COLUMBIA LIBRARIES OFFSITE AR01 409646 ADVANCE LAND ACQUISITION BY LOCAL GOVERNMENTS U.S. Department Of Housing and Urban Development /Washington, D.C. lEx IGtbrtH SEYMOUR DURST When you leave, please leave this book Because it has been said "Ever'thtng comes t' him who waits Except a loaned book." OLD YORK LIBRARY — OLD YORK FOUNDATION Avery Architectural and Fine Arts Library Gift of Seymour B. Durst Old York Library ADVANCE LAND ACQUISITION BY LOCAL GOVERNMENTS benefit-cost analysis as an aid to policy by Donald G. Shoup and Ruth P. Mack INSTITUTE OF PUBLIC ADMINISTRATION New York, New York for the United States Department of Housing and Urban Development Washington, D.C. Secretary Robert C. Weaver AA For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C., 20402 - Price $1.25 INTRODUCTION This study is the first systematic analysis of the costs and benefits of an underused tool in urban development and redevelop- ment: advance land acquisition for public facilities. Advance acquisition, if used imaginatively and on a large enough scale, can be a pow- erful tool for implementing comprehensive planning and guiding desirable urban growth. It can also save hard pressed gov- ernments substantial amounts of money where local land prices are skyrocketing. But the use of this tool is not without its costs. These include the cost of borrowing money or the "cost" of current benefits foregone when funds are invested to meet future needs, the loss of tax dollars when land is taken out of private ovmership, and the uncertainty as to the future urban needs and patterns of development. This study develops guidelines for locali- ties to help them weigh both costs and benefits in making the decision to invest in land to meet future needs. The cost-benefit method used should also have value to com- munities with respect to other decisions on how to invest public funds. Although many decision making techniques are avail- able, it is clear that those which are less III systematic than that presented here are not adequate to commit billions of dollars in local funds in a manner that will maximize the public benefit. The Federal Government has been con- cerned with the problems of urban land price escalation for many years. This con- cern led to the sponsorship of this study, and the creation of the Advance Acquisi- tion of Land Program as part of the Hous- ing Act of 1965, But advance acquisition is just one of a series of tools which should be explored to conserve local expenditures and achieve some mastery over the shape of our future urban environment. It is hoped that this study will focus attention on the problem so that local governments will be stimulated to find imaginative ways to deal with prob- lems of runaway land costs and the disap- pearance of lands best suited for public uses. Charles M. Haar Assistant Secretary IV TABLE OF CONTENTS FOREWORD 1 Setting of the Problem 3 The Value of Advance Land Acquisition to Local Governments 4 Weighing the Advantages and Disadvantages of Acquiring Land in Advance 4 1. Forestalling Price Rises 5 2. Getting the "Best Site" 5 3. Improvement in the Pattern of Related Land Uses 5 4. Improved Procedures for Site Selection 5 5. Return on Temporary Use 6 1. Cost of Capital 6 2. Lost Property Taxes 6 3. Management Expenses 6 The Decision to Acquire 6 "Present Values" 6 Uncertainty in Estimating Costs and Benefits 7 Judging the Net Advantage 7 Administering Advance Acquisition 7 Pooled Programs 7 Other Guides 7 Chapter 1 THE SETTING FOR ADVANCE ACQUISITION 9 Chapter 2 EVIDENCE ON THE PRESENT USE OF ADVANCE ACQUI- SITION 13 Types of Advance Land Acquisition 13 Some Instances of Advance Land Acquisition 14 The Results of Two Questionnaire Surveys 16 Number of Programs 16 Characteristics of Advance Acquisition Programs 16 Age 16 Size 17 Motives and Purposes 17 Operation of Programs 17 V other Methods of Reserving Land for Future Use 18 Summary 18 Legal Status 18 Statutory Authority to Buy and Sell 19 Judicial Support for Expanding- Government Activity 19 Judicial Support for Advance Land Acquisition in General 19 Degree of Futurity 20 Specificity of Public Purpose 20 Sale of Land Found Not to Be Needed 20 Summary 22 Chapter 3 COST-BENEFIT ANALYSIS 23 Cost-Benefit Analysis and the Ongoing Administrative Process 23 Some General Characteristics of Costs and Benefits 25 Cost-Benefit Analysis Applied to Advance Land Acquisition 26 Alternatives 26 Choice Under Certainty 27 Data for Benefits 27 Data for Costs : 27 Comparison of Costs and Benefits 27 Benefits 28 Costs - 28 The Impact of Uncertainty 29 Large-Number Versus Small-Number Decision Problems 29 The Uncertainty Discount 30 Softening the Impact of Uncertainty 31 Plan of the Next Three Chapters 31 Bibliography 32 Chapter 4 BENEFITS 35 Benefits Associated with Lower Land Costs Per Unit of Government Service 36 Forestalling Appreciation in Land Value 37 Getting the Best Site 38 Supplementary Benefits 42 Improvements in the Procedures of Site Selection 42 Improvements in the Pattern of Related Land Uses 42 Return on Temporary Use of Land 43 Temporary Private Use 43 Temporary Public Use 44 Chapter 5 COSTS 47 Cost of Capital 47 The Meaning of a Discount Rate 47 Selection of an Appropriate Rate 48 Influence of Interest Rates on Investments 49 Tax Revenue Foregone 50 Costs of Managing an Advance Acquisition Program 51 Chapter 6 THE PROBLEM OF FORECAST 53 Predicting What Sites Will Be Needed 54 Best Guess 54 VI Self-Realizing Implementation 56 Flexibility 57 Predicting Land Values 58 Descriptive Studies 58 Analytic Studies 61 Bibliography 63 Chapter 7 MONTGOMERY COUNTY SCHOOL SITE PROGRAM 65 Origin of the Advance Acquisition Program 65 Operation of the Program 66 Predicting Future School Needs 66 Site Selection and Acquisition 69 Evaluation of the Costs and Benefits 70 Appreciation in Value 71 Measurable Benefits 72 Appreciation 72 Return from Temporary Use of Land 72 Measurable Costs 74 Cost of Capital 74 Property Taxes Foregone 75 Administrative Costs of Operating the Program 77 Comparison of Measured Costs and Benefits 78 Intangible Costs 79 The Risk of Acquiring Unneeded or Inadequate Sites 79 Intangible Benefits 80 Securing the Best Site 80 Improving the Site Acquisition Procedures 80 Benefits to Private Development in the County 81 Evaluation of the Program 81 Alternative Measures of Benefit 81 Reasons for the Success of the Program 83 Chapter 8 ADVANCE ACQUISITION PROGRAM, IN RICHMOND, VIRGINIA 85 Origin of the Advance Land Acquisition Program 85 Operation of the Program 86 Building Permit Application Procedure 86 Role of the Planning Staff and the City Real Estate Agent 87 Role of the Planning Commission and the City Council 88 Scope of the Program 88 Evaluation of Costs and Benefits 89 Measurable Benefits 90 Appreciation 90 Return on Temporary Use 90 Avoiding the Cost of Purchasing and Demolishing New Construction 90 Measurable Costs 91 Cost of Capital 91 Property Taxes Foregone 91 Administrative Costs of Operating the Program 92 Comparison of Measurable Costs and Benefits 92 VII Intangible Costs 94 Risk of Acquiring Unneeded Sites 94 Risk of Encouraging Bogus Building Permit Applications 95 Intangible Benefits 95 Avoiding Future Relocation Problems 95 Strengthening the Planning Process 96 Achieving Some of the Benefits of "Excess Condemnation" 96 Evaluation of the Program 97 Chapter 9 ADVANCE ACQUISITION AS AN IMPLEMENT OF LAND- USE CONTROL 99 Benefits from Advance Acquisition as an Instrument of Land- Use Control 100 Government Income from Land Appreciation lOO Facilitating Eflficient Production of Public Services 100 Improved Community Development Planning lOi Timing and Scale 102 Cases of Large Scale Acquisition of Land for Land-Use Control 103 Integral Communities or New Towns 103 Advance Acquisition for Large Scale Urban Extension 105 Stockholm 106 Chapter 10 TO BUY OR NOT TO BUY 109 The Predecision Decision 109 The Structure of Decision iio General Characteristics ilO The Decision Matrix iio Costs: Their Amount and Probability ill Costs of Capital and Taxes Foregone ill Benefits: Their Amount and Probability 112 Forestalling a Rise in Land Prices 112 Obtaining a "Best-Site" 113 The Bases of Choice 114 Large-Number Case 114 Small-Number Case 114 Intel-mediate Case 114 A Short-Cut Method 114 Observations on the Administrative Setting 115 Ways to Reduce Risk 115 Picking the Time When Purchase is Undertaken 115 Use of Measures Other Than Purchase in Full Fee 115 Clarification of the Law lie Administrative Organization 116 The Large-Number Decision Situation 116 Sale as a Routine Adjunct of Purchase 116 The Pinch of Costs and the Stimulus of Gain 116 Inter- Agency Flow of Information 116 Some Broad Implications 117 Planning 117 Potential of Intergovernmental Collaboration 117 VIII Potential of Federal Action 117 Creating the Large-Number Decision Situation 117 The Excessive Time Discount of Government Officials 117 Inadequate Evaluation of Benefit of Future Generations 117 Benefits External to Localities 118 Investment in Land as a Source of Government Revenue 118 APPENDIX 119 Two Questionnaire Surveys: The Questions and Tabulation of Answers 119 IX ACKNOWLEDGMENTS The authors of this book were joined by two other members of the Institute of Public Administration's staff ; Robert H. Kirk- wood shared the work of the case studies, and Howard M. Mantel contributed the legal analysis. Many people have been consulted in the course of the work, and their help is greatly appreciated. We are indebted particularly to the National League of Cities and the National Association of Counties for their collaboration in the questionnaire surveys. The two case studies of acquisition pro- grams would not have been possible with- out the full cooperation provided by Dr. Homer A. Elseroad, Superintendent of Schools, and Dr. Paul A. Henry, Assistant Superintendent for Business and Financial Services, Montgomery County (Maryland) Public Schools; William M. Connelly, City Real Estate Agent, and A. Howe Todd, Di- rector of Planning, Richmond, Virginia, and their staffs. It is a particular pleasure to acknowledge the thoughtful and constructive commen- tary that has been provided by Merlin Smelker and Jack Underbill of the staff of the Department of Housing and Urban De- velopment. XI FOREWORD This monograph reports on a study which aims to answer a practical question: Under what circumstances should local govern- ments anticipate the need for land by pur- chasing it well ahead of expected use? The problem is explored by building on a form of economic analysis that has been devel- oped in recent years in connection with water resource development and other pub- lic investment decisions. This technique — cost-benefit analysis — consists of listing ad- vantages and disadvantages and trying as far as feasible to quantify them. The analy- sis also leads to suggestions about how a program in advance acquisition should be administered. 1 SETTING OF THE PROBLEM The purchase of land by local govern- ments will have to increase heavily in the years to come. A conservative estimate of expenditures for real estate places the figure at about 12 percent of the entire projected capital budgets for state and local govern- ments. Thus, expenditures for land (and existing structures) are expected to come to about $4 billion a year in the decade im- mediately ahead (p. 10). The increased need for public expenditure on land will result partly from the large increase in the number of people in the country, most of whom will wish to live in cities. Population estimates by the Bureau of the Census range from increases of some- where between 85 and 161 million people by the year 2000. This could easily double the urbanized area of the country (p. 10). Corresponding increases will be required for new public facilities just to maintain the level of public services now ordinarily pro- vided by state and local governments. But standards for urban and state services are rising, just as are all aspects of the stand- ards of living enjoyed by the inhabitants of this increasingly affluent society. Indeed, the sorts of services that require relatively large amounts of land, such as recreation, schools, and transportation, tend to in- crease faster than most other government services. 3 These extensive acquisitions of land by public bodies will almost inevitably be made at prices subject to a substantial ris- ing trend. This is indicated by the three major studies reviewed in Chapter 6, which showed average rates of rise in land prices of 8, 10, and 10 percent per year, respec- tively, for the years 1946 to 1964, 1950 to 1962, and 1960 to 1964. In the face of these implacable trends, how can local governments contrive to ac- quire efficiently the properties that they will need as sites for the services they will provide? Clearly if they wait until the land must be put to use, the most appropriate properties will have been preempted by the very private development that created the need for the additional government services. Moreover, whatever sites are even- tually acquired, it is likely that the cost will be much higher than if they had been bought earlier. One answer to the dilemma is to antici- pate the need for land and purchase it in advance. The importance of this approach has been recognized by the federal govern- ment in several recent pieces of legislation. They aim to aid local governments to ac- quire land in advance for use in recreation, airports, urban renewal and other purposes. A number of local governments have themselves begun to acquire land before it is actually needed. The results of a question- naire survey (reported in Chapter 2) suggest that somewhat less than 30 percent of the cities of over 50,000 inhabitants in the United States carry on some sort of advance acquisition activity. However, the programs tend to be small — typically less than six acquisitions per year. Schools and parks are the most usual purposes for which cities acquired property in advance, though other specific future facilities were sometimes covered. No large-scale plans for influencing orderly land development were reported. The European picture of advance land acquisition by governments is quite differ- ent. Many countries in Europe have active policies for acquiring undeveloped land in order to control the pattern of urban exten- sion. Of these Stockholm, where much of the land surrounding the central city was ac- quired early in the century, is the most famous example (see Chapter 9). THE VALUE OF ADVANCE LAND ACQUISITION TO LOCAL GOVERNMENTS Though the records are sparse, advance land acquisition in this country seems capa- ble of producing good results. For example, two case studies of advance acquisition pro- grams, on which Chapters 7 and 8 report, illustrate what can be accomplished. For a sample of 17 school sites acquired in advance of need by Montgomery County, Maryland, the average dollar saving has been $50,000 per site after all costs have been taken into account. Of a sample of 21 sites which Richmond, Virginia has ac- quired in advance for expressways, street widenings and school additions, the aver- age saving (after an allowance for mistaken expectations) was $32,000 per site. In addi- tion to the dollar savings there were other benefits that in some cases were more im- portant than the dollar-measured benefits. In Montgomery County the program makes it possible to get the sites best suited for schools before private development fore- closes the opportunity. And in Richmond, advance land acquisition has strengthened and has become an integral part of the planning process, enabling the city to make long range plans for its future con- struction projects with the knowledge that the necessary sites will not be put to some incompatible use in the interim. WEIGHING THE ADVANTAGES AND DISADVANTAGES OF ACQUIRING LAND IN ADVANCE A major purpose of this study is to pro- vide a framework for considering both the benefits and the costs to the public of rxquiring land in advance of need. "Bene- fits" should be regarded as any advantage and "costs" as any disadvantage regardless of how adequately they can be evaluated. Actually, most of the costs and a substan- 4 tial part of the benefits of advance acqui- sition can be measured in dollars, at least in an approximate fashion, and where this is possible it has been done. But several of the benefits are hard to quantify ; these must nevertheless, be weighed in order to arrive at a judgment. What are the benefits of ad- vance land acquisition? And what are the costs ? How benefits should be measured is con- tingent on whether or not land that has been purchased in advance can be sold as readily as it is bought. Land should, of course, be sold if it becomes evident that it will not be needed for its intended or a sub- stitute pui-pose. But it should also be sold if it turns out that other equally acceptable properties becomes available at a lower cost. How cost should be defined is indicated by examining the benefits of advance ac- quisition. However, these benefits would need to be defined differently were it not for the assumption, which is made throughout this study, that sales are made if and when they should be. 1. Forestalling price rises. A major bene- fit is the saving to the local government when land is bought early and prices subse- quently rise. Savings occur not only be- cause of the general upward trend in the price of land, but also because land prices commonly jump during conversion from ru- ral to urban use. For areas in the path of urban extension, this saving alone will often outweigh all cost of the advance acquisition. (The Montgomery County pro- gram is a case in point.) 2. Getting the "best site." "Obtaining the best location" was the most usual reason designated as "most important" by cities reporting on their advance acquisition pro- grams. Some sites are typically much better suited to a particular public purpose than are others. Advance acquisition can make it possible to acquire these best sites for a school, a park, or whatever, before private development has greatly increased their cost. Indeed, were it not for the right of eminent domain, private development might entirely bar many developed properties from subsequent public use. But even though governments can condemn land, they must pay to acquire it and pay to acquire and demolish any new construction that has taken place; in addition, relocation prob- lems and political embarrassment may en- sue. Advance acquisition forestalls these additional costs and thereby makes it pos- sible to acquire "best sites" at a cost which is advantageous in view of the capacity of the land to provide the government service for which it is desired. 3. Improvement in the pattern of related land uses. Advance acquisition can encour- age desired private land development by offering practical evidence of intended fu- ture provision of public facilities and serv- ices. This will act to strengthen the plan- ning process of the local government and to reduce the uncertainty attached to other public and private investment decisions which are affected by the location of future public facilities. This is, of course, a very difficult benefit to evaluate, and requires considerable judgment as to its importance in different circumstances. 4. Improved procedures for site selec- tion. A probable benefit from undertaking a program of advance acquisition is an im- provement in the procedures of selecting sites for public facilities. There is more time to study site requirements if selection is made in advance, and there is more oppor- tunity for coordinating the selection of sites of all public facilities. 5. Return on temporary use. Land being held for future use can produce income while it is being held, or can serve some useful public purpose. Of this list of benefits, numbers 1 and 5 are readily subject to dollar measures, while numbers 3 and 4 are almost impossible to value in dollars and number 2 is inter- mediate. Thus, the advantage of any par- ticular advance acquisition is likely to consist of a combination of both dollar- measurable and intangible benefits. The principles for measuring benefits num- bers 1 and 2 are difficult to summarize. Suf- fice it to say that their sum is a function of the difference between what is paid for a 5 property and what the government would be willing to pay at the time the property is to be put to use. However, the market price of the land at that date provides a floor below which the benefit cannot fall, providing, of course, sale is unimpeded. The deter- minants of what governments should be willing to pay are discussed in Chapter 4. The costs of advance acquisition, on the other hand, are usually amenable to dollar measurement. They are: 1. Cost of capital. The money invested in land sometimes needs to be borrowed and therefore involves an interest cost. But even if money is available without new bor- rowing, there is actually a cost of tying it up in land : the benefit of other uses to which it could be put must be given up. This "op- portunity cost" is also measured by the interest rate. When the local government can borrow additional funds without impair- ing its credit rating, a good case can be made for using the borrowing rate on municipal bonds as the cost of capital that is tied up by the advance land acquisition. 2. Lost property taxes. Since advance land acquisition removes property from the tax rolls, the local government loses a stream of property taxes that would be paid if the land were left in private ownership until the time of actual need. The size of the foregone taxes depends, of course, on the property tax rate. But it also depends on the assessed valuation that is appropriate. If no private construction is prevented by the acquisition, the assessed value of the exist- ing property can be used, though it should be adjusted for an expected rise in property values. If the advance acquisition prevents new private construction which would otherwise have taken place, the tax loss on the new improvements must also be consid- ered, unless there is reason to believe that the improvements would simply be dis- placed to another part of the municipality. 