The Future of Home Building in West Central Florida

Nice article from MetroStudy:

Lack of Lot Inventory to Create Housing Production Headwinds in 2013

Some excerpts with my bolding to highlight critical points:

Metrostudy CEO, Mike Castleman stated the following, “In order for the housing industry to expand its production to meet emerging demand, there must be Vacant Developed Lots available in each market. Just having lots on the ground is not enough. Each lot must meet certain quality standards such as an appropriate location, a price that is suitable for the market, and it must be available for purchase by a builder.”

Castleman goes on to separate lots into 6 categories, A, B, C, D, F, and F-. Class-A lots are available to home builders in subdivisions that are currently seeing home building and for which there is a recognizable demand. Class-B are less suitable than A, but still attractive, and so on.

At the bottom of the list are the D’s, F’s and F-‘s. The D’s are lots that inexperienced developers and investors developed in 2005 and 2006, thinking that the skyrocketing demand would render the poor location, high price, and inappropriate configuration inconsequential. This did not happen. As the market collapsed, these lots came on stream and found no builders willing or able to buy them. There they sit, streets in place, weeds everywhere, signage deteriorating and nobody cares, except perhaps the bank that has foreclosed or investment group that bought the “distressed property” thinking they were going to make a 1990’s RTC style killing.

I have to laugh at that last sentence. I’m sure we’ve all seen these around. The devil is in the details, though: some of these weed-infested subdivisions are diamonds in the rough. They only lack someone willing and able to buy them to start building on them. They can’t be ranked C because they are difficult to acquire, but they could really turn a good profit for someone ready and willing to invest and wait a year or two.

But, be careful you don’t end up with an F-. The study goes on:

And then, there the F-‘s. In all of the markets around the country, there is some land that is suitable primarily for agricultural purposes. The F-‘s are that land. There is no chance that the F- lots will ever contribute to urban sprawl.

And here’s the meat of the issue: A-lots make up 10% of all lots studied, B-lots make up 14%, and C-lots make up 22% for a grand total of 46% in readily available, attractive, and affordable subdivisions. Metrostudy concludes that that is only a two year supply of lots at current rates of home building–rates that are historically low, by the way. It doesn’t take much imagination to see the problem there. Here at home, we only have to look at The Villages, they are building around 2200 to 2400 homes a year (BTW, that’s more than something like the next 9 largest projects in the state). I calculate their build out of current land to be around 4 years at that rate. But what if demand increases to a quite reasonable 3000 homes per year? Or 4000? I wouldn’t be surprised to see that level in a year’s time. We could be seeing a housing crisis in the next two to three years.

On the other side, how many new plats are under review in Central Florida? How many DRIs have been reviewed? There’s virtually nothing in the pipeline, so all we’re going to be left with are D and F-lots. A decent residential developer should be able to do very well over the next few years by taking advantage of this gap.

I’ll go one step further, Metrostudy is focusing on current rates of building. I’ve been watching the real estate market for the past few months and the supply of available home inventory is dwindling all over Florida, but most importantly (at least for me) in places like Lake and Pasco Counties. The combination of a lack of existing homes offered for sale with a lack of available lots to be built on will create a very interesting problem in 2013, the year I’ve been saying will be the one that we see a return to normality in the home building industry (and coincidentally, the year that my partner, Ron Lieberman, will be president of the Florida Home Builders Association).

This is an opportune time to invest in residential development and redevelopment in Central Florida. If you have any interest, we at Achievable Solutions (and its sister company, American Real Estate & Development) can help you acquire, develop, and market a quality residential project. We have decades of experience in planning, real estate, and residential development. Contact us for a free consultation.

Zoning versus Appraisal

I have a confession to make: I love courtroom shows like The People’s Court. I mean, where else am I going to get my fix of seeing John Morgan’s face thirty times in a half hour? Not A Game of Thrones, I can tell you that!

Now, usually the case is about two unmarried people trying to get “divorced” or a woman suing her sister over $15 or something like that. Pretty compelling, uplifting stuff. Yesterday, though, the case was about a guy leasing a garage to another guy to use as an auto repair facility. It appears, though, that the property was zoned residential, so the judge determined that it was an illegal contract and thus unenforceable. I’d comment more about the episode, but that’s lawyer-y stuff, and this is a blog about land development.

What it got me thinking about, though, is how many people we meet or consult with who misunderstand the difference between what their property is appraised under and what their property is zoned for. I’ve seen experienced real estate professionals mix this up. If you want to maximize the value of your land, minimize your property tax bill, or stay within the bounds of local land use ordinances, it’s important to understand these differences.

Property Appraisal

The county property appraiser is charged with the responsibility to calculate, using established methods of appraisal, the just value of a parcel of land in order that the property can be fairly taxed. The property appraiser will use all information he can find that is relevant to the value of the property: road frontage, land area, building size, neighborhood, use of property, etc. The property appraiser takes all this info, compares it to actual sales data, and comes up with a valuation for each property. I’ll leave the details of this process for another time.

To us, the relevant issue is use. If you look at your property data card at the property appraiser’s office, the use will be identified with something like “PC Code” meaning Property Class code. Our building, for instance, is classified by Citrus County as PC code 12: STORES, OFFICE, RESIDENT COMBO.  That’s because we are in a model home and sales office, so mixed use office and residential. Our building is going to be valued less than the convenience store and gas station two doors down (PC Code 26: SERVICE STATIONS) because you can’t make as much money per square foot in a model home as you can a gas station.


