August 03, 2003

Boulder and Taxes

Posted by shonk at 03:33 PM in Politics | TrackBack

The City Council here in Boulder is trying, yet again, to do what it does best: raise taxes. Specifically, they want approval for two sales tax increases, one for open space and one for social services. These tax increases, well-intentioned though they may be, cannot work as intended, since the two are incompatible. That is to say, the more open space Boulder buys up, the less money it seems to have to pay for social services. Which makes it pretty difficult to keep a straight face when City Council members get started with their rhetoric about how important social services are to them.

The astute reader is complaining, at this point, that I've indicated a relationship between open space and an ability to pay for social services, but have not described any causality. Let me briefly sketch out the issues. First off, the city buys up undeveloped land around the city with the intent of keeping it undeveloped. Hence, "open space". Now, this has the effect of preventing the city from expanding laterally. Naturally, this means property values in the city increase, since the demand for land hasn't changed, but the supply has been decreased. As land gets more valuable, rents go up, which, since population hasn't changed, means local businesses make less money. As a result, some move, preferring to relocate to nearby towns, where rents are lower but Boulder customers can still drive in a few minutes. Similarly, new businesses, which tend not to have the money to pay high rents initially start up in the surrounding towns, not in Boulder.

Of course, in the above paragraph I stipulated that "population hasn't changed", but that is not entirely true. As property values increase, many renters find themselves unable to afford increasing rents and move to nearby towns. Newcomers find themselves similarly incapable of paying for housing in Boulder and buy or rent outside the city instead. One unintended consequence of Boulder's open space policy, then, is to increase traffic congestion, since more people are commuting from further away than before. Also, the influx of people into the nearby towns has a tendency to draw established or potential businesses away from Boulder, thereby working in concert with the negative incentives of higher rents. The end result is that people and businesses are, more and more, avoiding Boulder. The direct effect this has on the city (aside from congestion and "loss of community") is to decrease sales-tax revenues. Fewer businesses means fewer things being sold means fewer taxes being collected. Since those same sales taxes pay for social services, the choice is either to cut services or raise taxes. Guess which is favored by the City Council?

Unsurprisingly, it is not just open space that is driving people and businesses away from Boulder: there's an entire self-sustaining incentive structure encouraging this exodus. One might think that, with lateral expansion out of the question due to open space, Boulder might instead expand vertically. But no. The city enforces a maximum building height of 35 feet throughout the city, except in parts of downtown, where the limit is increased to 55 feet. What this means is that even moderately sized apartment buildings are out of the question. As such, those that might be able to afford a moderate apartment, but not a house are unable to live in Boulder. Commercial rents are similarly affected. Furthermore, the city has a law stating that no more than 3 unrelated adults may occupy a "single-family" residence. This means that, even if 6 adults could comfortably live in a house, they are legally forbidden from doing so. Again, this artificially raises rents (while simultaneously reducing property values), providing further incentive for living elsewhere. This becomes urban sprawl.

Now, as one might expect, the people most adversely affected by all these policies are those with lower incomes. Rich people can afford higher property values and higher taxes, but the poor and, increasingly, the middle class cannot. They are virtually forced to move away from the city. This has not gone unnoticed. One result was the passag of a law stating that 20% of any new residential development must be "low-income", meaning sales values are capped. This was initially a great boon to the intended benificiaries, as many would buy houses at these artificially reduced prices and then immediately turn around and sell them at market value, garnering themselves a tidy profit. The City Council, not pleased to see poor folks making profits, changed the law such that all these "low-income" properties were deed-restricted to the effect that they could never be sold for more than a certain maximum value (adjusted for inflation). Needless to say, they never sell for less than that maximum. The unfortunate effect of these deed restrictions is that they massively discourage capital improvements or even standard maintenance, since the cap is considerably lower than market value. In other words, the "low-income" homeowners have no incentive to improve or maintain their houses (other than pride), since doing so will not make them any money. As a result, most of the "low-income" houses in the city are rapidly becoming dilapidated.

Most housing developers, of course, have learned to steer well clear of Boulder. Aside from the lack of land and the height restrictions, the "low-income housing" rule means they must take a loss on 20% of their development in addition to having to fulfill further costly legal loopholes. Most don't even bother. This means the only new houses being built in the city are huge mansions being built on "scrape-off" lots by people with lots of money (a "scrape-off" lot is one purchased solely for the land under the currently existing house, which is demolished, or scraped off, to make way for the new 14,000 square-foot, $3 million home). Which, I suppose, wouldn't be so bad if not for two things: first, destroying (often) historical homes and driving away low- and middle-income residents in favor of the rich is entirely antithetical to the ethos that created these policies; and second, the wealthy, new residents tend to shop in the fancy, new stores being built virtually everywhere except in Boulder, meaning more congestion and fewer sales-tax revenues.

Which is why the City Council is stumping for higher taxes to buy more open space and pay for social services that help assuage rich-man's guilt but are rapidly becoming irrelevant as low-income families leave the city. Not surprisingly, Boulder's vagrant population is skyrocketing.

The moral of the story is that good intentions alone are far from sufficient to effectuate good results.