September 26, 2002

The urban redevelopment toolbox

Municipalities can use regulatory incentives, regulatory requirements, financial incentives, and direct participation to spur development.

By PATRICK DOHERTY
City of Federal Way

Doherty
Doherty

Over the past decade we have been bombarded with messages about growth management, urban villages, smart growth and new urbanism.

One might even conclude that local municipalities must be well on their way toward fostering the transformation of their aging and underused downtowns or low-density, suburban commercial cores into vibrant, higher-density, mixed-use, pedestrian-oriented urban centers. Although that may be the case in several instances, it is far from the truth region-wide.

Let’s face it; private market forces acting alone have not stepped up to the challenge uniformly throughout the region. It’s true that the city centers of Seattle, Bellevue and Kirkland, and a few other locations, are examples of urban redevelopment success stories. However, the vast majority of development — even over the past new-urbanism-inspired decade — has been low-density, single-use and auto-dependent in nature.

The fact is, as long as relatively cheap land is available at the fringes of our metropolitan areas, the private market will continue to shy away from denser, multi-use infill redevelopment in the older suburban town centers and commercial cores — unless, of course, the private market can be convinced otherwise.

But before the private market can be convinced, local municipal leaders have to be convinced that it is in their community’s interest to spend the time, energy and money to help convince the private market!

Some may say that the private market will respond when the demand is there, but those perfect-market theories don’t always pan out. In fact, the demand may be there already, but other, easier and possibly more profitable development opportunities may found elsewhere — on greenfields and/or at the urban fringe. Meanwhile, every year new single-use, one-story mega-retail establishments amid expansive parking lots crop up in or near our region’s commercial cores and town centers, effectively pushing off desired redevelopment another 25 years or more.

So why should communities actively pursue the redevelopment of their town centers? Among the litany responses to that question, ranging from enhancing quality of life and sense of community to creating development that generates fewer daily automobile trips, perhaps the most convincing might lie in the notion of fiscal responsibility.

At the Governor’s Economic Development Summit in Spokane this month, Donovan Rypkema of Place Economics in Washington, D.C., offered that if there’s one thing that all municipal leaders will agree on, be they Democrats, Republicans or Libertarians, it’s “fiscal responsibility.” And, he continued, what could be more fiscally responsible than achieving greater redevelopment and use of city center land, where literally hundreds of millions of dollars in expenditures have been made in infrastructure and public facilities? If these expenditures were made to accommodate future urban development, then, how can communities afford not to capture that desired urban redevelopment?

Great. So the municipal leaders have been convinced. But their first question will be: “OK, but how do we get the private market to do what we want?” I’d like to offer a few basic responses to this question to help get the discussion going further and engender local debate.

Basically, municipalities’ urban redevelopment tools can be grouped into four categories: regulatory incentives, regulatory requirements, financial incentives, and direct participation.

Regulatory incentives

Spurred on by regulatory reform efforts of the 1990s, most communities in our region have been implementing a wide assortment of actions intended to streamline the permitting processes. And they’re right to do so. Rating highest among all the concerns of developers and business leaders who addressed the Governor’s Competitiveness Council was the difficulty in getting development permits.

But many other regulatory incentives are available. SEPA planned actions, used successfully by cities such as Everett and Vancouver, marry up-front strategic planning and environmental assessment into one action, thus allowing developers of planned-for projects to get permits with a minimum of discretionary permitting actions.

Developer agreements are another tool, allowing large-scale, multiphase developments to be permitted at one time, with a permit life of many years. These agreements can assuage developers’ fears of otherwise facing the vagaries of future planning commissions or city councils.

In addition, allowing flexibility or creativity in land use/environmental regulations, and even the technical codes, can be a real incentive to some developers. And it’s often in our town centers where a degree of greater creativity would be just the thing to help create a greater or unique sense of place.

Regulatory requirements

As attractive as these regulatory incentives might be, many of these tools are somewhat commonplace around the region, and a community may need to include other regulatory tools to be competitive.

One issue that has faced many communities is how to accommodate certain developments that typically do not achieve the community’s urban redevelopment goals, such as large megastores. Seattle has led the region in requiring nexus development in its downtown — where commercial development requires accompanying housing and/or human services.

There’s no reason why smaller communities cannot consider requiring that certain developments in their commercial centers be modified from the standard, suburbanized model. Perhaps housing can be included on the site. Perhaps other commercial uses can be included, especially if they break down the overall bulk of the project and provide a more storefront character along a key pedestrian street. In fact, requiring codevelopment of key sites can be precisely the catalyst that it takes to get certain desired uses, like office or housing.

By bringing developers together for one site, land costs may be shared between the different components, effectively making certain projects actually pencil out where they might not on their own.

Other regulatory requirements, such as design review, can create more pedestrian-oriented and aesthetically pleasing developments that can start to create the urban character that leads to similar development in the future.

Financial incentives

Notwithstanding Washington state’s more restrictive constitutional limitations on lending public credit and/or using public funds for private purposes, there are still numerous financial tools that may be applied by local municipalities.