The local municipality and/or county (depending on your particular state’s laws) has the authority to provide for the orderly development of land through a comprehensive plan and land development ordinances. These control what you can build, what it has to look like, what business you can have, etc. Most of the time that’s accomplished through a zoning ordinance. (Not always: some places control land use directly through a comprehensive plan, others control appearance or form, not use; but most of the time these end up being indistinguishable from zoning to the layman, so we’ll just call it all zoning here.) Our property is zoned PDR: Planned Residential Development , which means we have a special land use category that applies only to the PUD (Planned Unit Development) we’re in, Citrus Springs, and that special category is “Commercial” which has specific definitions in the plan.

Existing Land Use versus Zoning

The PC code or existing use of the property refers to how the property is actually being used at the moment. It’s oriented toward the past–toward how the land was used when it was appraised. Zoning is oriented toward the future: what can I do with the property going forward? For the most part, whatever the land is currently being used for right now (assuming it was all done on the up and up), it will be able to be used for in the future, no matter what the zoning is. It’s only when you change what you are doing that zoning constrains you. If the actual use and the allowable use don’t match, then we call what you are doing a Nonconforming Use.

A Nonconforming Use is a perfectly legal use of the property and you can sell it or lease it with that use allowed on it. Be aware however that a similar use may not be allowed and expanding the use by adding square footage or a parking lot may not be allowed. But, if you have something that’s been operating for years in a certain way, don’t just assume it’s illegal because the zoning code says something. Contact someone like Achievable Solutions to help you determine what exactly you can do to maintain the value of your property.

Finding Your Zoning

So, how do you find out your zoning? Well, usually your property appraiser will get it right if he reports it on the property card. However, be aware that that is only best available information and it can be wrong–either because it’s been changed or it was transcribed wrong. And some property appraisers don’t report zoning at all.

Your best bet, even if the property appraiser reports zoning, is to go straight to the appropriate planning agency. In Florida, that’s usually either the Board of County Commissioners or the City Council. Call the planning, zoning, or building department in the appropriate jurisdiction and have them verify the zoning on your property.

What if There Are Problems?

What if you’ve always thought that vacant land you have on the corner was commercial and you’ve been paying taxes as if it were for years? Or what if your property is actually zoned residential, but you’ve been running your business there with appropriate licenses and permits? This happens, and more than you might think since most municipalities don’t actually seek out violations of the zoning code unless they are causing a nuisance. Maybe you aren’t allowed chickens in your backyard, but if nobody complains, nobody does anything about it.

That’s where we can help. Achievable Solutions specializes in these types of problems. We can help you understand the appropriate local ordinances and figure out what’s the best way forward: legal recognition of your use, a land use or zoning change, or maybe your land is more valuable doing something else. We look for ways we can assist the local government in accomplishing their Goals and Objectives at the same time that we protect your development rights and maintain or increase the value of your property. Confrontation on land use issues generally only makes the lawyers any money. We can help you cooperate with your local government to make everyone better off.

What Makes a Community “Business-Friendly?”

So, yesterday I went to Lake County’s “A Year in Review” session in Leesburg. They have a relatively new Economic Development Director, Scott Blankenship, and a renewed vigor in the department. I was impressed by both their recent efforts toward economic development and by their responsiveness to suggestions and criticisms.

I was most struck by the comments from Commissioner Leslie Campione who talked about what makes a place business-friendly. First, a compliment to Ms. Campione: she walked in the door and before she could even put her bag down was immediately asked to speak. Her comments were intelligent, well-stated, witty, and to the point. It was obvious to someone who had never met her or even heard her speak before that she “gets” economic development and what it takes to get things going in Central Florida.

I agree with Ms. Campione that just approving everything does not make a place business-friendly. If you want good development, you should make it easy for good developers to do good projects, not let bad developers do crappy projects and call it economic development.

At Achievable Solutions, we like to help make for good development and we like to help good, viable businesses get started or expand and make money and hire people. We help you negotiate the vagaries of the development process.

After working on both sides of the table–I’ve been in government and I’m now in the private sector–I’ve learned a lot about what frustrates entrepreneurs and developers. So, I came up with 10 rules that I think make for a business-friendly local government. If you are in government, these are what you should shoot for. If you are in business, places that do these things are the sort you ought to look to do business in.