3. Management expenses. There are ad- ministrative expenses associated with run- ning an advance acquisition program. Most of these tend to be of an overhead variety. They include the expense of ongoing acquisition planning and the general provi- sions for managing acquired property. In areas where there is already a planning organization and real estate department, this is probably not a large cost, but in smaller communities it may be more of a problem. THE DECISION TO ACQUIRE The major benefits of acquiring land in advance must in some sense be added to- gether and the costs subtracted in order to judge the net advantage or disadvantage and, thereby, whether the particular ad- vance acquisition is worth undertaking. The analysis concentrates, of course, only on the matter of the advantage of acquir- ing land in advance and assumes that an expected need for land has been established. "Present Values." One technical prob- lem is encountered immediately: only com- parable things can be added, and a benefit that will be received, or a cost incurred, in the future is not comparable to one received today. The benefit is less valuable if it is put off since it will be enjoyed for fewer years. The future cost is less burdensome since the resources can be put to other uses in the meantime. In connection with advance acquisition, both costs and benefits occur at different times and to put them all on a comparable basis it is necessary to convert each to a single point in time — the time when the de- cision must be made. This can be done by using the well known technique of the dis- counting method appropriate to converting every cost and every benefit to its "present value." Thus, the benefit of appreciation in the value of property is felt at the time that the property is put to use (had it not been bought in advance, one would have had to pay more for it at that time). If, say, $10,000 is paid for land to be used in ten years, at which time it is expected to be worth $18,000, the benefit today is not $8,000, but the sum that would have to be invested today to grow to $8,000 ten years hence. At any discount rate selected, the present value of a benefit received or cost incurred in any future year can be looked up in standard mathematical tables. To illustrate, if the annual cost of waiting 6 is put at 4 percent, the benefit from a dollar received five years hence is worth today 82 cents. If it were received ten years hence, it would be worth 68 cents today; thus, the present value of the $8,000 appreciation is $5,400. Similarly, a cost of one dollar in- curred ten years hence hurts only 68 cents worth if the advantage of waiting (the earnings of the dollar in the meantime) is put at 4 percent. How this principle is applied to the costs and benefits of advance acquisition is described in a general way in Chapter 3 and examined in more detail in Chapters 4 and 5. Uncertainty in Estimating Costs and Benefits. Granted then that all costs and benefits have to be converted to their present values there still remains the problem of arriving at an estimate of what they are expected to be. For the major costs, the esti- mates are straightforward since tax rates and the appropriate interest cost can be determined with reasonable confidence. For benefits, estimation is often more difl^cult: Does it seem likely that land prices will rise and, roughly, how fast? How much more productive is a site that can be acquired now but would probably be unavailable in later years? Questions of this sort need to be answered. Chapter 6 examines the cir- cumstances in which answers may be more confident or less confident. For some sorts of benefits, such as improved planning and se- lection procedures, dollar value estimates, however vague, are virtually impossible; nevertheless, they must not be ignored. Judging the Net Advantage. Expected costs then are relatively measurable and sure; expected benefits can range from measurable and sure through various de- grees of measurability and probability. This suggests a procedure of evaluation. Say costs come to about 6 percent a year (4 percent interest and 2 percent tax). Then if prices can be quite confidently predicted to rise at least at this rate (as in Montgom- ery County), or when the cost of demolish- ing new construction would bring the price rise well over the 6 percent figure (as in Richmond), advance acquisition is clearly worthwhile. The benefit of better sites, im- proved planning, and the like are simply an additional bonus. At other times, uncertainty about the course of prices will imply that the benefit of the best site needs to be eval- uated, albeit roughly, to decide whether benefits may be expected to exceed a 6 per- cent rate. Analogously, under still other cir- cumstances intangible benefits may need to be carefully evaluated. The analysis implies that good average results are easier to achieve than are clear benefits in each undertaking. At best the chalices of what will occur can be evalu- ated, but unpredictable occurrences will in- evitably influence the actual outcome. This fact carries an important message about how to organize an advance acquisition pro- gram. ADMINISTERING ADVANCE ACQUISI- TION Sometimes a large acquisition must be viewed as an entity, and acquisition is not justified unless it seems clear that the most adverse results that are at all likely can be tolerated, and the more likely ones clearly advantageous. Pooled Programs. But for many sorts of acquisition problems the work should be set up so that average results dictate the suc- cess of the program. To this end it is im- portant to consolidate acquisition of as many kinds of sites as possible in one de- partment. As previously mentioned, it is also essential that the department be free to sell properties when they turn out not to be needed, or when cheaper or more suitable alternatives become available. Other Guides. Proper administration can provide other ways of reducing the risk of adverse results. They are discussed at the end of Chapter 10. The ways include proper accounting systems, interdepartmental in- formation systems, and selection of appro- priate techniques of reserving land. Finally, results can be improved through coopera- tion among local governments and by utili- zation of the powers of the federal govern- ment to bring a wider framework to bear on the definition and pursuit of public ad- vantage from anticipating the need for land. 7 Chapter 1 THE SETTING FOR ADVANCE ACQUISITION The amount of land that contributes to the ever-increasing stream of goods and services enjoyed by the American people is not only fixed but in one sense actually diminishing. Acceleration of the historic trek from farms to cities has elevated the importance of land in the neighborhood of cities relative to the large and increasing stretches of less than optimal farm land for which there seems, at present, little use. These resolute trends have turned the minds of prudent people to the anticipation of future needs for land. It is not uncom- mon, for example, for large companies to acquire sites v^ell ahead of expected require- ments.' Assembly of large areas of indus- trial parks is the work of some 2,000 indus- trial park developers and as many commu- nity industrial development groups. The same considerations that prompt the exercise of foresight by private enterprises apply with greater force to governments. Governments, of course, have a wider re- sponsibility — that of protecting and further- ing the public interest in rational land use 1. The Wall Street Journal, December 8, 1965, dis- cussed the subject in a very interesting article by Laurence G. O'Donnell entitled, "Many Firms 'Stockpile' Plant Sites They Won't Get to Use Right Away." O'Donnell mentioned recent pui-chases by five industrial companies that total about 10,000 acres. 9 as a whole. The magnitude of this respon- sibility is suggested by some numbers. The population of the United States is expected to grow from 195 million in 1965 to be- tween 280 and 356 million by the year 2000,° and all of the increase will probably lie in urban areas. This growth in urban population will require new urban develop- ment accommodating between 85 and 161 million people. The magnitude of the task is suggested by the fact that the existing ur- ban population was about 125 million in I960.' The growth in terms of land devoted to urban uses will also be dramatic. Estimates of future land use, however hazardous, pro- vide a notion of orders of magnitude. One group of specialists, for example, estimates that the land devoted to urban uses will grow from about 16V2 million acres in 1950 to about 41 million acres by the year 2000. Most of this increase in urban land will probably occur where there is now a town or city.* This growth in urban population and area will obviously require a large invest- ment in new public facilities just to main- tain the level of public services now ordi- narily provided by state and local govern- ments. Prediction is difficult, but the most comprehensive estimate of state and local capital requirements over the coming dec- ade, 1966 through 1975, is that $328 billion will be needed for new public facilities.' This may well imply that state and local governments will be spending about $4 bil- lion a year on the acquisition of land and existing structures during the years imme- diately ahead." In any event, it is clear that there will be 2. U.S. Bureau of the Census. Statistical Abstract of the United States: 1966. (Eighty-seventh edition.) Washin^on, D.C., 1966, p. 8. 3. Ibid., p. 15. 4. Marion Clawson, R. Burnell Held, and Charles H. Stoddard. Land for the Future. Washington, Re- sources for the Future, Inc., 1960. p. 111. 5. U.S. Congress, Subcommittee of the Joint Eco- nomic Committee. State and Local Public Facility Needs and Financing. 89th Cong., 2d Sess., 1966, Vol. 1, p. 13. 6. This estimate starts with the figure of $328 bil- lion for the decade 1966 through 1975 and endeavors to distinguish between the cost of land and of new a rapidly expanding need for land by public bodies in the near future. State and Ideal government services are a rapidly expand- ing sector of the national economy. Accord- ingly, the need for sites on which to locate government services grows at a correspond- ingly rapid rate. Furthermore, some of the rapidly growing segments of government service itself are land-extensive — provision of recreation and green belts, transporta- tion facilities, water reservoir and delivery systems adequate not only to the growth of cities but also to changing requirements and standards. The acceptance by govern- ments of the charge to stem the decay of cities and to provide low-income housing is still another recently emphasized area of government service for which land acquisi- tion is large and sometimes particularly difficult. Yet there are a number of factors that exacerbate the difficulties involved in ac- quiring sites in advance for the production of services when governments, rather than private enterprises are the producers. For one thing, local governments are creatures of a defined geographic area. Their land needs tend to lie within the city area or close to it. They cannot ordinarily move to where satisfactory land is avail- able, as can an industrial plant. The moun- tain must be found alongside of Moham- med. Also, politics often embarrasses ad- vance land acquisition in at least two ways. Negotiation of a purchase tends to be too slow and too public to proceed expedi- tiously, to put the matter most conserva- tively. Second, it is hard for a public offi- cial to resist the push of noisy present needs in favor of expected future require- construction. In 1964-1965, about 12 percent of all capital outlay by state and local governments was for the purchase of land and existing structures. (State and Local Public Facility Needs and Financ- ing, Vol. 2, p. 55.) If this proportion is main- tained into the next decade, state and local govern- ments will be spending about $39 billion on the acquisition of land and existing structures between 1966 and 1975. Actually, this may be somewhat of an underestimate, because since 1952 there has been a pronounced upward trend in the proportion of state and local capital outlays accounted for by pur- chase of land and existing structures (the proportion was only 6.3 percent in 1952, 9.5 percent in 1957, and 11.1 percent in 1962). 10 ments. Present needs push very hard in- deed ; if he chooses to look ahead toward advance acquisition, the official may not be around to enjoy the approval that his fore- sight deserves. Against this background of large, grov^- ing, and difficult problems of providing land for government activities, the beginning of concerted efforts to rationalize and im- prove procedures are moving into focus. One set of stimuli and incentives comes from the various manifestations of "fiscal federalism." Federal encouragement and fi- nancing of state and local programs have been important in fields such as urban re- newal, transportation, community facilities for water and sewerage, outdoor recreation, and planning for area development and growth. Each of these targets of public ac- tion has a land acquisition aspect for which advance acquisition offers strong advan- tages. The Housing and Urban Development Act of 1965 contained a provision which made federal grants available to cover interest charges for five years on land purchased in advance for many sorts of public purposes. In the discussions at the hearings of Sec- tion 604 of this Act, the link between ad- vance acquisition of land and other matters to which federal legislation has been de- voted was well spelled out:' The objective of this Federal assistance is to encourage communities to plan ahead, in connection with their future public works needs, with respect to land acquisition as well as preparation of con- struction plans. Under Section 702 of the Housing Act of 1954, the Housing Admin- istrator is authorized to make interest-free advances to finance the planning of specific work. But the advance acquisition of sites is equally important in helping to attain maximum economy and efficiency in the construction of public works. Such advance site acquisition would be assisted by the new program. 7. U.S. Congress, House. Banking and Currency Committee. Housing and Urban Development Act of 1965. Hearings before Subcommittee on Housing, 89th Congress, 1st Session, on H.R. 5840, 1965. Pt. 1, pp. 209-210. 8. Introductory remarks of the chairman of the By encouraging communities to antici- pate the site requirements for future pub- lic works constructon and by assisting them for the timely acquisition of the land that will be used in such future construc- tion, the new program will help to produce a number of savings. Local public bodies will be assured of the availability of ap- propriate sites and will save by acquiring sites before the rising trend of land prices increases their costs. Advance acquisition before there is further construction on a site would avoid the costs of demolishing such construction, relocating the occupants of the buildings, and disrupting businesses. Advance knowledge regarding the site lo- cation of future public works would en- able private land developers and builders to make appropriate adjustments in their construction plans or schedules which would lead to more orderly growth in the area. In this country, the growing recognition of government responsibility to improve ur- ban land use has been partly stimulated by advances in other countries. In 1965, for ex- ample, the U.N. Economic Commission for Europe held a seminar on "The Supply, De- velopment and Allocation of Land for Hous- ing and Related Purposes." The seminar was a response to the fact that land problems had been of serious concern to many of the countries participating in the work of the Economic Commission for Europe. In the words of the conference chairman, "The scale and rapidity of urbanization are com- pelling Governments of nearly all countries to adopt an urban land policy. This offers them, moreover, the indispensable means of planning in space and time the inevitable extension of their urbanized territory.'" In capitalist as well as socialist countries, participants disclosed similar basic prob- lems in improving the process of urban growth by means of diverse land use con- trols, including outright public acquisition. seminar, Mr. R. Mace, United Nations Economic Commission for Eui'ope, Proceedings of the Sem- inar on the Supply, Development and Allocation of Land for Housing and Related Purposes. ST/ECE/ HOU/15. New York, United Nations, 1965, Volume 1, p. 8. 11 Problems, then, in the anticipation and planning of the future need for land range from the particular to the general — from the anticipation of a need for a schoolhouse or fire station in a particular part of a par- ticular city to the wide-scale planning and implementation of critical aspects of urban development. On all of these fronts, public interest and awareness of public responsi- bility appears to be building. Standards for dispatching public responsi- bility likewise are undergoing rapid change. There has been concentrated study in re- cent decades of management science in busi- ness. Much of the initial thrust of this work came from the Department of Defense; its full impact is now turning back on govern- ment offices of all descriptions. More and more, we are asking for efficient methods of spending public funds. The economics of government expenditure is taking its place alongside of the age-old economic field of fiscal finance, concerned primarily with government revenues. This work in the area of expenditure analysis is called by many names — operations research, administrative economics, cost-benefit analysis, systems analysis, planning, programing, and budg- eting systems ("PPBS"). But whatever the name, it consists basically of an effort to think tightly, using the remarkable gadg- etry of economic analysis, about the advan- tages, disadvantages and other impacts of specified actions with a view to improving the result. The advance acquisition of land intended to be used for public purposes is a subject well suited to the enumeration and evalua- tion of advantages and disadvantages. The enumeration must cover values of a quali- tative sort, such as the availability of more suitable land if it is acquired before devel- opment "removes" it from the market. It also must cover the narrowly economic values of money savings, such as those re- sulting from forestalling a rise in prices. Of course, a comparison of costs and bene- fits is neater in connection with values that can be adequately measured in dollars. And fortunately for many kinds of advance land acquisition, a relatively large part of bene- fits and costs are subject to fairly adequate measurement. Even primarily qualitative benefits, such as the availability of better sites than could otherwise be purchased, are often subject to some very rough quantita- tive evaluation. Thus, advance land acquisi- tion is particularly suitable to economic analysis of costs and benefits interpreted, as we do throughout, to include all advan- tages and disadvantages whether or not they can be evaluated by a dollar measur- ing stick. Accordingly, there is reason to hope that it will prove useful to study very carefully the circumstances under which it is more advantageous to buy a property ahead of time than to wait until it is actually needed. The answer will necessarily have adminis- trative and institutional (including legal), as well as economic, dimensions. This mon- ograph reports on such a study. It deals primarily with the purchase of land rather than with the many other ways in which land can be reserved for public purposes. It deals primarily with sites expected to be required for production of some public service. It concentrates on their advance acquisition and considers only tangentially the many ways short of fee simple pur- chase whereby land can be reserved for public purposes. Also, it avoids, except in Chapter 9, the important problem of how large-scale land purchase, along with other broad land-use controls, can improve the process whereby cities spring up, intensify and extend. 12 Chapter 2 EVIDENCE ON THE PRESENT USE OF ADVANCE ACQUISITION Having indicated some of the problems to which advance land acquisition in urban environments is addressed, the next ques- tion concerns how often advance acquisi- tion has actually been used to solve them. This chapter tries to ansv^er the question by reporting on two special surveys as well as on more general sources of information. The description focuses, as does this mono- graph as a whole, on advance land acquis- tion by local governments in this country. Finding programs not common and very limited in scope, we ask whether the fact may be explained by legal inhibitions; to anticipate, this does not appear to be a pri- mary explanation. TYPES OF ADVANCE LAND ACQUI- SITION Advance acquisition of a site on which a firehouse will be placed is a very different thing from advance acquisition of the area now known as New York City's Central Park. In order not to count these mice and elephants each as one, it is essential to dis- tinguish three major types of advance acqui- sition. They are not only quite different animals, we find, but also need quite differ- ent handling. 13 First, small or medium size parcels of land can be acquired in advance of need for such ubiquitous public services as schools, fire stations, libraries, neighborhood parks, or government buildings. Local governments of any size require a large number of these sites in order to provide basic governmental services. The need for new sites arises chiefly because the services are expected to require expansion for whatever reason — a growing population, a desire to provide new or upgraded services to an existing popula- tion, changing technology, and so on. Since it is likely that such forces tend to cause frequent needs for further services, the re- lated land acquisition tends to constitute an ongoing program with many broadly repet- itive operations. The two case studies de- scribed in Chapters 7 and 8 are of advance acquisition programs essentially of this sort. Second, much larger areas can be ac- quired in advance for community facilities which require extensive tracts of land. Fa- cilities of this sort would be major recrea- tional areas, reservoirs, airports, industrial parks, and the like. Most communities re- quire no more than a few of these very large sites, and the decision to acquire land to fill the new needs is not a routine mat- ter. Such acquisitions may take place no more than two or three times in a decade. Acquisition in advance to meet these needs presents quite a different problem from the frequently recurring advance acquisitions of and for individually smaller scale needs, and it is not likely that it could be carried out in any routine program. The investment is so large that a mistake is politically in- tolerable. Public debate takes place. In short, each acquisition must be considered in the context of a unique event. Third, land can be acquired in advance primarily for the purpose of shaping a de- sired land use pattern, rather than to pro- vide the sites required for production of specific public services. The community ac- quires land in order to direct its future de- velopment, both public and private. To be eff"ective, this requires control over a very substantial quantity of the undeveloped land surrounding an existing urban area. Control does not necessarily have to take the form of outright ownership; there is a wide variety of less comprehensive means, of which zoning and mapping are examples. But insofar as purchase in full fee is the method used, the program is of a com- pletely different magnitude from acquisition of sites for specific public facilities. There are well-known examples of this sort of ac- quisition in Europe, but few if any in this country. The purpose and methods of these programs are very different from those of the first two types. In many ways, they con- stitute a different subject. Accordingly, we defer discussion of them until Chapter 9, where we attempt at least an introductory discussion of advance acquisition intended primarily to shape the pattern of urban de- velopment. Tangentially, of course, advance acquisition for specific facilities can and often does influence community land use patterns, and this is discussed as we go along. SOME INSTANCES OF ADVANCE LAND ACQUISITION Unfortunately, there is very little infor- mation concerning advance land acquisition that is readily available. Advance acquisition of land is not a category of the activities of local governments on which any syste- matic statistical information is ordinarily collected. If it were, a comprehensive inven- tory would have to include no'„ only the activities of the usual overlays of state, county and city governments, but acquisi- tions by school districts and other special authorities as well. There are, however, a few scattered re- ports of advance land acquisition in con- nection with particular fields of govern- ment service. The examples tend to concern the large unit, nonrepetitive tynpe of acqui- sition. In the highway field, for example, land has quite frequently been acqired in ad- vance.' For this there are several reasons. For one thing, a relatively high proportion of the total cost of a highway is accounted for by land. It has been estimated that 31 percent of the cost of the urban portion of the Interstate Highway System will be spent on acquiring the right-of-way.^ Therefore, anything that cuts down the cost of land acquisition can reduce signifi- cantly the total cost of the whole project. A related reason for the emphasis on ad- vance acquistion is the fact that the im- portance of land acquisition in highway construction has given rise to a grovjp of specialists who deal only with the acquisi- tion of rights-of-way. In the course of their endeavors to make the acquisition of land for highways as efficient as possible, tney have naturally turned their attention to the potential advantage of acquiring it in ad- vance. A good example of the active use of the technique is to be found in California where there is a $30 million revolving fund to fi- nance acquisition of land in advance of highway construction. Once the future right-of-way has been designated the nec- essary land can be acquired with funds from the revolving account. At the time when the land is actually used for highway construction the revolving account is reim- bursed by an amount equal to the original acquisition cost. Between 1952 and 1966 California spent $62,500,000 for such advance land purchases. The Division of Highways estimates that if the same prop- erties were to be acquired now (or at the time they were actually needed) they would cost $380,500,000.= The savings are partly due to the fact that rights-of-way have been acquired in a period when land prices were rising. But the bulk of the savings is at- tributed to the fact that the right-of-way was acquired in time to forestall private development which would have been costly to purchase and demolish. Ohio has a somewhat different procedure for advance land acquisition for highways. Once the right-of-way has been designated, the necessary land is acquired with funds from three retirement boards (Public Em- ployees, State Teachers, and Public School Employees). Title to the land is held by the retirement boards for up to five years, and when the land is transferred to the State Highway Department for construction, the retirement boards are paid the purchase price plus interest at 51/2 percent per year. During the holding period the property is leased by professional realty management agencies under contract with the state. Land acquired for highways in urban areas has generally been held for one to three years before transfer to the Highway De- partment. No estimates have been made of the savings that have resulted from this program. The other main field where considerable advance land acquisition has been reported is parks and open spaces. New York City's Central Park, the park system in Cleveland, and the Westchester County park system are widely praised examples of early action to acquire park land, though in each case the acquisitions were reponses to felt cur- rent needs as well as provisions for the fu- ture. Most of these early acquisitions were sparked by energetic civic leadership, often by a single personality, rather than by in- stitutional analyses of future needs." More recently, the new Federal Open Space Land Program has generated consid- erable interest in advance land acquisition for permanent open space. Federal grants are now available to cover up to 50 per- cent of the cost of acquiring land and de- veloping urban open spaces, and during the first seven years of the program (1962-1968) grants of $195 million were made for the 1. Some of this work has been reported on in the Highway Research Board's excellent 1957 study, Ac- quifiition of Land for Future Highway Uses: A Le- gal Analysis. (Special Report 27. Washington, Na- tional Academy of Sciences, National Research Council, 1957.) This report concentrates on the legal aspects of advance acquisition for highways. Other aspects of advance acquisition for highway use have received attention in the Highway Research Board's yearly bulletin, Land Aquisition. 