About Richard Murphy

Richard Murphy is a program coordinator with the League's Civic Innovation Labs team. Find him on twitter @murphmonkey or email rmurphy@mml.org.

We’ve talked a lot about how our local communities are squeezed by Michigan’s failed municipal finance system: that our primary revenue stream, property taxes, is designed to fall behind; that the state has plundered our second largest funding source, revenue sharing, to the tune of $8.6 billion and counting to patch its own budget; and how the dominance of public safety costs and statutorily required duties absorbs nearly all remaining budget.

Between our constitutional revenue limits and the state's underfunding of revenue sharing, Michigan local government budgets are in last place nationally.

Between our constitutional revenue limits and the state’s underfunding of revenue sharing, Michigan local government budgets are in last place nationally.

But as we work with communities around the state on securing development that meets local goals, we are finding that the state’s broken municipal finance scheme additionally inhibits local efforts at self-help: nearly all of the tools communities have available for economic development assume adequate funding, especially from property tax. Like Lucy holding a football for Charlie Brown, the state has enabled a broad array of local development tools that many local governments can’t use effectively.

Due to the state’s constitutional limits on property tax revenues, the only way municipalities can even keep up with inflation over the long run is by “additions” of taxable value–that is, new construction.  Traditionally, this has supercharged what Strong Towns has termed the “growth Ponzi scheme,” a pressure for constant new development to pay for the maintenance of past development: with Headlee and Proposal A causing our tax revenues to fall off even more quickly than they would otherwise, the perverse incentive of building ever outwards to maintain local budgets has contributed to our expansion of infrastructure and urbanized area across the state even while population has been flat–we have so much difficulty fixing the d*mn roads (and sewer mains, water lines, etc) because we have so many more of them per capita than we did 40 years ago.

While our population growth has been sluggish over past decades, we've spread out rapidly, taking on massive infrastructure maintenance costs (also known as "potholes") in the process.

While our population growth has been sluggish over past decades, we’ve spread out rapidly, taking on massive infrastructure maintenance costs (also known as “potholes”) in the process.

The League has attempted to refocus attention and investment on existing places through our placemaking initiatives, and in our work with the state’s Redevelopment Ready Communities program: to reinforce and support existing community investments instead of the build-and-abandon cycle. But city and village attempts to take this path are constantly bumping up against basic math. Outside of a handful of hot markets, infill development in Michigan requires the local government consider incentives to bridge the gap between construction costs and local market conditions.

Public incentives for private development can support important community goals such as remediation of toxic contamination, affordable housing, living wage jobs, or preservation of historic landmarks. But our broken municipal finance system often closes off the additional benefit of ongoing tax revenues. (Incentives can also be used badly, of course, and I always encourage doing the math!)

Nearly every community economic development tool allowed to our cities and villages prevents a construction project from fully contributing to the local budget: they reduce property tax payments, as in PILOT agreements for affordable housing; they divert revenue for particular purposes, such as brownfield TIF for site remediation; or they waive new tax revenue for a period of time, such as abatements for obsolete property renovation.

And, thanks to our broken system, by the time the property is fully contributing property taxes at the end of the abatement period, its value is likely to have been artificially depressed by Prop A and Headlee, slicing off long-run benefits that development might otherwise bring. (Obviously the value of a property can change over the course of a decade regardless and fiscal forecasts should plan accordingly–our system just puts a heavy thumb on the negative side of the scales.)

For municipalities to truly leverage our array of property tax-based development tools, they have to be large enough or wealthy enough that they can absorb any incremental service demands while not collecting tax revenues–meaning they’re not necessarily the communities with the greatest need for effective tools to support development. (The 20-some cities with local income taxes are a special case, as most of the property tax-based programs allow the municipality to collect revenue from new residents or employees via this income tax to contribute towards costs of services.)

Relying on property tax incentives for local development support is extremely limiting in a Headlee-constrained world.

Relying on property tax incentives for local development support is extremely limiting in a Headlee-constrained world.