  1. Clear, straight-forward answers. This is the number one problem that I see–getting vague answers or answers that change from one asking to the next. If it’s going to cost me $80,000 in mitigation costs to get my business open, just tell me; don’t wait six months and then tell me that. I can take that number, work it into my budget, and figure out if I can make it work. If the answer is “No” then tell me “No”, not “Well, maybe” or “Depends on who reviews it” or whatever. If you’re a business person and you’re asking straightforward, honest questions and you aren’t getting straight answers, you might want to consider not doing business in that place.
  2. Consistent and consistently enforced rules. Here’s a dirty little secret: I’m not really all that concerned about how much my impact fees are (and if you’re a business owner, you shouldn’t be either), so long as they’re reasonable. I mean, if they’re triple what they are in the next county over for no perceptible reason, then I care about that, but if they’re in line, then so what. But I do care immensely that I’m not paying something and the next guy is getting it far cheaper. I don’t want to spend tens of thousands landscaping and have my competitor open up next door with one scraggly bush. Consistency is far more important to me than being “easy” or cheap.
  3. Realistic rules. Rules should realistically reflect the nature of the thing being regulated. If I’m in an industrial park, do I really need the same landscaping requirements that you have for Main Street? The six bushes I have up front really aren’t going to offset the ugliness of my batch plant.
  4. Realistic timelines. I’ve got $1 million invested in a property, another couple hundred thousand in surveys, plans, reports, etc. I understand it takes time to do things, but every month I’m hung up in permitting, I might be losing $10,000 in opportunity cost. If you have unnecessary delays or we have to wait for some arbitrary deadline, you are costing me money. When county staff had 3 commercial applications last month, why is it taking staff ten days to review my plans?
  5. Approachable, reasonable staff. I knew a guy who would stamp “Denied” on an application and for a reason would say “Doesn’t meet the Land Development Code.” Uh, could you maybe be a little more specific? I’ve got 2000 pages of code here and you say I don’t meet it. Staff should understand that their job is to make sure things are built and done in conformance with legislatively adopted codes, and that can be done in a positive way. They can say things like “Well, this doesn’t work, but if you tried putting these parking spaces here you’d have enough space for two more spots” or “You wouldn’t have to sprinkle that whole building if you kept your occupancy under x.”
  6. Rules that respect the business process. One of the things that drives me nuts is having to do things before they are ready to be done. If I’m in a conceptual stage, why do I have to have hard-line drawings? I haven’t even decided exactly where my building is going, so why are you asking the caliper and species of every tree? The problem with nailing everything down up-front is that when you finally get the tenant in there and find out he’s got different requirements, now the entire site has to be completely redesigned.
  7. Coordination between different entities. Make sure your rules match up with what DEP, the water management district, DOT, etc. all want. If St. John’s WMD requires a certain water quality calculation, make sure the county asks for the same thing. The worst: don’t ask for a DEP permit in hand when DEP is only issuing the permit subject to local approval.
  8. Rules that are similar to your neighbors. My business doesn’t stop at your municipality’s line, and to tell you the honest truth, I’m not exactly sure where the line is. I know at tax time whether I’m in the city or not, but otherwise, it’s really not that important to me. The big problem here is arrogance: either cities who “know” better than anyone else how to do things or counties who think the cities are too stupid or puny to do anything right.
  9. No political favors. I’m sure this doesn’t really happen, but there is an impression in many places that you’ve got to suck up to the powers-that-be to get anything done. This absolutely kills economic development–even the impression that this happens. And if you think this isn’t true in your community, try taking a look at some local anonymous forum or anonymous comments to newspaper columns. How do you fight this? By being absolutely open and honest.
  10. Respect for the investor/entrepreneur/business person. I finish with this, but really, if a government did this, they’d probably accomplish all the previous nine items. Look, the investor is putting real money on the line no matter what he’s doing. And maybe that money is just extra–just lying around the house, you know, maybe in the sofa cushions. But more likely it’s money that came from years of scrimping and saving or from emptying out a 401(k) or from mortgaging a house or whatever. The flippant denial from the county staffer with no skin in the game is tough to take when you’re figuring out how you’re going to make enough money to pay your employees next week and this is another $10,000 from your kid’s college fund.

What to Do About Incompatible Land Uses

Whoa. I hadn’t realized it had been this long since the last blog post. The cries of anguish and despair from the fans has been hard to drown out, so we’re finally back.

Of interest this week was a hearing I attended on Wednesday of the Citrus County Mining Special Master. Basically, Citrus County has a land use/zoning category called the Extractive district that allows specifically for mining. There are a few other things allowed, but generally, it’s a land use for mining and mining only.

I’ll provide a couple maps. The thumbnails are hard to read, so click through to see them at original size:

The mine property is the red area toward the left. The Crystal River Nuclear Power Plant is just to the west.

For those of you who need a larger context. Mine is in red in the upper left.

So, in this case, the owner of a property with the EXT land use has proposed to build a mine on his property. Go figure–the nerve of this guy! And you know what? I think he ought to be able to do that. Now, a little historic context: all the land to the west of the mine property is currently Conservation land owned by the State of Florida, but it used to be all mining land. And you can see the remnants of the mining activity in that conveniently squarish-shaped lake just to the northwest of the property. Obviously someone was mining here many years ago, so it’s really not that big of a stretch to mine it today.

Nature Coast Mine

There are problems, though. There are some residential neighbors. (Aren’t there always?) And they don’t think highly of a mine in their backyards. Plus (and  here’s the big one): see that little yellow box inside the big yellow box? The big box is the mine property, the little box inside it is a cemetery (see also, here).

Holy cow! A cemetery. Right in the middle of the extractive property. When I saw this back when the idea first came up maybe four or five years ago, I was shocked. This is what we in the business call “incompatibility.” We’ve got two incompatible land uses right up against each other. It’s almost impossible for both of these lands to be put to their intended uses at the same time without one interfering with the other’s normal activity.

What I’d like to do is unpack this a little bit, and tell you how we at Achievable Solutions would deal with a problem like this if it was ours to deal with.

1. The first thing to notice is that both sides have a point. It does no good to simply deride the other side as greedy or NIMBY or whatever, because generally they’re not, and more important,  it’s counterproductive. Instead, let’s try to look at both sides of the issue.