2. Ibid., p. 1. 3. Letter from Rudolf Hess, Chief Right of Way Agent, California Division of Highways. 4. Editors of Fortune, The Exploding Metropolis, Garden City, New York, Doubleday & Company, 1958, p. 148. 15 acquisition of more than 280,000 acres of land. While not all of this represents ad- vance acquisition, the program aims to pro- vide better long range development of urban areas. An extensive report of the work being done in the field of open space acquisition is given in Ann Louise Strong's 1965 study. Open Space for Urban America.' These reports on individual fields in which it has been found useful to antici- pate the need for land by early purchase are valuable as far as they go. Yet clearly, far more knowledge is necessary. For one thing, in assaying the potential useful- ness of a technique, it is important to know the overall extent to which it has been used, rather than simply something about a few of the purposes for which it has been found most useful. THE RESULTS OF TWO QUESTION- NAIRE SURVEYS In an eff'ort to provide information with which to fill this gap, for city and county governments, the National League of Cities and the National Association of Counties, early in 1966, conducted a questionnaire survey on advance acquisition of land for public purposes. The results of these inquir- ies were analyzed by the Institute of Public Administration, The city questionnaire was mailed to the entire direct membership of the National League of Cities,' considered a representa- tive group of American cities in each size category above 50,000 population. Of the 306 questionnaires mailed, 144 (47 percent) were completed and returned. The county questionnaire was mailed to 117 selected counties — those counties with planning di- rectors who were members of the National Association of County Planning Directors. The basis of selection suggests that the sample may cover counties more likely to have advance acquisition programs than 5. Ann Louise Strong, Open Space for Urban America. Urban Renewal Admistration, Depart- ment of Housing and Urban Development, Wash- ington, D.C., Government Printing Office, 1965. 6, These were all cities that were dues paying mem- bers of the NLC, rather than members by virtue of their membership in the various state municipal organizations. would counties without planning directors. Fifty-seven (49 percent) of the counties re- sponded. The questionnaire itself and the tables that summarize the answers are in- cluded as an Appendix to this study. The reports suggest some of the dimensions of advance land acquisition among American cities. The county material is too sparse and possibly atypical, and accordingly, it serves only as supplementary information. The salient findings are reviewed below. Number of Programs Of the 144 cities that returned question- naires, 73 (51 percent) spoke of programs of advance acquisition and another 32 (22 percent) reported very occasional acquisi- tions. Corresponding figures for the counties were 18 (32 percent) and 12 (21 percent).' It would be useful to use this information as a basis for an informed guess concern- ing the extent to which all American cities have advance land acquisition programs. The first step in constructing the estimate is suggested by the fact that, when an allowance is made for the coverage of the sample for each city size group, there ap- pears to be a marked decline in the fre- quency of programs as city size declined (Appendix Table C). The allowance takes account of the fact that though coverage for the very large cities was almost com- plete it was only about two-fifths for the cities between 50,000 and 100,000 popula- tion. The coverage for the still smaller cities was too small to serve as a basis for further estimation. Following this general line of reasoning (the argument is spelled out in connection with Tables B & C in the Appendix) we arrive at what can only be termed an informed guess about the inci- dence of advance acquisition programs in American cities: Perhaps one-third of the cities of over 50,000 population have pro- grams. If the smaller cities were included, 7. Whether or not a city or county had a "program" was indicated primarily by its answer to Question 1 — "Is there in your city a program for acquisition of land in advance of intended use?" A "no" an- swer was taken literally. In a very few cases a "yes" answer was thrown out because the number of cases reported seemed too small to be meaning- fully interpreted in terms of a "program." 16 the figure would of course drop. Concerning counties, little can be said except that pro- grams appear to be uncommon. Characteristics of Advance Acquisition Programs Age: The questionnaire indicated that an advance acquisition program is by no means a new development. Seventy percent of the cities reporting programs said they had been in operation for seven years or more; 26 percent for 16 years or more. County programs tend to be younger. Size: An "advance acquisition" was de- fined as one intended for use at least three years after purchase. The number of acqui- sitions is the only available measure of the size of programs and is also a broad indi- cator of scale, even though individual acqui- sitions can range from a small lot to a large park. Programs tend to be small. Of all pro- grams, 45 percent reported by cities and 39 percent reported by counties involved no more than 10 acquisitions over the life of the program. The figure should doubtless be larger, since it is swelled by a goodly num- ber of cities whose returned questionnaires did not report the number of acquisitions. Distinctly large-scale programs were re- ported for 13 percent of the cities. Several cities reported over 100 separate acquisi- tions (Appendix Table E). Ten cities and 3 counties had each bought over 30 properties in advance of use. The scale of a program is perhaps more aptly described by the number of acquisi- tions per year than by the total of all acqui- sitions made to date. Our calculations indi- cate that three-fifths of all cities complet- ing the questionnaire report an average of five or fewer acquisitions for each year the program had been in operation, and here again the figure in fact is probably larger by reason of those cities with programs which gave no size data. Only 15 percent of the reporting cities (11 cities) averaged six or more acquisitions each year. Apparently, then, the large majority of programs of ad- vance acquisition are small ones. Motives and Purposes: The questionnaire presented a checklist of several possible mo- tives for undertaking advance acquisition (Appendix Table G). Avoiding rising land prices was the reason given most often; 81 percent of all reporting cities and 83 per- cent of the counties checked this as an im- portant factor. To secure the best location for the particular need was a close second, cited by about 77 percent of all cities or counties. The avoidance of demolition cost was mentioned by 29 percent of the cities and 22 percent of the counties. The cities were also asked to indicate which motive was the most important one. The largest number of them, 33 percent, chose "obtain- ing the best location." Avoidance of price rises in land was the second of the most important reasons. Respondents were given a checklist of seven purposes for which sites might be ac- quired in advance (Appendix Table H and Question 4). They were asked to rank the relative importance of the purposes that they checked. On this basis, schools and parks are clearly the most usual of the pub- lic purposes for which acquisition of land in advance of need has been used in the cities covered by this survey. Fire stations, and government buildings followed in im- portance. For counties, parks were clearly the most important, with schools and gov- ernment buildings next. School sites were deemed of special importance, as evidenced by the assignment of first rank to schools by 31 cities and 7 counties. Also, it is rather interesting to find 8 cities mention- ing street widenings as the most important purpose to which land purchased in ad- vance is put. Operation of Programs: Several questions were included in the survey to elicit infor- mation on the administration, operation, and mechanics of the advance land acquisi- tion programs in the reporting cities. The purchase price of the property and the assessed valuation are, of course, known at the time a piece of property is purchased by a public agency. But if the advisability of buying ahead is to be reviewed, at least one very crucial question concerns whether the value of the property has appreciated. To determine whether it has, an appraisal of market value must be made at the time the particular property is put to its in- 17 tended use. One-half of the cities with pro- grams reported that they did make apprais- als of market value, but it is not clear whether these were made when the prop- erty was put to use or at some other time. As to the cost of holding properties, only slightly more than one-quarter of the cities reported that they determined the carrying costs for holding land for future use. Little can be said about the adequacy of the com- putations. Whether advance acquisition was embar- rassed by impediments of various sorts was the subject of several questions. The one most frequently mentioned was the lack of sufficient funds; it appeared on one-third of the answers. But this figure doubtless fails to reflect the whole story, since lack of funds may prevent initiation of programs in the first place. The particular kinds of funds that could be tapped for advance pur- chases did not seem to be restrictive. Po- tential types of funds that were mentioned included capital fund revenues, unappropri- ated surpluses, capital reserve funds, spe- cial revolving land acquisition funds, and bond issues. Legal restrictions were reported by only 16 (22 percent) of the cities with acquisi- tion programs. There is little indication of much litigation, possibly owing to the low level of advance acquisition activity. Other Methods of Reserving Land for Fu- ture Use: The two most important ways of reserving land for future use for both cities and counties were (1) through acquiring it by the application of subdivision controls, reported by 74 percent of the cities and 61 percent of the counties, and (2) through easements, listed by 64 percent of the cities and 39 percent of the counties. The use of options, mapping, and various policies for utility extensions also were reported by a significant number (Appendix Table I) . Properties coming into public ownership because of tax delinquency provide, in many instances, another potential reservoir from which sites or parts of sites may be drawn for needed public use. However, only 40 (55 percent) of the reporting cities mentioned practices of reserving such land. In most cases, tax-foreclosed land appears to be han- dled by agencies other than those regularly involved with advance acquisition. Summary: The broad story that the sur- vey paints makes four points: some advance land acquisition is not uncommon in cities of 50,000 or more inhabitants — perhaps a third do some work of this sort. But they do very little of it. Forestalling a rise in prices or getting a best site are the major reasons for advance acquisition, and school and park sites the most usual target. The chief restriction if felt to be insufficient funds. Legal difficulties are not considered serious. This last point invites a more direct ap- proach — the records of the law itself. LEGAL STATUS It is essential to determine whether pro- grams of advance acquisition are severely hobbled by legal difficulties. The question- naires submit one scrap of evidence sug- gesting that this is not the case. But fur- ther evidence is essential. It would be useful to know in the first place whether it is common to encounter difficulties in connection with the central issue of purchasing land for future rather than immediate use. Second, one would like to know the attributes of advance purchases that start to meet resistance in the courts — "too long" periods of anticipation, "in- sufficient" specificity of purpose, for exam- ple. Finally, there are two specific questions raised by our own studies. Flexibility ap- pears to be of great importance to a successful advance acquisition program. Ac- cordingly, it would be useful to examine the legal record insofar as it concerns two im- portant sources of flexibility — the powers to sell and to change the purposes for which land is to be used. Legal precedent is evidenced by uncon- tested acts as well as by constitutions, sta- tistics and judicial rulings. The many ac- tual instances where land has been acquired in advance demonstrate that the law is flex- ible. The handling of tax delinquent prop- erties provide examples of the two sorts of flexibilities — alteration of intended purpose and the power to sell.' The power to sell has been used, though not without some legal restriction, in connection with "excess 18 condemnation" of rights-of-way and irriga- tion projects where large parts of the irri- gated basin have been acquired along with the lands actually needed for construction purposes. The resale of the unneeded proper- ties after the work is completed provides a potential source of revenue. For focused evidence concerning the le- gal status of advance acquisition we look to the common law, the reported decisions of appellate courts, and the constitutional or statutory authority to act, both in ac- quiring land and in disposing of it. It will be useful to review the legal precendents with special attention to decisions relating to specificity of purpose and the power to resell.' Statutory authority to buy and sell: Local governments usually have statutory power to acquire and dispose of land, either ex- pressly conferred, or implied, as an incident of their general governmental authority. Most special districts and authorities are also given such power where it is necessary 8. Arrangements differ substantially in different cities. The situation in New York City provides an interesting example. Transfer of ownership of delin- quent properties was facilitated by a proceeding in rem — a proceeding against the property rather than against the owner. The city-owned properties are managed by the Department of Real Estate. Properties are sold at periodic auctions unless there have been specific requests by other city agencies to hold them. Any city department may issue such a request which must then be reviewed and author- ized by the Board of Estimate. Though not origi- nally the case, these requests must now be reissued and passed on each year. 9. The few cases cited in the next several pages re- flect the general sparsity of the law in this area (and the relatively low level of government activity with respect to advance land acquisition*. Our re- view of case law has covered a number of tangen- tial subjects. For the record, our review has in- eluded case law on the municipal power to annex, e.g.. State v. Columbia Heights, 237 Minn. 124, 53 N.W. 2d 831 (1952), the court construing strictlv statutory' authority of a city to annex territory (held: not broad enough to permit annexation of land in another municipality), and Town of Forest Acres v. Seigler, 224 So. Car. 166, 77 S.E. 2d 900 (1953) where the court held that without legisla- tive authorization a municipality cannot extend its limits into organized areas; need to acquire land, e.g., Kings County v. Theilman, 369 P. 2d 503 (Washington, 1962) in which the court held that a county's condemnation of land to benefit a private developer was so arbitrary and capricious as to be a "constructive fraud," and Re Real Property in Incor- porated Village of Hewlett Bay Park, Nassau Coun- ty,_48 Misc. 2d 833, 265 N.Y.S. 2d 1006 (1965), in which a lower New York appellate court luled that the condemnation of land for a storage barn was to their mission. Where there is doubt as to whether the power exists, but no clear constitutional or state statute prohibition, legislative amendment at the State or local level can remove any doubt. Judicial support for expanding govern- ment activity: The first indication of a lib- eral philosophy by the courts has been shown, in recent decades, by the very clear trend to uphold expansion of local govern- ment into new fields of activity, or into new and different types of activities within tra- ditional fields. This is true with respect to physical development and land use controls, public housing, urban renewal, zoning, wel- fare, manpower training, anti-poverty pro- grams, and the conduct of private business. In turn this reflects national traditions and the evolution of juridical thinking of the United States Supreme Court in the last quarter century. Judicial support for advance land acqui- sition in general: A review of state court decisions indicates that advance land acqui- designed to thwart the owner from building a park- ing lot; constitutionality of urban renewal statutes, e.g., Housing and Redevelopment Authority of City of St. Paul V. Greenman, 255 Minn. 396 (1959), and Miller v. City of Tacoma, 378 Wash. 2d 764 (1963), 96 N.W. 2d 673 (1959) ; use of land acquired by dedication, e.g., Dunlap v. Tift, 209 Ga. 201, 71 S.E. 2d 237 (1957), and Bruker v. Carlisle, 376 Pa. 330, 102 A. 2d 418 (1954), Center v. Benton, 414 111. 107, 110 N.E. 2d 223 (1953), Wishart v. City of Lumberton, 254 N. Car. 94, 118 S.E. 2d 35 (1961), Aldrich v. City of New York, 208 Misc. 93, 145 N.Y.S. 2d 732 (1955), affirmed 2 App. Div. 760, 154 N.Y.S. 2d 427, Moore v. City of Fairhope, 277 Ala. 380, 171 So. 2d 86 (1965), Village of Ossining v. Lakin, 5 Misc. 2d 1024, 160 N.Y.S. 2d 1012 (1957), and Martin v. Norfolk Redevelopment and Housing Authority, 205 Va. 942, 170 S.E. 2d 673, (1965), many of which construe narrowly land dedicated for park purposes (the last cited case appears to differ somewhat) ; changes in use of land acquired by eminent domain (the courts generally becoming more liberal), e.g., Newport v. Los Angeles, 184 Calif. App. 2d 229, 7 Calif. Rpto. 497 (1960) in which a California appellate court upheld use of land originally condemned for a railroad to be leased for oil wells (the city to obtain royalties), Anchiga v. Housing Authority of Los Angeles, 149 Calif. App. 2d 657, 324 P. 2d 973 (1958), and Daly V. Kansas City, 317 S.W. 2d 360 (Missouri 1958) in which land condemned for a park was allowed to be used for Veterans' housing; finally, excess con- demnation, e.g., Gray v. Quachita Creek Watershed District, 351 S.W. 2d 142 (Ark. 1961) in which the court held that the watershed district had been given great discretion as to the location and area to be taken, and the burden of proof of excess tak- ing was on the appellant. 19 sition actions and instances of selling of land follow this trend." There are, to be sure, few reported decisions, but the gen- eral rule is to uphold governmental action to acquire land, as long as a public purpose is established and there is no evidence of fraud. Intent to use, even if immediate use is not contemplated, is allowed. And unless the acquisition is subject to restraints on alienability, or some element of fraud is in- volved, the decisions support governmental power to dispose of land no longer needed. Again, while the decisions have been few, it seems reasonably clear that governments have the power to change their minds, so that land acquired for one purpose can be used for some other purpose or disposed of. And there are few constraints on use or sale of tax delinquent land which becomes the property of the government. Degree of futurity: Courts have and may object to a proposed acquisition on the grounds that the intended use is too remote; otherwise, they are generally inclined to uphold the action. Thus, in 1952, the Su- preme Court of Arkansas held that the State Highway Commission may take a suffi- ciently wide right-of-way to allow for even- tual expansion of the highway." A Florida court has held that it is the duty of public officials to look to and plan for the future." The acquisition of land for an airport, which, after seven years since the acquisi- tion, still had no airport construction, was sustained. But where condemnation of a school site involved construction at least 30 years hence, the Michigan Supreme Court refused to go along." One wonders whether the Court would have been impressed if the action had been demonstrated to be conso- nant with a long range, comprehensive de- velopment plan. Several cases have held that the need for a new highway must be demonstrated by definite construction plans as a prerequisite 10. For valuable discussion and evidence on the gen- eral subject see the 1957 publication previously cited, Acquisition of Land for Future Highway Uses; A Legal Analysis. 11. Woollard v. State Higliway Commission, 220 Ark. 731, 249 S.W. 2d 564 (1952). 12. Carlor Co. v. City of Miami, 62 So. 2d 987 (Flor- ida 1953), cert, denied, 346 U.S. 821, 98 L.Ed. 347 (1953). to condemnation of land. Sometimes at least definite plans or even legislative appropria- tion of funds are required. But the trend is in the other direction." The latest trend has been to grant greater leeway to the local government in deciding that lands will be needed for future highway purposes and to uphold land acquisition through the power of condemnation. Thus, in State Road De- partment of Florida v. Southland, Inc., 117 So. 2d 512 (Fla. 1960), the State Road De- partment sought to acquire a right-of-way for a limited access interstate highway be- fore funds had been allocated for construc- tion purposes and before specifications had been completed and adopted, and before the department was in a position to state with certainty when construction would be com- menced. It was held that condemnation in this instance was not a gross abuse of dis- cretion and that no lack of public purpose or use was shown. The test to be applied was one of bad faith, fraud, or gross abuse of discretion. Specificity of public purpose: While it is difficult to separate cases dealing with fu- turity from those dealing with the issue of whether a public purpose exists for the land acquisition, the courts in general are lib- eral. Thus, valid condemnation was upheld where a state legislature determined to ac- quire additional land for the state in a civic center in which the capitol site was to be established, without specifying whether the land was to be used for public buildings, parking areas, or other public uses. There was no evidence of fraud, bad faith, or abuse of discretion and the court was able to find'° a distinction between that case and the cases of State v. 0.62033 Acres of Land, Board of Education v. Baczewski, and State v. City of Euclid, noted above, as involving situations where the need was only probable and for some remote, indefi- nite or speculative future time. 13. Board of Education v. Baczewski, 340 Mich. 265, 65 N.W. 2d 810 (Mich. 1954). 14. State V. 0.62033 Acres of Land, 112 A. 2d 857 (Del. 1955), State v. City of Euclid, 130 N.E. 2d 336 (Ohio 1955). 15. State V. Chang, 378 P. 2d 882 (Hawaii 1963). 