inaccurate statement about the uses of funds by the proposed fee. I guess I got the wrong idea from Wieffering when he states in his third sentence that the fee would be used for “maintenance of new and existing parks, playgrounds and green spaces.” I am less supportive of a fee that would not be used for operation.

          • Spencer says:

            There is no point in Minneapolis competing with greenfields, but it can compete with suburbs, and I think it does pretty well

            The biggest competitor for development dollars in Minneapolis is probably not suburban development, but other non-real estate forms of investment. Increasing the cost of development in Minneapolis reduces the potential investment return from that development. Additionally, since the fee is required to be paid before construction even starts, it creates additional risk. Would you want to risk paying a $85,000 fee before you even have a guarantee that your project will get built?

            The impact I believe this will have on development is not to shift development from the city to the suburbs, but to simply reduce the overall level of loan dollars available to Minneapolis development projects. Reducing returns and increasing risk will de facto make investments in real estate in Minneapolis less attractive than other invesments available to banks and other lenders.

            • The more I think about the proposed fee, the less I like it – and timing of payment is the icing on the cake. I still like the idea of a development impact fee that goes to parks, and I don’t agree with Wieffering that it is too expensive to build in Minneapolis, but the current proposal needs to be revised.

              I confess to a fuzzy understanding of development financing, but it’s hard for me to believe that the fee as proposed is going to be a huge burden for developers. Let’s look at Arnie Gregory’s Uptown development, which he says would have been quashed by the fee. At $1500 a pop, the proposed 216 units would have racked up a fearsome $324000 fee. But the total project cost is $38 million, meaning the fee would represent less than 1% of the project cost. I have a hard time believing the margin on a project like that is so thin that the model is ruined by a .8% increase in cost. (if it is, I can tell these investors where they can get a 3% 5 year CD)

  2. Spencer says:

    I’m not an expert on development finance either, and I think we’ve debated this more than enough so I’ll make this my last comment. I agree that the park fee wont necessarily have a large effect on the overall amount of development that occurs in Minneapolis. But the simple economics of it are that the total number of units developed will be lesser with the park fee than without it. How that would play out in a given year would most likely be that a few projects build with fewer number units than they would have otherwise, and a few projects that are at the limits of what lenders are willing to finance might get pushed over the edge to not being able to get the loan. If the choice is between a.)more dollars for parks expansion, with no guarantee that Parks Board will have the money to maintain said parks; and b.) slightly more development projects at slightly higher densities, I think Minneapolis needs B more than A.

  3. Nathaniel says:

    It is a common practice in Australia to increase (or decrease) impact fees (“development contributions”) to pursue particular public policies. Australia is orienting development towards TOD and infill, of which are required to pay less than a new home constructed on the fringe (of which, can get upwards for $45,000 per lot).

    • I imagine the fees are set at a higher level than municipal? Not sure of the breakdown of levels of government there.

      • In Australia, the Local Government will set impact fees based on a general criteria that is set by the State government. Every site is treated differently. However, the State government has a very direct role in planning and will set limits and caps on certain types of development. At the moment, I believe infill/TOD rates are set about $20,000 lower than greenfield.

  4. Nathaniel says:

    It is a common practice in Australia to increase (or decrease) impact fees (“development contributions”) to pursue particular public policies. Australia is orienting development towards TOD and infill, of which are required to pay less than a new home constructed on the fringe (of which, can get upwards for $45,000 per lot).

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