Sometimes the idea of “spin-off benefits” or “multipliers” arises as a way that tax-abated development can indirectly support local budgets–this is less likely than it intuitively seems.  If a new development makes surrounding homes more appealing, driving up home values, Prop A caps the taxable value of each home, and as sales trigger “pop-ups” of individual home values, Headlee rollbacks prevent the local government from seeing any new revenue. Similarly, nearby businesses might see more foot traffic, but since that business activity is not subject to local taxation, the municipality again sees no budget benefit from that activity. Until the point where resident demand is driving new housing construction or major renovation, or where business growth leads to physical expansion–“additions” under Headlee”–tax revenue does not increase.

Economic development activity may have very visible effects in the community--without contributing to the municipal budget.

Economic development activity may have very visible effects in the community–without contributing to the municipal budget.

Again, the economics of development mean that public support is often needed, especially to secure public goals like environmental cleanup or affordable housing: increasing local tax revenues is not the only metric to be used in evaluating incentive programs.  Ideally, though, the local toolkit would be large enough to also allow communities to use incentives in ways that better support their budgetary ability to provide basic services.

(This post is adapted from a pair of presentations Murph gave recently on municipal finance for planners and economic developers, intended to help those practitioners understand the math that their city managers and elected officials are grappling with.)

Many of our communities have ordinances that require periodic inspection and certification of rental residential properties. Because people who live in rented homes often have little control over the physical condition of the structure they live in, these ordinances protect the health and safety of these residents, as well as protecting neighborhoods from blight caused by landlords who aren’t paying attention to their properties.

These rental inspection ordinances can also create problems for rental tenants, though: if the municipality finds a landlord has not kept up their rental property, rendering the home unfit for occupancy, the tenants may find themselves evicted through no fault of their own. (This concern also came up last year when Detroit attempted to increase compliance with their rental certification ordinance.)

The city of Jackson is addressing this potential downside with their new Rental Assistance for Displaced Tenants Ordinance, which took effect in March of 2019. As the city explains:

Under the new ordinance, if City inspectors find serious code violations that make the housing unsafe for tenants to live in, the unit is vacated, and the landlord has to pay for relocation assistance for the displaced tenants. …

Over the past year, the City has seen an increase in renters being displaced due to unsafe living conditions at no fault of their own. This is usually due to a long list of violations at each location, such as exposed electrical wiring, unsanitary conditions, or no access to heat. Being abruptly vacated from housing is known to create financial hardships for tenants and may result in homelessness.

The ordinance came in response to cases where the city had to post rental properties as uninhabitable, and attempted to secure replacement housing for the tenants–the city found itself paying for the landlord’s failure to maintain their properties, with no mechanism for recovering those costs. The ordinance also includes exemptions, such as if the city’s building official finds that the triggering code violations were caused by the tenant.

Jackson’s new ordinance has only been in effect for a few months, so it’s too early to evaluate its success, but it is worth tracking as an innovative approach to protecting vulnerable residents and neighborhoods from “bad apple” landlords.

Last month Kalamazoo’s City Commission cut down their lot size requirements in several residential areas. Notably, these amendments weren’t done in the name of permitting anything “new” in those neighborhoods—but to support and reinforce what’s already there and remove some headaches from residents.

These lot size amendments, one piece of the city’s “neighborhood zoning repair” work, are a great example of incremental code reform, and one that’s worth a look for any community with older residential areas, where overly restrictive zoning ordinances add burden to maintaining the traditional neighborhood fabric.

I had the chance to help Kalamazoo with this effort, through the League’s work in support of MEDC’s Redevelopment Ready Communities program: for the zoning and GIS enthusiasts in the audience, I’ve included some short methodology notes to help get you started with your own analysis.

These tree-lined streets of front porches and sidewalks are an important part of neighborhood sense of place. Too bad so many of them have been made illegal through zoning.

These tree-lined streets of front porches and sidewalks are an important part of our cities’ neighborhoods. Too bad so many of them have been made illegal through zoning.

The annoyance tax of mismatched residential zoning

Many of our favorite traditional neighborhoods predate the widespread use of zoning: Michigan’s first city and village zoning enabling act was in 1921, and the township zoning enabling act didn’t come until 1943. During the home construction boom that followed World War II, communities adopted zoning ordinances that reflected the current practices of the time—applying them broadly and bluntly not just to new subdivisions, but also to the neighborhoods that already existed, where they were”¦not a great fit.