20 Sale of land found not to be needed: Is- sues in the disposition of land if the ex- pected need for it does not materialize dif- fer depending on what interests are to be covered, how the land was originally ac- quired (whether by dedication, purchase, condemnation, or tax delinquency) and what restrictions were placed on the con- veyance of the interests in land at the time of acquisition. Local governments must possess author- ity to sell or dispose of land no longer needed. As noted previously, authority can be expressed in statute or constitution or reasonably inferred. Once this authority is possessed, the capability of the city or county to dispose of property it lawfully owns is quite broad. However, procedural restrictions in the enabling statute, e.g., re- quiring sale to the highest bidder, sufficient notice to all, equal treatment, must of course be observed." Although there is a paucity of reported discussions by the courts, they have gener- ally not attempted to construe narrowly statutes authorizing or implying capacity to dispose of land. Thus, where a city-owned golf course was under a Federal Court de- cree not to discriminate, the city could nonetheless lawfully sell the golf course, ". . . pursuant to its legislative authority so to do, when in its judgment such facil- ity was no longer needed for the use of its citizens since this is a local administrative question." The reasons for selling the golf course were set forth in the Resolution of the City Commission and had nothing to do with integration and were, in the Court's view, ample justification for the sale. The fact that some members of the Commission may possibly have entertained a thought 16. Lieherman v. Nejiiune Township, 50 N.J.S. 192, 141 A. 2d 553 (1958). 17. Griffiii V. Citi/ of Ft. Lmiderdale, 104 So. 2d 33, 34 (Florida 1958). 18. Thus in Beisfline r. City of Sayi Diego, 256 F. 2d 421 (9th Cir. 1958), the court held that where a ven- dor had voluntarily sold land to the City of San Diego (the city had filed suit for condemnation of his property which was to be used for a municipal airport), and nine years later the city sold the realty to a private corporation at a considerable profit, the mere fact of the city's changing its cor- porate mind did not establish a taking for private use or an extrinsic fraud amenable to suit as a vio- that the sale of the golf course would pre- vent its integration is immaterial." Several cases allowing disposition of land concern properties taken by condemnation but there is no reason to suppose that this evidence would not apply at least with equal force to land originally purchased in the open market. Once land has been taken by eminent domain, it becomes the property of the local government in fee simple, and may be ti-eated as any other city (or county) property, for use, for conveyance, or for any other purpose. Local government's right to shift the use of the acquired land from one public purpose to another is clear. Govern- ment has the right to alienate freely any excess property condemned for a public purpose. It also has the right to sell to pri- vate persons, and at a profit, any land origi- nally taken for a public purpose, and which is no longer necessary. The only limits placed on this municipal right are that there must have been no fraud or gross abuse in the original taking, and that planned future use for public purposes was the true reason for the original taking.'* The essence of the entire issue thus turns on the original condemnation, and if this was in good faith, and within powers au- thorized by state legislature or constitution to the local government, all subsequent treatment of the land which is allowed to the local government under its general rights as to its public or proprietary prop- erty is also allowed to property acquired by the condemnation method under the doc- trine of eminent domain." A partial exception occurs where proper- ties are acquired by dedication. It is in gen- eral more difficult to dispose of land dedi- cated for a public purpose, such as for a lation of due process in a Federal Court. A similar decision in Pennsylvania held that where land has been condemned in good faith for an airport, and then passed on to a Redevelopment Authority, which sold it at a profit to private individuals for indus- trial development, there had been no abuse in the original condemnation. {Starkey v. City of Philadel- phia, 397 Pa. 512, 156 A. 2d 101 (1959). 19. It should be noted that some jurisdictions, in ex- ercise of the power of eminent domain, use a tech- nique called mapping. This is a procedure akin to, but not identical with, condemnation and it is likely that the same legal concepts would apply in cases under mapping. 21 park, than it is to dispose of land acquired by condemnation or purchase. Without charter or statutory authority, municipal property dedicated or in trust for public use cannot be sold. But property which has out- lived its usefulness or has become inade- quate for its public purpose may be sold by the municipality without specific legislative authority, under the general statutory char- ter power to hold and convey property. There may be more stringent requirements, e.g., approval of 70 percent of adjacent property owners, before property acquired through dedication may be disposed of."" Summary: The limited use of advance land acquisition by cities and counties does not appear to be primarily due to legal constraints. This does not mean that legal problems do not exist. Rather most courts are likely to permit advance land acquisition and the sale or use for some other purpose of land acquired on the basis of expectations that failed to materialize. 20. City of New Ordeans v. Louisiana Society for the Prevention of Cruelty to Anirnals, 299 La. 277, 85 So. 2d 503 (Louisiana 1956). One interesting issue has been the sale of land received in tax lien fore- closure, and never dedicated, as was the land in the previously-cited case of Village of Ossining v. Lakin. It has been held in one instance, that where such land, used temporarily as a refuse dump, was later sold, provisions of the city charter requiring specific steps by the Council of the City in selling "city real estate" did not have to be complied with. The sale was valid under the earlier provisions of a special ordinance for sale of tax-foreclosed lands, as there was insufficient proof that the city council had clearly assigned the land for public use so as to make it "city real estate." {Maxwell v. Kristen- sen, 15 Misc. 2d 875, 183 N.Y.S. 2d 245 (1959), affirmed 9 App. Div. 2d 919, 195 N.Y.S. 2d 607, ap- peal denied, 199 N.Y.S. 2d 439, 10 App. Div. 2d 711.) 22 Chapter 3 COST-BENEFIT ANALYSIS Sensible decision about advance acquisi- tion of land, as for any other government undertaking, requires a deliberate judg- ment in which the advantages of taking the action are weighed against its costs or other disadvantages ; when advantages sufficiently outweigh the disadvantages, the action is justified. Needless to say, deliberate consid- eration of this sort is only one aspect of many government decisions or of the ad- ministrative situations of which the deci- sions are a part. However, it is an aspect worth encouraging and improving. How then can one assemble and weigh the ad- vantages and disadvantages of acquiring land in advance of expected need? The rest of this monograph attempts to find an answer to the question. This chap- ter presents first some broad methodologi- cal suggestions, and then proceeds to a brief presentation of the bare bones of the analytic frmework of cost-benefit analysis applied to advance acquisition of land. COST-BENEFIT ANALYSIS AND THE ONGOING ADMINISTRATIVE PROCESS Framing the question is itself a first step and an important one in framing an an- swer. It is easy to overlook the highly sig- nificant contribution to deliberative gov- ernment policy that is a function of what questions are asked. Advance acquisition of 23 land is a case in point. The day's urgent needs often entirely blot out awareness of the possibility of potential advantage from acquiring sites for, say, schools in advance. A still deeper invisibility has often oblit- erated the thought that there may be great advantage to land acquisition policies di- rected toward furthering orderly urban ex- pansion. When once the broad question has some- how swung into focus, the next step in- volves framing, however tentatively, some specific alternatives. At this point, delibera- tive processes begin in earnest. At least, they do insofar as the final decision is itself to be deliberative. What sections of the city are likely to experience a rise in school- going population? Can the guess be made with sufficient assurance to warrant the consideration of acquiring school sites in advance? What candidate sites are worth considering? The candidates must then be examined and their advantages and disadvantages evaluated. The process may go through sev- eral rounds in which alternatives are weeded out or changed. A convenient framework for evaluation is provided by cost-benefit analysis, providing the costs and benefits are broadly conceived to include values of all relevant sorts — eco- nomic and noneconomic, measurable as well as intangible. There is nothing new about this sort of analysis. Of necessity, any effort to make a rational judgment involves a balancing of the advantages and disadvantages of the proposed and alternative actions. The atten- tion in recent years to "cost-benefit analy- sis" represents a difi'erence in the explicit- ness and formal characteristics (particu- larly the quantitative emphasis) of evalua- tive procedures. However, though the quantitative measures must be pushed as far as possible, it is essential to accord full significance to the hard-to-measure or in- tangible aspects which are in fact advan- tages or disadvantages associated with ad- vance purchase. Finally, the character of the benefits and costs and the assurance with which they can be foretold determines how much of the final outcome should be allowed to hinge irreversibly on the decision, and how much should be left contingent on further and later decisions, or subject to change at later times. We find, for example, that under some conditions it is important to provide the opportunity to sell land when, as is sometimes inevitable, guesses on which the purchase was originally predicated turn out to be wrong. Clearly, then, cost-benefit analysis should be thought of as a technique intended to as- sist in formulating public policy by helping to design as well as to evaluate alternative courses of action directed toward identified goals. Clearly also, even when conceived of in this way, the evaluations are only one stage of an on-going administrative process. A cost-benefit analysis requires identifi- cation of the advantages and disadvantages of one course of action over those of another. Needless to say, a complete list of costs and benefits is impossible to achieve and it is necessary to focus on the more likely and more important ones. Evaluation ideally implies that both costs and benefits be at least roughly measured and compared. But the ideal can seldom be achieved since usually many of the benefits, and typically at least some of the costs are not subject to satisfactory measurement. Nevertheless, cost-benefit analysis can sharp- en alternatives by first comparing measur- able costs with measurable benefits (to ar- rive at a net measured cost or benefit) and then concentrating on putting such intangi- ble costs and benefits as are present in per- spective with each other and with the meas- urable costs and benefits. ^ 1. A test for the usefulness of cost-benefit analysis has been suggested by Ruth P. Mack and Sumner Myers. "Outdoor Recreation," in Measuring Bene- fits of Government Investments, Robert Dorfman, Ed., Washington, D.C., Brookings Institution, 1965, p. 76. By their criteria, a cost-benefit measure is useful in proportion to: (1) The percent of total benefit and cost that it adequately calibrates; (2) Its capacity to uncover, focus and steady the aspects of total benefit and cost that it fails to cal- ibrate; (3) Its general acceptability ; (4) Its power to improve administrative or legis- lative action because of a capacity to focus on well considered notions of the public weal. 24 The cost-benefit criterion for undertaking a course of action is that the benefits must be greater than the costs and the net benefit must be greater than that of alternative uses of the resources. The analytical techniques are similar to those used by business firms in their investment decisions; however, v^^here a business firm calculates its own private costs and receipts in evaluating the profita- bility of an investment, a governmental body must consider a broader range of social costs and benefits many of v^^hich have no market price. Of what do they consist? SOME GENERAL CHARACTERISTICS OF COSTS AND BENEFITS Benefits may take the form of dollar re- ceipts, as when land is sold or rented. They may take the form of dollar costs forestalled, as when the early purchase of land elimi- nates the need to pay more for it later. They can consist of improved efficiency of land as a factor of production, as when improved quality increases qualitatively or quantita- tively the output that is turned out. They can consist of intangible values which may be subject to, at best, only the vaguest quan- tification; an example is the boost to long- term planning procedures that a successful advance acquisition program can generate. They may concern economic advantage or other sorts of values such as beauty or psy- chological well-being. Costs cover the analogous range, and there is no difficulty, with one exception, in naming the cost-counterpart of each type of benefit. The exception is the benefit of a cost fore- stalled ; the cost-counterpart is a benefit fore- gone, commonly called an "opportunity cost." The notion of opportunity cost derives from the notion of scarcity. Since resources are typically limited, if they are used to produce one set of goods they cannot be used to produce some other which is almost but not quite as desirable. The second set of goods must be given up if the first set is to be en- joyed. Thus the second set is the opportunity cost of the choice to commit the resource in question to the production of the first set. For example, if an area is purchased as a park it cannot be used as the site for high- rise apartments. The stream of benefits de- rived from the location of apartments on that particular ground rather than some- where else is the opportunity cost of the stream of benefits derived from the presence of the green area and the recreation. Likewise the capital invested in land has an opportunity cost, and the determination of its character and size raises a number of important and somewhat complicated ques- tions. They are discussed in Chapter 5. A second set of questions involved in defin- ing benefits or costs concerns to whom they accrue. For a business firm the answer is at least relatively clear, since the reference point is the particular business enterprise. But governments must somehow act on be- half of the public. In connection with ad- vance land acquisition we face the dilemma that land is highly localized geographically and so likewise are the benefits and costs as- sociated with the use of land. Governments also are geographically localized, but the principles of the localization may differ from those applying to land. As a result, both benefits and costs associated with advance land acquisition often will not be contained within the local government area making the decisions, but spill over to those nearby. Thus a park in one area will provide recreation also for a neighboring town. For the two areas together it may be worth undertaking the land purchase, but for either area alone the costs would outweigh the advantages. The problem has many variants involving the familiar problems of spill-over effects and externalities. These externalities pro- vide one of the reasons why the Federal Gov- ernment has started to interest itself in fa- cilitating advance land acquisition for local governments. However, in order to construct a cost-ben- efit analysis it is necessary to settle on a frame of reference for the decision. The bur- den of the previous paragraph is that a given governmental investment alternative may have several appropriate frames of ref- erence. The solution of the difficulty must be to use these frames one at a time. Thus, in circumstances where costs and benefits dif- fer depending on the particular govern- mental unit for which the advisability of 25 advance land acquisition is being evaluated, different sets of accounts may be required, each set including costs and benefits as per- ceived by the particular governmental unit. For an entire economy, it is desirable to in- clude all relevant values and costs regard- less of local incidence. Since land acquisition in urban areas is customarily done by local governments, the focus of our analysis is costs and benefits as perceived by the local decision makers. A par- ticular corollary of this focus concerns the appropriate interest rate to use as the an- nual cost of capital ; v^e use the local govern- ment borrowing rate. A different interest rate v^^ould apply if the frame of reference were the Federal Government or the total economy. Chapter 5 discusses this choice and its conceptual consequences in some detail. For the moment it will be helpful to accept it uncritically at least for illustrative pur- poses. In any event, the net advantage or disadvantage as calculated for the local agent needs eventually to be reviewed in the broader context of the public interest at large. COST-BENEFIT ANALYSIS APPLIED TO ADVANCE LAND ACQUISITION The analysis starts with the assumption that the production of some government serv- ice — outdoor recreation, education, fire con- trol — will in the future justify the acquisi- tion on land. The only question is whether the land should be acquired in advance of the "target date" — the time when the land would ordinarily have to be bought in order to pro- duce the service at the proper time. Note that the worthwhileness of the intended future use is not part of the question here." Rather, given that future public need for land is anticipated, only the costs and benefits cls- sociated with the "advanceness" of the land acquisition are evaluated. 2. A number of important questions are ruled out for the present, though we touch on them in subse- quent chapters: a. That a government service of a particular level is justified; b. That the input mix requirements necessitate acquisition of additional land (as opposed to other possible inputs such as floor space in multi-story buildings) ; Alternatives Given the expectation that a particular piece of land will be required for a particular public purpose, say, seven years hence, there are several alternative ways of providing it. The first four involve outright purchase. The fifth and sixth, more limited commitments. As is indicated at the close of the chapter these "alternatives" can also be used in a wide variety of combinations : 1. Buy when actually needed, that is, at "target date" as defined above. 2. Buy now to hold until target date. 3. Buy at some time between now and tar- get date to hold until target date. 4. Buy now (or later) but be prepared to sell if forecasts on which acquisition was predicated turn out to be wrong. This alter- native is a double one, since it provides a variant of 2 and 3. 5. Acquire rights short of purchase in fee simple. Examples are: options, easements lease, or subdivision control requiring land dedication. 6. Inhibit or prohibit disadvantageous use of designated property by a variety of techniques such as zoning, mapping, or con- trolling utility extensions. Most of this monograph concentrates on the alternatives 1 through 4, though in Chap- ter 9 we raise problems that may be solved by considering reservation of land by means other than outright purchase (alternatives 5 and 6). Alternatives 1 and 2 present the most straightforward choice. Alternative 3 sim- ply recreates the decision situation at suc- cessive dates. Alternative 4, in conjunction with either 2 or 3, introduces the possibility of correcting a mistake. For the immediate purpose of describing the skeleton of cost- benefit analysis, we shall concentrate on alternatives 1 and 2 (including 2 and 4 com- bined) — buying at target date versus buying now. c. That the cost of the land input is consistent with the overall cost of the service level deemed to be justified (presumably there are some input cost levels at which it would not be justified) ; d. That the service level might be justified within the land-input cost limits allowed by advance acqui- sition but not justified (as of the present moment) under some assumptions as to the cost of land at some future date. 26 The two dates "now" and "target date" are a little tricky. "Buying at target date" in practice means sometime before physical possession of the land is required and really refers to the latest time when negotiations need to be started if the availability goal is to be achieved. "Buying now" involves start- ing negotiations immediately, though costs and benefits will begin to accrue somewhat later. Choice Under Certainty To consider the relative advantage of buy- ing now or waiting until target date, it is necessary to forecast events over the inter- val, and forecasts are inevitably uncertain. There is uncertainty about future use of the land, future land prices, future private de- velopment, and the like. This uncertainty raises analytic difficulties which will be shelved for the moment; we return to them later in the chapter. Assuming that knowledge is certain, con- sider this abbreviated list of possible bene- fits from advance acquisition : 1. Appreciation in value of the land ac- quired. 2. Return on temporary use of the land during the waiting period. 3. Beneficial effects on other private or public land use accruing from the public advance acquisition. A similar short list of costs would be : 1. Cost to the city of committing capital. 2. Foregone taxes on land removed from private ownership. 3. Cost of managing land held for future use. As an example of how to evaluate these costs and benefits in a particular situation, assume the following hypothetical facts are surely known : Data for Benefits : 1. A particular piece of land has been identified in a city's capital improvement program as necessary for a future school site. The school should be ready for use ten years hence and therefore negotiations to acquire the site must start at the latest in seven years (target date). The site is now available at the price of $100,000. The es- timated value of the same piece of land seven years from now is $150,000 (i.e., land value appreciation at a rate of 6 percent per year). 2. If purchased by the city, the site can be leased as a parking lot to a private oper- ator in the seven-year interim for rent of $1,000 per year. 3. Advance selection of the school site is expected to encourage private housing de- velopment along the lines set for the area by the city's master plan. Data for Costs: 1. The city can borrow funds for advance acquisition at the current borrowing rate of 4 percent per year. 2. The real estate tax on land is 2 percent of market value. Thus, if the land is accu- rately reassessed each year in accordance with its market value, which is rising at a rate of 6 percent a year (see item 1), the taxes foregone would be a stream of pay- ments also rising at 6 percent per year — from $2,000 ($100,000 x 2 percent) in the first year to $3,000 ($150,000 x 2 percent) in the seventh year. 3. The cost of managing the prop- erty, if acquired in advance, is $100 per year. Once these data have been estimated, how are the costs and benefits to be compared? Comparison of Costs and Benefits : For costs and benefits measurable in dol- lars the appropriate comparisons are not between simple sums of all benefits and costs regardless of when they occur. Accord- ingly a dollar payable seven years from now is worth less than one presently at hand, since it can be put to use over the interval; analogously, benefits are worth more now than later. This intertemporal aspect of comparing costs and benefits prescribes that all calcu- lations be converted to apply to the same date. The best date to use is the present. Ac- cordingly, all costs and benefits applying to future dates are discounted at an appro- priate interest rate to find the equivalent 27 present value. We shall for the time being take the local borrowing rate as the appro- riate interest cost. The discounting proce- dure is straightforward. For example, $1.00 invested at 4 percent interest becomes $1.04 ($1.00 X 1.04) after one year. Therefore, $1.00 payable one year from today is worth $.96 ($1.00 divided by 1.04) today. Simi- larly, at the end of seven years, one dollar today becomes $1.32 ($1.00 x (1.04)^) and therefore one dollar payable at the end of seven years is worth $.76 ($1.00/(1.04)0 today, or more generally, 1/(1+1)", Compare, now, the monetary costs and benefits of the proposed advance site acqui- sition. Bene fits f 1. The site would cost $50,000 more seven years hence than it costs now. The present value of the benefit of forestalling the price rise is: 11^ = 138.000. The formula for the present value of a future sum, X, as applied in a present value table, is X (1 4- i)"' 2. An annual rental of $1,000 for seven years. The present value of this stream of income is : $1,000 _^ $1,000 $1,000 . „ „ (1.04) ' (1.04)2 ' • • • + (LOir = This is given by the formula for the present value of an annuity, A, (l-(l+r)-) ^ A. r The sum of 1 and 2 is $44,000. 