Wednesday, November 4, 2009

Land Use and the Municipal Bond Crisis...

While the story is starting to gain traction, the plight of municipal budgets remains woefully underreported.  Maybe its the fact that the federal and state governments are so stimulus-happy that some just assume that cities and counties would be enjoying the easy money party, too.

That would be an incorrect assumption, though.  In fact, municipal budgets are caught in a real fix--declining revenues on one hand (less sales tax, less property tax, and less income tax lead the way) with increasing expenses on the other (underfunded pensions and health care plans win the gold and silver medals in this area). 

Several cities, such as Vallejo, California and Prichard, Alabama have gone so far as to declare bankruptcy.  In some states, though, that's not a legally-permissible option.

Which leads to a question very pertinent to this blog:  how will the dire fiscal straits of municipal governments affect land use?

One thought is that jurisdictions will try to raise fees to make things like inspections and engineering reviews more revenue self-sufficient.  However, with development falling off a cliff over the last 18 months, raising fees won't help much since there aren't many developers paying fees in the first place (if you need a good anecdote to show this, check out recent planning commission agendas where you live and note how they compare to pre-2008 meetings).

Well, this recent story provides some interesting background on the ongoing municipal crisis that includes a note about how land use and development could play an interesting role as the drama further unfolds:

Without bankruptcy protection, a city that couldn’t pay bondholders would be forced to raise taxes until it could. This happened to West Palm Beach, Florida in the Depression and property tax rates rose to 42.5 percent of assessed value. Potentially bondholders might demand that the city hand over real estate to satisfy its debts.

--Chad Emerson, Faulkner U.

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I am a practicing land use attorney in Miami, where this issue is an ongoing reality. In September of this year, Miami-Dade County faced a $444 million budget gap. The City of Miami faced a $100+ million shortfall. Most local governments have refused to raise the millage rate on property owners. Miami-Dade County turned to layoffs and significant pay cuts to existing employees totalling $200+ million. However, county commissioners, as recently as October 26th, were unwilling to make a final decision on implementation of the mechanics of the cuts. As you have predicted Professor Emerson, local governments are also turning to fee increases to try and make up the difference. Effective October 1, 2009, all planning and zoning fees in Miami-Dade County were increased by 3%.

Because of union policies in effect, local government layoffs are operating in the context of "last one in, first one out". Many of the younger, more educated and skilled employees are being let go, while the old guard remains, draining government of its future leaders. Additionally, managers are using this opportunity to shift friends and family members into positions of authority for which these beneficiaries may or may not be qualified. For example, a long-time secretary in the public works department may find themselves the new assistant building director. Makes for an interesting road ahead.

Posted by: Steven J. Wernick | Nov 5, 2009 6:34:44 AM

What a mess! I saw some images of Brickell recently and was told that some of the new towers (at least those that they bothered to finish) are below 50% occupancy.

It's hard to imagine much demand for new residential or commercial construction in your region for years to come.

The trickle down effect of that lack of demand is a lack of revenue to the cities and counties from both fee and tax lines of revenue.

I hope someone is at least leaving the AC on in these places. If you can keep the mold and mildew out, they might eventually have some value.

Posted by: Chad Emerson | Nov 9, 2009 1:01:39 PM