At the last city council meeting there were a few more people attending than normal, and they had issues they wanted to talk about. A couple people spoke passionately about how they wanted the Hawthorne pool to remain open, which may be closing in 2022. There was much discussion about the city purchasing Churchill Junior High School from the school district, which is being envisioned as a possible recreation and activity complex for the city’s youth. While most council members have voiced support for the virtues of having a public pool and a complex for the youth to spend their time, it all comes down to the central issue: Money.
The situation isn’t looking great. It’s projected that our General and Parks funds have an estimated $5 million deficit over the next five years, and that doesn’t even include either the Hawthorne or Churchill projects. We’re already out of money before we’ve started these projects, so more than likely they won’t happen or we will go into deeper debt.
And why isn’t there any money? There seems to be money for some big projects like bridges and football stadiums, so why can’t we save these places that are valuable to our citizens? While the answer for why we got those big things is outside grant money, it still stands that we have no money to prop up our city on our own.
Some will say the government is too bloated, corrupt, and inefficient and has squandered all the money it takes from the citizens. Others will say we need to be comfortable having higher taxes in order to pay for the things that we want/need, that it’s just because we’re greedy and want lower taxes.
I say it’s neither of these, and I’ll explain my reasoning here.
Galesburg has changed in many ways
By the standards of American cities, Galesburg is quite old. Founded in 1837 we’re coming up on being 185 years old. We’ve been through a lot with many ups and downs and we’re still here, but we’re struggling. We’ve essentially been in population decline since the 1960s and we’ve had a tough time changing course.
We can feel it around town too; buildings are falling apart, the roads are in poor condition, we still have lead water pipes, our downtown is a far cry from what it once was, and there’s just a sense that this is a town on the decline so why bother. I don’t believe that, but many locals do. But especially now our government seems to be out of money while barely accomplishing a little bit of what we would expect it to do. Why are we so out of money? Is it because there aren’t good jobs? People leaving? This isn’t going to be the typical story about the factories leaving or of bloated public pensions. No, this is a story about how we re-developed this town.
It was a simpler time
If you look at early pictures of Galesburg you can see it was a thriving place. I recently found this video taken on Main Street in 1912 and man is it wild to see. The town is bustling, people walking on the sidewalks, all the shops are full, and kids are playing around on their bikes on Main Street! This is a far cry from what we have today, with Mainstreet mainly being an east/west road through town with some old buildings along it. I know it’s a lot more than that, but currently it’s not functioning anywhere close to like it was in the old video.
Why don’t we have a street like that anymore? After WWII, our city along with the rest of the country changed how we developed our cities. We started re-developing our cities to accommodate increasing car ownership and ended up building cities that are unsustainable and cannot support themselves. We built big houses with big yards out on the edge of town. We started to build big box stores and a mall on the edge of town, putting downtown out of business. All those big stores and houses required big new roads, new water infrastructure, and took up a lot of land. Every city did this, but what makes Galesburg different? Why are we out of money?
The Math as it currently stands
The Cost of Our Infrastructure
The last paragraph sounds like something we’ve all heard before. Anti-progress and looking at the past with rose colored glasses. I promise you I’m not here to go on rant about all of this because of some personal feelings about how I think things should be. This also isn’t an environmental argument either, it’s an argument of numbers and they do not lie.
The common way we look at cities’ financial health is through their budgets: revenues and expenses. But that doesn’t provide a full snapshot of how our city is doing. We all know there’s more to assessing a city’s financial health. Just because the city has a positive balance one year doesn’t mean it’s going to be the next year or in a decade.
Let’s take for instance, our roads and infrastructure. Even if our town has a surplus of funds coming in, a fair number of our roads and sidewalks are in very bad shape. Clearly the amount of funding needed for road maintenance is not what’s getting spent, so how much would it cost us every year to fully fund our infrastructure maintenance?
In “professional administrative terms”, the roads and infrastructure are labeled as “capital”. In the 2022 capital improvement plan (which is a fancy phrase for infrastructure repair plan), there is a project slated to reconstruct a portion of McClure Street from Monmouth Blvd to Coulter. This is the total project area here:
This section of road is approximately 584 feet long and is going to cost around $350,000 to reconstruct. So if we divide we find that it takes about $600 per foot to reconstruct this section of street.