3. The advantage of fostering better pri- vate housing development. One aspect of the benefit bears, perhaps, a rough relation- ship to the additional real estate tax that would accrue as a result of the better devel- opment of the area which the projected school site might stimulate. Other aspects may be present but still more difficult to measure. Costs: 1. Present value of a seven-year stream of interest at 4 percent on the initial invest- ment of $100,000 is: (1 — (1.04)0 .04 $4,000 =$24,000. 2. A tax loss whose present value is : $2,000 ^ $2020 _^ .. ^ $3^_ ^^^^^^^ (1.04) ' (1.04)^ (1.04)'" It is assumed for the moment that as the land value appreciates at a rate of 6 percent per year, the tax assessment base also ap- preciates at a rate of 6 percent a year and the tax rate is 2 percent on full value/ 3. A management cost of $100 per year. The present value of this stream of costs for seven years is $600. The sum of 1, 2 and 3 is $39,700. The net measured benefit is $44,000 minus $39,700, or $4,300. There is only one intangible bene- fit and no intangible costs. The advance acquisition appears to have a small net benefit in terms of the dollar- measurable estimates. In addition, the in- tangible factor also indicates an advantage. Accordingly, the decision criterion that benefits be greater than costs is easily met and the site should be acquired in advance. Of course in this simple example we con- sider no other costs and benefits. 3. Calculations assume annual compounding figures rounded to hundreds. 4. The amounts of $2,000, $2,120 . . . $3,008 repre- sent compound growth rates as given in compound interest tables. The present value is calculated for each amount for the proper number of discount periods (years) as indicated by the powers of the discount rates. Thus, at a 4 percent discount rate, the present value of $1.00 due at the end of one year is $.9615, and of $2,000 is $2,000 times 0.9615, or $1,923. The present value of $1.00 due at the end of two years is $.9248, and of $2,120 is $2,120 times 0.9248, or $1,961, and so on. The series for seven years sums to $15,118. 28 If the expected appreciation in value of the site had been less, the dollar-measured benefits of advance acquisition might have been less than the measured costs, and ad- vance acquisition would then result in a net dollar cost. In that case, the measurable cost would have to be weighed against the intangible benefit to arrive at a decision. However, by making explicit in dollar terms at least a part of the benefits and costs, it is possible to show the minimum dollar value that must be attached to the intang- ible benefit before the advance acquisition would be worthwhile. This example has assumed, of course, that there are no other relevant costs or benefits. Also, it assumed that there is no limit on the amount of funds that can be obtained at the 4 percent interest rate; where this is not the case, the criterion for acceptability becomes somewhat more com- plicated. Both simplifications are removed in subsequent chapters. The example has made the further as- sumption that forecasts are all perfectly certain. It is necessary to think for a mo- ment how the analysis must change when this altogether artificial assumption is put aside. THE IMPACT OF UNCERTAINTY A central fact about any effort at evalu- ating future occurrences is that outcomes must be forecast, and forecasts are, like the world to which they apply, almost always uncertain. A- decision either to buy ahead or to wait (and therefore not to buy ahead) implies a guess about the uncertain occur- rences which will in fact determine the costs and benefits such as those just dis- cussed. In advance land acquisition, there tend to be two chief foci of uncertainty: (1) the pattern of future land values, (2) the pat- tern of future land requirements. Land values, needless to say, can never be predicted with certainty. At best, one might say something of this sort: today a given plot of land could be bought for $100,000; in five years it seems most un- likely that the parcel could be purchased for less, and the price might double, and there is an odd chance that it would triple; the most likely value is about $150,000. These judgments, in efliect, substitute a range of values, each having some specified likelihood of occurence, for the single value of the previous example. Instead of the sure figure of $150,000, the judgment might be — $100,000 (probability .1), $125,000 (prob- ability .2), $150,000 (probability .4), $200, 000 (probability .2), and $300,000 (prob- ability .1). If the one in ten chance of $100, 000 were to prevail, then its present value would be $76,000 and the operation would present a loss. Even if the figure were $125, 000, for which the chances of not being ex- ceeded are three out of ten, the present value of $94,000 would still be less than the capital outlay of $100,000. Other dollar benefits are not enough to outweigh the cost. Consequently, unless the intangible benefit of neighborhood improvement were substantial, there would be a 3 out of 10 chance that the project would fail to pay olT. There is, on the other hand, a 7 out of 10 chance that it would pay off, and 3 out of 10 that it would do so quite handsomely. Most efforts to foretell future develop- ments present a range of outcomes of this sort, not a single figure in which confi- dence can be placed. How can these ranges, which express inherent uncertainty of prediction, form the basis of sensible action ? The answer must distinguish between projects that must be treated singly and those that should be treated as a group. It is also necessary to note ways in which the impact of uncertainty can be muted. Large-Number versus Small -Number Decision Problems The viability of a program of advance acquisition may frequently be tallied in terms of an overall result for a consider- able number of acquisitions. This tends to apply when the individual purchases are relatively small, for then the outcome must be adequate for the group as a whole, not necessarily for each individual ven- ture. 29 Say, for example, that the municipality whose school requirements tend to grow at the rate of about ten school buildings per year wanted to buy sites in advance when it seemed advantageous to do so. Ex- pectations for each site would, in all prob- ability, be represented by a range of the sort just discussed, and some of the points in the range would be judged more prob- able than others. For each site the range could be summarized in a single figure — an average of all possible outcomes iveighted by their probability of occurrence, the Ex- pected Value.'' Of course, actual benefits, project by project, would seldom turn out to be the Expected Value. For some projects a result toward the lower part of the range might turn up; for others one of the better possibilities would materialize. But if each decision were based on the Ex- pected Value and the estimates were un- biased, the aggregate operation of the pro- gram for, say, ten years, would tend to approximate the sum of the Expected Values." Situations in which a "successful pro- gram" consists of the aggregate result of a large number of relatively small pur- chases are not at all uncommon. The two case studies described in Chapters 7 and 8 are examples. One deals with school sites, the other with purchases of land for a vari- ety of municipal purposes — public build- ings, fire stations, street rights-of-way. But sometimes very large areas of land are required: a good-sized park or a high- way site. Here the expenditures are so large and infrequent that success or fail- ure of advance acquisition depends upon the outcome of a small number of cases, indeed, typically one. In a case of this sort it is essential to make each element of the cost-benefit evaluation in terms of a range of possible values. Some costs or benefits will be relatively certain; interest and carrying costs are often ex- amples. Others may even allude to a 3-point estimate — "most probable result," "what 5. Whenever the phrase Expected Value is used in this technical sense we capitalize the first letters. 6. As will be indicated later, this statement is strictly true only when land can be freely disposed of. one stands to lose," and "what one stands to gain." However, one way or another, it is essential to consider the range of results that seem probable enough to take seri- ously. Display of the range (and when pos- sible of their relative probabilities for each major item of costs and benefits) is itself conducive to careful analysis. Armed with this sort of information, the decision agent must feel able to survive the worst of the results suflficiently probable to take seriously; he must be in a failsafe posi- tion. The most likely result, on the other hand, must be clearly advantageous. We have drawn a dichotomous distinc- tion concerning, on one hand, the proper way to structure a grouped decision for which average results are pertinent, and, on the other hand, the small-number situa- tion, typically a single decision, for which each particular venture must stand or fall on its own merits. Of course, the extremes are prototypes and many situations have elements of both. Moreover, administrative conditions can shift situations from one class to the other. For whether large-number or small-num- ber procedures are relevant depends on the breadth of the jurisdiction and the length of life of the program, or perhaps even of the decision agent's tenure of office. A particular venture for a small town would for the state as a whole become one of a group, subject to averaging procedures, A new venture in advance acquisition might have to consider and account for each item separately, whereas an ongoing department in a well entrenched government structure might be in a position to rest on the aver- age results over a number of years. The Uncertainty Discount The impact of uncertainty, particularly in small-number cases, tends to penalize actions the result of which are uncertain relative to those that are sure. This is some- times referred to as "risk-aversion." The notion of "failsafe" implies that adverse possibilities are given more weight in a final decision than are the corresponding advantageous possibilities. ("Correspond- ing" in this sense means as mach above as 30 below the weighted-average result.) This asymmetry may well reflect a tendency for political decision makers (as often, though to a lesser extent, for business executives) to be more severely penalized for mistakes of commission than of omission, or to be criticized for losses more than praised for gains. The tendency for uncertainty to penal- ize advance acquisition is also likely to be associated with the passage of time. A reward ten years hence is ordinarily sus- ceptible to more unpredictable occur- rences than is one that accrues in a year. This time-linked discount for uncertainty is superimposed on the time discount asso- ciated with the opportunity cost of com- mitted resources as measured by the inter- est rate on high-grade bonds. Often the two discounts are lumped together. But we prefer to keep them separate, since the im- pact of uncertainty can be very different for different acquisitions, all of which can be financed at the same borrowing rate. Softening the Impact of Uncertainty The impact of uncertainty in either large- or small-number situations can be soft- ened in a number of ways. A few of these are worth mentioning here. Note that the methods often involve resorting to tech- niques, singly or in combination, which were listed as decision alternatives on page 26. 1. In advance acquisition, as in so many potential services of government, there is a plethora of useful things to do, relative to the means available to do them. At least for the time being, advantage is often so great that a venture is worthwhile even if the worst outcome worth considering were to obtain. 2. If there is no clear present advantage in advance acquisition, the decision can be reexamined at a later date when cir- cumstances may have changed or clarified. (Alternative 3 on page 26.) 3. An administrative organization that is capable of selling land as well as of buying can in effect often hedge the commitment when forecasts turn out to be seriously in- correct. Sale can correct for an erroneous forecast about what is needed. It can some- times, 'in ways that are discussed later, cor- rect for a wrong guess about future prices (alternative 4). 4. Preserving land by methods other than outright purchase (alternative 5) oper- ates to avoid paying all of the holding costs associated with purchase in full fee. By limiting the costs (which tend to be relatively sure) potential net losses are reduced. 5. Finally, events that must be forecast are often subject to a degree of guidance; they do not need to be left entirely to the mercy of outside happenings. For example, it may be possible to influence land-use development patterns by various planning and control devices (alternative 6). The case studies illustrate the impact of city planning, zoning, and public utility and highway extension. 6. Changes in administrative arrange- ments can, as mentioned a moment ago, shift decisions from a small-number to a large-number situation. Even shared finan- cial responsibility by wider governmental jurisdiction can move in this direction. These considerations indicate that sys- tematic cost-benefit analysis which uncov- ers, analyzes and endeavors to quantify the advantages and disadvantages of an action is a useful aid to decision-making. Be- cause of the intrinsic character of some benefits and even of costs, their quantifi- cation is often no more than a rough heft- ing of relative importance. Because of various uncertainties the size of other ele- ments may remain hazy. However, cost- benefit analysis should force uncertainties out into the open where they can be dealt with explicitly, both by policy advisors and policy makers. PLAN OF THE NEXT THREE CHAPTERS The general character of the evaluation procedure that we plan to use has been out- lined. It consists of ferreting out the poten- tial advantages and disadvantages of ac- quiring property in advance of need and evaluating the relative magnitudes of 31 these costs and benefits in the light of their inherent uncertainties. The procedure has been illustrated here. It must now be fully explored. We turn first to the question of potential benefits. Their character is investigated. For each we consider the problem of con- verting values into a form that facilitates adding benefits together. In Chapter 5 the same type of investigation of costs is un- dertaken. These formulations make abundantly clear that in most determinations of advan- tage in advance acquisition a major prob- lem must always be that of forecasting land prices and the availability of "best sites." Accordingly, both the literature on the subject and some analytic problems are reviewed in Chapter 6. BIBLIOGRAPHY A critical review of the literature on cost- benefit analysis is given in : 1. Turvey, Ralph and A. R. Brest. "Cost- Benefit Analysis: A Survey," Eco- nomic Journal, December 1965, pp. 683-731. Two general bibliographies on the sub- ject are: 1. U.S. Bureau of the Budget, Library. Cost-Benefit Analysis: A Selected Bibliography. Washington, D.C., May 1965. Mimeo. 2. Pearman, Elizabeth H. Bibliography on Cost-Benefit Analysis and Plan- ning -Prog ramming-Budg eting . R e- search Analysis Corporation. McLean, Virginia, February 1966. Mimeo. Selected basic texts in the field of cost- benefit analysis are : 1. Eckstein, Otto. Water-Resource Devel- opment: The Economics of Project Evaluation. Cambridge. Harvard Uni- versity Press, 1958. Gives a general theoretical frame- work for cost-benefit analysis, with special attention to the theory of wel- fare economics. 2. Hirshleifer, Jack, James DeHaven, and Jerome W. Milliman. Water Sup- ply: Economics, Technology and Policy. Chicago. University of Chicago Press, 1960. Primarily devoted to water supply problems, but contains two general chapters on criteria for undertaking public investments. 3. Krutilla, John V. and Otto Eckstein. Multiple Purpose River Development. Washington. Resources for the Fu- ture, Inc., 1958. Presents the general framework of cost-benefit analysis, and contains a detailed investigation of the social cost of capital in federally financed investment projects. 4. McKean, Roland N. Efficiency in Gov- ernment through Systems Analysis. New York. John Wiley, 1958. Discusses the uses and limitations of quantitative analysis in govern- ment operations, with emphasis on the proper handling of time streams of costs and benefits. Illustrated with two case studies of water resource projects. Items of special relevance to cost-benefit analysis of advance land acquisition are: 1. Balfour, Frank C. "Practical Problems Involving a Program of Future Use Acquisition," 1956 Proceedings, Amer- ican Association of State Highway Officials. Discusses the planning spadev>?ork that must precede any large scale program of advance land acquisition. Relates California's experience in advance acquisition for highway use. 2. Carsberg, Bryan V. "The Discounted Cash Flow System," Local Government Finance, February 1966, pp. 61-66, and March 1966, pp. 103-107. Compares several techniques of dis- counting future costs and benefits practiced by local governments. Dis- cusses the problems of selecting a dis- count rate appropriate for use by local governments. S2 3. Dorfman, Robert, editor. Measuring Benefits of Government Investments. Washington. The Brookings Institu- tion, 1965. Report of the 1963 conference on cost-benefit analysis. The Mack-Myers and Rothenberg papers are particu- larly relevant to the problems of cost-benefit analysis for advance land acquisition. 4. Knetsch, Jack L. "Land Values and Parks in Urban Fringe Areas," Jour- nal of Farm Econo^nics, December 1962, V. 44, pp. 1718-1729. Discusses problems of optimization in view of the social value of land used for community purposes. 5. Lichfield, Nathaniel. Economics of Planned Development. London. The Es- tates Gazette, Ltd., 1956. Explains the economic consequences of and basis for land planning. In- cludes a section on cost-benefit analy- sis of planning decisions. 6. . "Cost-Benefit Analysis in City Planning," Journal of the Amer- ica)! Institute of Planneis, XXVI, No- vember 1960, pp. 273-279. Brief suggestions on how to go about cost-benefit analysis in city planning decisions. 7. Mace, Ruth L. Municipal Cost-Revenue Research in the United States. Chapel Hill. The Institute of Goverment, 1961. Critical review of work in the field of measuring costs and revenues asso- ciated with various categories of urban land use. 8. Margolis, Julius, editor. The Public Economy of Urban Communities. Washington. Resources for the Future, Inc., 1965. Eleven papers on political economy in urban communities. The Tiebout- Chinitz and Lichfield papers are par- ticularly relevant to the problem of advance land acquisition by local government. 9. Schaller, Howard G., editor. Public Expenditure Decisions in the Urban Eco)iomy. Washington. Resources for the Future, Inc., 1963. Nine papers in the general field of local public expenditure. The Lich- field-Margolis and McKean papers are particularly useful for a cost-benefit analysis of advance land acquisition. 10. Turvey, Ralph. The Economics of Real Property. London. George Allen and Unwin, Ltd., 1957. A general theory of the formation of property values. 33 Chapter 4 BENEFITS Though there are a number of tempo- rary and supplementary advantages that may reward the advance purchase of land, there are two major groups of advantages. First, there are the benefits associated with large scale, long range advance ac- quisition undertaken primarily for the purpose of controlling the pattern of land uses, both public and private. These bene- fits can be very great indeed, even after some possible disadvantage to private in- terests has been netted out. However, analysis of this large scale advance acquisition is beyond the scope of this re- port, and we deal only briefly with this set of benefits in Chapter 9. The reasons have been previously explained. Second, there are the benefits associated with advance acquisition of the sites for future public facilities. Primarily, these benefits result from the capacity of ad- vance acquisition to lower the cost of land as an input in the production of govern- ment services. The anatomy of this type of benefit is analyzed in the pages that follow. In addition, there can be a number of supplementary benefits, including comple- mentary relationships with other delib- erative governmental procedures such as planning, economical provision of public utilities and transportation. There is also 35 the benefit (in a sense, a deduction from carrying costs) of temporary earnings on land. These are considered in the second half of the chapter. In connection with each type of benefit it is usually necessary to think about at least two sorts of questions. The first concerns how to quantify a benefit in tenns that can, so far as possible, be added to other bene- fits and from which costs can be subtracted. Dollars are of course the most versatile numeraire and it is useful to try to apply a dollar measure — whether relatively precise or quite vague — as far as feasible. However, benefits that elude quantification in dollar terms should not be lost sight of for this reason. The second sort of question is perhaps a stage in the pursuit of the first: it con- cerns the means available for uncovering the future. Accordingly, it is necessary to explore systematically the underpinnings on which forecasts can rest and in con- nection with which sorts of acquisition problems forecasts are likely to be relatively more successful. These problems of fore- cast are put ofl" until Chapter 6. BENEFITS ASSOCIATED WITH LOWER LAND COSTS PER UNIT OF GOVERNMENT SERVICE Lowering the land cost of producing government services involves "eflSciency" in an economic sense: getting the most for a given cost, or minimizing the cost of get- ting a given level of output. Land is a factor of production, an "input," in the produc- tion of most government services. For ex- ample, the service, administration, re- quires land for the mayor's oflfice; the service, education, requires school sites; the service, outdoor recreation, requires park sites. These services, or outputs, all need land as input, though obviously its relative importance for some (recreation) is far greater than for others (administration). However, for either, some sites are clearly more useful than others. The theory of urban land value emphasizes productivity associated with location in the urban complex; other parameters include size, top- ography and the existing state of devel- opment. For example, a mayor has many contracts with other officials so that an office located close to other government offices is more eflficient than one less access- ible. School sites have to be above a minimum size, accessible to buses yet not in the midst of heavy traffic, and topo- graphical considerations are relevant to building and maintenance costs. For out- door recreation, the character of the out- put depends on the character and location of the site. Obviously, then, some sites are more productive with respect to the final services generated than are others of equal size. Just how efficiency differs is compli- cated. The greater productivity can be quanti- tative — a school on a good site may serve more students at a lower cost than one on a poor site. Or the greater productivity can be qualitative in the sense that outdoor recreation available on an ideal park site is a rather different product from that provided by a poor site in an inconvenient location. In addition to these qualitative or quantitative relations between the in- put, land, and the government service, there is a price relationship: quality and quan- tity the same, land can be bought at a higher or lower price and have different carry- ing costs; thereby the land cost per unit of output can be altered. We conclude that the benefit from acquir- ing land in advance — the capacity to lower the cost of the input, land, per unit of service output — can consist of lowering the price of land, output quantity and qual- ity the same, or of improving the quantity or quality of the output, price of land the same. Often, indeed typically, advance acquisition of land affords both forms of lowering land cost — a better site at a lower cost per acre. The two aspects can be combined into a single figure by think- ing in terms of the cost per acre (lots, square feet, etc.) for a given productivity. "Productivity" does not refer here to any abstract characteristics of the land but to its capacity to produce a particular gov- ernment service. 