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3. Cost of ServicesCity,of Kalispell Planning Department 1 - Street East,, Suite 211, Kalispell, Montana o Telephone-* o6) 751-1850 Fax: o751-1858 W it ; kalispellplanning.cotn MEMORANDUM Jim Patrick, City Manager FROM: Tom Jentz,Director RE* Cost of Sees Study - A discussionthe taxation impacts between residential, commercial and industrial properties VAthe c 'ty and be-tween such properties inside and out of the city. November 6, 25 You requested that I research information for the Council concerrdng property taxes and s ecica y the differences erences between residential, commercial and U' ad strial property taxes paid as they rate to the service derna ds placed on the city. In addition., you asked this office to research the differences and tax ramifications between such development that occurs inside the city and development that occurs outside but adjacent to the city. This discussion developed because staff on several occasions has stated to the council that it is coon knowledge that commercial and industrial properties pay far in excess of the demand they place on local governments. Conversely residential development often is either slightly above or below break ever based on the value of the residential construction proposed. Council has indicated that they void like some documentation that this is in fact true, l will address each of those question areas below and reference several recent sees that bear out these concepts, Cost of Serv-ices - Residential Development Mie the city of spell Conclusion.- Residential properties which have a market value of over $152,000 Wi provide a beneficial tax dollar flow to the city relative to the costs such development places on orily the city. Illustration: Kalispell has routinely conducted its own modified cost of services studies when undertakingannexations to the city. A typical recent example is Lone Pine Estates, a 78 unit residential development south of Foys .fake Road at the base o Lone Pine state Park east of Learn Lane. In that study, we assumed a. minimum $200,000 valuation on each residence based on lot sizes and developer expectations. The cost of services study only looked at cost of services experienced by the city. It showed red that the development would demand $71,946 in services, but based on a $200,000 property valuation per residence would enerate $92,154 l taxes and assessments, This Is a net gain o $20,658/year. Note that tl--Lis study is somewhat simphstic In its approach; however, in this case, Lone Pine would be a beneficial development in terms of tax flow. s the value of the housl g unit declines, the cost of services difference wffl approach. zero (estimated to be $152,000). Below this figure residential developments will actually cost more than they ay in taxes. Mstorloaiv, residential development M KahspeH has posted a positive tax flow because the typical residential structure proposed Is stiR the detached single family residential unit. Property taxes are based on value of the resllearoe. � expensive ousg generates greater tam revenue without necessarily a corresponding increase in services demanded. Conversely a maniafactured home Park or dense, affordable apartment complex .ousi the same number of famihes as a single family subdivision may place just as much burden on our streets, parks, police and fire, and. schools but their corresponding property tax payments are significantly less because they are based on property values. Impact to the City due to residential development outside the City of KaH Conclusion: Residential development outside the City of Kalispell costs the county $1,23 for every dollar of tax monies contributed. Illustration: In 1996, the Local Government Center, Montana. State University conducted a stony of the cost of county services and educational services for Gallatin County; Montana relative to taxes paid for support of those services. That study concluded .uded. that for every dollar M tax monies paid by residential property for local government and school, it cost $1.16 M services. smear study was undertaken addressm'g Flathead County in 1997 by Citizens for A Better Flathead,. This study was patterned after the Gallatin County study above. The Flathead Stud' quantified the costs to the county gover=ent and school districts o providing services to existing lard uses in Flathead County. This study only addressed county school district costs and county goverment services Mcl din social services, general government services, public works, pubhc sa 'et r and county debt* It did not address municiIP al government services, fire districts, and, other special purpose over=e its. This report found that for ever' dollar generated by residential land. in Flathead County in 1997, the County government and School districts spent $1.23 to provide county services and education. In essences, residential property on average was a tax drain on the sal t. AdditionalIv, residential development on the fringe but not irl Kalispell has other unintentional tax consequences. Residential ne-ighborhoods adjacent to the city place a demand on parks. Flathead County does not provide are organized system of urban sear parks while the City of Kalispell provides a stellar system.. Consequently city tax payers subsidize rural use. This same concept holds true for impacts to our city street system as rural residents dive in to use city parks, the library, the high school, the courthouse, the hospital, etc. They place wear and congestion on the system but do not contribute tax doflars to all parts of the s rster . 