McClure isn’t the most heavily trafficked street in town, but it’s still a beefier road than most of our neighborhood streets. It’s been a little over 30 years since this piece of road has been rebuilt, which is about an average timeline. For the purposes of the math that I’m going to do for the rest of the article, I’m going to assume this stretch of McClure is representative of the average street in Galesburg. There are bigger streets, smaller streets, some with more traffic, many with less, some needing more maintenance, and some needing less.
So if we had a savings account where we saved up the $600 for each foot for 30 years, we would have needed to save $20 per foot of road per year to have enough to pay for this project.
Let me say that again: $20 per foot of road per year, just for road maintenance. I’m going to use this number to estimate the cost of maintaining all of our roads. I will also say this number is EXTREMELY generalized. I will gladly readjust the analysis if a more accurate number can be provided. But for now this is the best number I can get.
Now let's take that number and apply it to the whole city. The city has 177 miles of roads that it maintains, more than enough road to go from here to Naperville.
If we convert 177 miles into feet it’s 934,560 feet of road. At $20 per foot per year, we would need to spend on average $18,691,200 a year on road maintenance just to keep all of our roads properly maintained.
We are not anywhere close to spending that kind of money on our roads. Even if the actual cost of maintenance is half of what I’ve estimated, we’re still way off. According to the capital improvement plan from earlier we are planning to spend an average of $3,220,000 per year. Even if road maintenance only cost a quarter of my rough estimate we’d still need $4,672,800, over a million more than what we are spending. But this isn’t just an issue of budget priorities, this is an issue of the government’s income.
Our City Government's Income Problem
So what would we need in order to pay for all of our road maintenance? The biggest source of tax revenue for the city is property taxes. Property taxes are a good funding model for city governments because it’s pretty stable and you are essentially taxing the built up wealth of the town. Property taxes also pay for other government functions such as our schools, fire protection, and county government.
If you go to this website you can look up any parcel in town and see how much tax is owed on that property. Here’s a look at the property taxes on my house as an example.
We see that the school district gets about half of all property taxes, the City gets about an eighth, the county gets about an eighth, and the rest goes to other entities. Out of all of those eight entities getting a cut of property tax dollars, the City of Galesburg is the only one that funds the road maintenance in Galesburg. The city does have other forms of revenue but those can all fluctuate a good amount from year to year. For instance sales tax, if fewer people shop in town then the city won’t get as much revenue from sales taxes. But as long as there are buildings in decent shape you’ll still get that property tax revenue.
So how much would all the properties in town need to be worth in order to pay for the road maintenance? The formula for Galesburg’s portion of property taxes looks something like this:
Price of the home ÷ 3 x .015197 = property taxes to City of Galesburg
Or in other words, you take a third of the home’s price and then take the property tax percentage out of that. If we work the numbers backwards to get the amount of actual value (home price) needed to get one dollar of property tax going to the city at this rate, we see that we need approximately $197 of actual value to get $1 for the city.Using this number we can find out how much the city would need to be valued to pay for our road maintenance.
So if we take 18,691,200 x $197 and find that our town would need an actual value of $3,682,166,400. Yes, that is $3.6 Billion. For the year of 2020 the whole town had a total actual property value of $1,291,589,838. Or in other words we only have about 35% of the actual value that we need in order to fully fund the maintenance of our roads, not even accounting for everything else the city does like police and parks.
So, what do we do? Can we just pay 3x the property tax to the city and fund our roads? Our city already has pretty high property tax rates for a city in a state that already has pretty high property taxes. We can’t raise our property taxes, and we can’t raise any of the other taxes to make up for the difference. What is causing this and what do we do going forward?
Galesburg Real Estate Development Incorporated
Galesburg is a city, by that fact we are an incorporated area. By being incorporated, our town is essentially a corporation where the citizens are the investors and stakeholders in the business that is Galesburg Inc. We are a real estate development company that also provides services. Not only that, we’re a real estate company with holdings totaling $1.29 billion, not too shabby for a town that has been through what we have. But that $1.29 billion is not invested in a way that’s going to lead to financial success. There are plenty of towns our size, especially if you look outside the US, that are able to be financially solvent while we struggle.
This isn’t a story about how the factories left or greedy union pensions, this is a story about how we’ve chosen to develop our town over the years. We have mostly chosen to build single family homes with large lots and commercial buildings that are auto dependent. It’s what every town was doing so I’m not here to shame anyone for what has happened. But the numbers tell us that we can’t keep going down this path.