A 1950s ranch home with a private driveway from the street needs a 50- or 60-foot-wide lot, where a 1920s two-story home with alley access or a shared drive can fit comfortably on a 40- or 45-foot-wide lot, for example. But apply that new 60-foot expectation to the older neighborhood as a legal minimum, and suddenly you’ve rendered wide swaths of homes non-conforming. While an “existing non-conforming” lot, structure, or use can be continued in perpetuity, the ongoing mismatch creates friction for the residents of that older neighborhood.

Non-conforming status can make it harder or more expensive to get a mortgage, or home insurance, or a home improvement loan—because the bank or insurer wants to know the lot will still be usable if the house burns down. Even where the local ordinance provides an escape clause (e.g. that any existing lot under residential zoning can be used for a single-unit house), buying or refinancing that historic house can require extra documentation of that fact.  Setbacks or lot coverage requirements might still make rebuilding challenging, as well as limit opportunities for additions, decks, garages, or other improvements. My friend David, a Realtor, refers to systemic hurdles like these as “annoyance taxes” that accumulate and subtly discourage people from living in these neighborhoods or from investing too much money or energy into their homes.

Where zoning renders the typical parcel "too small" for a home, houses destroyed by neglect, fire, or other catastrophe are hard to replace, leaving gaps in the neighborhood.

Where zoning renders the typical parcel “too small” for a home, houses destroyed by neglect, fire, or other catastrophe are hard to replace, leaving gaps in the neighborhood.

Kalamazoo’s neighborhood zoning repair

As part of Kalamazoo’s neighborhood-by-neighborhood planning efforts, the city’s planning staff has been looking for “zoning repair” needs—where the zoning doesn’t match the existing neighborhood context, and the existing neighborhood is valued as it is. When the League performed a “zoning stress test” for the city (as part of Kalamazoo’s Redevelopment Ready Communities technical assistance support from MEDC), I took a deep dive the zoning ordinance’s lot standards for the Edison Neighborhood, where local staff had identified repeated friction between the requirements and the existing neighborhood fabric. They then extended this approach to other neighborhoods which shared this challenge to finalize their recommendations to the City Commission.

First, I looked at lot sizes, finding that two-thirds of the residential parcels in the neighborhood were “too small” under the existing zoning. In parts of the neighborhood, every home on every block sat on a non-conforming lot, because of the lot sizes used in the initial plat.  In other areas, century-old lot splits created more scattered non-conforming parcels. (Using GIS, I selected all parcels within a given district, then did a “select by attribute” on those parcels to identify lots with areas below their zoning district’s minimum, and set a non-conforming flag for those; then repeated this for each other district.)

Before the update of lot size requirements, two-thirds of residential parcels in Edison were below the minimum lot area for their zoning district.

Before the update of lot size requirements, two-thirds of residential parcels in Edison were below the minimum lot area for their zoning district.

The next step was to test a few new lot size thresholds to see what would bring the zoning into compliance with neighborhood patterns, and suggest some revised minimums that would fix most problems, leaving only a few outliers that might need separate solutions. (This repeated the above process using a few different test lot areas and flagging each parcel for the lot size threshold that would make that parcel conforming. For simplicity, I used thresholds that were already in use within the zoning ordinance, either as some other district’s minimum or as a per-unit minimum in districts that allowed duplexes.)

Green-striped and red-striped parcels would be made conforming by lowering lot size requirements by different degrees.

Green-striped and red-striped parcels would be made conforming by lowering lot size requirements by different degrees.

Moving on from lot area, I next looked at lot width: again, over half the homes in the neighborhood sat on parcels that were “too narrow” under the existing zoning, having been platted for smaller lots. (If you have a parcel layer that includes a frontage or width attribute—possibly from assessing data—you can filter on this; without this, or in the case of irregularly shaped lots, you may need to approximate by drawing bounding boxes around your parcels and then filtering on the widths of those.)

The 60-foot minimum lot width of the R-5 district made nearly every Edison parcel in that district non-conforming.

A 40-foot minimum lot width fits the neighborhood's original pattern much better. (Apologies for color scheme change; few enough reds left they were hard to see!)

A 40-foot minimum lot width fits the neighborhood’s original pattern much better. (Apologies for color scheme change; few enough reds left they were hard to see!)

