Infrastructure Data Dive: Denver’s Single Family Suburban Homeowners are Heavily Subsidized by Urbanists

Denver, like most American cities, has a lot of infrastructure debt that future generations and urban dwellers are going to get stuck with the bill for maintaining and paying off… Perhaps more surprising though is just how many ‘wealthy suburban neighborhoods’ aren’t capable of covering the cost of their own infrastructure.

By far, the largest portion of a Denverite’s taxes goes to infrastructure (34%), and in an America that is addicted to traveling by cars and single family homes that require them, who is actually paying for these roads, sewer pumps, water lines, parking garages, storm water, parks, libraries, firehouses, and sidewalks extending into far flung suburban neighborhoods?

While the costs for all of these pieces of infrastructure are relatively linear (a mile of road costs the same in Stapleton as it does in Baker), interestingly the Denver property tax is directly proportional to value: 77.365 mill levy (meaning $77.365 on every $1k assessed in 2018) on the residential assessed value which is 7.2% of the actual property value.

This property tax (20% of Denver’s revenue) combined with sales tax spent in Denver (34% of revenue), “Charges for Services” (20% of revenue), Operating Grants (9%), and Lodging Tax (5% – a 10.75% tax on airbnbs and hotels) make up the lions share of Denver’s revenue (88%).

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https://www.denvergov.org/content/denvergov/en/transparent-denver/revenue.html#

So with all this income, where is it getting spent? Thanks to Denver’s neat Tax Receipt Tool, we can see where the breakdown of where our taxes are going. Denver uses an example of $56,258 for household income, with a $400,000 house and the tax receipt looks like this:

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https://www.denvergov.org/content/denvergov/en/denver-department-of-finance/financial-reports/city-budget.html

As you can see, Infrastructure (also known as “Capital Projects”) makes up 34% of the spending and is composed of all of the roads bridges, and public facilities that makes living in Denver so great such as our recently passed $937 million elevate denver go bond. This leads to the first realization:

Property taxes alone don’t cover the cost of the infrastructure to access, service and enrich Denver’s properties. With infrastructure making up 34% of Denver’s expenditures and property tax only making up 20% of the income of Denver’s budget, Sales tax receipts and “Charges for Services” largely subsidize the 14% discrepancy between the expenditure and revenue. Ultimately 41% of Infrastructure Debt is subsidized by someone other than the property owner.

Takeaway #1: 41% of Denver’s infrastructure debt to access, service, and enrich homeowners, is subsidized by someone other than the property owners.

What’s more, not all property taxes are created equal. As alluded above, the costs of infrastructure are mostly linear (a fire station costs the same in Stapleton as it does in Baker), but the Denver property tax is directly proportional to the value of the property no matter how many square feet of land or acres it takes up. Unlike infrastructure, which mostly costs the same per square foot anywhere in the city, a single family home on a 5000 sq. ft. lot in baker may have a much greater valuation than a 5000 sq. ft. home in Stapleton and thus pay more property taxes despite having the same amount of land in Denver, serviced by the same number of roads, water lines, sidewalks, parking spaces, libraries, firehouses, and sewer and wastewater pipes.

With property taxes being a product of valuation and infrastructure being a product of lot size, we did a deep dive into Denver’s data sets to figure out which neighborhoods are subsidizing which neighborhoods, and below is the results:

Property Tax Paid per Land
Property tax paid per square foot by neighborhood.  See here and here for zoomed in neighborhood detail…

You will notice that Denver’s average paid tax is $0.62 per square foot of land. That means that in addition to property owners overall having their infrastructure subsidized by other revenue streams, homeowners in neighborhoods less dense (thus usually less profitable for the city) than the Sloan’s Lake neighborhood are additionally being subsidized by renters and property owners in more profitable (thus typically more dense) neighborhoods.

Takeaway #2: Home owners less dense than $0.62 of property tax per sq. ft. land (roughly the density of Sloan’s Lake) are being subsidized by residents who are typically closer to downtown, typically younger, and typically more likely to rent according to denver’s last census and datasets.

You can do the calculation on your own home if you would like? Simply take the lot size in square feet multiplied by $0.62 and you will get what you should be paying in tax for your property if you were paying your fair share of property taxes (you can look up your property tax here on Denver’s website as well as your lot size). If your actual property tax is lower than the calculation, you are being subsidized by residents of higher density neighborhoods closer to downtown.