On the mine’s side, this is land that has been designated EXT by the county government on the Future Land Use map. In essence, the county has said this is exactly the place we want a mine to be in the future. Now, here comes a guy saying “You want a mine there, I’ll put a mine there” and next thing you know, he’s being denied his application. Nobody denies we need mines–it’s not like the opponents are wishing that the asphalt roads they drove on to the hearing want to see those downgraded to sugar sand. However, very few people want to have that mine in their backyard.

The way land use planners generally deal with minimizing these kinds of incompatibilities is first through transitional land uses and then through buffering and other development-level requirements in the code. The transitional land use route is closed to us here, unfortunately. What you’d want to do is put agriculture or conservation land or some type of commercial land in between the extractive land and the residential. In this case, the land uses have already been established and committed.

So, we’re left with the standards in land development or zoning code to provide some protection for the incompatibilities. Legally, that’s all that the mine is obligated to do to minimize the land use conflict.

I’m not going to talk about whether the code is adequate for these purposes or whether the local government has any responsibility to do anything here. I’m only interested in: what do we do now if we’re one of the parties to the conflict?

2. The second thing to notice is that we’re already too late in the process to handle this easily. The mine owner bought this property in 2006 for $1.1 million–a staggeringly good deal for a property that if fully mined could be worth $10 to $15 million. We basically have four affected parties here: three residential neighbors plus the cemetery. Had they gotten together at the beginning, they could have avoided all this by just buying land they knew was zoned for mining. Now, however, the mine owner has already invested probably $1 million cash plus committed another $1 to $2 million to land development costs.

This is the way of land development: if you can get in the discussions early, you can find compromise. If you wait to react, the two sides get so committed to their plans that it becomes very confrontational. And confrontation leads to lawyers and lawyers lead to court and court means lots and lots of money spent for no real purpose.

So, lesson one is to be aware of your surrounding land uses and zoning districts and keep in mind that legally, whatever is allowed on those properties can go there without even so much as a by-your-leave. If you have industrial zoning next door, it doesn’t matter if it looks like a serene and peaceful forest today, it could be a factory or a concrete batch plant tomorrow. Had the residents and the cemetery thought this way in 2005, they could have picked up 150+ acres for less than $10,000 per acre and never had to worry about what’s happening right now. And we could have helped them figure out how to transform that land into something both valuable and compatible with their property and the surrounding properties.

3. But, we’re too late for all that, so what now? Obviously, both sides can continue down the course they are currently going. That’s going to end either with a Bert Harris claim or with a fully functional mine on the property. Too zero-sum game-ish for my liking.

Instead, I prefer to lean on economics: in 1959 Ronald Coase (who would later win a Nobel prize) wrote an article dealing with externalities (unintended affects on others as a result of someone’s action) and came up with what is now known as the Coase Theorem. Basically, people will either pay to convince others to tolerate their externalities or they’ll pay to stop someone from engaging in actions causing externalities. Of course, we aren’t in a situation of no cost transactions and we’ve got zoning laws to deal with to boot. Still, applying this to our situation, the costs of a fully functioning mine here–noise, traffic, dust, vibration–will be steep on the abutting property owners, so it is in their interest to diminish the size and extent of the mining. The mine owner needs to be able to mine a very large portion of that property to have an economically viable mine, so he will need to have smaller setbacks than the minimum required in order to do that.

Seems to me that means there’s room to bargain: an agreement to maintain a more attractive buffer in exchange for somewhat reduced setbacks, maybe. Or the other direction: get rid of the concept of the mine and explore other uses of the property. Subdivide into an industrial property along the railroad tracks, a conservation tract as a transitional land use, and then maybe ten 10-acre residential lots. Or better yet, ten lots clustered in a conservation-based subdivision with connections to the Eco-Walk Trail and the Crystal River Buffer Preserve to the south. Either way, both sides are going to have to give up something, but I think that in the end they’ll both be happier.

In any event, that’s the way we think at Achievable Solutions: let’s come up with alternatives and solutions instead of demanding our way. We have good people on both sides of these kinds of issues. Compromise is still there to be tried.

Impact Fees and Development

So, Hernando County has decided to eliminate impact fees for a year:

Hernando County Commission suspends all impact fees for a year

Faced with an economy that is showing no signs of a quick recovery — and a building and business community looking for help — the Hernando County Commission voted unanimously Tuesday to suspend all impact fees for a year.

Commissioners had been planning to talk about a further reduction in the fees, which already had been lowered from $9,200 to $4,862 two years ago for single-family homes. Then Commissioner Wayne Dukes suggested the suspension, turning the discussion in a different direction.

[. . .]

Mark Alexander of Alexander Homes likened the suspension to the use of a defibrillator to restart someone’s heart.

“We need that defibrillator,” Alexander said.

“All this is an effort to try to make an atmosphere where people will invest,” said business leader Len Tria.

But the idea wasn’t universally embraced.

“Gentlemen, you are about to make the biggest political mistake of your lifetime by approving a reduction or elimination of impact fees,” said resident Anthony Palmieri. “How can you explain that after you raised the millage rates to balance the budget you are giving away funds for needed infrastructure at the request of a special interest group.”

First, some explanation.  Impact fees are charged to new development (homes and businesses) to pay for the costs of providing infrastructure.  They are for capacity-building projects only, not for maintenance or operating costs.  So, impact fees can be used to build another lane on a roadway or to expand an intersection or to build a new school, library, or park, but can’t be used to pay staff or for repairs or (and here’s the interesting one for those of you savvy readers that are saying “yeah, yeah, we know all this, already”) to pay for existing deficiencies.  That is, if a roadway is already failing, impact fees can only be used for additional capacity that is above and beyond the existing deficiency.  (Maybe we’ll blog later on this interesting tidbit.)

