Local "Planning" Follies, part 2 - Subsidizing Sprawl – North Natomas and the Environmentalists

(c) by Mark Dempsey 

Part of a series. See Local "Planning" Follies Part 1 - The state of play in land use planning for links to all posts.

 Subsidizing Sprawl – North Natomas and the Environmentalists

The loss of a forest or a farm is justified only if it is replaced by a village. To replace them with a subdivision or a shopping center is not an even trade.
...
Buried in berms, clad in weathered wood and weak in form, the buildings of suburban Hilton Head are promoted as ecological. But they are only apologizing (quite correctly) for their own existence. The compact neighborhood is the true architecture of nature.—Andres Duany

Why are our land-use planning practices so confoundedly convoluted? Are the issues really that complex? Did the farmers who planned the great cities like London and Paris simply stumble into their success in making lower-environmental-impact development?

In fairness, now we consume more of the environment than ever before in history. Previously, we could pollute without fouling so much of our own nest, but that is no longer true, so in a sense we are at a greater disadvantage than city builders in history when we trying to plan fewer impacts.

A large part of the difficulty in revising our perverse planning practices is that the stakes for land speculators and developers are so high. Potential profits built into plan changes (rezones) and building fees that subsidize development get attention from the special interests, and their attorneys and consultants who work diligently to bury any objection that development is ill-advised, unsustainable or simply does not pay its own way.

The profit (subsidy, really) from rezones is the foundation of some large, private fortunes. In handing private development interests these large payouts, the public forfeits its right to complain that we don’t have enough money to fund public services like infrastructure, education or health care.

Governments do not actually pay money to developers, they subsidize development because they do not charge more than a pittance for enormously profitable rezones, even though those profits exist wholly because of local governments’ actions. Local governments also subsidize development because they do not charge what its infrastructure costs in bonds and building fees. Both of these subsidies are off-budget, not explicitly handed over—that would cause too much of a fuss from an electorate hostile to “excessive government spending.” 

Given the size and scope of the subsidies, however, the tax-and-spending debate is almost insignificant. Subsidies are where the real money is, and how the special interests get a living from government decisions. This is, of course, a real invitation to corruption since the profits exceed any conceivable bribe by orders of magnitude. It’s not personal; it’s business.

Environment Meets Money

In the negotiations leading to the development of North Natomas—a large tract north of Sacramento’s downtown—Tom Whitney represented environmentalists. He then was president of the Environmental Council of Sacramento (ECOS). 

For those unfamiliar with North Natomas, before the late 1980’s it was 14 square miles of rice paddies and pastures—a floodplain surrounded by weak levees, about five miles north of downtown Sacramento.

Despite its proximity to downtown Sacramento, one indication of how unsuitable it was for development was that when the region’s sewer plant received a grant to expand, the grant included the condition that if the plant’s new capacity ever encouraged development of North Natomas the region would owe a $6 million penalty to the Federal grantors.

The speculators proposing development in North Natomas were unfazed by this restriction. They worked their way up through the entitlement bureaucracy all the way to then-Vice-President George H. W. Bush whom they persuaded to change the prohibitive $6 million up-front penalty into installments--a pay-as-you-develop fee. They also got $43 million in levee improvement money, so the floodplain would be reliably dry and buildable. In paying $6 million in installments to get the flood protection $43 million, the speculators guaranteed their first profit, a handsome 700% return on investment, but they were far from done.

Once they got their rezone from agricultural use, after paying only a few thousand dollars per acre for North Natomas’ rice paddies, the speculators could sell that land to builders for tens (now hundreds) of thousands an acre. With profits this large, wealthy speculators could even afford to wait for a more favorable political climate and still earn breathtaking profits—100% or more per annum.

Potential profits this high explain why these same speculators proposed building a stadium and buying a professional basketball team come to Sacramento. What better way to drum up a constituency clamoring for the City to rezone this agricultural land into residential, commercial, or industrial uses?
As an added bonus, profits from rezones are almost entirely tax-free. Land speculators can swap their now more valuable property for other income-producing real estate, and ensure all profits are sheltered from even income taxes.

If all this were not bad enough, the design of the development in North Natomas is primarily Conventional Suburban Development—sprawl. Its pedestrian and transit possibilities are limited. As a consequence, more commuters remain in their cars, and Sacramento’s suburbs sprawl North into a floodplain. 

The floodplain is apparently getting more dangerous too. A recent Bee headline announced that a study of the levees found at least $270 million more in improvements are needed to bring the levees up to post-Katrina standards. In a region second only to New Orleans in its potential for flooding, this is critical information. Meanwhile, the homeowners, not the developers will be saddled with this cost if we manage to do the work before the flood arrives.