2 Cost of services: Commercial and industrial property inside the City of KafispeU Conclusion: CouLmercial and industrial property pays taxes well in excess of services demanded and serves as a net tax gain for the city. Mustration: The Economic Research Service /USDA M 2000 looked at more than 80 cost -of -community- services studies conducted across the country. I. a published report attached (Chapter IV. The Costs of Groff -. Development at the Urban Fringe are.d Be ond, E onor c Resea ch Service USDA), this study concluded that commercial and industrial properties pay a. higher share of taxes relative to services demanded. Specifically it showed that commercial properties demand. $.19 and industrial proper -ties demand $.17 for every $1 M taxes paid respectively. iLs conclusion becomes apparent when a comparison to the tax costs of residential properties is brought to light. Residential ential areas generate students for the school system, they provide people who use parks and they plaice a. higher burden on police and re calls. Conversely, comxnerclal and mdustrial properties pay significantly for education,, parks, emergency cy services, and place tittle or no demand on them. n fuser comparison, between 55- 65 the average n. -c.a . or industrial tax bill goes to education and yet the use provides no school children. For example, Target in 2004 was assessed a consolidated ro erty tax biH of $172,042. Of this, $94,530 (51`5%) was for education. itior a y, 29% is paid to the city for taxes are assessments and 16% was paid to the county for general county tales Impactscommercial or industrial property outside the city versus Miside the city. Conclusion: Commercial and Industrial properties inside the city are a. net gam to the city, they pay tax es excess of services demanded, they actually serve to lower or keep the residential property taxes lower by paying for services they do not demand such as- schools and parks. When industrial or commercial lands occur just outside of the city, they tern.d to dampen the tax base and increase the tax burden for commr ties and especially for the residential property tax owners. Illustration-, In Kalispell, typeafly upwards of 50% of the city is tax exempt property. Obviously this includes streets and parks. Other properties are tax exec t but may be subject to special assessments. This includes City; County Mate and Federal buildings, schools, churches and other non-profit buildings. This leaves a. considerable burden for the remaining tax payers to shoulder to keep the city running, Schools alone consume 55 - of an in vi a tax bM. A simple com a ison was rani between. Target in the city) and Wal-Mart (outside the city). Target had a taxable value of $246,800 while Wall -Mart had a. $216,800 value., thus they are within 3 of being identical which does provide a. reasonable comparison. In Zoo , Wal-Mart paid 8120,710 in consolidated pro er y taxes while the Target et effi 12% greater in value) paid $172,042 in consolidated taxes, a dffe e e of 42%. Adjusting for the difference in value, this would indicate that Target, in the City paid about 3 0% more m taxes than Wal-Mart outside the city Target paid $5 0,9 to in City taxes and assessme ts, Wal-Mart paid none. Tar et paid $36,356 to Kalls efl City Elementary 75, Wal-Mart paid to a. rural school assessment. Had Wal-Mart been in the city sitar tam payments that were made by Target would accrue to the city are.d loca. school district. The emphasis here is not an M'dication that Wal-Mart should e sexed to the city but instead, commercial development on our fringe e oes nogg to benefit the city and in - fact dampens the city tax structure. This is why the concept of bedroom communities is so problematic. employees move into residential areas of the city and work in commercial and industrial areas outs] —de that city. I. effect, residential properties which do not pay their way M taxes locate in a. city while the commercial or industrial tax base is outside the city. Impacts land in a TIF district Conclusion: The value of land versus = roveme is typically runs :l or in other words, land value equals 20 of improved property. Because industrially deveioped land demands only $.19 to $.26 in set ces for every $1 in taxes paid, if a TIF were placed on vacant industrial land, the bare land industrial value which would be subject to t.e general tax levy (the taxes on improvements would be paid to the TI District) appears to be adequate to create a break every scenario for the city with the actual demands industrial late, places on services. Therefore, from an equity basis, m ustrial land in a TIF would sty pad` its fair share for the amount of services demanded. Final SummaU and Conclusion Nome of the studies are perfect and each has inherent biases and flaws. However, the preponderance of information ation shows that commercial