Take for example the taxes I pay on my home. I pay $260.17 to the city every year in property taxes. I live on a 60 ft wide lot. If you take the $20/ft/year road maintenance metric, cut it in half because I’m just on one side of the street, and then multiply it by the width of my lot you get $600. I would need to contribute $600 a year through my property taxes to just pay for the maintenance of the portion of the street in front of my house. But I’m not, I’m contributing less than half. Almost no single family houses are contributing enough in property tax to support basic necessary maintenance of the street in front of their house.
The smallest lot width you can have in Galesburg with the current zoning code is 50ft in R3 districts. With that 50 ft lot you would need a house worth $98,500 just for the city to break even on the maintenance of your portion of the street. If you have a 100ft wide lot you need an assessed value of $197,000 to break even. While wide lots may be nice to have and historically how we’ve built housing, they have a tough time paying the city back for the services they consume.
Is every house and building going to pay for all the infrastructure it uses? No. There will be plenty that do not. Does that mean that corner lots have to be twice as valuable to pay for both the streets? Also no. Another way to look at properties in an apples to apples comparison is to use the metric of total property taxes paid per acre. Why is that? The greater the area the further road and water infrastructure needs to extend and the further away police and fire services need to travel. So comparing on a per acre basis is a good proxy for how productive it is for the city.
Going Per Acre
I guess we can look at my house first, I pay $1693.14 on a .18 acre lot which comes to $9406.33 in property tax revenue per acre. Not great but not the worst.
Let’s look at our Walmart. Walmart pays massive amounts of property taxes and are a company worth billions of dollars, surely they pay much more than I do on my house built in the 1950s.
And they certainly do pay a lot in taxes, $413,528.26 for the year 2020 alone. They’re built on a 26 acre lot so if we do the division it’s $15,904.93 of property tax revenue per acre for Walmart. Beats my house.
But what about a building downtown, let’s look at The Kensington.
The Kensington pays $82,035.68 in property taxes every year, and sits on a .44 acre lot. So if we calculate that out it has a value of $186,444.72 per acre in property taxes! It absolutely leaves Walmart in the dust, WAY out performing the big box retailer.
Here’s a little graphic comparing the three:
As a town we are essentially a fixed plot of land cultivating a crop of buildings which we tax to fund our corporation. As the farmers of this land wouldn’t we much prefer to plant and encourage the crop that earns $186,444 per acre instead of the crop that only earns $15,904 per acre?
The way a financially solvent city develops itself is by having as much of it’s commerce built up near it’s core and to have all the citizens living as closely to it as it can. You want your buildings to have the highest possible value while needing as little infrastructure as possible to service it. If you do it this way then the buildings at the core of the city can create big returns that subsidize everything else we want to do.
What we’ve instead done is allow for big commercial developments and large lot single family developments that take up a lot of services on the outskirts of town. These developments put downtown out of business, destroying vast amounts of wealth that our city had built on itself and used to pay for our government. We are living in a town where the development formula is the opposite of the solvent city, relatively low value buildings using lots of infrastructure. This isn’t a financial model that can sustain itself.
Our “Investments” Barely Earn Returns
Let’s go back to the Seminary Squares development and look at it at a deeper level. Instead of just the Walmart let’s look at the entire development West of Seminary and North of Carl Sandburg drive. We’re going to go back to using the City property taxes paid by the businesses to look at this one. Why? Because this development involved the creation of brand new roads for the process. I don’t know if in the beginning the city paid for the roads to be built, so I’ll just calculate what it would take to maintain them.
Here is the area in question:
It looks like every shopping center you see, it’s the suburban model of shopping center.
This development generates $223,939.19 in property taxes for the city every year. To generate that tax revenue they use 6988ft of roads that service almost exclusively this 100 acre area. (I’m also including the 1115ft of Seminary from Carl Sandburg to Knox Square in this calculation. While it already existed before the project it had to go through a significant widening for the project and is an added cost to the city because of that) Running the numbers shows we generate about $32.04 per foot of road per year in property taxes for this development. While it’s above the $20 needed to maintain repairs, it’s not creating massive returns that can fund the rest of the city. It can’t even support another set of roads the same length as theirs.