36 Viewed then in this three dimensional way — utility of service as a function of cost and productivity of land — the advance acquisition of land by public bodies aims to optimize the efficiency of land. The time period over which the optimi- zation ought to apply is that of the useful life of the asset. And since land lasts for- ever, the relevant time period is theoreti- cally infinite. Actually, however, time dis- counts and uncertainty make near results so much more valuable than far-off" results that the time horizon for viewing optimi- zation is often close. How close under various conditions is a matter to which we return later. For the moment, assume that the interest cost of funds is the only time discount that needs to be viewed. It is essential that the ability to sell pre- viously acquired land be built into any program of advance acquisition. We assume throughout our analysis that land is ac- quired in expectation of a future public use rather than as a form of investment or speculation. However, we shall see, and this is very important, that when changes occur so that previously purchased land is no longer the optimal site for the intended purpose, the local govern- ment can realize the full benefit of the advance acquisition only if it is prepared to sell the land. It is perhaps obvious that if the land later appears to have no pos- sible public use, it should be sold to yield any benefit at all. But it should be sold in other cases too and how, in these contexts, "optimal" needs can be defined is discussed below. With the importance of the ability to sell any suboptimal land in mind, we can now list the ways in which advance acquisi- tion can lower the cost of land for public use. To anticipate, we shall find that, as a general rule, the value to the public of land acquired in advance is the highest price the public would be willing to pay for the site at the time of use. If the ad- vance acquisition program comprehends sale as well as purchase of land, this figure need never be lower than the price at which the prepurchased land can be sold; however, its value to the public will often be greater than the price at which it can be sold. This general rule emerges from a consideration of each aspect of the effi- ciency benefit in turn. Forestalling Appreciation in Land Value If it is expected that land will appre- ciate in value, then a public agency which buys land early can expect to avoid the necessity of paying a higher price at the time when the land is actually needed. The measure of the resulting benefit is the pres- ent discounted value of the difference be- tween the current price of the land and the expected price of the land at the intended date of use. To recapitulate the analysis of the pre- vious chapter, suppose a plot of land, for which a need is expected five years hence, can be acquired today for $100,000. Suppose also that this plot of land is expected to rise in value to $150,000 during the next five years. What is the benefit to the public consequent to appreciation in value if this land is acquired in advance? The present value of the appreciation of $50,000 five years from now, discounted at an interest rate of, say, 4 percent, is $41,100. This is the benefit to the public if at the target date the site is the optimal one for its in- tended use. If at the target date some equally suit- able site for the purpose happens to be available at a price lower than $150,000, the benefit of the advance acquisition is still the same (the present value of $50,- 000) the previously acquired site can be sold for $150,000 and the alternative site purchased instead. If, however, the previously acquired land is not sold, but is used for the intended purpose in spite of the fact than an equally suitable but cheaper alternative site is available at the target date, the relevant benefit of advance acquisition is restricted to only a portion of the total appreciation — the difference between the acquisition cost of the advance purchase and the mar- ket price at the time of need of the cheaper equivalent site (discounted to present value). 37 Aside from the question of availability of alternative sites, the government should be willing to sell previously acquired land if very large appreciation has caused the site's market value to exceed the capital- ized value of the land's contribution to the cumulated stream of public service that it is expected to generate over the years. This is another way of saying that the market price of the site is greater than the highest price the government would be willing to pay at target date. In conse- quence, some or all of the property should be sold. How should a public agency determine the amount to be sold? Theoretically, only as much land should be kept as the public would be willing to buy at the market price. This amount is determined at the point where the capitalized value of the services of an additional unit of land is equal to the cost of the land. In reality, there is so much vagueness surrounding public decision making that the theory is difficult to apply. Political reality blurs what the public would be willing to pay for it, and irreversibilities in land use blur what the value of the service would be. However, despite these difficulties there will certainly be situations where the sale of all or part of previously ac- quired land is called for. It is important that such sale should be possible without embarrassment to the advance acquisition program. Getting the Best Site Quite aside from any appreciation ex- pected, advance acquisition is likely to yield the greatest benefit when it is employed to preserve a site desired for a future public use from premature development in an al- ternative private use. For schools, parks, government offices and for many other pub- lic facilities, certain sites are much better suited to the purpose than are others, and officials often feel that it is important to obtain this "best site" for the intended pub- lic purpose. Indeed, this was most frequently checked as the most important motive for advance land acquisition in the question- naire. In one sense, a "best site" is defined in terms of its particular capacity to gen- erate the service for which it is to be used : a wooded area with a stream is a better park site than a flat rocky area; a well drained, level, centrally placed lot on a good access road is a better site for a school than one over an underground creek and toward the edge of the district it is to serve. However, there is also a cost dimension: among sites of a given productivity, the one with the lowest price is the "best." In other words, there is a trade off between productivity and price of land, and the "best site" is the one that is economically most efficient in the sense of providing the highest service yield in relation to its price. In private business, advance acquisition is often necessary to obtain a desired piece of property at a reasonable price. If the property is bought ahead of need, at what- ever time the existing owner offers it for sale, the property can be bought at a fair market price. But if the purchase is put off until the land is obviously needed, the ex- isting owner, recognizing the special needs of the would-be buyer, might "hold up" the buyer, or might even refuse to sell at all. In addition, early purchase can forestall any new improvements on the site which would later raise the cost of acquisition. For governments the power of eminent domain (a power that governments are usu- ally not at all unwilling to exercise) means that any property can always be obtained at a "market price" uninfluenced by the government's special needs for the land. Ac- cordingly, for governments the advantage of advance acquisition in securing a "best site" (over and above the advantage of price appreciation) is largely confined to that of preventing new private construction in- compatible with the future public purpose. But for many public facilities the very spe- cific nature of their site requirements im- plies that unless those sites particularly suited for future public uses are acquired in advance of need, they may well be pre- maturely developed for an alternative pri- vate use. This problem is typical in the very dynamic situation of land undergoing active development on the fringe of an urban area. 38 There is a private versus public race for land, with new public facilities, such as schools and parks, not needed until after private development has taken place, but with the acquisition of sites for them nec- essary before the right land has been pre- empted by the very private development which creates the need for new public fa- cilities in the first place (this situation is illustrated in the Montgomery County case study in Chapter 7). But the problem also frequently occurs in fully developed areas when the local government needs addi- tional land to provide new facilities or to expand existing ones; the government must in this case also make sure that no new pri- vate construction is undertaken on the sites of the planned future public uses (this sit- uation is illustrated in the Richmond case study in Chapter 8) . Given the assumption that land better suited to a forseeable public use would be developed instead for a private use if it were not acquired by the local government in advance of need, how do we measure the benefit of preventing the premature pri- vate development by acquiring the land in advance? Our answer is phrased in terms of a rise in price, resulting from new con- struction, which is distinguished from, and therefore in addition to, the simple appre- ciation in land value discussed in the pre- vious section. The size of the additional benefit of fore- stalling new private construction on the best site for a future public facility is a function of these three factors: (1) what it would cost to acquire and demolish the new construction on the best site at the tar- get date, (2) the alternative sites that would be available at the target date, and (3) the value of the service that this best site would afford in public use. Whichever factor deter- mines the lowest figure for the benefit is the governing one. Factor (1). If the premature private con- struction would later be purchased by the government and torn down to make way for the planned public use, it is obvious that advance acquisition of the required land to forestall the private development saves the government the cost of buying and de- molishing the new buildings. When the site requirements for a public facility are suf- ficiently rigid, there may be no alternative to the use of one particular site for the pur- pose, even if this means demolishing new buildings to use it. Examples of situations where the necessary land is so specific are street widenings (where all of an adjacent band of land is required), highway con- struction (where everything in the desig- nated path is needed), urban renewal (where all of a large parcel is needed), ad- ditions to existing facilities (where only an adjacent site will do), etc. For projects of this sort, any buildings on the desired sites have to be acquired and demolished by the local government to make way for the intended public use. Therefore, advance acquisition which forestalls new private construction on a site desired for future public use will later save the government the cost of acquiring the new improvements and demolishing them. This cost saving measures the benefit of acquiring in advance to forestall new improvements during the period prior to eventual public use. It rep- resents an avoided waste of resources put into the construction of improvements that would have an uneconomically short life, and is a reward for planning ahead. The waste of resources if the premature private construction were allowed is the remaining market value of the improvements at the time of their demolition, and if demolition follows not long after construction almost all of the initial cost of constructing the buildings may be lost, with the public paying the cost of this loss. Suppose, for example, that plans have been made for a street to be widened five years hence. Suppose also that a land- owner makes known his intention to con- struct a new building which would be within the future street-taking lines. It is estimated that if this building were con- structed, it would cost $100,000 to acquire and another $10,000 to demolish when the street widening is undertaken. What is the benefit to the public of avoiding these costs five years from now? The present value of this future saving, discounted at an interest rate of 4 percent, would be $110,- 39 000/ ( 1.04 )^ or $90,400. It is separate from, and additional to, any appreciation in the value of the land which might occur during the holding period because it measures only the added cost, above the value of the land, of acquiring and demolishing any ne-w buildings at the target date. The Richmond case study illustrates ac- quisitions that fall into this case. Whenever a landowner applies for a permit to build on land designated for a future public use in Richmond's master plan, the city buys the land if the new improvement would interfere with implementation of the plan. Almost all of the advance acquisitions in the sample selected for analysis were ones for which the acquired site was the only feasible one, and on which new private con- struction was imminent. The importance of advance acquisition to block construction of improvements which would soon have to be demolished is not restricted to the savings in future acqui- sition and demolition costs. Also saved are the relocation problems and inconvenience to owners. It is not possible to set a total dollar value on this benefit, but part of it is the relocation payment which is cus- tomarily made when individuals, families and businesses are forced to move. For ur- ban renewal projects, the average reloca- tion payment to families and individuals is $67 and to businesses $2,185. For federal- aid highways, the corresponding figures are $119 and $1,233,' and perhaps further un- compensated social costs should be added. In some cases, advance acquisition to prevent the construction of new improve- ments may be necessary to maintain the political feasibility of going through with intended public plans. Vested in- terests created by the new construction may legitimately oppose public use of the land, at least insofar as it would affect them, even if the new use of the land can be justified in broad economic and social terms. Political pressure, needless to say, often can communicate values which are not reflected adequately in the market 1. U.S. Congress, House Committee on Public Works. Sfudy of Co7n]>enf;ation and Asftistance for PerHonn Affected by Real Property Acquisition of Federal values of property, and the political tur- moil raised by the new vested interests may be able to hamper the local govern- ment's plans for a new use of the land. Even when particular vested interests do not oppo.se the project, the fact that demo- lition of recent construction to make way for a new use of the land has the air of a public boondoggle may make it politically difficult to proceed. In such cases advance acquisition to prevent new private con- struction on sites needed for future use yields an intangible benefit above and beyond the simple money saving previ- ously mentioned. Factor (2). Of course, -not all public fa- cilities have such specific site requirements that only one site will do, and simply look- ing at the cost of acquiring and demolish- ing new buildings on the first-choice site can greatly overstate the benefit of fore- stalling new construction on that site if sub- stitute sites are available at the target date. That is, if the first-choice site were prematurely developed for private use, it would then not be worth the high cost of buying newly improved property to use this site for a public facility. The Mont- gomery County case study of school site ac- quisition illustrates such a situation. The Board of Education tries to find new school sites that are centrally located within the school districts, level and well drained, with soil conditions suitable for construction of a large building, accessible but not on a main highway, serviced by sewer and water, above the legal minimum size, etc. Not many sites have all these characteristics, and there is usually one that, in terms of both its characteristics and its price, is clearly opti- mal. However, if this site happens to be developed for housing before the Board of Education can acquire it for a school, it be- comes far too expensive to be considered as the site for a school, and the best remaining alternative undeveloped site is then chosen. While there is a benefit from forestalling de- velopment on the best site until it is needed for the school, this benefit is not, as before. and Federally Aasisted Programs. 88th Congress, 2d Session, 1964, pp. 37-39. 40 measured by what it would later cost to ac- quire and clear the new improvements, for the site requirements are not so specific as to justify that added cost for the site. Rather, the benefit from forestalling premature pri- vate improvements on the best site is here the premium above the value of the unimproved land that the government ivould be willing to pay at the time of use rather than resort to an alternative location. This premium may be small if the best site is only slightly pre- ferred to an alternative location; but it can be large if the best site is clearly a much better choice, in terms of its productivity and its price, than any possible alternative. In those cases where there are no real alternative sites possible, the premium that the government would be willing to pay can be higher than the cost of clearing even a newly improved site; then the benefit of forestalling the new private development is measured as determined by Factor (1) ; that is, the cost of acquiring and demolish- ing any new improvements, were they to be built, sets an upper limit to the size of the benefit as measured here. Factor (3). But even if alternative sites are nonexistent (that is, no other site has a high enough productivity in relation to its price to be feasible), the premium that the government would be willing to pay for the best site is further limited by the pos- sible alternative of scaling down or entirely doing without the planned facility. This is a very likely alternative when a very large area, as for an airport, industrial park, or recreational area, is required, and there is only one good possible site. If this one good site is developed for private uses, the cost of reclaiming it by tearing down new build- ings might be greater than the value of the service that the land would afford in public use, and the appropriate decision is then just to do without the site and the service. In this case, the benefit of preventing new construction is measured by the premium above the market price of the unimproved land that the government would be willing to pay at the time of the need rather tJian do without the service entirely. Thus, even when there would be no fea- sible alternative site available at the target date, (Factor 2), the benefit from forestall- ing new private construction on the best site for a future public use, can still be less than what it would cost to acquire and de- molish the new private construction, had such construction taken place (Factor 1). In this case. Factor (3), the value of the time-discounted stream of services that the best site would afford in public use, sets the upper limit on the value of the benefit from forestalling premature private development of the best site by acquiring it in advance of need. As with other benefits, the present value of the best site premium is found by dis- counting it from the target date of use back to the acquisition date. Uncertainty of the benefit. Assuming that we have, by means of one of the three fac- tors explained above, measured the benefit of forestalling development on the best site for a future public facility, there are two important points where uncertainty enters: (1) whether any new private con- struction would actually be undertaken on the site if it were not acquired in advance, and (2) whether the site will actually be used for a public purpose, as anticipated. On the first point, when there is doubt whether any private construction would actually be undertaken on the best site if it were not acquired in advance, the benefit must be reduced by multiplying the pre- viously measured benefit by the probabil- ity (less than unity) that the private con- struction would take place. Thus the bene- fit will be greater the more certain the gov- ernment is that the construction would oc- cur in the absence of advance acquisition. One way to ensure that the probability of new construction is high is simply to wait until a building permit is applied for before buying the land. However, as explained in the Richmond case study, even this policy does not necessarily lead to a 100 percent certainty that construction is about to oc- cur, for it may stimulate spurious build- ing permit applications from owners who simply wish to sell their land and feel that they may get a higher price for it if it is bought by the local government. 41 The second point of uncertainty is wheth- er the site will actually be needed at the target date, for if it eventually is not used for a government purpose there is no ulti- mate payoff in obstructing all private de- velopment in the meantime. Thus the meas- ured benefit must be further reduced by also multiplying the previously measured benefit by the probability that the site will actually be the one used. The expected bene- fit is therefore greater the more certain is the eventual government need for the par- ticular site acquired. Needless to say, it will be difficult to esti- mate (1) the probability that private con- struction would occur in the absence of ad- vance acquisition, (2) the probability that the site will actually be needed for a public use, and (3) the size of the benefit at the time of the need if the site is eventually used as anticipated. However, in many cases the size of the potential benefit, (3), can be so large that even fairly risky bets on both points of uncertainty, (1) and (2), will still justify the advance acquisition. When evaluation is difficult, it can often be avoided. If the more readily measured benefits already exceed the costs, the mere presence of a further intangible best site benefit may be all that is needed to clinch the desirability of advance purchase. In this case there is no reason to try to push toward a quantitative evaluation of the amount of the benefit. Where such quanti- tative evaluation is necessary in order to determine whether the purchase is worth- while, the criteria that have been de- scribed ought to provide at least a handle with which to grasp the evaluation prob- lem. SUPPLEMENTARY BENEFITS Supplementary benefits cover a variety of possibilities. For the most part they are difficult or impossible to measure solidly in monetary terms. Nevertheless, it is im- portant to consider them and the relevant principles of evaluation. Improvements in the Procedures of Site Selection One likely benefit from a program of advance land acquisition is improvement for public facilities. For one thing, there is of the whole process of selecting sites simply more time to study site require- ments thoroughly if acquisition is made in advance of the actual need for land, thereby making possible a more careful site selection than is possible when pur- chase is delayed until the last moment. Another reason to expect that advance acquisition will improve the selection process is that it gives greater scope for coordination in the selection of sites for future facilities. This sort of coordination becomes especially important when a number of independent agencies of govern- ment are each responsible for selecting sites for their respective needs. In these cases, the process of advance acquisition focuses attention on the possibility of har- monizing these separate decisions. As an example, the advance school site acquisi- tion program in Montgomery County has led to coordination between the Board of Education and the Park Commission in a procedure for acquiring combined school- and-park sites. A combined site requires less land than would two separate facili- ties, and the usefulness of each is in- creased by the proximity of the other. Improved administration of land may aff"ect the way in which tax-delinquent properties are dealt with. If taken over by the city such properties form, inten- tionally or not, a temporary land bank. Coordination of such properties with those explicitly acquired for advance purposes could be very useful. Coordinated objectives and management for the two sorts of programs could improve the effec- tiveness of both. In connection with individual site selec- tions, these benefits of improved procedures can probably be very substantial, though they are difficult to quantify. But they may be of primary interest as a type of overhead benefit associated with a program of ad- vance land acquisition as a whole. Improvements in the Pattern of Related Land Uses There is a group of secondary benefits associated with acquisition of land in ad- 42 vance, in connection with the production of some particular government service, which do not relate to that service but to another — the improvement in the uses to which the scarce resource land is put. As mentioned at the start of this chapter, improvement of this sort can be the direct target of land-use controls, including ad- vance acquisition. Here