Smart Communities

Tax Credits: Why states like Pennsylvania and New Jersey are leading the pack in technology-based industries

In order to remain competitive in the 21^st Century, the United States needs to begin to invest heavily in technology-based industries. These technology-based industries include biotechnology companies, network and communication companies, pharmaceutical companies, and other high tech companies.

Given the recent economic downturn, many states have begun to invest in economic development initiatives that are aimed to promote job growth in technology-based industries. Namely, Pennsylvania has allocated $55 million for research and development tax credits as a way to boost its life sciences and manufacturing technology industries. New Jersey has funded 100% of its research and development tax credit, meaning that funding is available to all of the companies that are eligible. Other states have begun to follow suit, but not nearly on as wide a scale as these two states.

The Research and Development tax credit was created in 1981 to incentivize advances in technology-based industries. These tax credits are particularly useful for start-up companies due to recent simplifications in tax codes.

Another major tax incentive available to companies is the Angel Investor tax credit. Angel investors are wealthy individuals who invest in start-up companies. The premise of the tax credit is that by offering tax incentives to these individuals, they are then free to make further investments in other companies, thus providing a boost to the economy. A report released by the Wisconsin Economic Development Corporation found that 930 full time jobs had been created from angel investor tax credit funds since the program was instituted in 2005. Angel investor tax credits are perhaps the most controversial form of economic development, with many economists suggesting that they don’t spur economic growth beyond what would occur without any form of incentive. However, entrepreneurs argue that they are the most beneficial tax credit and work precisely the way they’re designed to.

While these tax credits have proven to be beneficial to many states, others are exploring new methods for promoting job growth. Virginia, for example, has created a small business jobs grant fund. This program offers grants to companies that are able to create five new full-time positions and make a new capital investment of at least $100,000. The program, which was originally created in 2010, has seen great success and the state is looking for ways to expand the program.

Over the course of the last 40-50 years, the number of tax incentives offered by states has increased dramatically. As a direct result of the increase in tax credits, the tax wedge has decreased during this time. Many, but not all (corporate tax rates are also factored in), of these states that offer a large number of economic development-oriented tax credits are considered to be the most business-friendly states in the country. Tax credits and other incentives, according to recent statistics; appear to be the best solutions for boosting economic development within our communities. States need to continue to invest additional funds in these forms of economic development in order to spur job growth and boost the economy.

Guest Contributor: Matt Wertman

If the country was run by mayors…

The transportation bill that just passed the Senate is mostly about keeping current funding flowing to our highway and transit systems, but there are a few twists. One of the lesser-known components of the bill is a change whereby the states get to keep more of the most flexible transportation funding they receive and share fewer of these dollars with local areas in their state. Akin to the popular and well-established Community Development Block Grant Program and its "entitlement communities,” the federal surface transportation law has passed through 62.5 percent of all STP funding to local areas since 1991, with urbanized areas of 200,000 or more people receiving their population share of these funds by formula. Nearly 200 such areas throughout the nation – our biggest metropolitan economies that produce most of the nation’s goods and services – will receive a smaller share of these transportation “block grant” resources under what the Senate bill calls the Transportation Mobility Program, a renaming of the Surface Transportation Program. To most people, this change doesn’t seem like much, but to local areas, it means that their local decision-makers will now control an even smaller share of the funds that the federal government sends back to us. And, there is growing evidence that local decision-makers are getting more bang for their buck than state transportation bureaucrats, given the success local officials are having in developing alternative transportation systems, encouraging more efficient development near transit stations and motivating local taxpayers to support higher fees and taxes for these improvements, as other levels of government run from raising additional taxes.

And, we see that state governments are growing more confrontational and political, as local decision-makers continue to prove themselves to be effective and responsive in promoting community development and other objectives. Local officials simply don’t have the time or inclination to indulge the fervor and ideology that now plagues our political debates. Certainly, their close proximity to the public and their problems forces them to act and find solutions, which I believe today makes them the dominant actors in our political system. These achievements stem from their desire to affect change for their people and communities, as opposed to advancing a political agenda. 