Now, let’s deconstruct this a little bit:  Most Florida counties and municipalities charge some type of impact fee, though several have suspended their fees temporarily, and most are not trivial amounts of money.  Duncan and Associates does an annual survey of impact fees at if you are interested.  The Florida average impact fee for a Single Family Dwelling (SFD) in 2010 was $10,277.  So, Hernando’s $4862 was already low compared to the average, but it was in line with  its neighbors (well, two of the three, at least:  Citrus = $4460, Sumter = $2997, Pasco = $21,119).  The Hernando BOCC would have been justified in keeping the fee where it was, but obviously felt that the fee was doing more harm than good and decided to suspend it entirely.

So, I think we have a couple questions here to answer:

1.  Does suspending impact fees work?  More generally, how do new home starts react to changes in impact fees?

I analyzed building permit data from Citrus County after the Citrus BOCC suspended transportation impact fees in 2009 or so.  While there were effects of the change–a bump in the number of permitted SFDs in the month or two after the impact fee decrease–the long-term trend was unaffected–increased permitting associated with the change was offset by lower than expected permits in the month or two before the decrease and permits back to trend after a few months.  In fact, when using 5-month moving averages, there was no impact whatsoever on new SFDs.  I looked back at the impact fee rise in 2007 in Citrus and found that the opposite had happened in the short-run and still no impact on the long-term trend.  To make matters worse, multivariate statistical analysis of all impact fee changes and permitting numbers left impact fee changes with the wrong sign:  increasing fees were associated with more permits in the ensuing months and decreasing fees were associated with fewer.  Obviously, that can’t be causative, so something else is driving home building and it isn’t impact fees.

Thus, what a local government does with impact fees is probably not going to have much effect at all on the home building industry.  And it doesn’t require a complicated statistical analysis to tell you why.  The typical new house costs somewhere on the order of $200 to $300,000 in this area of the world.  An impact fee of $5000 represents only 2.5% to 1.25% of that cost.  And a new home is a pretty inelastic product–meaning that buyers are not very sensitive to price changes; not many people who would buy a house for $250,000 are going to change their mind when the price rises to $255,000.  Of course, I understand completely why home builders oppose impact fees:  the product is not completely price inelastic, so the incidence of the tax falls in part on them, even if they can recoup the majority of it via a higher selling price.

2.  Will eliminating impact fees have a big impact on county revenues?  Is this really the biggest political mistake of anyone’s life?

Unlikely.  The fact of the matter is that home building is dead right now in this area.  Outside of The Villages, counties are seeing SFD permits around 150-250 per year.  That’s not even close to the replacement rate for houses, let alone new growth.  So, if there’s no new net growth, what are you going to spend impact fee dollars on?  (I question whether you legally can spend them on anything, actually, if there’s no net growth.)  I might agree that ending impact fees for all time would be a political mistake (unless you’re going to replace them with mobility fees or some other more efficient tax), but all the Hernando BOCC did was suspend them, so they will return in a year when everyone realizes that the suspension had no impact whatsoever.

In fact, politically, it may have been a wise move:  let the fees be dropped when you aren’t collecting any and then you can say “See, impact fees aren’t the problem here.”  That’s how it went in Citrus.

3.  Are SFD impact fees the problem, anyway?

We at Achievable Solutions have been puzzled by the focus on residential impact fees.  That’s not the problem and never has been!  The problem is impact fees on business.  Far more than families, businesses are driven by the bottom line, and therefore their demand for new buildings is far more elastic.  People say “WalMart is the richest company in the world, they can afford to pay the impact fee.”  Yes, that’s true, but completely immaterial.  They won’t pay it if it doesn’t make business sense.  Businesses already pay a disproportionate share of property taxes and an even more disproportionate share when you factor in their demand for services.  Adding an impact fee on top is perverse:  businesses over time are net fiscal positives for local government; residences over time are net fiscal negatives.  So, having high commercial impact fees drives away exactly the people that pay high property taxes and ask for very little in return.

In sum, I’d say that Commissioner Wayne Dukes had it right:  there’s very little that a county government can do to create jobs, but this is something they can try.  It may be the typical logical fallacy of government:  A.  We need to do something; B.  This is something; therefore, C. We need to do this.  But at least it won’t do any harm, even if it’s unlikely to do any good.

Average Tax Levies in West Central Florida

Florida Tax Watch has released its analysis of How Florida Counties Compare in terms of total taxes paid at the local level.  The counties of most interest to us here at Achievable Solutions, Inc. fare reasonably well in these rankings, out of 67 counties, they rank between 28th and 46th–right in the middle of the pack–of the groups first and most-quoted ranking.

Total Per Capita Property Tax Levy by County

  • 28.  Citrus                     $1,102.97
  • 30.  Sumter                  $1,033.01
  • 33.  Lake                        $1,019.08
  • 41.  Hernando             $    836.42
  • 42.  Marion                  $    827.15
  • 43.  Levy                       $    818.00
  • 46.  Pasco                     $    787.46

I can’t figure out how to do tables properly on WordPress, so this is the best I can do for the moment.  Now, before we go further, we should clarify these numbers.  I have a couple points to make.