Now let’s look at a block downtown:
This is the block with The Kensington on it. It isn’t completely full with plenty of parking lots and empty space, this block has certainly seen better days. But it’s part of the original town layout so it always has been and always will be part of Galesburg. Also some of these buildings don’t contribute all of their taxes to the City because they’ve used TIF money. Downtown also pays extra taxes as part of being in the downtown Special Service Area, so I’m going to include that as well. Additionally, the Orpheum is exempt from property taxes making it even more interesting.
On that block, if it’s tax dollars weren’t going into the TIF fund, it generates $64,299.52 in taxes for the city and is surrounded by approximately 1720 ft of road. Doing the arithmetic we find that this block generates $37.38 per foot of road for the city. Now that may not seem like a whole lot more than Seminary Square, but realize that each of these streets has more buildings on the other side meaning that this block only needs to generate $10 a foot to pay for itself. So on this development we are making $27.38 profit per foot of road vs $12 for Seminary Square. The streets downtown also have the added benefit that you can use them to get to other places, not just the buildings that are along it. If we go back to per acre analysis, Seminary Square is generating revenue for the city at a rate of $2,239 per acre over 100 acres while The Kensington block generates $22,801 per acre in a little under 3 acres.
Not only is it more valuable, but the downtown block is much more resilient. Most of the buildings on that block have been around for approximately 100 years and are still producing incredible value for the city. Walmart builds their buildings to last only 15-20 years and then builds a new facility. We are in year 15 of our Walmart, so they are exploring their next rebuild. If Walmart leaves its current location and the building is empty then we’ll lose out on property taxes, leaving the whole development just barely making enough to cover the cost of road maintenance. There’s a chance the building would sit empty for over a decade just like the other one. Or think about the mall, the mall used to be a cash cow for the city but now it’s a ghost town and a drain on city resources. But downtown has outlived all of it and can withstand changes.
What Do We Do with This information?
What are the key indicators we need to watch closely going forward? We know a budget doesn’t tell us everything so what do we use? Since it’s not a true number we can’t use the $20/ft/year number for everything. (But if the city staff can develop what this number truly is for Galesburg then that could be very useful). What’s a metric we can look at that can be calculated easily and tells us if we’re reaching potential financial solvency?
The metric we should be looking at is private investment vs. public investment. Or in other terms the total actual value of all the properties in Galesburg in a ratio against the value of our city’s capital assets. As mentioned before Galesburg has a total value of $1,291,589,838. We can see in this city financial document on page 72 of the pdf that the city has $122,621,491 in capital assets which includes all owned land, buildings, vehicles and machines, and infrastructure. If we take a ratio of the two we see we have a 10.5:1 ratio, or $10.50 in actual property values versus every $1 of public investment.
10.5:1 isn’t great, but it isn’t the worst. Lafayette, LA has a ratio of .5:1, or 50 cents of actual value for every dollar of public investment. They are SEVERELY underwater financially, but that doesn’t mean we are in good shape either.
What would be a good ratio for us, one that sets us up to be able to pay our bills? The range set out by Strong Towns, the organization that inspired most of this analysis, is somewhere between $20-40 to 1. Earlier I had mentioned we would need $3.6 Billion in actual value to cover our road expenses. If we divide that by our capital assets we get a ratio of approximately 30:1, so $30 in actual value for every dollar of public investment. So we need to grow our property values by 3x to be able to be a financially healthy city.
Growing our wealth by three times, how do we go about this?
The Game Plan
We first need to invest rigorously in our downtown. We need to direct every development we can to downtown because the rates of return for the city are higher there than anywhere else in town. Higher property values means more money for our schools and county as well, not just our city so all the local governments should be joining in on this.
Downtown is a place that thrives when there are more people there. People like to go where people are so I believe we can set a positive spiral going, but we absolutely need to make Main Street specifically more of a place for people. Currently it’s a 4 lane highway that is a major road through town. It’s hard for it to be a place for people with cars zipping by trying to make the next light. We don’t need to get rid of the cars, but we need to redesign Main Street to be a place cars go to and not a place cars pass through. The space needs to be designed for people first and cars last. If we’re able to make downtown a better place for people to exist then it’ll create more demand for the area and help it become a profitable area to invest in. Our country has an extreme shortage of walkable areas, so if we can make ours one there’s demand for it.