The multifamily housing 10-year property tax exemption, now employed by several cities across the state, can be a significant enticement to new residential development in urban centers, with tax savings of up to 10 percent of a project’s yearly operating income — a substantial savings.

Similarly, state housing tax credits for lower-income housing spur the development of hundreds of units of housing each year.

While not all communities may be targeting lower-income housing, interestingly “low-income” housing, as a function of HUD-derived county-wide income and rental figures, may actually be more like market-rate housing in many communities outside the hottest residential markets.

King County is a great example of this, with average income and rents pulled substantially upward by Seattle and the Eastside. In this case, what’s considered “low-income” county-wide falls squarely within average market rates for several other King County communities. This means that developers who normally shy away from tax credit projects might be interested in this program in some communities.

One of the biggest-ticket items for many developments can be the costs of transportation and drainage improvements. Several communities, including Tacoma, Federal Way and Vancouver, have invested substantial sums in these infrastructure improvements in targeted areas, thereby relieving developers of a big portion of these mitigation burdens.

In 2001, important changes to the old Urban Renewal Act were passed, along with a much-needed name change. It’s now known as the Community Renewal Act. Its municipal financing provisions are now available to rural and smaller communities.

While the task of finding that a targeted area is “blighted” still remains, don’t shy away from this act too hastily; the definitions of “blighted area” are much broader than you might imagine, including “inadequate street layout,” “improper subdivision or obsolete platting,” and “inappropriate uses of land or buildings.”

For an area that meets one of the numerous definitions of “blighted area,” this tool can open up a whole palette of more generous redevelopment tools. As long as development targets low-income housing or projects that include “a substantial portion” of low-income jobs, a municipality can offer loans, or even direct subsidy to qualifying redevelopment projects, in addition to financing public improvements.

Again, don’t be too quick to shy away from these lower-income requirements. While certainly not all development a community seeks falls into this category, it’s surprising how much does — including most retail, lodging, light manufacturing/assembly, and other service-industry uses.

Another interesting provision of this act is its inclusion of a tax-increment financing provision that is more generous than the Community Redevelopment Financing Act, passed in 2000. In this case, property and sales tax increments can be used to pay back municipal investments, the full amount of a municipality’s tax portion can be captured, and there is no requirement for county or other jurisdiction buy-off, except when the municipality also seeks its portion of the tax revenues.

Direct participation

Lastly, a community may need to consider direct financial participation to entice redevelopment. In addition to the above-mentioned infrastructure improvements, a community may consider assisting the financing of a parking garage. Both in tighter urban contexts, as well as suburban settings, parking is often a limiting factor. Such endeavors can be costly and merit careful analysis, but they can also yield real results.

Another way to participate directly in urban redevelopment is for a community to take stock of its municipal facilities needs and determine whether any such facilities can be codeveloped with private development.

A municipality needs to remember that it can be an important real estate developer, too, and its development decisions can materially affect the course of desired redevelopment. Perhaps a community center, city hall, library, performing arts hall or sports complex can become a tenant or partner in a mixed-use development scheme. The opportunities are endless and should be seriously considered as a means of attracting the right private development.

Lastly, a municipality can really step up to the plate and directly enter the real estate development business through acquisition and/or aggregation of key parcels for resale and redevelopment. Locally, the cities of Kent, Renton and Tukwila are great examples. These municipalities have purchased important properties, run requests-for-proposals from the private market for urban, mixed-use developments, and have sold these properties to willing private-market developers.

Renton’s success is already on the ground and occupied, as keystones in that city’s redeveloping downtown. Tukwila’s project is still in the permitting stages, while a first phase of the Kent Station project has already broken ground.

Although I have only breezed through the kinds of tools available to local communities to help entice or achieve desired urban redevelopment, it’s fair to say there are many more tools available. It really comes down to taking some level of risk.

With all the competition posed by cheaper land at the urban fringe or by tried-and-true, single-use development types, it may require some risk-taking on the part of a municipality to achieve its vision of a redeveloped town center or commercial core.

Many cities have taken such risks and can be looked to as success stories today — Seattle turned around a downtown on the brink losing its major retailers 10 years ago into a true national success story. Renton has seen a true resurgence in its long-neglected downtown, and there are certainly other success stories to tell. But in most cases, the local community decided to take some level of risk, step up to the challenge, and partner with the private sector to achieve these successes.

To quote Donovan Rypkema again, “in the next 20 years no community will be competitive” without a strong urban core.

Town centers and downtowns are becoming a key component of quality of life. In my estimation, most local communities would do good to take stock of their urban cores and decide whether they offer the kinds of vibrant, mixed-use, pedestrian-oriented environments that are in such demand these days. And if not, as I’ve just laid out, there are a number of ways a community can strive to achieve this desired redevelopment.

But, as with anything of true value in life, it may involve taking some risks!

Patrick Doherty is deputy director for economic development for the Federal Way Community Development Services Department.

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