and in.stria. properties carry the tax load for the community. This is true with or without factoring in impacts to education. Clearly Leis underscores the dilen.a that "bedroom con=u ties" or communities with dechning commercial and industrial bases face. More and more o the cost of running .local gover=ent are.d the cost of maintam'm*gschools and Parks is shifted onto the backs of the residential homeowner. Concurrently a. growing con=e.rclal and industrial tax base will lessen the tax burden on the -residentia properties as a. greater number of taxpayers will contribute to tuna services (schools, parks) which they do not directly demand services from. 4 by the board and city council. The following amendments were discussed: Add a goal: "A phased approach to the expansion of the potential utility service area would be coordinated between the inter -governmental bodies as well as the community." Add a policy statement: "Ensure that there is a well informed public and property owners along the corridor regarding the implications of the extension of public services to that area." Add a recommendation: "To continue working on a phased approach to the expansion of the potential utility service area with the Lakeside/ Somers inter -governmental parties as well as the local community." Further discussion was held regarding the property owners who would be notified of the public meeting, the schedule of review and meeting dates, and the joint meeting that was held with the County planning board. Wilson agreed to send another copy of the amendment with the changes discussed above to the board as soon as possible. OLD SCHOOL STATION SID & TIF DISTRICT Jentz notified the planning board that they would be receiving a request for a determination that the Old School Station TIF District was in compliance with the Growth Policy at the October planning board .meeting. Jentz presented an overview of the Old School Station project including the creation of the SID and TIF districts. Jentz indicated that a public hearing could be held before the planning board concerning the creation of the TIF district. Planning Board members generally indicated that there was no statutory requirement to hold a public hearing and they felt that it was unnecessary given their workload and their limited involvement in the TIF process to date. REDEVELOPMENT INCENTIVES & SIGN REGULATIONS Norton said that he had spoken to one of the council members with regard to the redevelopment incentives and the council member plans to get that on the agenda for the council to review. Taylor mentioned that someone should be at that meeting. Wilson said that this is scheduled for the work session after the regular meeting on October 3rd. Wilson will let the board members know. Kalispell City Planning Board Minutes of the meeting of September 13, 2005 Pave 1 ) of 1 i ADJOURNMENT George Taylor President Wilson also mentioned that there is a work session after the regular council meeting on September 19th regarding the Sign Regulations and she encouraged board members to attend. Norton noted that concerning the Sign Regulations, council is hung up on a few minor points and the board could make some recommendations. The meeting was adjourned at approximately 9:15 p.m. The next regular meeting of the Kalispell City Planning Board and Zoning Commission will be held on Tuesday, October 11, 2005. Michelle Anderson Recording Secretary APPROVED as submitted/corrected: / /0S Kalispell City Planning Board Minutes of the meeting of September 13, 2005 Nee 13of13 properties are posted in the future. ROLL CALL The motion passed unanimously on a roll call vote. OLD BUSINESS: None, NEW BUSINESS The projects scheduled for the October 24, 2006 work session are: Silverbrook Subdivision & Kalispell West Growth Policy Amendment Boundary. Willow Creek Subdivision may also be discussed. Jentz noted the need for a planning board best and worst tour sometime next spring. Hull asked if there were examples where properties have been annexed 2 miles outside of their city limits. Jentz said they would be hard to find. Norton expressed his frustration that there was not a requirement for a pass through road from Rosauers south to the new location of MacKenzie River Pizza. He said it doesn't make sense that those properties only have one access point. Norton reviewed the council minutes on recent projects for the board. Jentz reviewed the Redevelopment Incentives that were discussed by the planning board a while back. The council will work on a resolution with a requirement that a committee be formed for the historical renovations and added this may be handled by the Architectural Review Committee. ADJOURNMENT The meeting was adjourned at approximately 9:10 p.m. Work Session October 24, 2006: 7:00 p.m. in City Council Chambers. The next regular meeting of the Kalispell City Planning Board and Zoning Commission will be held on Tuesday, November 14, 2006. Work Session (pending): November 28, 2006 - Building Department Conference Room, (New Location) 411 - 1st Avenue West. Timothy Orton Michelle Anderson President Recording Secretary APPROVED as submitted/corrected: 11 /-L—/06 Kalispell City Planning Board Minutes of the meeting of October 10, 2006 Page 11 of 11