February 2022 - Parks & Recreation - 19

farm/forest/open space
uses and
industrial/commercial uses that
were " positive " taxpayers, residential
developments were " negative "
taxpayers because for every $1
million received in revenues from
residential developments, the median
amount communities expended to
service them was $1,160,000.
Since most residential development
fails to pay, building more residential
development inevitably leads to
existing residents paying higher
taxes. This relationship has been
documented in multiple scientific
studies (See Chapter 9 of The Impact
on Property Values of Parks, Trails, Golf
Courses, and Water Amenities by John
L. Crompton and Sarah Nicholls).
Given this reality, in most contexts,
it appears difficult to justify requiring
existing taxpayers to further subsidize
new residents by subsidizing the
capital cost of the new park facilities
needed to service them.
Who Pays the Cost of
Parkland Dedication?
The dedication cost could be absorbed
by the homeowner,
versely impact a purchase decision.
Further, the contention that it will
be passed forward to the homeowner
fails to recognize the reality of
market forces. Housing prices
and developer costs are market
determined.
Since
under
most
market conditions they are not pricesetters,
home builders cannot
simply add the cost to a home's
price. If the market would bear a
price of $404,000 rather than a price
of $400,000, then builders would
charge that amount because their
goal is to maximize profits. Hence,
in many cases, the market price does
not allow them to pass the new fees
forward to the new homeowner.
A second alternative is that the additional
$4,000 per dwelling unit fee
could be absorbed by the developer.
This is not a viable option because
a developer's willingness to accept
the financial risk associated with a
project is predicated on a given projected
profit margin. Without that
profit margin, the project would not
proceed, so it cannot be reduced.
Third, the non-feasibility of the
the
landowner and/or the developer.
The development community often
vigorously asserts that the cost will
be borne by the new homeowner
and suggests it will lead to some
potential buyers being priced out
of the market.
In my city, the median price
of a new home is approximately
$400,000. If an additional (say)
$4,000 parkland dedication fee is
imposed and passed through to the
homeowner, it would be a one percent
increase in the median home
price. If the ordinance is reviewed
every four years, then the average
price increase per year would be
0.25 percent. That is not likely to adfirst
two options means many times,
the most viable option for absorbing
the additional $4,000 dedication fee
often is to reduce the developer's
costs. This can be done in one of
three ways:
Reduce the dwelling unit size. Instead
of 2,000 square feet, it becomes
1,980 square feet (assuming a cost of
$200 a square foot). The new homeowner
would receive less quantity.
Engage in " value engineering "
to reduce the costs of finishes, fittings,
furnishings or landscaping
in the house by $4,000. The housing
consumer would receive less
physical quality per dollar.
Pay less for the land. The imposition
of a $4,000 parkland dedication
fee effectively changes market
forces and reduces the value of the
land to be sold. This is explained in
the following scenario:
Suppose a developer intends to
buy a piece of land when the city
announces a $4,000 increase in the
park dedication requirement. Before
the increase, the developer intended
to build 100 units on the land and
sell them for $400,000 each. Based
on the cost of construction and required
profit, she was willing to pay
$4 million for the land. As a result
of the new ordinance, the builder
recognizes she cannot sell them at
$404,000. If she was able to get that
price, then why did she not charge
that price before the imposition of
the fee? In fact, the market limits her
to selling the houses for $400,000
each. As a result, she is willing to
pay only $3.6 million for the land
(100 units at $4,000, so she can reduce
costs and maintain her profit
margin). Thus, the cost of the dedication
increase is shifted back to the
owner of the land.
Park and recreation department
managers have three strategies
they can use to optimize park
dedication requirements in
their community: (i) Follow the
Supreme Court guidelines which
establish the anchor around which
the political debate will revolve;
(ii)
highlight
the
and
opportunity
cost of " low-balling " dedication
requirements;
(iii)
use
phasing, discounting and caps as
" opt-outs " rather than " opt-ins "
to minimize initial resistance.
John L. Crompton, Ph.D., is a University Distinguished
Professor, Regents Professor and Presidential Professor for
Teaching Excellence in the Department of Recreation, Park
and Tourism Sciences at Texas A&M University and an
elected Councilmember for the City of College Station
(jcrompton@tamu.edu).
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February 2022 - Parks & Recreation

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