Since I will not be able to attend the next meeting dealing with the Comp Plan, I am taking this opportunity to elaborate on [Louisville Planning Director] Paul [Wood]’s summary of my fiscal concerns and to comment on reactions to these concerns. ( I have reviewed the tape of the last Council meeting).

[Louisville consultant] Bill Cunningham, in response to a question on how he and I differ, explained that he was taking a market approach to address fiscal issues. I agree with this and, within limits, this is an acceptable way of comparing different development scenarios. However, this market approach does not provide a means for assessing and planning the long term fiscal health of the City. 

It is possible for the City to have a very vibrant retail community and at the same time have  financial problems.  Increasing revenues is not a sufficient predictor of fiscal soundness. “Sales tax per capita” or “sales tax per capita per 1% collected” provides a much better indicator of fiscal health, and these measures are affected differently by different categories of retail development. Neighborhood commercial (food stores, restaurants, drug stores, etc.) are critical sources of revenue, but they are pretty much limited, not totally, by the the amount of disposable income in the “neighborhood.” Louisville’s level of service and capital amenities cannot be supported by this retail category.  We rely on regional retail (a combination of spending from “City” residents and “regional” residents) to supplement our revenue levels to support this appetite for services and amenities. In sum, neighborhood retail revenues taken alone lead to constant per capita revenues and these constant per capital values can only be increased by supplementing them with regional retail revenues.  If they are not supplemented, our fiscal health deteriorates. 

To digress for a moment, Council member Keany’s treatise on how we came to our current level of services and amenities was simplistic and did not accurately reflect the dynamics of how we got to where we are today.  In the late 1970s the City annexed a massive amount of land which pretty much defines today’s development boundaries.  The land was zoned commercial and residential.  The number of residential units approved essentially became a “cap” on residential development. To “enforce”  this cap the City required large open space dedications (Davidson Mesa is an example), aggressively purchased open space, and agreed to intergovernmental agreements for open space, largely for purposes of limiting residential development.  At the same time, neighborhood retail followed housing and regional retail was gradually developed as the region grew in population. Essentially, by holding the number of residential units constant, the City’s financial position as measured by per capita or per household continued to improve. It is also worth noting that residential development was carefully phased, and in the early stages of the process the major developer was required to offset the deficit produced by housing until commercial development revenues were sufficient to offset this deficit. That is how we got to where we are.

As important as our long-term fiscal health is, we have done nothing in this Comp Plan process to ensure it. How can we claim we are going to be able to meet our fiscal needs without clearly defining them? We must establish fiscal goals validated by long-term revenue and expenditure projections. These goals and the resources associated with them must (1) address the existing revenue shortfalls; (2) provide for the future needs of existing citizens; and (3) offset the deficits created by new residential units. To date, all of the analysis done for the Comp Plan update has focused on the last item. That is flat wrong. We are not updating the Comp Plan to serve a bunch of new residential units. We are updating it to serve existing and future residents of Louisville. Claiming we cannot get wrapped up in “numbers” is no justification for you to abdicate the fiduciary responsibilities you have as elected officials.  

Before deciding to retire, I spent many hours defining the types of things my wife and I wanted to do in retirement (i.e., our goals), estimated what it would cost to do these things, and then figured out if and when we could afford them. To do this I had to play around with a lot of “numbers.” I had to come up with numbers to estimate investment yields, transportation costs, overseas travel costs, food costs, taxes, etc. I ignored the advice of experts who suggested things like a retirees need 80% of their pre-retirement income, and tried to figure out what we needed for our specific goals. You owe the citizens of Louisville this same type of analysis to ensure the long term fiscal health of the City.

Bill Cunningham suggested that rather than getting involved with this “numbers” process, the City should  annually monitor the City’s fiscal standing and require developers to do fiscal analysis for their projects. 

What a disaster retirement could be with this approach. If you had a shortfall, I guess you would either have to go back to work or redefine retirement. Neither would be desirable.