Our second priority needs to be encouraging small developers to do infill projects on all of our vacant lots. We do not need to open up any more land outside of town to development. If anyone wants to build outside of the 74/34 border we can’t afford to run services to them because it won’t be profitable for the city. We already have plenty of plots of land that have sewer and street access, we don’t need to build anymore. If we can fill our empty plots within town that will get us more revenue against our current expenses without any additional infrastructure cost to the city.
Thirdly, we need to update our zoning code to not only accommodate infill projects better, but we need to be able to increase our density incrementally. Denser buildings equals higher returns on city infrastructure which is what we need. We need ways that neighborhoods can change over time, not sit under glass like it’s in a museum because the zoning won’t allow change.
Take for instance this lot on Seminary just north of downtown.
This area is 115.5 ft wide and is zoned R3A. The minimum lot width is 50 ft so you can realistically only put two new buildings in this area. If you put two single family houses up you’d need each house to be valued at $113,767.50 to break even on infrastructure, but that’s a bit pricey for the neighborhood. It could be two duplexes, but the units would be pretty small. But what if the minimum lot width was 30 ft you could put up three houses that would only need to be worth $75,845 each for the city to make its money back, much more reasonable for the market and the neighborhood.
Look at this house
You could build 3 of these 18 foot wide houses and people would want to live in them and they’d be profitable for the city per the infrastructure needed.
But it’s not just houses, because of minimum lot sizes we aren’t able to create financially productive residential areas anymore. Take a look at these duplexes on the corner of Chambers and Matthews.
These 4 properties are totally not compliant with the current zoning codes. The lots aren’t wide enough, the lot sizes are too small for the number of families on each lot, they don’t meet the minimum setback requirements, and don’t have the required off street parking; these four structures couldn’t be built today. Even though they are rundown, together they pay property taxes at a rate of $18,296.32 per acre! They are more productive than our Walmart despite these buildings being in rough shape. This pattern of building is illegal today for no good reason, are these unlivable conditions? Is there any good reason why we can’t build like this besides aesthetic preference?
Fourthly, we need to encourage small commercial developments. The building that houses Joy Garden pays taxes at a rate of $16,354 per acre. The building for Glory Days Barber Shop has a tax value of $40,575 per acre, and Jerry’s Barber Shop comes in at $42,621 per acre. All of these are more profitable per acre than our Walmart. We can make lots more little shops downtown but can’t really get anymore box stores. Even if we could get more big box stores we shouldn't want them because the return for the city is low and the risk is high for the town generally.
Here’s the property taxes per acre for those properties:
And since we’re here, here’s that same graph with The Kensington on it:
Galesburg Getting Better
As a general principle we need to beef up our downtown and improve our neighborhoods. We should be obsessing about neighborhoods, doing everything we can to improve conditions around them. This creates a positive loop of seeing that the town cares about them so the residents then care more about the town. This is a key ingredient to stopping the exodus of people out of our town.
If we can stop the flow of people leaving town and create a space where outsiders want to move in, that increases property values right there. We need to do as much as we can to make our town a more attractive place to live. The only tools for this with the limited resources we have is to voluntarily improve our properties, change zoning rules to allow for more complete walkable neighborhoods, and work with our local businesses to expand in whatever way they can.
In addition to all of that, all future developments need to be assessed on their private to public investment ratio. We need to calculate the ratio for any development that is going to need public investment. We should also look at how long it will take to repay that public investment from the taxes received. Here’s a great video with the city administrators from Fate, TX about how they applied this framework to go about scoring projects if you’re in the city administration.
But really the name of the game is increasing the value of our properties versus the amount of infrastructure we have. Only then can we create a financially strong Galesburg. This piece wasn’t written with the intent to shame anyone, but to open our eyes to what the path forward is. If we take the conclusions from this analysis and others like this seriously we can get on the path of creating a better Galesburg, one we can be proud of. I’m already proud, but let’s get everyone onboard.
If you found this analysis interesting there are a couple of talks I’d like to share.
This one is more at the 101 level, it’s Chuck Marohn from Strong Towns giving a TEDx talk on what makes a strong town:
Here’s the 202 version with Chuck again but in a longer format:
And at a 303 level here is a presentation from Joe Minicozzi of Urban3 about the Economics of Development for cities: