A good post from TimB (here) aside from making a few excellent points asked that we look at different scenarios for demolition with Academy Street as the target area. So here are the results of the analysis with different scenarios. The assumptions are detailed in the document below but let me highlight a few points:
1) The scenarios are quite optimistic as they assume that all new homes get built and on the tax rolls on the same year as the demolition. As a result, the analysis overstates the city revenue for those scenarios with demolition.
2) The demolition cost is $9K per home as a cost to city taxpayers.
3) The analysis uses numbers available from Montgomery 2008 tax rolls and Web site. FYI: if you claim my baseline numbers from the county are wrong with no supporting details as to why, I will ban you from posting ever again.
4) The analysis assumes no eminent domain; in other words, the city forecloses on the houses due to tax liens only.
5) To keep it simpler, the analysis does not look at revenue changes to the county and school district. I’ll get back to this point later.
6) WHile TimB asked for differentiation between renovate versus demolition, the city does not realize more revenue from renovation, all things equal, so I focused on demolition only as the lower the level of demolition, the higher the revenue to the city.
Here are the numbers under several scenarios:
Scenario 1: Perfect World (No demolition, 100% paid taxes, no foreclosures)
City Revenue NPV $801,091.50
Scenario 2: 5 Foreclosures/ 5 Demo
City Revenue NPV $735,541.07
Scenario 3: 10 Foreclosures/10 Demo
City Revenue NPV $669,990.64
Scenario 4: 15 Foreclosures/15 Demo
City Revenue NPV $609,792.32
1) City tax revenues drop in proportion to the intensity of demolition. Assuming no changes in city expenses to offset revenue drop, this raises taxes on remaining parcels.
2) While county and school taxes were not included, the same drivers as (1) would work to raise county and school taxes barring a reduction in expenses
3) The analysis overstates the revenues with demolition as it assumes the following:
i) Single family homes will be built the same year as demolition with payment of a full year of taxes
ii) Investors will build single family homes 20% higher than the average value on the street
iii) Investors will view the building of homes at 20% higher market values as not too risky
iv) Buyers will purchase 750sqft homes (+/-) on that street
4) The city realizes large revenus from its user fees; as you convert multi-family to single family you are reducing the revenues per parcel as the user fees drop. THis is especially severe in areas with high concentrations of multi-family homes.
Finally an argument by those in favor of this strategy is that we will get an appreciation in overall home values in the immediate area and a spillover effect on the entire city. I think this is a plausible outcome although I cannot quantify it. However, I think this outcome comes at a price: taxes will need to rise, expenses will need to be cut or some combination thereof to make this work. Even then, this strategy entails some significant risks which may in the end cost tax payers much more than they would get in return. IMHO, I think the risk/return for this strategy is not favorable to the city. Or put differently, I think we can get to the same place with other approaches that entail much less risk.
The bottom line is: no free ride with demolition.
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