Taking a look at Denver’s largest neighborhoods with the most units, it becomes apparent that lots of large neighborhoods are on the list for not being able to pay for their own infrastructure and often have lots of single family low density housing.

 

Property Class Breakdown Throughout Denver
Many of Denver’s largest neighborhoods (by housing) tend to be overwhelmingly single unit.  56.1% of units and 86.2% of land is for single family housing in Denver.

 

So what if Denver charged these homeowners for the actual cost of infrastructure to access and service their homes? Where $0.62 of tax / sq. ft. land roughly covers 20% of the cities income, what if we increased it to match the 34% of the city’s budget that goes to infrastructure, or $1.054 of paid tax per sq. ft. land? (Also verified by 3.32 B total expenditures*34% infrastructure/1.07B sq. ft. of property) The result would look something like this…

Overall Neighborhoods Covering their true infrastructure debt ($1.054 per sq. ft. land)
Neighborhoods above the break even line pay enough in tax to cover the true cost of infrastructure in Denver (roughly $1.054/square foot of land). See below for more neighborhood detail…
Neighborhoods covering their true infrastructure debt ($1.054 per sq. ft. land)
Denver’s neighborhoods above the break even line generate enough tax to pay for their true cost of infrastructure, and create a surplus for Denver.
Neighborhoods Not Covering their true infrastructure debt ($1.054 per sq. ft. land)
Denver’s neighborhoods below the break even line create large annual infrastructure liabilities for Denver despite their property taxes.

Overall, older more dense neighborhoods closer to downtown are able to pay for their own true cost of infrastructure. Sprawling suburban neighborhoods with low property values tend to not pay for themselves. Notable among the least solvent neighborhoods are some relatively “nice” ones including Virginia Village, Green Valley, and University Hills. This is in line with emerging national awareness of these problems as published in Chuck Marohn’s Strong Towns article about detrimental infrastructure creation.

The above values, while only as accurate as Denver’s public data sets, represent the annual cost or benefit of the neighborhoods in regards to paying for their infrastructure. And yes, the most egregious offender on this list is Montbello creating a $44.3 million infrastructure liability each year, followed by Virginia Village creating a $20.7 million infrastructure liability each year. This is in contrast to Denver’s CBD which more than paid for it’s infrastructure along with a $4.3 million surplus followed closely by LODO creating a $3.9 million surplus.

Takeaway #3: Property owners paying less than $1.054 of property tax per sq. ft. land are not paying their proportional share of Denver’s infrastructure costs. The shortfall is being covered by more productive neighborhoods, and by revenue streams other than property taxes.

By the way, with all these subsidies, we didn’t even mention the other large subsidy in the room…

If you ever wondered what happened to all of Denver’s small, independent, brick and mortar businesses. Look no further than the commercial 29% property tax assessment rate compared to 7.2% for residential. This coupled with the Gallagher amendment has created a lot of headaches for small local business owners in recent decades.

Takeaway #4: If you can’t walk to a local coffee shop, baker, salon, or grocery store, you should consider asking your city councilwoman or man why they are taxing these brick and mortar stores at 29% assessment rate to residential’s 7.2%

A couple other items to note: Keep eating out and grabbing a pint with your friends! The majority of Denver’s sales tax revenue, comes from these types of activities with sales tax from home improvement coming in at number 2:

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Denver Sales Tax Revenues by Category – https://www.denvergov.org/content/dam/denvergov/Portals/344/documents/transparency/revenue/Sales_Tax_by_Category.pdf

There will no doubt be some folks who cry out with “but wait, what about the gas tax paying for our roads?” You are living in the wrong century, friends. The gas tax has been 22 cents per gallon since the early 1990s and has hardly kept up with inflation or the states 1 billion dollar infrastructure shortfall let alone Denver’s. Yet a fraction of that does trickle down into Denver’s revenue creating about 1.6% of Denver’s revenues… hardly enough to to really remedy the rotten economics of far flung, low density, car dependent, single family homes.

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Denver Sales Tax Records – Including Gas Tax) -https://www.denvergov.org/content/dam/denvergov/Portals/344/documents/transparency/General_Fund_Revenue_Report.pdf
Map- Economic Profitability
Map of economically productive parcels in Denver that are able to cover the cost of their own infrastructure.

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