You Can Do The Math Nthp 2011

Economic Arguments for
Preservation: Do the Math to Make
the Case

Della G. Rucker, AICP, CEcD
Wise Economy Workshop
For National Preservation Conference
October 21, 2011

Our Plan:

• What’s the problem?
• Who benefits?
• Introduce a key idea
• Figure out what we are
measuring
• (Prove that you can) Do the
math

The Problem:
Property owners sometimes want to
tear down or mess up buildings for
reasons preservation people can’t
fathom:
o “But it’s such a beautiful
building!”
o “Why on earth would they want a
parking lot rather than that
building?”
o “Don’t they understand what that
will do to the neighborhood?”

More of the Problem
• Three different definitions of
value:
o Property owner
o Business owner
o Local
government/community
• Three different time frames
• Responsible to three
different groups

A quick sketch
Definer Type of Time frame Responsible
value to
Property owner Cash flow from Short Self/other owners
rent of building

Business owner Business revenue Longer Self/partners/
investors

Community Quality of life Longest Self, other
residents, other
parts of
community

More of the Problem:
• The property owner will do
what’s in his or her best interest.

• Their best interest may not be
the same as the best interest of
o Businesses in that building,
o Other business owners or property
owners nearby
o Area residents
o The local government

The Real Problem
When property owners make choices that impact
the economic health of others, they have created
an externality.

Concept #1: Externalities
• “An external effect, often
unforeseen or unintended,
accompanying a process or
activity.” (dictionary.com)

• When I make choices in my
economic self-interest, and those
choices impact someone else,
those impacts are the externalities
of my choices.

Common externalities
• I let my kids scream wildly in
the back yard, and my
neighbor’s sick daughter
couldn’t sleep.

• I dumped chemicals in the
back of my lot, and now the
EPA has to clean it up.

• I don’t maintain my building,
and the value of buildings
around me goes down.

Who gets stuck dealing with
most of our externalities?

A solution:

The more we can convince elected officials of
the impact that preservation decisions will
have on their community’s financial health -
the more they see that poor preservation
choices create negative externalities – the
more likely we are to persuade them that it is
good public policy to support historic
preservation.

What economic issues do
governments deal with?
• Private sector:
o Growth
o Profitabillity
o Stability
o Vacancy

• Public sector (fiscal):
o Tax revenues
o Costs of services

What kinds of externalities can botching up a
building make for other property owners?

• Make area less appealing
for customers-
• Decrease rental/property
value of spaces
• Decrease amount of
affordable space for new
businesses.

What kinds of externalities does
this create for local governments?
• Loss of property tax revenue
• Loss of space for creating
new employment
• Loss of sales tax revenues.
• Increased public safety
costs
• Loss of support for
infrastructure repairs

Fine. But words
are just words….

Do the Math: Show the impact of
good decisions on property values
• Compare average property values of
preserved areas to unpreserved areas with
similar buildings
o Common example: National Register districts compared
to non-National Register.

o It’s easier to get property value data than ever[link to
auditor example]
o Can also use sales prices – get a Realtor © to help you.

A hypothetical
Value
Building A $100,000
Building B $300,000
Building C $80,000
Building D $150,000 Avg Letter Dist: $166,000
Building E $200,000
Building 1 $100,000 Avg. Number Dist $159,000
Building 2 $250,000
Building 3 $175,000
Building 4 $150,000
Building 5 $120,000

Keys to success:
• Use the largest samples
you can.
• Double check your
math.
• If using Auditor data,
know when the last
assessment was and, if
they typically
undervalue, by how
much.

If it’s not working
• Look at more areas
• Partner with a similar
community to get more
sample areas
• Look for unusual factors in
the area you’ve chosen.
Are some closer to the
highway than others?
Further from the center of
town? Larger or smaller
buildings?

Estimating the impact on the
ability to grow new businesses
• Especially important when
demolition of a commercial
or potentially commercial
building is proposed.
• Premise: small businesses
are extra important to a
community because they
create most of the new
jobs.
o But they have different space
needs than established
businesses.
o Older buildings often fit this best.

Econ concept #2: Opportunity Cost
• The money or other
benefits lost when
pursuing a particular
course of action
instead of a mutually-
exclusive alternative.
(www.dictionary.com)

Types of opportunity costs
• I decide to quit my job and go
back to grad school so that I
can move into a better position
in the future.
• I buy the last piece of vacant
land in town and build houses
on it instead of a factory.
• We tore down the smaller,
inexpensive spaces in town,
and now small businesses have
no where to get started.

What’s the opportunity cost to
small business growth ?
• Compare commercial/office rate in
historic or downtown area to rate for
area as a whole
o A good Realtor© should be able to help you find this
information
o An affordable space is by definition one that a growing
small business could use - SizeUp © is a good new tool to
help figure that out.
• The fewer spaces affordable to small
businesses we have, the more stuck our
local economy is going to be.

A hypothetical
• A review of SizeUp© or interviews with Realtors©
indicates that most small businesses (preferably
focusing on a type that you know City wants, like
tech or restaurants) can afford an average of $6/sf
rent.
• Average rent in suburban strip area of town =$10 sf
• Average rent downtown = $5.50 sf.

• Extra credit: what % of downtown space does a
proposed demo represent?

Estimating lost revenues - property
taxes
• The parts:

o Assessed value (link)
o Property tax rate (millage)
o Adjustments, deductions,
rollback, caps, etc

• The formula:
o Assessed Value X Millage –
Adjustments = Property tax
obligation

Estimating opportunity costs from lost
income/earnings tax
• The parts:
o Estimated number of employees
• Actual (might be low) or
• Potential based on national/regional
average per square feet
o Income/earnings tax rate

o Estimated percent of employees paying
income taxes to locality (may be receiving
reciprocity or abatement)

• The formula:
o (Employees X income tax rate) = income
tax obligation

Estimating opportunity costs from lost
sales tax
• The parts:

o Estimated sales
• Actual (might be low) or
• Based on typical local experience, or
• based on national/regional average
per square feet
o Sales Tax rate
• May differ from one county or city to
next
• May have different parts (part to
state, part to county)

• The formula:
o Estimated sales X sales tax rate =
sales tax obligation

Other types of taxes:
• Business Establishment-type taxes
• Tax on profits
• Tax on personal property or inventory
• Tax on holdings
• Capital gains
• Etc., etc., etc…..

So…you’ve done the math, now
what?
• Share your findings
• Show your work
• Remember that it’s an estimate,
not a precise measure
• Use it as one of the tools in your
toolbox – it’s not the only one.

Thank you!
Della Rucker, AICP
Wise Economy Workshop
www.wiseeconomy.com

513/288-6613
Della.Rucker@wiseeconomy.com
Twitter: @Dellarucker
Facebook: Della Rucker Aicp Cecd

You Can Do The Math Nthp 2011

You Can Do The Math Nthp 2011

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