Nor is it desirable to approach the City’s future in such a manner. Using a piecemeal approach, when the key variable in the process is new regional retail revenues, is reckless. Yes, annual monitoring is needed, but it is meaningless absent a comprehensive set of standards and milestones against which our fiscal vitality can be assessed.

So what do we need to do? Elaborating on the three goals outlined above.

1.  Evaluate the current and  projected revenue shortfalls and determine what part of new regional retail revenue will have to be set aside to correct this problem.

2.  Project any additional revenues that will be needed to fund either operating or capital needs that have been a priority (e.g., traffic safety projects) for the City but for which revenues have not existed and determine what part of new regional retail will be needed to fund these projects.

3.  Determine how much of a revenue cushion will be needed to offset the uncertainties associated with revenue and expense projections.

4.  Estimate the impacts on revenues associated with inducing regional retail to locate at STK. (Cities have been known to give back to developers for several years all or portions of their revenues as inducements to get developments.)

5.  Based on Items 1-4, determine how much regional retail will be available to offset the cost of new homes and factor this information into the Comp Plan process. (As discussed above, in the current fiscal analysis, all regional retail revenues are used solely to offset the cost of new residential units. This is fiscally shortsighted, and an injustice to existing Louisville residents.)

6.  Determine which "opportunity areas" should be given priority in view of the available resources and considering such factors as “use by right,”  potential sales tax leakage, alternative land-use options, potential infrastructure needs, social objectives, etc.

7.  Set up a process for monitoring resource projections and adjusting priorities as these projections change either in a positive or negative direction.

Supporting information for these steps can and should be done by City staff.  They have the expertise, and by using existing City data and some of the data and assumptions (some will need to be corrected) in Mr. Cunningham's fiscal model, they should be able to develop long-term projections of revenues and expenses rather easily. (Examples of data needing correction are the overestimate of open space purchases and the underestimate of transportation infrastructure needs on the capital side; and inconsistent data for the projection of commercial versus residential costs on the operating side.)

Finally, I will put forward a few miscellaneous thoughts.

Please approach the information presented to you by staff and consultants a little more critically.  Let me give an example.  I could not believe no one challenged Bill Cunningham’s table showing each household created a $6 surplus for the City.  These points have to be obvious: (1) If this were true, we would not need to induce retail spending from non-residents. (2) Given his assumptions, a family would have to spend about $44,000 annually on retail expenditures ($22,000 in Louisville). That kind of family expenditure would leave the family with a considerable deficit after taxes, health insurance, mortgage payments and transportation costs (and it would leave the family no money for vacations or college tuition).  You do the math. (3) The operating cost per household was not designed for this type of use. Bill has said these numbers are OK for comparing scenarios, but not for independent fiscal analyses. (4) On its face this operating cost per unit is challengeable, especially if it is used in this type of analysis.

Please understand that Louisville is beyond being able to use neighborhood retail revenues to support our expenditures.  Also, please do not imply mixed-use retail is anything but neighborhood retail. (Even if residential units were associated with regional retail, they would have no impact on the feasibility of this regional retail development.) Regional retail is driven by location, location, location, and by regional disposable income.  

Please look critically at the neighborhood retail projections in the model. They require an expenditure level per household much higher than that of current  Louisville residents.

Finally, please do not substitute buzz words like “live, work and play” for critical thinking.  Recently, Newsweek columnist Fareed Zakiria, writing on another topic, criticized the use of “slogans” as substitutes for “comprehensive policies.”  You should heed this admonishment.

If you have any questions or would like to explore these issue in more detail, please give me a call (303-666-8038) and I would be happy to meet with you over breakfast or whatever.  I leave town on the 26th.

One final note.  I have been asked by many people in the community why I have put so much time in on this Comp Plan process. I give them two reasons. First, the Comp Plan process encompasses the most important issues that will face the City for the next 20 years. Second, as a believer in representative government, I believe it should be given a fair chance to work. If it does not, that’s another issue.