1.  This is an odd way to report property tax levies since property taxes are not paid by individuals, they are paid by property owners.  And the owners of property and the residents of the county have only a partial overlap.  Absentee landowners, commercial property owners, and the like pay a disproportionate share of the property taxes.  In Citrus County, residential property (including vacant lots) only pays something like 56% of the total property tax levy.  The remainder is mostly split between commercial property (retail and offices) and tangible property (capital equipment and inventory).   So, the numbers above are largely meaningless in a what-did-the-individual-resident-pay sort of way.

1a.  It is unclear to me whether a higher value here means residents are paying more in taxes or not.  Obviously, that could be the case, but if a community has a large commercial component such as large-scale tourist attractions or corporate headquarters or major manufacturing, it might show a high per capita tax rate, but a much lower actual tax paid by residents.  And, what’s more, residents should actually want that to happen (I blogged about this briefly at the end of State Surplus Land a few weeks ago and I will return to this topic again sometime in the future).

2.  This presentation is highly misleading.  Residents do not pay property taxes based on the size of their household, which is how the data are presented.  In fact, under Georgian Economics (see Henry George), from which we get our moral justification for property taxes in modern America, property taxes are intended not to be per capita, but ad valorem, because they are supposed to be taking unearned value which is created by the community, not the property owner.  But that’s an aside, since I could go on for hours on the economics and morality of taxation.

Back to the meat of the issue, then.  I’ll illustrate my problem here.  Suppose you have two properties with houses that have the same valuation and the same exemptions, but one is owned by a single person and the other by a family of four.  If we presume the tax is $2000 per property, it might be true to say that the per capita tax assessment of those five people is $800, but it’s very misleading since one of those people is paying $2000 and the other four, $500 each.  Moreover, we would see a rise in the per capita tax assessment if one of the children in the second house went out of county to college, but nobody in their right mind would call that a tax hike.  That makes these numbers very dependent on demographic characteristics of the counties, so that counties with older populations, for instance, would have higher per capita tax levies (since older households tend to be smaller than younger ones) but the actual tax paid might be exactly the same per house.  And if we look at the table, it does indeed tend to be the case that older counties like Collier, Indian River, Sarasota, Lee, Charlotte, Pinellas, Sumter, and Citrus tend to have higher property tax levies per person.

So, let’s dispense with the Per Capita Total Property Tax Levies as an interesting, but on closer inspection largely meaningless statistic.  Far more interesting to me are a few others:

Growth in Total Property Tax Levies 2000-2010 and 2005-2010 and Average Total Property Tax Millage Rates 2010 (rank in parentheses)

  •                               2000-2010         2005-2010         2007-2010         Total Millage
  • Sumter              300.96% (1)         68.38% (1)             19.12% (1)           15.5536 (57)
  • Lake                   116.48% (4)          15.99% (22)         -19.42% (45)        17.7729 (40)
  • Marion                81.23% (23)       16.17% (21)          -19.80% (46)       16.8790 (52)
  • Levy                    80.41% (25)       10.25% (31)          -17.93% (40)       17.8515 (39)
  • Pasco                  75.48% (30)         7.54% (35)          -17.00% (39)      17.6456 (41)
  • Hernando         60.54% (46)        -4.15% (50)          -24.14% (58)       17.0807 (47)
  • Citrus                  58.36% (47)       -3.19% (49)           -21.66% (50)      16.2564 (55)

Seems to me that this illustrates well the story of Central Florida over the past decade.  The impact of The Villages is evident on Sumter and to a lesser extent on Lake.  More interesting to me is the staggering decline in growth of tax levies everywhere and the actual decline in tax levies in Hernando and Citrus Counties over the past 5 years (and then of every county but Sumter over the past 3 years).  And probably more interesting than that is the fact that even over the first half of the decade of the 2000s, Citrus and Hernando had a modest growth rate in property tax levies well below the state average at the same time that they were experiencing population growth rates that exceeded the state average.  If anything, that speaks to the tremendous fiscal discipline shown by those county governments that wasn’t always shared elsewhere in the state or the country.  And, to top it all off, all seven counties in our area have total millage rates in the bottom half of all Florida counties and several mills below the state average.  I leave it as an exercise to the reader whether these numbers indicate excessive taxation.

My conclusion here is that the seven counties of interest here are all cheaper in terms of property taxes (and, actually, all taxes) than the average Florida county, they all have seen good, high-quality growth over the past decade (so they are desirable places), and they all are great places to do business.

Economic Development Incentives and Jobs

The St. Petersburg Times has a story today:

Florida tax incentive programs creating 1 out of every 3 jobs promised

Florida has given tax breaks and other cash incentives to some of the world’s biggest companies in return for creating jobs.

But even Walmart, Publix, Kraft Foods and other corporate giants have had trouble meeting job goals.

New data show that Florida has signed contracts worth $1.7 billion since 1995 in return for promises of 225,000 new jobs.

But only about one-third of those jobs have been filled while the state has paid out 43 percent of the contracts.

That averages out to $10,237 per job.

This follows a similar story from the Orlando Sentinel last week that I recommended on Achievable Solutions, Inc.’s Facebook page (like us there, please):

Companies got millions — but state got no jobs

Florida’s economic-development agency has paid $37.9 million to six companies for thousands of jobs that were never created and is now attempting to renegotiate their contracts in the hope of still saving some of them.

The state disclosed the efforts Friday, more than two weeks after the Orlando Sentinel requested information on hundreds of tax-incentive contracts that, according to Gov. Rick Scott‘s new Department of Economic Opportunity, were never fulfilled.

