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With multiple developments in a jurisdiction, the development causes the population to reach a point where the jurisdiction must expand or construct new facilities, such as schools, police stations and libraries. Larger infrastructure investments may be needed to accommodate this growth and the new residents may demand new public services.
Costs of Developing in Outlying Areas...
Multiple development projects in outlying areas can be particularly costly because the initial, pre-development facilities, infrastructure, and services were designed for a much smaller population with less urban tastes. ...On the Provision of New Facilities and Services
Population growth in any area produces capital and service costs, either by expanding existing facilities and services or by creating new ones. Because the population in outlying areas is much smaller than it is in older suburbs, the existing facilities and services in these areas also tend to be at a smaller scale. When the absolute population growth is the same among older suburbs and outlying areas, the outlying areas will reach their full capacity sooner than the older suburbs, and they will exceed their capacity by a much larger margin. As the ratio of new to old residents is larger relative to inner suburbs, new residents can have a disproportionate influence on service demand. The influence of the new residents will be especially pronounced when they are demographically and/or economically distinct from the old residents. They may demand new services or greater amounts of existing services that reflect their perspectives (soccer fields, libraries, etc) and ultimately reflect the changing nature of the areas in which they now reside. In total, outlying areas are more likely to require new facilities and services to accommodate this higher relative population growth rate.
Researchers have determined three stages in the relationship between population and service and facility demand:
- Communities with populations of 5,000 residents or fewer. In these areas, public services are not very sophisticated. Septic tanks predominate; fire-fighting services are volunteer; schools are small (serving less than 1,000 students); government administration, public works departments, and recreation and cultural services can be incomplete and part-time. The tax burden in these communities tends to be low as the rudimentary services can be provided at a low cost relative to the tax base [Center for Urban Policy Research, 2000].
- Communities with population between 5,000 and 15,000. Service demand becomes much more acute in these communities. Water and sewer systems must be installed; police and fire-fighting services must be professional and more sophisticated; education systems become more complex to accommodate 1,000 to 3,000 students; government administration, public works and recreation and cultural services need to be full-time, professional, and hold regularly appointed tasks. Costs increase more than the scale of services, as an increased government workforce tends to bring union representation and a need for facilities and administration to meet the needs of the government workforce. The tax burden in these communities tends to be high, especially if the economy has not diversified to include revenue streams other than property taxes.
- Communities with 25,000 people or more. Once a critical mass of population is reached at approximately 25,000 people, the government no longer needs to initiate new or significantly increase existing services. In essence, the public sector is fully developed, and any increase in service demand due to a population increase can be accommodated largely at the marginal cost of individual additions to the system. The tax burden in these communities tends to be higher than the first communities, but much lower than the second. A diversified set of public services exist, but they benefit from economies of scale and the local economy is usually much more diversified with property taxes representing just one of several revenue streams.
A similar dynamic plays out with the construction and expansion of new infrastructure (roads, sewer and water lines, etc). As discussed earlier, when a jurisdiction only needs to address the infrastructure needs of a single development, it can focus on the on-site installation of infrastructure and the off-site extension of the existing network to the new development site. The single development is unlikely to generate sufficient demand to overload the infrastructure system's capacity.
With multiple developments in a jurisdiction, the situation changes. Now, traffic congestion may pose such a problem that a local two-lane road needs to be widened into a major artery. Water and sewer mains may also need to be widened in certain areas to accommodate the higher water flow. These infrastructure investments have two costs. The first cost is obvious: the amount of money needed to construct or expand the new infrastructure. The second is less obvious: the cost of deferring maintenance on existing infrastructure. In both cases, the municipality will undercharge the developers and new residents of the new developments, causing other residents in the community to subsidize them and share the burden of infrastructure costs. New Jersey state law permits municipalities and authorities to charge developers a "fair share" cost for such infrastructure investments. The fees simply must pass the "rational nexus" test of having a clear, direct, and substantial relationship to the development. However, municipalities assess these impact fees and exactions on specific projects at the time they are under construction. While the municipality can accurately predict the direct on-site and off-site infrastructure costs of providing infrastructure to the development, it is much more difficult to predict the new infrastructure investments that will be needed down the road as a result of the interaction of a single new development with later development. The municipalities therefore under-charge developers the true direct infrastructure costs of the development, addressing the difference using the general tax or fee revenue the entity generates from all of the households under its jurisdiction.
| Developing according to the State Plan would save towns $2.3 billion on road, water and sewer infrastructure over the next twenty years |
This problem worsens when the deferred maintenance costs are considered. Government entities often respond to the need where it is at its greatest, usually new construction of infrastructure rather than general maintenance of existing infrastructure. While such a triage mechanism ensures localized problems are addressed, it is more costly in the long-run as older infrastructure deteriorates to a crisis state that must be addressed, usually at a total cost much higher than the general maintenance would have been. While the new development is responsible for these costs, it is nearly impossible for municipalities to estimate them and illegal for municipalities to charge developers for them. They become an additional subsidy that current residents provide to the new residents of the development projects.
