Downtown Development: Growing the Pie?

Image via Mentes at en.wikipedia

According to the Richmond Times-Dispatch, Richmond School Board members this week voiced worries that the Mayor’s plans to redevelop downtown will distract from the city’s real need: money for school facilities. Scott Barlow put it this way: "It's pretty tough for me to get excited about luxury projects like the Coliseum when I know our city, especially RPS, has so many other capital funding needs."

I'm betting this story exasperated the Mayor. Stoney has often claimed that this kind of development is not an either/or. In order to provide more money for schools, the city needs more revenue overall; it needs to "grow the pie." And while every city could use more money, Richmond has some particular disadvantages in growing the pie that other cities do not.

Virginia is a Dillon Rule state, which means that the General Assembly actively thwarts local autonomy on a host of issues (and leads to many absurd requests during each state legislative session). In part because of these restrictions, the city cannot pursue a preferred solution in the past: expansion of its tax base through annexation of nearby county land. Annexation is now effectively banned by the General Assembly after the 1970s absorption of parts of Chesterfield County "exploded in Richmond’s face." Finally, as a state capital, Richmond has ceded significant prime real estate; between VCU and the state, almost one-fourth of the real estate value downtown is exempt from taxes.

So the Mayor is feeling the pressure of trying to find money elsewhere. And the city's downtown, during a relative boom era for the city, should absolutely be a source of significant tax revenue.

In order for this development deal he’s pursuing to make sense, it obviously needs to produce more in tax revenue for the city than the current set-up. That’s true for any development, from a new apartment building to a Wawa to a coliseum. But as many cities have learned to their citizens’ outrage, there are so, so many ways to screw this up.

• The development deal may NOT produce the promised gains in tax revenue. Maybe not enough people come to the new restaurants and hotels, or live in the new apartments, or fill the new venue.
• Even if the development is successful, it doesn’t mean this is NEW tax revenue; maybe it is diverting economic activity from elsewhere in the city. If a city resident is going out to eat at a fancy new downtown joint rather than Edo’s or Fat Dragon, that’s not “extra” money for the city.
• This funds diversion is especially a problem if, through mechanisms like the TIF (“tax increment financing”), most of the added revenue from the development goes back to the developers or pays back the city’s debt.
• What city debt, you may ask? Development deals often require the city to invest in costly infrastructure improvements (roads, traffic lights, utilities, etc.) or to develop city properties (like the city-controlled Blues Armory). Cities typically borrow money through bonds to pay for these. If the development itself doesn’t generate enough tax revenue, the city may have to siphon funds from elsewhere to pay the loans back.
• The whole deal can be made even worse by “extra” incentives, like the Richmond developer’s proposal to include tax revenues from nearby developments that otherwise would have gone to the city’s general fund.
• Plus developments take years, with the loans and tax arrangements surrounding them living on for decades. At what point do even successful developments actually start paying off for the city? What if the benefits only appear on the city’s books years or decades later?

Even if all of these obstacles are overcome, a successful development deal could cost the city in two other ways:

• Gentrification: does the new development offer anything for the city’s less fortunate residents? Sure, the city is enhanced by new entertaining and dining possibilities, but can we do better than just another playground for rich, white professionals? (The good news on this front is that the Mayor is supposedly pushing for more affordable housing in the downtown deal; that’s a start.)
• Opportunity cost: Similarly, does the investment in the “big shiny project” mean we’re wasting resource we could invest into something better for the city – something more necessary, on a more human scale? Put another way, does Richmond even NEED a replacement for the Coliseum? Can a city our size really support such a venue, on top of a baseball stadium, music venues like The National, and theaters like Altria? (One reason to be skeptical of the firm that the Mayor hired to evaluate the downtown development deal: they think we're well-suited for a major league sports team. ...I can’t even.)

One truism in urban politics is that Mayors like buildings. They (understandably) want to leave a legacy, and seeing their name on a bronze plaque in a building’s lobby is a powerful incentive. And the whole politics of local government centers land development – this is what cities DO. And so all the incentives -- the need for a legacy, the pressure from wealthy interests, the desire to raise more money to solve the city’s problems -- are telling the Mayor that he has to do SOMETHING.

Except that he doesn't. On this deal, at least.

For me, this is THE question about this development deal. Does the Mayor -- and, then, the City Council and, by extension, the city as a whole -- have the stones to reject a bad deal? Will Mayor Stoney, and the rest of us, accept the admittedly terrible status quo, over a boondoggle that will cost the city millions and only benefit the Richmonders of 20-30 years from now, if at all?

Don't get me wrong: I'm rooting for the Mayor and the development deal here. We DO need that extra tax revenue. It's just that the history of these types of deals is not promising for a good outcome for the city. While I wish I didn't have to be, I remain skeptical.

The Mayor will undoubtedly claim that it takes vision and courage to make a deal like this happen. Sometimes it requires vision and courage to scrap it.