Knowing this history of North Natomas as an ill-conceived development designed more to inflate private pocketbooks than to build anything resembling community, I anticipated a sad tale of retreat and frustration from environmentalist Tom Whitney when I asked him to describe his negotiations with North Natomas’ developers in the early '90's. Whitney's story is more complex than that, though. He did negotiate in earnest, and can claim victory in several smaller battles, although, in this writer's opinion he lost the war. 

Whitney said his negotiations with developers were especially gruelling since the meetings occurred after he came home from his full-time job with Regional Transit, where he was a graphic designer. The developers’ full-time job was to prepare for the meetings, while Whitney had nothing close to their time, expertise or resources. Month after month, he could rely only on his own labor and some donated help, while developers had a paid staff and previous experience that would have trumped virtually anything he could bring to the table. 

Despite these disadvantages, Whitney persisted, even refusing Heather Fargo—the City Councilwoman representing the district—a place at the negotiating table. This he described as his attempt to “keep politics out” of the decision making. 

His refusal may have been reasonable in his own mind, but it gave Ms. Fargo political cover. She could bless any agreement between the developers and the overmatched, solitary environmentalist in this negotiation without having to take any responsibility for any inconvenient details. But if she is not accountable for the details—where all the devils reside—then where is the accountability of public office, and what exactly is the point of representative government? 

In fairness, Ms. Fargo ultimately voted to reject North Natomas development, even if she voted to accept Whitney's proposed pattern for development after the City Council blessed the project.

Of the negotiations, Whitney says: “When it was all over, every aspect of the final plan was signed off by ECOS and the Natomas Community Association, developers and landowners, and approved unanimously by the City Council.”

Since by his own admission Whitney did not have the time or expertise to examine the developers’ financial proposals, his expectations and demands were necessarily limited. He says “I feel that we got virtually everything we had the sense at the time to ask for in terms of policy and the design of the area.”

Whitney proposed, and got, some nice green space, and some money-saving, more natural drainage strategies implemented, but overall North Natomas remains a sprawl bedroom community in floodplain surrounded by weak levees. Transit, including rail or dedicated busway right-of-way to the airport were not prerequisites for development. I can’t say whether he had the time or sense to ask for New Urbanist design, but it does not appear in the development there.

A real debate about finances and development costs never occurred during Whitney’s planning discussions. He simply did not have the staff or time to audit the developers’ financial projections. As it turns out, North Natomas is a financial disaster for the City of Sacramento, particularly for its schools—and one it could ill afford. 

You would think, after the 10,000% (and more) profit gained by rezoning North Natomas, that at least the land speculators would have paid for the entire cost of infrastructure, but that is not what happened. The neighboring Rio Linda school district’s superintendent, Bill Murchison, told me he was offered management of North Natomas schools, and declined because their budget was about 10% short of what was needed. The upshot was that the rest of Sacramento City’s schools had to subsidize North Natomas. This was particularly unhelpful since the City’s schools were then struggling with budget problems of their own.

Building Fee Subsidies

Can America send a man to the moon? Check. Build a swift, stealthy bomber that can evade radar in pursuit of enemies? Check. Write creative software that will fish through billions of bytes and pull out relevant few facts? Check.
But can America routinely build light, airy bridges that cross streams or gorges beautifully and sturdily, like Germany? Build high speed train lines like France, or giant gates that shut out the sea, like Holland? Set up a universal tolling system that allows trucks to travel without using toll gates, like Switzerland?
So far, the answer is “No,” or at least, “Not yet.”
...In Louisiana, the failure to spend around $10 billion to strengthen levees and control the Mississippi River means that the federal government is now contemplating spending up to $200 billion to rebuild New Orleans and other affected areas. And this doesn't include the huge costs that insurance companies and private businesses and residents will incur. – from Alex Marshall Our Infrastructure Gap 

Since California passed Proposition 13, its local governments have had to collect the cost of the infrastructure they provide for new development in the building fees or in Mello-Roos bonds, because if they don’t collect it then, they never get it. Communities often do not even charge building fees that cover actual costs for infrastructure—on top of giving developers the rezone good mine without taxing it. 

This is not just true in Sacramento, either. In the midst of the building boom of the late 1980’s, nearby Butte County nearly declared bankruptcy because its building fees did not compensate it for the costs of all the development it approved.

