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Wednesday, August 17th, 2011

Commercial District Revitalization and Return on Investment by Richard Layman

One of the things that bugs me about local economic development is that elected and appointed officials don’t seem to understand it much. Certain types of government funding add value and spur subsequent independent private investment and other types of funding do not. Ideally, each dollar you spend generates significantly more in private investment.

As Rolf Goetze makes the point in Building Neighborhood Confidence (1976), although referring to neighborhood stabilization, that government programs shouldn’t be fostering dependence but rather spurring people to continue to invest in their neighborhood–“building confidence in remaining in and investing in their neighborhood.”

This is why I don’t have much truck with complaints about “gentrification.” The problem most urban neighborhoods have, if they have problems, is the lack of investment.

The solution to lack of investment isn’t whining or glorifying being poor, it’s investment.

The solution to dealing with displacement is to develop programs to reintegrate the disadvantaged into the economy in substantive ways (such as along the lines discussed in the textbook Community Economic Development Handbook) as well as extracting some housing outside of market forces through the development of alternative ownership structures, either portfolio investment within nonprofit housing organizations, land trusts, cooperatives, etc.

Also see this very old blog entry, “More about contested spaces–gentrification” which derives from something I first wrote in 2004.

The other thing to remember is that it took many decades for neighborhoods and commercial districts to decline, so we have to recognize that it will take a long time for these places to be improved. It takes even longer when we don’t know what we are doing, and we fail to learn from previous practice, not to mention best practice, and we put in minimal amounts of money so that it makes improvement very hard to come about, and we don’t direct money in ways where it can have great impact so that money gets wasted.

So, it’s very interesting to read stories around the country about how in these economic times, many communities are looking into dissolving their commercial district revitalization programs (“Downtown development authorities help make city centers cool, but can West Michigan communities afford to keep them?” from the Grand Rapids Press in Michigan ) even while other articles acknowledge that it takes a long time, more than one decade to truly see results (“Strengthening Manitowoc’s ‘heart’ a challenge: Revitalizing downtown Manitowoc won’t happen overnight; takes work, planning and money” from the Manitowoc Herald Times Reporter in Wisconsin and “Development plan still reshapes downtown 10 years later” from the Oshkosh Wisconsin Northwesterner).

Meanwhile the State of Maryland is working to change the state historic preservation tax credit to a sustainable communities tax credit program. (Press release from Preservation Maryland)

It’s a good move, because Baltimore City garnered most of the credits–because they have the most buildings of any jurisdiction in the state that are eligible because it is the oldest center city and once was one of the nation’s major manufacturing centers–and this upset legislators from other jurisdictions (sadly, as they clearly don’t understand what Jane Jacobs wrote in Economy of Cities and Cities and the Wealth of Nations about the necessity of center cities to thrive as they are the centers for metropolitan economies).

The state historic tax credit in Maryland generated more than $9 in direct private investment for every $1 in credit. The Maryland heritage areas program generates more than $40 for every $1 of state investment.

Yet these kinds of programs, and tourism support programs generally, are always under attack, even in decent economic times.

It makes absolutely no sense to me.

Also see “MAIN STREET NICHES IN A MASS SALES WORLD” (1/11/04) column by Neal Peirce. From the article:

Successful Main Street programs, Rand notes, take years to mature — four or five years to change attitudes and build initial confidence, five to ten or more years for owners to start reinvesting seriously, 15 or 20 for the full recovery and new growth to take solid root.

This post originally appeared in Rebuilding Place in the Urban Space on February 28, 2010.

4 Comments


4 Responses to “Commercial District Revitalization and Return on Investment by Richard Layman”

  1. Chris Barnett says:

    I agree with the writer: tax-credit programs are a good fit with the small-scale, one-off revitalization that is typically the output of a commercial district program.

    Old and functionally obsolete buildings typically have significant financial gaps that serve as both a barrier to rehabilitation and an invitation to demolition. Tax credits help to supplement the private capital and make it more practical to save smaller buildings with history and personality.

  2. “The state historic tax credit in Maryland generated more than $9 in direct private investment for every $1 in credit. The Maryland heritage areas program generates more than $40 for every $1 of state investment.”

    The question that needs to be answered however is if those $1 state investments yield more than $1 in additional revenue back to the state. If, for example, a $1 million city investment yields $10 million in private investment, that sounds great, but not if it yields only $100,000 in new property taxes to that city.

    Yes, the investment is one-time and the taxes are cumulative annually, but if there’s also long-term tax abatements or further incentives it can really muddy up the situation. It’s similar to how cost-benefit ratios are calculated for road and highway projects. A huge portion (some 90-95%) of the dollar amount of the project’s benefits are usually for “time savings.” That sounds great and all, except the city, state, feds, whoever, doesn’t actually collect any tax revenue on those time savings. Without that in the cost-benefit analysis, the projects look much much less appealing, and many wouldn’t be built because it’d be obvious we can’t afford them.

    In a nutshell, these things need to be looked at much more critically. Some projects certainly do make sense and are financially viable, but others don’t, especially when the value created can’t be captured by the government agency sponsoring them, no matter how good the rate of return might seem.

  3. Miriam says:

    Thank you for the re-post – I missed this one. I’m so glad to finally read a description and argument around gentrification that I understand and agree with.

  4. Inoa says:

    I was thinking about this, and I think my concern is that if you are going to invest in communities you need to have a sense of scale as to the needs of that community. A high multiplier or good ratio does someone no good if it goes to develop something that literally displaces them, or prices or walls them out of parts of their community. Needs can be addressed to mitigate the costs, but “gentrification” sums up a whole wide swathe of valid concerns about maintaining a local focus. Are the people in that community partaking in the influx of wealth, or is that private money buying access that effectively robs that person of a previously accessible place? It all sounds valid to me. I would want funding to go to something that adds value to something that everyone holds in the public sphere, or that generates or helps generate more commerce for things that the community could benefit from and wants.

    This is not to say that I’m condemning the statutes you’re defending. I wouldn’t want the perfect to be the enemy of the good. But I also wouldn’t want people to be priced out or displaced unless the larger majority actually partakes in the benefits of the investment (whatever that may be).

    I suspect that high multipliers and good ratios buy something for their money. Hopefully it’s one of those simple ideas that shine like gold, but isn’t coveted and controlled like it.

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