I have a few comments about this:

1.  The $1.7 billion sounds like a lot of money, but in the end is only about $100 million per year.  Most of the contracted amount wasn’t paid out if the jobs didn’t materialize, so we’re really talking closer to $50 million per year.  At the end of the day, that’s not an enormous amount for one of the largest States in the USA.

2.  Nor does the $10,237 per job actually created sound like money poorly spent to me.  The social value of a new job has to be more than the salary or wage rate of the job–I’m going to guess a multiplier of 1.25 or so.  So, even for the jobs created by WalMart, Publix, and Walgreens that are probably low-end, we’re talking $20,000+ in social value created for an expenditure of $10,237.  And for those jobs at the Sanford-Burnham Medical Research Institute at Lake Nona and the University of Miami Miller School of Medicine, that’s probably $60,000 to $100,000 in social value created per job.

3.  All that said, I’m pleased that the State DEO and the Orlando Sentinel are on the case.  These monies are intended for job creation and if companies aren’t actually creating jobs, then they shouldn’t be receiving the incentives.  I think economic development specialists should design incentives to give a rebate after the jobs are created, rather than an up front tax credit.  Either way, the project is going to realize the incentive in its IRR, but there’s a huge difference between the project that can be financed on its own merits and the one that requires government investment to get it off the ground.  At Achievable Solutions, we like to help design projects that work on their own, and then seek incentives that sweeten the deal for the investor or the principal; projects that rely on incentives to pay the bills are far more risky in my view.

The Future of Alternative Energy

Solyndra (the solar energy company–website here) and the federal government’s loan guarantees have been in the news recently.  Some are taking this as a debunking of alternative energy as a source of electricity.  We at Achievable Solutions, Inc. remain positive on alternative energy, especially biofuels, as a part of West Central Florida’s economic development future.  We are not able to calculate a way to make wind or solar economically efficient out 5 to 20 years, but we can most assuredly put together a package of fiber-to-biofuel that competes favorably with clean coal for electrical generation.

The Solyndra case had three problems that are not shared by biofuels:

1.  Solyndra was facing cut-throat competition for their product.  Competitors were able to successfully undercut their prices.  The advantage of biofuels for the time being is that they are unique products that have to have custom designed biodiesel engines for that particular product.  You can’t just substitute one product for another in the generator, you have to completely redesign it to accept a different product.

2.  Solyndra was relying on government loan guarantees.  This is one of the worst government economic development products there are:  it socializes the risk, but leaves the profit in the hands of the entrepreneur.  Where was the up-side for the federal government, here?  And where was the down-side for the investors?  Who can make a rational economic decision if they get all the benefits, but someone else pays all the cost?  Not that I can blame Solyndra for taking the guarantees, I must say.  However, if a government wants to become a Venture Capital firm, then it needs to follow the model of successful VC firms and take a significant portion of the profits.  The companies we work with on biofuels do not rely on similar incentive products:  yes, it often takes relief from property, tangible property, and corporate taxes to make the final product profitable, but that’s what’s offered to any firm moving or expanding operations in a community.

3.  From a power capacity perspective, biofuel-generated electricity is a more reliable product.  Solar (and wind) is limited to certain times of the day, week, and year that it can generated electricity;  a biofuel operation can operate 24 hours per day all year long at a constant output leading to more efficient capitalization of the investment and more reliable capacity.

By the way, if someone can demonstrate a viable solar or wind plant that does not require heavy subsidies (ones I’ve seen need some multiple of the negotiated power purchase agreement price), we are ready to find a location for you.  Contact us at 352-527-9003 or by email at

At the end of the day, no matter what happens with Solyndra and solar energy, in general, municipal waste to energy and wood waste to energy appear to us to be very good products with a bright future in Florida.

Tax Breaks for Restaurants?

From the Orlando Sentinel:

Towns offer tax breaks to lure Darden restaurants

How much is it worth to bring an Olive Garden to your town?

In Decatur, Ala., the answer is almost half a million dollars. In Bristol, Va., it’s $350,000.

Expanding in a shaky economy, Orlando-based Darden Restaurants is pursuing tax incentives from cities and counties to build new Olive Gardens, Red Lobsters and LongHorn Steakhouses.

This is an interesting trend.  I’m unaware of any such incentives in West Central Florida, but there could be some municipalities interested.  From a global perspective, this quote is correct:

“More people aren’t going to eat out if Darden gets this tax credit,” said Randall Holcombe, a Florida State University economics professor. “The result will be giving the Darden restaurants a competitive advantage over other restaurants.”

There’s no real economic development associated with a restaurant–it’s a nonbasic good at the community or regional level.  But, and here’s the crux of the matter, it may actually be a basic good at the level of the municipality!  And if that’s the case, it might make good fiscal sense to give the incentives.

Let’s take a step back and define the terms:  a basic good is one which is exported from the region, or one which brings dollars into the region; a nonbasic good is one which is paid for by locals.  So, typically, a manufacturing plant is basic:  it exports its output, bringing cash into the community.  The bar outside the plant is nonbasic:  once the employees get paid from the exports, they go across the street and waste their earnings on booze and loose women.

What is “basic” and what is an “export” varies with the scale of the community:  what is “nonbasic” to the State of Florida might be “basic” to a community–the University of Florida, for instance, is nonbasic to Florida, but basic to Gainesville.  The same is true at the county level and the municipality level.