A recent commercial during the Super Bowl by The Mayors Coalition Against Illegal Guns made this point clearly. Two mayors, New York’s Mayor Bloomberg and Boston’s Mayor Menino, are from different parties, different regions and in many ways are competitors with each other for new jobs and business investment. Yet, here they are united by their shared goal of improving the safety of their communities, advocating for modest but important improvements in federal gun safety laws. Their message promoted by the organization does not derive from a political agenda or party platform, and does not indulge the usual 2^nd amendment, constitutional debate. These are simply mayors confronting problems hurting their people and their communities and seeking reasonable remedies to alleviate it. This is one of many examples where mayors and other local elected officials have come together to protect and improve their cities.

The rationality of these politicians makes them the best stewards for our country. If mayors and other local officials were handed the political reigns of this country—it is certain we would be much better off. In contrast, our federal and state governments seem most interested in passing the buck down to local officials, cutting resources but passing along more responsibilities to localities.

Why does federal policy look the other way on the performance of our state governments and continue to send money to them and pretend they are solving problems? The American Recovery and Reinvestment Act (ARRA) provided large sums of money to state governments to create jobs and stimulate the economy. As a recent Albemarle County official told me and others in a session on the impacts of ARRA funding, it was reported that the Commonwealth of Virginia held most of their ARRA funds they received from the federal government. In enacting these funds, Congress again assumed or believed that the states would pass these dollars down to worthy projects in local communities. As it turns out, the only ARRA money the County of Albemarle received was from the Energy Efficiency and Conservation Block Grant, because its formula directed dollars directly to cities and counties, much like CDBG funding is allocated.

Given all we know about losing funding inside the state’s treasury and inside its agencies, isn’t it time to simply direct more federal funds to cities, counties and their local areas so we can all benefit from smart local decisions investing in our future?  The uncertainty about the redistribution of funds through the state is convincing more of the public that nothing comes from the expenditure of federal resources on these programs. Let’s start by making sure the final federal transportation bill restores local area funding so more dollars and more investment decisions will be made locally. 

Guest Contributor: Kate McCarty

 

http://thomas.loc.gov/cgi-bin/bdquery/z?d112:s.01813:

http://usmayors.org/pressreleases/uploads/2012/0306-letter-transportation.pdf

 

 

 

How Much is a Street Light Worth?

How much would you pay to keep your street light on? Or to have trash cans in your neighborhood park? In the wake of recession, local governments across the country struggled to find ways to balance budgets by cutting services. In Colorado Springs they tried something rather radical. When property values tanked, the local government took the issue to the voters and offered them a choice: raise property taxes to cover the short fall, or cut services—they provided a very specific list. Not surprisingly, voters resoundingly chose to cut services rather than raise taxes. So, in early 2010 one third of the street lights were turned off. Bus services were slashed. Park maintenance stopped entirely—the trash cans were removed, the grass died. The city eliminated police and fire positions, stopped repaving its streets, and closed its public recreation centers. 

 

What happened next is reported by Robert Smith of NPR’s This American Life. At first, people were outraged. One homeowner called the city to report his street light outage, and listened incredulously when the city employee explained “you voted for this” and then offered to turn the light back on for him—at a cost of $125. Bringing trash cans back to the park cost closer to $3,000, not including trash pickup.

 

The journalist reporting this story expected that the locals might cave to the inconvenience and campaign to get their services back, even by an additional tax. But so far, that hasn’t happened. The community members interviewed said that they would rather pay for the services piecemeal, even if it means paying more total than the additional property tax would be. According to Smith, most residents would have paid about $200 in additional taxes per year—just a bit more than the cost of that street light, to get back their street lights, parks, garbage services, and other little things like a full complement of police and firefighters.

 

To me, this story reveals the significance of Americans’ reverence for freedom and choice. In Colorado Springs, people would rather pay more for worse services as long as they are choosing whether or not they’d like to pay.

 

This value system creates two significant challenges for building smart and whole communities. First: it leads to inefficiencies. Providing services piecemeal will inevitably cost more than running a larger system with economies of scale. No matter how small local government gets it will still be funded by taxpayers—taxpayers who want and deserve to get the best possible service that their dollars can buy.