it is relevant as a by-product of the increased efficiency of land in producing particular government services. When the intended future use of land acquired in advance is expected to have an effect on related land uses in the area, an important aspect of the advance acquisi- tion is the reduction of uncertainty attached to other public and private in- ves.tments having to do with such uses. For example, in Montgomery County the knowl- edge of future school site locations has aided housing developers in relating new subdivisions to future school service areas and has been used as a selling point for attracting home buyers. Increased tax revenue can be a further benefit. This can be the case when the knowledge that school sites have been acquired in advance promotes development and increases real estate values. How- ever, there can be compensating costs of providing government services to the de- veloping area. Also, only the particular locale of the increased real estate values, rather than their existence, may have been influenced by the school site; if so, there may be no benefit for the jurisdic- tion as a whole. The matter is compli- cated and depends on a variety of particu- lars. If advance land acquisitions for specific future facilities (as envisioned in a master plan) are sufficiently publicized, the effect could be to give added credence and power to the master plan itself. When such ad- vance acquisition is combined with other planning inducements such as transporta- tion and utility-extension policies, it may help to guide new private development along lines laid out by the plan. If so, it can reduce the cost of providing transpor- tation and utility services. In a narrow context, the weight to be given to this fac- tor depends on the "pulling power" of the particular facilities for which land is being acquired in advance, and some or even most facilities may have little power of attraction. In a broader sense, and an important one, advance land acquisition and urban planning reinforce each other. Plans can be better and more realistic if the tool of advance acquisition is part of the plan- ning kit; and advance acquisition is less likely to err if planning is part of the acquisition kit. Accordingly, if urban planning is considered to be "a good thing" its reinforcement constitutes a benefit from advance land acquisition. Return on Temporary Use of Land Land acquired in advance can generate income while it is being held. In one sense it seems more natural to think of rents received for land that is being held for some specific purpose as a deduction from a cost: that of carrying the land to target date. But whether we think of it as a benefit or a negative cost is a matter of individual taste. It is convenient to dis- cuss it here as a benefit. Land being held for future use may be put to a temporary use that is not in- compatible with its intended future use. The interim use may be for either pri- vate or public purposes, and the evalua- tion of the potential benefit will be somewhat different in the two cases. Natu- rally, in either case it becomes more important to consider temporary uses if the time of intended ultimate use is remote. Temporary private use; The simplest form of private use is a lease-back ar- rangement. In the terms of the sale contract the seller is granted a lease on the prop- erty, subject to appropriate restrictions for its use, until it is needed for its in- tended public purposes. The restrictions on temporary use im- posed by the lease may vary according to the character of the site and the ultimate public use intended for it. For example, 43 if a wooded site has been acquired as fu- ture parkland, an appropriate lease re- quirement is that none or only some of the trees may be cut by a tenant. When a lease-back arrangement is not negotiated, any other appropriate form of temporary lease may be employed when a tenant can be found. However, the ad- ministrative problems of finding tenants and overseeing property require some expertise, and a full-scale real estate management operation may be required if many properties are involved. This is not an important obstacle to cities already having real estate divisions to manage the real estate they own. In Richmond, the Department of Real Estate collects rents of over $100,000 a year from leases on city- owned properties, including properties ac- quired but not yet needed for public use, and the burden of temporarily leasing addi- tional properties acquired in advance is slight. But for cities that have little expe- rience in this field, the management cost may be significant and where this is so it must be set against the rents received to show the net returns from temporary use. Once the future returns received from private use of a property acquired in ad- vance have been estimated, they must be discounted from the year in which they will accrue back to the date of acquisition to show the present value of this benefit. For example, if an acquisition for use ten years in the future is expected to return a net rent of $2,000 per annum over the wait- ing period, the present value of this stream of payments at, say, a 6 percent discount rate is $14,720. Temporary public use: Sometimes it may be more advantageous for property to be temporarily used for public rather than private purposes. In this case, the evaluation of the benefit may be less clear- cut. One indication of the worth of the public use is that the benefit must be equal to or greater than the opportunity-cost of the land in private use. If land that could be leased for $2,000 a year to a private tenant is, instead, used for temporary oflE"- street parking, the value to the public of this use should be at least $2,000 a year or it would be better to lease the land for private use in the first place. This sets a lower limit to the worth of the public use. Another indication of the worth of the public use is the rental the public would have to pay for another site equally suit- able for the same purpose. Thus, if an equivalent alternative site could be leased for $3,000 a year, the value to the public of the temporary use of owned land would be no more than $3,000 per year. This may set an upper limit to the worth of the public use. In this way a bracket of maximum and minimum values can be ob- tained and an intermediate value may be used for purposes of analysis (say, in this case, $2,500) although in most cases it may not be easy to make a precise estimate of benefit. Once the estimate of annual re- turns in public use is obtained, it should be discounted to show the present value of the benefit, just as in the case of private use. One sort of temporary public use which has been employed in Richmond deserves mention. This is the leasing of property to charitable or civic organizations at a nominal rent (typically $1.00 per year). In such a case, the benefit from temporary use is not measured by the rent but by the value of the use of the property to the user, with this value being considered a subsidy (donation) given by the local government to the user. Naturally, it will not always be pos- sible to find a temporaiy use, public or private, for properties acquired in ad- vance. This may be the case because a lease would be of short or uncertain duration, subject to cancellation upon notification by the local government or because the land is simply of little current use to anyone, as is the case with vacant land on the urban fringe which has already been withdrawn from agricultural use and is merely being held in anticipation of the development of surrounding areas. It may be appropriate to grant a "use permit" for some of these properties that have no rental value. The use permit allows a ten- ant to use a property without paying rent. 44 with the condition that he perform cer- tain maintenance functions such as keep- ing a field mowed or protecting a property against vandalism. This at least relieves the local government of some maintenance costs. This completes the list of benefits that seem worth mentioning: they are poten- tial advantages from anticipating by ad- vance purchase the acquisition of land that is expected to be used in production of government services. We turn now to their counterparts: the costs that need to be considered. 45 Chapter 5 COSTS Costs are of two major sorts — first and foremost the opportunity costs of capital and foregone tax revenue, second the costs of managing land and running an acquisi- tion program. COST OF CAPITAL The cost of financing is a function of time and represents a reason why present costs are more pressing than future costs and future rewards less attractive than present rewards. But this opportunity cost of money is by no means the only reason for the time discount that is associated with futurity. The Meaning of a Discount Rate For one thing, people may simply prefer current consumption to future consumption and wish therefore to keep their money for present consumption and forego opportuni- ties to invest in government services (con- sumption) in the future. The preference for earlier rather than later consumption is likely to be reinforced in public affairs by the politician's natural and strong inclina- tion to attach more importance to costs and benefits that accrue in the present than to those that will accrue in the future when he may no longer be around. 47 For another thing, the future is ordi- narily more uncertain than the present. Certain rewards are normally preferred to uncertain ones: a bird in the hand is worth two in the bush. Thus, insofar as un- certainty is a function of futurity a fur- ther time discount is implied. Finally, there are the opportunity costs of the committed resource, money. In the grand equilibrium sense, all three types of time discounts are presumably reflected in interest rates, and greater uncertainty is evidenced by higher rates than lesser uncertainty. However, for the purpose of dealing with the problem of particular investments, it is preferable to isolate the opportunity costs of capital. The first two sorts of time discounts can then be used flexibly to evaluate particu- lar questions — the politician's aversion to buying future, at the expense of present, rewards, and the uncertainty inherent in one sort of acquisition compared with that in another. How, then, should the opportunity costs of capital for local governments be deter- mined? Selection of an Appropriate Rate A good case can be made for using the borrowing rate faced by the local govern- ment in capital markets. This is the rate that is actually paid and therefore in a quite specific sense is the opportunity cost of funds — a return foregone for the benefit from the investment in land. The context is the cost to the citizens as citizens of the local jurisdiction. Theoretically, the local borrowing rate should be used in a particular fashion. For one thing, the correct rate is that interest rate on the additional borrow- ing — the marginal rate — which the ad- vance acquisition would imply. Indeed, strictly speaking the correct rate is some- times higher than this figure.* But if ad- vance acquisition can be accomplished without borrowing or if the amount of borrowing that it entails is small rela- tive to all borrowing these subtleties can be ignored and the current interest rate on new borrowing is the appropriate charge. While there are many diflSculties in es- timating the cost of capital to society as a whole, there is good reason to believe that the typical local government's borrow- ing rate is lower than the real cost of capital to society when this cost is con- ceived of as the foregone return on capital which is withdrawn from other productive uses when borrowed by local government. The most obvious reason for so believing is that the interest rate on municipal bonds is in effect subsidized by the Federal (and often state) government via exemption of interest on these bonds from income tax. Various estimates have been made of the cost of capital to Society, and the issue is too complex to deal with here. The esti- mates have generally ranged from about 5 percent to about 10 percent, depending on assumptions about how the funds are raised and about the private uses from which the funds are withdrawn.^ How- ever, the higher figures take risk into ac- count. The structure of our analysis builds an allowance for risk into the estimates of benefits themselves. 1. The marginal rate is: (1) the interest charge on the new borrowing for advance acquisition, plus (2) the increase associated with this additional demand for funds on the interest cost of all current bor- rowing for whatever purpose, divided by (3) the amount of the new borrowing for advance acquisi- tion. 2. For example, Krutilla and Eckstein recommended a figure between 5 percent and 6 percent (John V. Krutilla and Otto Eckstein, Multiple Purpose River Development, Baltimore, Johns Hopkins Press, 1958, p. 93 and 102). Hirshleifer, De Haven and Mil- liman recommend a figure of 5 percent if costs and benefits have been very conservatively estimated ; but because of the tendency to overestimate the benefits of public projects they recommend in prac- tice a figure of 10 percent (Jack Hirshleifer, James C. De Haven and Jerome W. Milliman, Water Sup- ply Economics, Technology, and Policy, Chicago, University of Chicago Press, 1960, p. 160). Weisbrod estimates the opportunity cost of capital in the pri- vate sector at around 10 percent (Burton A. Weis- brod, Economics of Public Health, Philadelphia, University of Pennsylvania Press, 1960). 48 The municipal bond rate is, of course, usually lower than this range (e.g., for an Aa credit rating the long-term municipal bond rate has varied between 2.4 percent and 3.8 percent during the past ten years ).'■ But the marginal local borrowing rate can be higher than the average when a sensitive point in the debt structure has been reached, or when the amount of ad- vance acquisition undertaken is relatively large. These considerations may tend to reduce the disparity between the esti- mates of interest cost to society and to local governments. Nevertheless, the tax exemption alone tends to imply that a lo- cal government making investment deci- sions correctly on the basis of local bor- rowing rates may be misallocating resources in the context of the wider pub- lic interest. However, for several rea- sons, including the relatively short life of many advance acquisitions, the misalloca- tion may well tend not to be serious. Influence of Interest Rates on Investments Since the subject of this chapter is de- fining costs and suggesting how their magnitudes should be determined, the im- pact of interest costs on decisions could be left until later when decision rules are considered. However, it is more conven- ient to consider it briefly here. A high interest rate will, of course, rule out marginal projects (by showing total costs in excess of total benefits) which a low interest rate will allow to pass. For advance land acquisition, the difference in capital charge can be important to this final judgment because it constitutes so large a part of the total costs. But interest rates have a futher impact insofar as they indicate how much it is proper to borrow and thus how large the advance acquisition program ought to be. But they wield this power only if particu- 3. Moody's Investors Service, Moody's Municipal and Governmental Manual, New York, Moody's Investors Service, (Feb. 1960), p. 25. The figures cover 1955 through 1965. 4. What rate of interest the local government would have to pay for borrowed funds cannot be deter- mined without knowing what its total borrowing will be, because it is likely that the interest rate would increase for larger amounts. How, then, lar conditions are met, and it seems un- realistic to think that they typically are. Assume for the moment that the local government's marginal borrowing rate is accepted as the correct one to use. Then if the local government can borrow freely in the capital market, it should undertake all investment projects for which the benefits exceed the costs, with all future benefits and costs discounted at the borrow- ing rate. Failure to undertake a project for which benefit exceeds cost implies that the local government is passing up the chance to improve the welfare of its citi- zens. This, however, is only true if : • The benefits and costs have been eval- uated correctly ; • Benefits and costs of all other govern- ment projects are evaluated, and cor- rectly ; • The same interest cost is used for all types of projects; • The local borrowing rate itself is determined by a marginal rate that equals the marginal rate of citizens' time prefer- ence for present over future consumption.* • These conditions are fulfilled before the legal debt limit is exceeded. Confronted by this awesome list, we re- treat to the notion of capital rationing: The amount of investment in advance acquisition will be determined not by which projects produce benefits that sim- ply exceed costs, but by the further condi- tion that total investment does not exceed some appropriate amount. What that amount is will be determined by the agents of the public and the political process. But such a decision is not likely to be inde- pendent of notions held by those agents about the net advantage associated with a particular program and even particular projects. However, if the amount to be in- should the proper amount of total borrowing for a local government be determined? Ideally, funds should be borrowed up to the point where the mar- ginal rate of interest is equal to the marginal rate of citizens' time preference for present over future consumption, and this in turn should equal the citi- zens' marginal borrowing rates. For a discussion of this particular problem see "The Discounted Cash Flow System," by Bryan V. Carsberg in Local Gov- ernment Finance, February and March 1966. 49 vested is small, there may be many proj- ects showing benefits in excess of costs which cannot be financed. In this case it is obvious that those showing the greatest excess would be undertaken; that is, proj- ects would be arrayed on the basis of the size of their expected benefits per dollar of invested capital (where interest costs are charged at the municipal bond inter- est rate), or some other suitable criterion, and undertaken in a fashion to maximize total return. ■ In this way only the more profitable projects would be undertaken. This matter is discussed much more fully in Chapter 7. If the actual projects undertaken are sub- stantially fewer than those which meet the criterion of benefits in excess of costs, the question of selecting the proper interest rate becomes less critical. The rate could have been higher without changing the number of projects selected. Moreover, in the case of advance acquisition for which the time patterns of costs and of benefits tend to be fairly similar for many projects, even the particular projects selected may not be very sensitive to interest rates. TAX REVENUE FOREGONE One result of advance land acquisition is that it removes property from the tax rolls, and the effect of this must be considered by the local government in its plans. When prop- erty is acquired for future use a government loses the stream of tax payments that would have been paid if the land had been left in private ownership until the time of actual public use. The measure of this loss is the present value of the stream of lost tax payments, discounted at the appropriate in- terest rate. The size of the lost tax payments depends on the assessed value of the property and on the ])roperty tax rate. If both are expected to be stable, the present value of the stream of lost taxes is easily calculated. For example, if a piece of land is assessed at $10,000, and the tax rate is 4 percent of assessed value, the stream of expected tax payments is $400 per year. If this land is acquired six years ahead of expected need, the present value of the stream of lost tax payments, discount- ed at an interest rate of, say, 4 percent is $2,097. However, when the market value of the land is expected to rise, it is reasonable to expect that the assessment would tend to follow along, though probably with some lag. What is discounted in this case is a ris- ing stream of tax payments that might, de- l)ending on the course of land values and on the accuracy and frequency of reassess- ments, look something like : Present value of lost taxes $400 $400 : + (1.04) (1.04) = + + $550 (1.04)» $452 + $600 (1.04)" + $435 = $385 + $370 = $2,514 It is difficult to generalize about what the path should be. In Chapter 3, we assumed that it represents a constant rate of rise, which is no doubt unrealistic, though the- oretically proper under ideal assessment practices. Failing actual knowledge of as- sessment histories applicable to each situa- tion, some generalization must be made. We propose the assumption that the assessment will increase in a fashion reflecting the ex- pected price increase.' The expected value of the increasing stream of taxes can be ap- 5. The selections can differ for different criteria. Thus the criterion mentioned in the text will not rank all projects in the same way as would a cri- terion based on the selection of a capital charge that will cause the sum of all proiects showing an excess of benefits over costs to exhaust the capital funds. (The appropriate rate can be obtained expe- rimentally by trying one after another. This sort of procedure is lecommended by Roland McKean in his Efficiency in Government Through Systems Analy- sis, pp. 82-88 and p. 121.) A somewhat different list of projects may be included in t'ns case than in the other because (1) a high interest rate penalizes long-lived projects relative to short-lived ones; and (2) it penalises projects in which income is gener- ated late rather than early in the life of the invest- ment. 6. Actually, assessment may usually lag so that something less than the expected increase in prices should be used. Note that this does not assume a declining assessment to true value ratio over time. It assumes rather that for any piece of property the ratio declines between two successive sales. It also implies that the average assessment-to-true- value ratio is usually too low fo^- properties the value of which is rising. "Too low" in this context means lower than the explicit ratio of assessment to market value that appraisers are instructed to use. 50 proximated by the expected value of an annu- ity having a middle value. Thus if assess- ments are assumed to increase in line with the total increase in values over six years — say from $400 to $600, then the expected value of an annuity of $500 at 4 percent for 6 years ($2,621) approximates the correct answer ($2,514). There is another aspect to the question of foregone taxes: that of taxes lost on im- provements which might have been made if the property had remained in private hands. Under some conditions it would not be ap- propriate to consider this sort of tax loss a "cost" of advance acquisition. For one thing, the prevention of new private con- struction on a site which has been acquired in advance may very well mean that the con- struction activity is only diverted, though perhaps with some lag, to another site in the vicinity rather than completely eliminated. Thus, the total of new private construction (and the attendant property taxes) would remain about the same as it would have been without the advance acquisition. The tax loss on improvements barred by advance acquisition is particularly disadvan- tageous when the availability of alterna- tive bare sites at target date precludes an offsetting saving on purchase price. This situation was previously discussed. Even when advance land acquisition does cut down the total of new private construc- tion, and therefore property taxes, this is not wholly a loss to the local government be- cause property taxes are at least to some ex- tent a form of payment for services to prop- erty which government is obliged to provide. Less new construction would lead to reduced public service requirements, and local gov- ernmental expenditures might be corre- spondingly reduced. Many governmental expenditures are overhead whose total will not be affected by small changes in the amount of new construction, but some costs are related to specific land uses, and when advance land acquisition leads to a reduction in the variable cost of providing public serv- ices, the saving should be deducted from the property tax loss to find the net cost in lost property taxes of blocking the construction of new improvements. Naturally, this factor becomes more important as the size of the area being acquired increases, for with a bigger area, a larger proportion of the cost of government services become a variable cost. For example, if agricultural land for a future airport is acquired, the avoided cost of extending urban services to new develop- ments which might otherwise have been built in the area can be very important. However, if a small improvement in an already-developed area is blocked, there may be no noticeable effect on municipal expendi- tures. The conclusion is that the question of what taxes are lost on improvements that might have been made is a tricky one. It cannot be solved by a rule but demands thoughtful con- sideration of each case. Two ways of han- dling the matter are shown in the case stud- ies in Chapters 7 and 8. COSTS OF MANAGING AN ADVANCE ACQUISITION PROGRAM In addition to the expenses that are asso- ciated with an individual acquisition, there are also overhead expenses of running an advance acquisition program. "Overhead" comprehends most of the expense of advance planning necessary before advance acquisi- tion of a particular site is even considered, including the cost of making cost-benefit analyses. In cities where there is already a strong planning organization, much of the groundwork necessary for advance acquisi- tion will have been laid, and the overhead ex- pense occasioned by a program of advance acquisition will be small. However, where this groundwork does not exist, the overhead cost of assembling the personnel and data necessary for undertaking a well thought- out program may be so high as to make it not worthwhile. In the case studies of Mont- gomery County and Richmond, the overhead cost associated with the advance acquisition appeared very small in relation to the funds spent on land and also in relation to the monetary benefits achieved by the program. However, both of these places did already have most of the machinery necessary for undertaking the program. 