A model of the direct cost of providing infrastructure to sprawl developments in New Jersey had sobering findings. Under the current development pattern, it is projected that 3,700 new local centerline road-miles - an 8% increase over the current stock - will be required statewide between 2000 and 2020. The majority (2,650 lane-miles, or 71.3%) of the future road construction will occur on rural or environmentally-sensitive lands in rural communities or outlying areas with low population densities. The cost of this road construction is estimated at $3.72 billion.
These projections for the current development pattern were contrasted with projections for a development pattern that is 'less' sprawling, following the New Jersey State Plan. If development proceeds as envisioned under the State Plan, only 2,857 new local centerline road-miles would be required statewide between 2000 and 2020, nearly 23% less than the current development pattern. Just 1,964 additional road-miles would be constructed in rural communities or outlying areas, and the total cost of this road construction is estimated to be $2.86 billion, which is $860 million (23%) less than the current development pattern cost. These savings are largely due to the fact that significant road construction under the New Jersey State Plan would occur in more urban and densely developed areas of the state rather than in rural communities and outlying areas. [Center for Urban Policy Research, 2000]
Similar findings were obtained in comparisons of sewer and water line infrastructure costs. Overall, following the State Plan would save municipalities and school districts $2.3 billion in capital costs for local road, water and sewer infrastructure over the next twenty years throughout the state. [Center for Urban Policy Research, 2000] Costs of Lack of Capital Facilities Planning...
New facility and infrastructure construction is more costly when it proceeds in the absence of capital facilities planning. Sprawl development is a market-driven process that advances in a piecemeal and uncoordinated fashion. Jurisdictions are often forced to construct new facilities and infrastructure as an immediate response to spikes in population growth and service demand. These responses usually address the immediate needs, but they are often inadequate in absorbing later population growth due to additional development in the community. The community must therefore expand or construct new facilities or infrastructure to accommodate this additional growth. The total cost of this incremental approach is often much greater than if the facility and infrastructure investments were planned from the outset because the jurisdiction loses economies of scale and placement in these investments.
...On the Construction of New Infrastructure
One study modeled the cost differential associated with providing infrastructure to a new 80,000 person community under a planned and unplanned scenario [Peiser, 1984]. The study found that planning such investments from the outset could save 1-2% of the land development costs. However, this study relied on the unrealistic assumption that road construction costs would be lower in the unplanned scenario because developers would "build arterial roads only to provide access from the main highways to their subdivisions." If roads were excluded from the model, the infrastructure savings of the planned scenario would jump to 11.9%, which also does not include the operating cost savings due to economies of scale and placement.
...on Debt Service Costs
A lack of planning may also weaken the financial position of jurisdictions. Capital facility and infrastructure investments are often made through the issuance of bonds. Financial service organizations often grade jurisdictions based on an estimate of the jurisdiction's ability to repay the debt. This grade helps to determine the interest rate - and therefore the total cost - of the bonds (the higher the grade, the 'cheaper' the bonds are to the jurisdiction). If a jurisdiction has a lot of debt outstanding or if the financial service organizations believe it will issue a lot of debt in the future, the jurisdiction will receive a lower grade.
Capital facilities plans and mechanisms to limit growth can be an effective way for a jurisdiction to prove that it will not need to issue debt to pay for future infrastructure and facility expenditures. For example, the Center for Urban Policy Research at Rutgers estimates that planning infrastructure investments could save municipalities and school districts as much as $162 million per year in the cost of managing reduced fiscal deficits [Center for Urban Policy Research, 2000].
Howard County, Maryland took this approach in the late 1980s. It instituted a number of measures to limit and manage its growth while restricting its projected infrastructure provision obligations. These steps - combined with the county's strong planning record - convinced Fitch Investment Services to give the county a AAA rating (the highest grade possible) on the issuance of $55 million in bonds [Thomas, 1991].