 

Second, this kind of system leads to inequalities. In a system where location-based services are available for an extra fee, wealthier neighborhoods will get to keep their parks and streetlights. Struggling neighborhoods will not. When it comes to public safety, this is a pretty dangerous game. Neighborhoods are not islands. When crime rises and public trust falls, the whole community suffers. Who pays then?

Guest Contributor: Megan Liddle Gude

 

 

Sustainably Supplying the Demand for Affordable Housing

The demand for affordable housing is large.  According to a 2011 U.S. Department of Housing and Urban Development (HUD)  study, worst case housing needs – those low-income households spending which pay more than half of their monthly income for rent, lived in severely substandard housing or both – jumped to 7.10 million cases in 2009.  While this number alone demands attention, it should be noted that the number of worst case needs reported in 2009 grew 42% since 2001.  Therefore, it comes as no surprise that the need for safe, decent, and affordable housing has skyrocketed over the past decade.  HUD reported that this need was met with limited demand across the country; a scarcity of affordable rental units persists. 

 

As the demand for affordable housing has grown, so too has the popularity of green building practices. In the face of global climate change, public and private entities have increasingly adopted green building practices in the new building and rehabilitation of homes, commercial buildings, and civic facilities.  Often they’ve done this to reduce energy and water consumption, improve indoor air quality, increase durability and longevity, and strengthen community.  Despite these benefits and the mainstream green building trend, affordable housing developers “have been uncertain as to whether incorporating greening in their mission is appropriate and effective,” according to a New Ecology Inc. report.  Specifically citing costs and development process complexities as major concerns, these developers have been slow to adopt green building practices.

 

Still, they believe that “green affordable housing is better affordable housing.”  Why?  Green affordable housing tackles the triple bottom line of sustainability: it promotes social equity, encourages environmental stewardship, and stimulates economic growth among individual residents and the greater community which they call home.  The key to successful green affordable housing projects is not only building with sustainable building materials, but also addressing individual residential and community needs. 

 

While not all green affordable developments are built the same way, there are some commonalities that set these developments apart from traditional affordable housing design.  Green affordable housing units are healthier and less costly places for residents to live.  Low-fume paint and carpeting, as well as improved ventilation systems keep air clean for inhabitants.   These durable materials do not need to be replaced as often, saving money over the long term.  Structural features including the use of recycled materials, installation of thick insulation, and incorporation of southern-facing windows, lower the carbon footprint of the building process and lower residents’ heating and cooling costs.  Energy efficient appliances and water-conserving features (including front load washing machines, low-flow toilets, and aerated faucets) further reducing residents’ environmental impact and utility bills.  The New Ecology Inc. report details that for up to 5% more in development costs, green buildings save up to 50% on energy costs, up to 20% on water costs, and also save 20% on electricity costs.

 

Good green affordable housing design focuses not only on the housing units themselves, but also on the surrounding community.  The planting of rooftop gardens, rain gardens, and urban produce gardens is aesthetically pleasing and environmentally beneficial for residents.  Increased access to green space provides nearby recreational opportunities and community gathering spaces for households.  More and more, green affordable housing units are adopting the transit-oriented development model.  Transit-oriented development provides close access to public transportation stations, retail amenities, and community facilities which makes it easier and more convenient for those low-income residents who rely on public transit to get to work, the grocery store, and school.  Finally, green affordable housing projects can override the stigma of living in low-income housing and can even become a point of pride for the neighborhood, spurring additional development.

 

Moving forward, there are numerous programs supporting the incorporation of green design in affordable housing development with the hope of proving sustainable living alternatives for those households with the worst case need.  Established in 2004, LISC’s Green Development Center provides “financial resources, technical information, partnership opportunities, education, and policy support to… accelerate the integration of sustainability principles in the development of low-income neighborhoods.”  Since 2004, LISC has invested over $665 million to build over 20,000 green affordable housing units in addition to commercial and community facilities, including Silver City Townhomes in Milwuakee.   Enterprise launched the Green Communities Initiative in 2004 to sustainably transform the siting, building, and rehabilitation of affordable housing.  The organization worked with leading national environmental, health, smart growth, and green building organizations to develop the Green Communities Criteria which detail “more than 60 measures that promote environmentally sustainable materials, resource efficiency, healthy indoor living environments, and locations that provide easy access to community amenities and public transportation.”  You can take a virtual tour of Trolley Square – an Enterprise Green Communities in Cambridge, Massachusetts. 