As applied, in Kalamazoo and in your community

Kalamazoo’s staff repeated my analysis for a few other neighborhoods to calibrate the thresholds, as shown in their presentation to the Planning Commission. The City Commission adopted a package of lot size and coverage amendments at the end of January. While significant, as the staff memo notes, these are not the last word on these neighborhoods, but a temporary patch: “These amendments are intended to relieve the pressure of the large quantity of nonconforming lots that exist throughout while City staff work to thoroughly update all the residential zoning districts in the first half 2019.”

Kalamazoo staff created this amazing overlay of a 1958 Sanborn fire insurance map on a current aerial photo of part of the Northside neighborhood, showing how much of the historic neighborhood pattern had been lost over time.

Kalamazoo staff created this amazing overlay of a 1958 Sanborn fire insurance map on a current aerial photo of part of the Northside neighborhood, showing how much of the historic neighborhood pattern had been lost over time.

In some neighborhoods, this ongoing work might mean additional tweaks; in others, more significant changes to the zoning might be needed to bring it in line with the neighborhood’s vision and plans. In general, these lot size amendments won’t bring any dramatic changes to Kalamazoo’s neighborhoods—where they enable new homes to be built on vacant lots, they will be reinforcing the built patterns already in the neighborhood. What they will do is peel away one layer of annoyance tax from residents already living there, an important piece of enabling people to love where they live.

Kalamazoo isn’t alone in facing this challenge—Muskegon also recently reduced the lot size requirements in some neighborhoods to better fit the existing neighborhood patterns. Not coincidentally, fixing out-of-scale lot requirements is the #1 recommendation for neighborhood form in the User’s Guide to Code Reform that we produced with CNU and MEDC. Both Kalamazoo and Muskegon provided input to that project about their code hurdles, and I used an early draft of the Guide to target my work with Kalamazoo.

While the GIS analysis certainly provides attractive maps, there are certainly ways to take on this zoning repair activity without it. For example, in smaller areas, comparing the minimum lot size in the zoning ordinance to the original plat map for a traditional neighborhood is an easy step. The plat will include lot widths and depths that can be used to quickly compare a “typical” parcel’s size to the zoning ordinance’s minimums.  Alternately, just looking for any place your zoning ordinance applies a 60-foot minimum lot width or 6,000 square foot minimum lot area to a neighborhood built pre-World War II is a good indicator that you have an issue.

Michigan’s roads took center stage (as if they ever leave it?) in this past November’s election, as now-Governor Gretchen Whitmer’s “Fix the damn roads,” slogan struck an obvious chord. While the need for pavement maintenance is obvious, it’s only one part of our state’s broken transportation system.

Beyond filling the potholes, Michigan is overdue for actual innovation that addresses our mobility needs holistically. Decades of experience have shown us that neither is a pavement-only approach fiscally sustainable, nor does it address our critical health, safety, and equity needs.

We know that we simply can’t afford to just double down on our road system.

In past years, we’ve built so many lane-miles, bridges, and interchanges that the state’s maintenance needs are now overwhelming even the hundreds of millions of dollars in general fund subsidy that we’re pumping into the roads each year.

As a new Senate Fiscal Agency analysis shows, even this diversion of funds away from other pressing needs is only enough to slow the decay. A functioning road network is essential to moving people and goods–but the decades of expanding our maintenance liabilities so much faster than our population or economy have grown has caught up to us with a vengeance.

While our population growth has been sluggish over past decades, we've spread out rapidly, taking on massive infrastructure maintenance costs (also known as "potholes") in the process.

While our population growth has been sluggish over past decades, we’ve spread out rapidly, taking on massive infrastructure maintenance costs (also known as “potholes”) in the process.

We know that roads alone are not sufficient for all of our residents’ mobility needs.

A third of Michigan residents cannot drive a car due to their age, a disability, or other factors; others are forced to drive uninsured because they cannot afford insurance and have no other options available.

The challenges in metro Detroit are well-documented, but are reflected around the state: Region 9’s Michigan Works! Agencies noted in 2015 that transportation was a barrier to finding and keeping a job for half of the customers they served, and lack of transportation is also the leading factor in missed medical appointments. With these challenges falling most heavily on people with disabilities, people of color, and low-income residents, a focus only on roads presents clear equity problems.

We know that our local, regional, and inter-city transit gaps are barriers to talent attraction.