So, a new LongHorn Steakhouse might be a nonbasic good to Lake County, and I would think the Lake County Economic Development staff would think you daft if you asked for a subsidy for one.  However, the specific site location of the new LongHorn could be anywhere along US 441 and it is a basic good for whichever municipality it winds up in.  Whether Leesburg or Tavares or wherever gets that tax revenue and those dollars being spent is relevant to those city councils.  I think it could be rational for Tavares to offer a tax refund for a restaurant in such a case.

Still, it sort of sticks in my craw as a concept.  This just cannibalizes neighboring communities, leading to no new economic activity in the end, really.  Good economic development needs to be a regional effort and shouldn’t lead to disagreements within your Chamber of Commerce.  Economic Development is different than business boosterism, but it should also be complementary.

State Surplus Land

From the Citrus County Chronicle:

Farmers discuss state land sales

Representatives of Citrus County’s farming community are cautiously welcoming talks by the water management district to consider selling government-owned property — so long as it doesn’t mean the lands will be cleared for development.
Members of the Agricultural Alliance of Citrus County on Monday discussed an announcement that the Southwest Florida Water Management District will review about 30,000 acres of district property in the county to see if portions should be sold.
Gov. Rick Scott has mandated the five water management districts review their holdings to trim off lands not needed for conservation.
Agricultural Alliance members said they support returning government-owned lands to private ownership in some cases, but stressed land once set aside for agricultural or conservation purposes should stay that way.

On invitation by the Chairman, Dale McLellan, I attended an Ag Alliance meeting for the first time yesterday.  My interest is in finding ways that industry and agriculture can work together, especially by finding industrial uses for agricultural waste products.

I was impressed by the breadth of knowledge represented in this group.  Cooperation between the Ag Alliance and the EDC will be useful in the long run.  This group clearly understands the importance of regional cooperation and not only should we be able to leverage our membership in the Tampa Bay Partnership in their favor, but we should also be able to leverage their personal connections with farmers, ranchers, and landowners elsewhere in the Partnership as well as in Sumter and Lake Counties for the benefit of all businesses.

On to the topic of the post:  The Governor continues to retrench the Water Management Districts, this time by trying to return some public lands to private ownership.  Most of these lands were purchased over the years for water conservation purposes; however, some include areas that serve no water conservation purpose, but were part of an acquired parcel or were a gift during some DRI negotiations or something like that.

I remain ambivalent about the Governor’s plan:  on the positive side, getting some economic return out of some of these lands is a plus.  Citrus has somewhere on the order of half its land area under federal, state, or local government ownership.  That’s a pretty big chunk of the county just taken out of the economy, for the most part.  It’s also the case that SWFWMD is not a land management agency and owning so much land really takes them outside of their core mission:  water resource management.

One more–I hate to even broach this since I’ll be called the D-word (as in, Developer, probably with some epithet attached that is inappropriate for this family-friendly blog), still–as important as they are ecologically and environmentally, the amount and the distribution of these lands really inhibits retail trade and accessiblity in the county.  I know there aren’t many SWFWMD properties that will make much difference here, but there are considerable Withlacoochee State Forest properties along SR 44, CR 491, and CR 581 that serve little ecological purpose, are difficult to manage by the Division, and could be appropriate for commercial and/or residential use.  And what about another east-west connector connecting Homosassa to the east side of the county, maybe along Trail 10?  That would shave 5 to 10 minutes off my journey to the Freezer!

On the negative side, these lands were purchased for a purpose and we need to make sure that making them surplus does not undermine that purpose.  Also, this might not be the best time to dump a bunch of land on the market.  I’m no fan of the government buying or holding property to “stabilize” (read:  inflate) prices, but I also fear the disruption that a new several thousand acres might have on the real estate market in the short-run.  Oh, yeah, I forgot to mention that all these lands have had their development rights basically removed on the Future Land Use maps, so any future buyer will have to deal with an unsuitable land use category.  That’s not a problem for most agriculture or if you want one house on a quarter section, but any more intense use will require a land use change.  That’s good for Achievable Solutions, Inc–we’ll be happy to help you make that application, just call us at 352-527-9003–but maybe less so to any prospective purchaser.

Finally, I know the politicians would like to see some of these lands back on the tax rolls, but that’s of less interest to me:  the fiscal effect will be minor since as conservation lands, they demand few to no services; so, you don’t get any tax revenue for them, but you really don’t pay anything out for them either.  And this could be a real disaster for the county fiscally if they aren’t careful.  I’ve been talking quite a bit to the Property Appraiser, Geoff Greene, and to Avis Craig in his office about the fiscal effects of different land uses, we’ll eventually need to do a real study of this, but right now we’re estimating that residential uses cost $1.11 in services provided for every $1 collected in taxes.  It’d be a downright shame if, in order to increase tax revenue, we built a bunch of houses that end up costing more than they pay.  As the old joke goes:  “Oh, that’s okay, we may lose money on each one, but we make it up in volume.”

And this brings me back full circle to the Ag Alliance.  Agriculture has the best opportunity to provide a reasonable transition for these lands.  Farmers, ranchers, and foresters are excellent land managers.  Agriculture demands very little in the way of public services (a Colorado study I’ve seen estimates it at $0.35 for every $1 paid in taxes).   And agriculture has significant linkages and spillovers into other industries, so it makes for good economic development.

Now if we can only convince the state to do this right . . .