Guest Contributor: Emily Bacha

(Emily discusses environmental issues biweekly at http://thecoolship.com/author/ebacha1/.)

 

Urban Growth Boundaries: A “Smart” Approach for our Communities?

I recently attended a lecture on Smart Growth strategies, implementation, and implications, where the speaker discussed his work analyzing eight cities with varying degrees of implementation of Smart Growth measures.  At one point, he showed a graphic ranking these cities 1-8 in several categories.  Portland, a city chosen for the study due to its highly touted Smart Growth plan and strict Urban Growth Boundary (UGB), ranked high on several measures related to growth management, but lowest of all in housing affordability.  This got me thinking: is Smart Growth actually a smart strategy for our cities, which are typically home to many low- and moderate- income residents?

Since the 1970’s, UGBs have gained widespread popularity, have been instituted in over 100 cities, and are required by the state governments in Oregon, Washington, and Tennessee.  Essentially, a UGB is a line drawn around a city, outside of which development is limited or, in some cases, prohibited.  UGBs are used as a strategy of directing higher-density development into the cores of cities, thereby controlling growth and acting as a strong antidote to suburban, low-density sprawl.  Sounds great, right?  Well, it seems as though they are a little bit more complicated than they initially appear.

 

The Affordability Argument

Many people argue against UGBs on the basis that they result in a loss of affordable housing within the boundary.  The crux of this argument is that, logically, when growth is constrained, development will slow, and housing demand will rise disproportionately to supply, resulting in an increase in housing costs and a decrease in overall affordability.  This case is argued by Samuel Staley and Gerard Milner, who oppose the implementation of UGBs due to this negative effect upon affordability.  Between 1985 and 1997, they demonstrate a 158% increase in average values for single family homes in Napa, California; this time period corresponds to Napa’s implementation of growth controls.  Along similar lines, in Portland, Oregon, between 1995 and 1997, 80,000 units previously deemed “affordable” were lost to rapid market appreciation. 

Staley and Milner argue that even the successes associated with UGBs are double-edged swords.  The UGB in Portland has achieved its goal of downtown revitalization: the lack of vacant, developable land within the boundary has led developers to build new construction within the city core.  This achievement, however, has an unrecognized downside: with revitalization has come gentrification, and Portland’s low-income population has nowhere else to go.

 

The Counter-Argument

 The logical argument connecting growth constraints and decreasing affordability may not hold water, however.  A recent paper prepared by Arthur Nelson, Rolf Pendall, Casey Dawkins, and Gerrit Knapp for the Brookings Institute claims that it is not actually land constraints, but rather market demand, that have led to the increases in housing cost in Portland.  In fact, they claim that, since a spike in housing price in the mid 1990’s, Portland has seen housing prices rise at approximately the national average.  On top of that, they make the case that traditional land use regulation can have this effect on affordability as well, for many zoning codes have minimum lot sizes and maximum density requirements that allow only for more expensive development, effectively eliminating low-income individuals from participating in the housing market.  Looking at the issue in light of these counterarguments, UGBs don’t seem to negatively affect housing affordability any more than typical land use management, implemented across the country.

 

How To Proceed?

Both sides of this debate have logical and legitimate arguments, making it difficult to determine which has it right. It’s a fact that Portland has problems with affordability: the city has recently risen into the top ten least affordable cities in the United States, with an average housing cost to income ratio of 4.2 (anything over 4.1 is considered “seriously unaffordable”).  Ultimately, I’m not sure there’s enough research to say definitively whether this unaffordability is due to the city’s UGB, or just the fact that Portland is apparently an incredible place to live, and therefore must attract a large number of people, and, subsequently, housing demand.  In case Smart Growth is to blame, though, to make sure that it really is a smart decision for our cities, cities should make sure to pair UGBs with the following strategies:

• Make sure to increase density.  Some possible ideas:
  • Incentivize density: Cities can upzone their districts all they want, but without incentives, they may not be able to achieve the high levels of vertical growth required to offset the loss of horizontal growth.
  • Minimum density standards: Metro, Portland’s regional planning body, has instituted a minimum density standard of 80% of the maximum density, for all new housing development (with a few exceptions).
  • Promote hidden and invisible density measures, such as alleyway housing and accessory units.  These are strategies that can be used to increase density, especially in neighborhoods dominated by single-family detached homes.  These units are often much smaller than the home they are associated with, and therefore provide a more affordable option in otherwise unattainable neighborhood. 
  • Create an inclusionary zoning plan.  Inclusionary zoning can be used to set minimum requirements for affordable housing in all developments.  Portland’s ordinance allows for reduction in development fees, priority permitting, density bonus’, and reduction in parking requirements in exchange for the development of affordable housing. 
  • Promote transit-oriented development.  If homes are built in areas that are accessible to public transportation, the necessity of owning a vehicle is reduced. While this does not reduce housing price, it can offset this cost by reducing commuting and vehicle maintenance costs. 

 

Guest Contributor:  Margot Elton

 

 

 

Proposed Rule to Patch Holes in HUD’s HOME Program

The U.S. Department of Housing and Urban Development (“HUD”) touts its Home Investment Partnership Program (“HOME”) as “the largest Federal block grant to State and local governments designed exclusively to create affordable housing for low-income households.”  Each year, HOME allocates roughly $3.2 billion to states and localities for a wide range of activities, from home purchase finance assistance to the construction of new housing. From its inception, HOME was intended to provide partnering jurisdictions with flexibility, and relatively few restrictions have traditionally been placed on the federal grants. Recently, however, this flexibility has proven to be one of the program’s greatest weaknesses.

 

 In 2011, The Washington Post released the results of a yearlong investigation of the HOME program demonstrating widespread mismanagement of HOME funds by participating jurisdictions and a shocking lack of oversight by HUD. The Post’s original report revealed that of the 5,100 “major projects” funded through the HOME program at the time of the investigation, 700 had been “idling for years,” some for over a decade. In total, these idle projects represented $400 million of federal investment. The Post identified five major problems with the use of HOME funds for low income housing construction and renovation, including:

 (1)  funding awarded to inexperienced developers for shoddy work;

(2)  funding awarded to developers without land, financing, or permits in hand;

(3)  a failure of local and state housing agencies to cancel bad projects or keep HUD informed;

(4)  HUD’s failure to impose additional requirements on participating jurisdictions despite knowing of the widespread problems, and

(5)  HUD’s lack of authority to demand repayment from participating jurisdictions of wasted or mismanaged funds.

 

 In November of 2011, the Post released an article adding 75 idle HOME-funded housing projects to the list of 700 discover earlier in the year. The newspaper also identified severe problems with HUD’s traditional method of tracking the success of the program.  The Post’s reporting led to a Congressional probe and a cut in HOME funding for 2013 by nearly 38 percent, generating protests from housing groups across the country.  HUD officials also vigorously denied the paper’s findings, although the department quickly began a process to introduce new, tighter regulations to oversee HOME program spending.

 

According to HUD, in addition to improving the department’s data collection and reporting system, the new regulations would:

 (1)  Require state and local governments to adopt policies and procedures to improve their oversight of projects, develop a system for assessing the relative risk of projects, and more closely monitor their HOME-funded sub-recipients;

(2)  Require state and local governments to assess a developer’s capacity and the long-term viability of the project, before they commit HOME funds to a project;

(3)  Require more frequent reporting by state and local ‘participating jurisdictions’ to enable HUD to more closely track projects once they’re under way; and

(4)  Set a higher ‘performance bar’ by establishing specific timeframes for taking appropriate corrective actions against participating jurisdictions who fail to complete what they started.

 

A subsequent article in the Post called the monitoring required under the new rule “unprecedented,” and noted a number of additional requirements, including a four year limit on construction, after which a project will be automatically terminated.  The proposed rule is significant in size, running nearly forty pages in the Federal Register. Public comments on the rule were due in February of 2012. If the rule is adopted by HUD, it should address many of the problems identified in the Post investigations and ensure that future federal dollars are more wisely spent in constructing and rehabilitating low-income housing.

Guest Contributor: Nick Dumais