For decades, taxpayers have been heavily subsidizing suburbia. While greenfield building is cheaper for the developer than building in the city core, governments must build such services as roads, sewers and schools to accommodate the sprawl, and critics say impact fees don’t fully cover those costs. From a public perspective, it makes more sense to focus future development where the infrastructure already exists.
When city leaders commissioned Plan Baton Rouge, they had hoped to attract significant residential development to downtown. Despite a number of successful public projects, the housing did not follow. The private development community, most of it anyway, came to the conclusion that the high price of downtown development wasn’t worth the risk.
“If you want to incentivize residential, you really need to help developers get a reasonable return,” says Sophia Koven of HR&A, a New York firm working on Plan Baton Rouge Phase Two. Consultants still are in the process of crafting the specific incentives, but based on the information publicly discussed so far, their plan largely will consist of a “mezzanine” fund, abetted by tax abatements and better coordination of parking assets.
The mezzanine fund would start with about $10 million. John Alschuler, head of strategic economic planning for Plan Baton Rouge Phase Two, hopes that private firms would put up the majority of the money, “bringing the discipline of private sector finance.”
“Just using their money won’t do it, because a private developer can go to them,” he says. So government, foundations and philanthropic sources would be needed. New Market Tax Credits from the federal government, for example, might be part of the mix. The basic idea requires loaning the money to developers at the outset of the program, and then funding new developments as debt service payments flow back in. A developer still would need a primary loan from a traditional lender; the ratio in most cases would be roughly $1 from the mezzanine fund for every $3 on the construction loan.
The responsible agency, be it the Redevelopment Authority, the Downtown Development District or city-parish government itself, would then have to make a policy choice as to where the initial residential development might focus.
Within a few blocks of the river, for example, where costs are highest, the fund might have to loan out $65,000 per unit out of a total cost of $260,000 per unit, which means about 150 units could be built with the initial $10 million in seed money. Not much, but relatively significant given that so little housing exists now. Extending the idea of downtown just east Interstate 110, where land is cheaper, could allow for 300 units with the same amount of money.
Long-term reductions of property and sales taxes in the downtown district would end up making money for the taxpayers in the long term, as it would be incentivizing development that wouldn’t have otherwise happened, Alschuler says.
Downtown also needs a coordinated parking strategy, according to the evolving plan. Downtown development can’t afford to build more parking, and many lots are too small to allow for construction of a parking deck, he says. Less than half of downtown’s parking spots are publicly available, which compounds the problem.
So Alschuler says we need a way to consolidate parking into a more limited number of structures. Government will likely be called on to build more parking, and someone needs to take responsibility for managing the available parking, whether that means creating a new parking authority or giving that responsibility to an agency such as the DDD.
Directing public money and attention to promote downtown’s revitalization is a sensitive subject, as it can look like favoritism. But other cities have found a public nudge is necessary. The general idea is to prime the pump with some outside help, get downtown moving and hope the free market will take over.
“It’s always a source of policy discussion when the government decides to make an investment,” Alschuler says. Cities that are serious about their downtowns come to two realizations, he says. First, sprawl never would have happened in the first place if it hadn’t been publicly subsidized. And second, he says investments in downtown are just that: investments. Over time, the economic growth and higher property values would hopefully give every taxpayer in the parish a good return on that initial investment.
The Plan Baton Rouge team has scheduled a public presentation of their draft report for March 30. The final plan will be submitted in June.