In addition to lower-income workers’ job access, lack of transportation options limit Michigan’s high-skill, high-wage jobs as well. Amazon aside, consider Ann Arbor-based Duo Security, which recently became Michigan’s first-ever “unicorn” tech company when Cisco acquired it for $2.35B: founder Dug Song has previously cited a lack of transit options as one reason that the company opened satellite offices in other states.

There’s a ton of talent in Metro Detroit that we just don’t have access to because it’s too far for them to consider the commute…and that’s why we’re opening a California office. We’ve sped up out there because really, the talent is easier for us to pull from given the BART, given the CalTrain, than it is here.

You know, having to split up the company and do more in other places, I wish we could grow more here…We’re just very strong supporters of regional transit. I think it would be very helpful if we had trains that went to Detroit, the airport at least, to Grand Rapids, down to Columbus…Our challenge is we just need more access to talent.

Dug Song, then-CEO of Duo Security, to Washtenaw County Office of Community and Economic Development (2015)

And we know that a roads-first focus threatens public health and personal safety.

The state of Michigan and metro Detroit have the dubious honor of placing among the most dangerous regions in the country for pedestrians, with traffic crashes killing over 1,400 pedestrians in the past decade. In total, over 1,000 people have been dying in Michigan traffic crashes each year–another 75,000 are injured annually.

While only southeast Michigan made the national report, fatal pedestrian crashes touch every part of the state.

While only southeast Michigan made the national report, fatal pedestrian crashes touch every part of the state.

Outside of crashes, the impacts of air quality, stress, and simply sitting for long periods mean that an over-emphasis on cars and a lack of other options contributes to heart and respiratory diseases, reducing life expectancy.

Seniors, people of color, and low-income Michiganders are at greatest risk of being killed by drivers, and also tend to have the most exposure to hazardous air quality. Placing the greatest harms of our focus on roads on the groups of residents least benefiting from them adds injury to injury.

So let’s fix the roads–strategically, and for everyone.

We know that the roads do need work, of course. (After all, I drafted this while waiting for a dented rim and warped tire to be replaced…for the second time in as many years.)

What we need is to not pour money in the roads for the sake of action, but to ensure any transportation fixes are strategically and comprehensively improving Michigan’s health, economic opportunity, equity, and budget outlooks at the same time as we’re digging into our repaving backlog.

This means that at all levels–state, MPO, county, and local–we should,

Focusing too narrowly on the area between the curbs without thinking about the whole system can lead us into trouble.

Focusing too narrowly on the area between the curbs without thinking about the whole system can lead us into trouble.

  • Place a moratorium on any new roads, lanes, bridges, or interchanges, including those previously authorized–and using any reconstruction project as opportunities for road diets that reduce, rather than increase, the amount of asphalt we’re on the hook to maintain in the future.
  • Focus all business development incentives on locations already served by streets, and that offer transit, walking, or biking access to workforce: we can’t afford to “win” new business development in greenfield locations that add to our maintenance burden.
  • Ensure that all work on our roads is looked at for opportunities to serve multiple transportation needs, not just pavement condition. A mill/overlay project may not trigger legal obligations for new curb ramps or crosswalks, but the marginal cost of adding those improvements to an existing project may bring substantial benefits to equity, accessibility, and quality of place.
  • Use “tactical placemaking” to test-drive different options for our streets in advance of any construction project. Whether very temporary “pop-up” events or longer-term pilot projects, these let us experiment inexpensively before we commit plans to concrete. Where these pilots demonstrate that right-of-way can be rededicated from pavement to green infrastructure or pedestrian space, they can offer huge benefits over time, potentially even with reduced up-front costs. (And where they don’t, well, they didn’t cost much.)
  • Invest appropriately in all parts of our transportation system. It may seem counter-intuitive to apply limited dollars to transit, or sidewalks, or bike infrastructure in the name of fixing the roads, but those investments can pay off by providing access to destinations in our communities more efficiently (and equitably) than spending all of our money on roads, while also contributing to the sense of place that makes our communities worth living in.

If we don’t do these things, but instead just try to pay our way to smooth pavement, then we will end up making a massive investment in “fixing” our roads that bakes in the current liabilities and inequities, guaranteeing ourselves even an even greater repair bill the next time. Let’s not make that mistake.