Even today, if you ask Sacramento County planning staff or policy makers what the per-equivalent-dwelling-unit cost of infrastructure is today, they cannot tell you. Consequently, local government cannot tell you whether infrastructure costs exceed building fees paid, so we don’t even know whether we are recovering costs or subsidizing development with the current fee structure. Perhaps we can guess: Retiring Sacramento Supervisor Illa Collin said the 2004 Sacramento County budget had “the worst deficit in living memory,” yet it was a banner year for development profits.

Imagine asking a factory owner, what his unit costs were, and what he charged for his product. If he couldn’t answer, what would you conclude? You would probably assume he was either incompetent, malfeasant, or insane. The adjectives would certainly not be complimentary, but this is exactly the County’s current position—they don’t know their unit costs.

Building fees make roughly a $3,000 distinction between infill (development that uses existing infrastructure) and greenfield (development that requires all new infrastructure). The schools alone in greenfield Laguna West cost $8,000 per house. So are the fees right? Not even to a cursory examination.

North Natomas, and other development like it, are why Sacramento is second only to New Orleans in flood risk in the U.S. The billions in jeopardy of flooding remind us that ensuring private developers’ profits at the public’s expense is penny wise and pound foolish. Apparently local councils of government have learned little from the bad North Natomas example, too.

Sacramento Today

How is the Sacramento region doing, as we face the new millennium? It is still a lovely, warm-weather town with nice neighbors. People still get along. Nevertheless, there are some troubling trends leading in the less-than-optimum direction. Googling, and a look at other sources, produces the following observations:

Traffic and Air Quality

Sacramento's U.S. population rank: 25th largest. Its traffic congestion: a disproportionate 11-15th worst in 1999. 

In ozone pollution, in 2001, Sacramento County was 33rd worst, in 2002, 20th, in 2003 14th, and in 2004, 12th worst. Air quality has actually improved in absolute terms, despite this dismal trend in relative rankings because state and federal law requires new cars to pollute less. The worsening comparison to other localities, however, remains an indictment of our failed local traffic management and land-use policies.

County Budget and Services

As cited before, Supervisor Illa Collin said the 2004 County budget had “the worst deficit in living memory,” even as development boomed. Former Sacramento County Supervisor Grantland Johnson says Sacramento County has a statewide reputation as the local government most favorable to development interests. 

So despite its budget problems in 2004, the County continued to grant developers and land speculators record profits, giving them untaxed concessions (rezones) worth millions.

Meanwhile, my son’s County school district still had to hold fund-raisers so it could have arts programs and after school sports. The County’s Head Start pre-schoolers often cannot get dental care. County employees are on strike as I write this because their pay is not comparable to other regional agencies, and the County is asking them to fund an increase in their health costs.

The City Council voted to approve a quarter billion dollars relocate the local professional basketball stadium. This deal would provide the financing for a basketball stadium whose revenues would go entirely to the team owners. The City owns the stadium, so it gets no property tax, and the team retains the right to pit another city against Sacramento in a "battle of the subsidies." One City Councilman calculates that if we gifted the stadium to the owners, it would be a better deal for local government because they would at least have to pay property tax.

Health Care

Not only are well-planned local land-use development patterns are the key to trends in traffic, pollution and public health (walking is good for you), but they impact public health simply in setting up obstacles to walking, as well as contributing to the pollution which now adds to the increases in respiratory disease. 

Nevertheless, planning remains auto-centric, and plan changes (unplanned growth) remain common.
So clueless are our public servants that former County Supervisor, now former Assemblyman, Roger Niello wrote that California should not bargain with the drug industry because larger drug company profits would go into research and development for new and better drugs. 

Besides failing to mention that we spend roughly twice as much as the next most expensive health care (Germany’s) with worst outcomes (shorter life expectancy, higher infant mortality, etc.), Mr. Niello did not mention that big pharmaceutical companies spend roughly three times more on marketing than they spend on R&D. 

He also forgot to mention that the bulk of big pharma’s research focuses on slightly altering already patented drugs to give them a new run as more-expensive, patent (non-generic) medicine. So, while U.S. pharmaceutical companies continue to post record profits, U.S. health care costs are increasing faster than inflation. 

To avoid those costs, the New York Times reported Toyota recently located an assembly plant in Canada, rather than in Detroit. The possibility of a regional single-payer health care system as a potential attraction for good employers remains unexplored.

In addition to his service to his big pharma masters, Niello was a fan of rezones. Rezones remain the foundation of many local speculators’ fortunes, and a hidden subsidy for building on unsuitable floodplain. Repeated requests for the County to address this glaring inadequacy, or to embrace a workable alternative remain substantially unanswered.

The Bottom Line

While our public servants may congratulate themselves on some accomplishment (or express indignation at something they’ve opposed), effective public service would lead to something other than these troubling trends.