51 In running an advance acquisition pro- gram, there is also the cost of managing acquired property during the time period be- tween acquisition and ultimate use. Part of this cost will probably fall into the category of overhead and should be charged as such, but any variable cost that can be directly attached to caring for a particular property should be charged to it in the cost-benefit calculation. When property is temporarily leased to a private operator, these charges can be deducted from the rental to arrive at a net rent; when the property has a tem- porary public use, the maintenance cost can be deducted from the value attributed to the public use. But when there is no tem- porary use for the property, the stream of future maintenance costs should be dis- counted to yield a present value of these costs, and this is weighed separately in the cost-benefit calculation. Another aspect of the cost of an advance acquisition program is that there is undoubt- edly some sort of rationing of talent avail- able to local government. The value of the people who must forecast public land needs and judge when it is worthwhile to acquire in advance is measured not only by their salaries but also by what they could accom- plish in alternative public endeavors. Public interest itself may have a high op- portunity cost. Some worthwhile jobs may be left undone simply because it is impossible to marshall sufficient popular attention to generate the demand for their accomplish- ment. Thus, advance acquisition must con- tend for the public eye with other worth- while projects, not all of which can be under- taken. When a competing project is nudged out by advance acquisition, the cost of the advance acquisition is not just the money- expense of undertaking it but also the bene- fit that could be obtained by the alternative project. These opportunity costs of talent or public interest are doubtless very real (though more implicitly than explicitly) in the arena of public decision. However, their importance to an explicit effort to evaluate costs is doubtful. We may still be at a stage in the production of government services where the undertaking of more work, and more varied work, will tend to improve the qual- ity of all of it. Over time, neither moderate talent nor public interest may actually be scarce resources. 52 Chapter 6 THE PROBLEM OF FORECAST The previous two chapters have assembled the more important advantages and disad- vantages that may be associated with ad- vance acquisition of land to be used in the production of the services commonly pro- vided by local governments. First and foremost among the benefits is improvement in the efficiency of land-in- put — the services provided per dollar of expenditure on land. This benefit may result from the lower price and/or higher pro- ductivity of a given land area. Other bene- fits include improvement in the procedures of site selection, improved pattern of land use, a boost to planning, and return on tem- porary uses. The major costs are the op- portunity costs of capital and tax receipts foregone. In addition there are various op- erating expenses. In each case, the character of the benefit or cost and its justification have been dis- cussed. We have also outlined how each may best be quantified in view of the objective of making sums comparable with one another and therefore additive. Of course, for a num- ber of benefits and costs, the best that could be achieved was rough weighing of possible magnitudes. All too evident in these discussions was the fact that many of the figures for which the analytic frame calls are forecasts. This appears to be particularly true of the bene- 53 fits and notably of the two most important ones, the two dimensions of efficiency. Un- certainty is necessarily a part of advance acquisition and this is no argument against it. It is, however, an argument for studying the bases on which the necessary predic- tions can be founded. A sound judgment as to the character of these bases is a prereq- uisite to structuring sensible decision cri- teria. Accordingly, this chapter considers in turn the problems of predicting land needs (in the sense implied by the notion of productivity) and of predicting land prices. PREDICTING WHAT SITES WILL BE NEEDED Needless to say the concepts of what land is actually "needed" for public purposes, and of what a "good site" consists, are not with- out ambiguity. But it is beyond the scope of this study to go into the problems of how governments should, on behalf of the people, make decisions about the amount of land that should be devoted to public purposes; these problems exist whether land is being acquired for current or future use and can- not be discussed here.' Instead, assuming that public agents know what they mean by requirements (including quality) we con- cern ourselves with the process of making predictions about the specific sites that will be needed in the future. Best Guess To begin with, some of the guesses about future public land needs are sufficiently close to the present to eliminate almost all uncertainty as to exactly which sites will be needed. A capital improvements program (if one exists) often specifies the general or even precise location of sites necessary for public improvements planned five or six years in the future. Indeed, one of the impoi"tant ad- vantages often cited in support of capital improvements programming is that it make advance land acquisition possible; there is a substantial degree of commitment to proj- ects approved in the capital improvements program, and advance acquisition of the 1. There is a large literature dealing with land "re- quirements." A useful discussion of some customary standards for public land use apnears in F. Stuart Chapin, Jr., Urban Land Use Planning, Urbana, University of Chicago Press, 1965. See particularly pages 446 and 449. planned site can be considered with reason- able assurance that it will actually be used for the intended purpose. This is especially so when the capital projects are not de- scribed in terms of meeting future needs which are expected to arise, but rather as serving present needs which have been put on a "waiting list" behind higher priority projects; for these deferred projects, the site selection process is little different from that ordinarily required to select sites for im- mediate use, even though the site will not actually be needed for construction purposes until several years hence. Another source of information about sites that will be needed for future public use is a master plan. The detail in which a master plan is worked out naturally varies greatly among different areas. The master plan of Richmond, for example, is a relatively de- tailed comprehensive plan of "Land Use, Community Facilities and Trafficways" ; it is quite specific about the location of future public facilities such as schools, parks, fire stations, libraries, highways and street wid- enings. This detailed sort of comprehensive development plan is usually found only in a larger central city which has an adequate planning staff and an already established pattern of land use. Here, many of the facil- ities that create new land needs are replace- ments for obsolete existing facilities or rep- resent upgrading in the standard of service offered and, if there is a reasonably clear picture of the services the community wants to provide, the guesswork involved in select- ing the proper locations for these future facilities is substantially eased. When, as in Richmond, a master plan for future fa- cilities has been worked out in detail, and it has the support of the authorities who are going to make the final decisions for the fu- ture facilities (the operating departments, planning commission, highway department, city council, etc.), and when the basic expec- tations lying behind the plan continue to appear likely to be fulfilled (eg., expecta- tions about population growth and economic development), it is appropriate to use the plan as a guide to future land needs, and the Richmond case study describes one way this can be carried out in practice. 54 Naturally, not all guesses about future land needs can be spelled out in the relatively- stable framework of a capital improvement program or comprehensive master plan. Par- ticularly in areas on the urban fringe, v^^here population growth is expanding onto pre- viously rural land, the problem of predict- ing future public land needs is quite differ- ent. In these newly developing areas, even if there is a master plan, it is likely to be only a general land use plan which specifies the type of land use (residential, commer- cial, industrial) and the population density intended for the area, but does not specify the arrangement of future community facil- ities in enough detail to indicate the partic- ular sites that will be needed. And for many fringe areas there may not be any formal land use planning at all. In these circum- stances predicting future public land needs is naturally a hazardous occupation. Never- theless, even when there is only a rough idea of the pattern of future urban development it should be possible to identify the sites for at least some of the future public land uses made necessary by this new development, and to make a judgment about the contin- uing supply of these sites if they are not secured in advance. For what sorts of public land uses and under what conditions are the appropriate sites relatively more easily iden- tified in advance? 1. When the facility requires a large area of land. Even when land is acquired in ad- vance, there may be a few alternatives if what is wanted is a very large tract of unde- veloped land in or near the urban area, pref- erably under few separate ownerships, and with other appropriate attributes (such as access to transportation, topography, or re- lation to similar existing or proposed facili- ties). Examples of public facilities with such land needs would be a large park, an air- port, or a large industrial area. The sheer size of the sites required by this type of facility greatly limits the range of possible choices, and the best site for such a facility may be obvious for some time in advance of the actual need. Indeed, if the land neces- sary for this sort of facility is not secured early enough, spotty private development in the desired area can drastically interfere with any plans for later turning it to public use. For example, even the construction of scattered new housing on land which is .in- tended as the site of a future airport will either greatly raise the price of acquiring and clearing the land, or else force a reloca- tion of the airport. 2. When the desirable attributes of the land required by the facility are more rather than less highly particularized. Some public facilities require particular topographic or other features which are often recognizable in advance. The "classic" park site is easily recognized: a wooded stream valley, with a variety of natural scenic features, and often rugged terrain which makes the land unsuit- able for other urban uses. Other examples of facilities with highly particularized land requirements that lead to easy identification in advance of need are public beaches, his- torical spots, port facilities, and so on. Once it has been decided that the sites for such facilities should be reserved for future use, it is not difficult to pick suitable sites in ad- vance. However, for this sort of site require- ment it is more difficult to make an estimate of the continuing future supply of suitable land. If as with some parks, the particular requirement is for land difficult to use for other urban purposes, then all the possible candidates for sites will probably not rap- idly disappear into private development. But when the particular site requirement is for land that is also in demand for private use (e.g., beachfront property), private develop- ment can be expected to reduce the future supply of available sites. 3. When the desired location of the land is more rather than less determined by the lo- cation of existing facilities. The location for some future land needs may be very definite even though the need is far in the future. The most extreme (though not rare) exam- ple is land needed for the intended expan- sion of an existing facility, such as an addi- tional wing for a museum, or additional classrooms for a school: only an adjacent site will do. A similar case is a future street widening, where land all along one or both sides of the street is needed. In this sort of situation, the supply of feasible locations may be limited to a single site, and any pri- 55 vate development on this site is sure to raise the cost of the site to the public. These three general sorts of physical site characteristics can aid in the early recogni- tion of the appropriate site for at least some future public land uses. However, the siting for many community facilities must also be carefully related to the particular distribution of population which the facilities must serve, and not much can be said about just where these facilities should be located until there is a fairly good picture of the pattern of future settlement. This is the sort of situation dealt with in the case of Montgomery County, where the problem has been to select future school sites in advance of the new residen- tial development that is expected to produce the need for new schools. As described in the Montgomery County case study, it is often possible to infer from the master land plan roughly the appropriate number, size and lo- cation of future school sites for areas on the developing fringe of an urban area. An ap- propriate site for a school is defined partly in terms of characteristics easily identifi- able in advance (topography, soil condition, drainage), but also partly in terms of the site's relationship to the residential neigh- borhood from which it will draw its pupils (it should be in the center of its service area, and easily accessible to all its pupils, among other things). However, it is often necessary to wait until partial development of the new areas has taken place before there is sufficient information about the exact character and timing of this residen- tial expansion to make a final decision on the best location of the future school sites. Thus, although sites are not always selected very far in advance of need, nevertheless the advance period is long enough to insure that the most suitable sites for schools have not all been pre-empted by private development which is itself creating the need for new schools. There is one potentially important excep- tion to this situation where the supply of sites for public facilities is diminished by the very thing that increases the demand for them. The trend towards larger scale in new subdivision developments is evident in Montgomery County as elsewhere, and hous- ing development subdivisions are increas- ingly of such a size that the developer is re- quired or persuaded to dedicate a portion of his land for public use as sites for schools, parks, or other community facilities. When this does occur, there is less incentive for the local government to acquire land in ad- vance for public use; if it waits, and if an area is developed as one large unit, the nec- essary sites may be donated. However, this is not yet the dominant form of new devel- opment, and in most cases it will still be necessary to keep an eye on the pattern of smaller scale development activity to dis- cern as early as possible the location of fu- ture public land needs. Self-Realizing Implementation In making the guesses about land needs for future public facilities, a factor which can be of considerable importance is that the local government can act in a number of ways to shape the conditions that deter- mine what land will be needed for public use. Although local authorities do not have much control over the basic forces influencing the total amount of community growth that is going to take place, they do have considerable influence on the general character and pattern of whatever growth does occur. This influence is exerted through such measures as zoning controls, subdivision regulations, urban renewal pol- icies, land acquisition policies, and the provision of necessary facilities such as highways, sewers, water, and the like. If all these tools are coordinated to shape urban development according to plan, the guesses about future public land needs can be based on a pattern of future land use which is to some extent actually brought about by the actions of those making the guesses. Thus, the selection of sites for future public use need not be merely a response to expected development dic- tated by private market forces, but rather part of a conscious public policy to initiate a desired pattern of urban growth. In this case, there is a self-realizing aspect to predictions about future land needs, be- cause the local government can actually 56 act to determine land needs rather than just guess about them. Flexibility However, even with such control over development as local authorities possess, long term forecasting of public land needs is a risky operation, since city plans, upon which the guesses about future needs are based, will often not be carried out in their original form, if at all. When it is necessary to make changes in plans to adapt to unforeseen developments, these changes may affect the desirability of particular sites which have been previously acquired for future use. However, when expecta- tions about the future prove to have been mistaken, flexibility in the operation of the advance acquisition program may help to mitigate the impact of the mistakes on the overall balance of costs and benefits. One type of mitigation is often inherent in mistakes involving moderate overesti- mation of needs — mistakes tend to be cor- rected by time. Needs have, historically, had an upward trend because of higher standards or of growing population. "Too much," defined in terms of a target year five years hence, is often "too little" in terms of a target of ten years hence. Though there are additional holding costs involved, they m^y not be excessive. A second source of flexibility which can mitigate underestimation of requirements is the fact that land is only one of the factors of production in any government service. Even for outdoor recreation, facil- ities and personnel are important further factors in generating the service. By in- creasing the input of factors other than land, the productivity of land can be in- creased. The third and most important source of flexibility stems from the fact that it should be possible to dispose of any pre- viously acquired land if subsequent events reveal that it will not be needed for any public use. Arrangements for sale or ex- change seem essential to provide the means of adjusting for forecast errors which are not otherwise moderated by flexibility in the public land-use stand- ards or by stretching out the period be- tween acquisition and use and altering factor inputs. For the disposal arrange- ment to be effective, there must be peri- odic restudy of future land needs in order to identify any sites that may have lost their usefulness. It should be obvious that the occasional disposal of a no-longer-needed property is not to be equated with "failure" in an advance acquisition program. For one thing, the land may have appreciated in value so that a profit is made on the transaction even though the land is not used. But more important, the disposal arrangement is simply a way of giving the process of ad- vance acquisition enough flexibility to make it work efficiently in a situation where perfect foresight is not possible. A fourth type of flexibility is administra- tive. Mistakes can occur because decisions have been made by inappropriate jurisdic- tions. If so, administrative changes, which match the geography of administrative jurisdiction to that of land benefits or costs, are capable of correcting error. To some extent adjustments within governments can help. But more usually the more rele- vant adjustments, and those far more diffi- cult to achieve, are among adjacent or overlapping government jurisdictions. The discussion of the methods of plan- ning for advance site selection has pro- ceeded as though the problem would be approached from the viewpoint of the urban area as a whole. Unfortunately, it is rare that any urban plan is conceived from the point of view of the area as a whole; rather, there are usually separate approaches for each of the many jurisdic- tions which make up the urban area, and there is little or no attempt to mesh these plans into a coherent whole. Therefore, land needs related to the growth of the total urban area may be neglected merely because there is no organizational level charged with responsibility for the whole area. This political fractionalization may even work against reservation of land for region-serving uses if these uses are for some reason considered undesirable for 57 any particular jurisdiction (such as a noisy airport or a sewage disposal plant) though obviously beneficial to the entire region. This being the case, it might seem pointless to talk about planning for re- gional needs as though it were being con- ducted in the context of the whole area. However, for those land uses which do require a regional approach for any effec- tive advance site selection, talking about them in this way does point up the need for new organizational forms to cope with problems on a regional level. The begin- nings of regional planning have been made in some instances, particularly under the impetus of planning for the ad- vance acquisition of land for open spaces. Planning for advance acquisition to serve other regional public land needs is a logi- cal and not difficult extension of this activity, if the case for it can be made persuasively. PREDICTING LAND VALUES Changes in prices of particular parcels of land over a period of years can be thought of as the product of three processes: (1) broad long-term trends in land prices which are a function of changes in the value of money and the major outlines of the pressures of demand in broadly defined areas on the fixed resource, land; (2) transition of areas from undeveloped to developed states; (3) random factors in- fluencing the price of particular parcels. These distinctions are not necessarily incorporated in analyses, but they seem useful to keep in reserve in reviewing the available information bearing on predic- tion of land prices. Attempts to study the determinants of land values have been hampered by a gen- eral scarcity of good data with which to work, and by the difficulty of measuring accurately the variables that are assumed to influence land values. Despite these dif- ficulties, there have been a few recent empirical studies of the urban land mar- ket which shed at least some light on the problem of making guesses about future land values. What do these studies reveal that might bear on guesses about land prices to be made by public bodies when contemplating advance land acquisition? Studies are of two general sorts: (1) those which simply record land values at different points in time to show the trend — call them "descriptive" studies, and (2) those which try to measure statistically the relationship between land values and several variables supposed to affect land values such as population growth, per cap- ita income, accessibility, and the like — "analytic" studies. It will be useful to re- view these writings in an effort to learn what concensus they achieve. Compari- sons are severely hampered by the fact that different explanatory variables are used in different studies, and even hypotheti- cally equivalent variables are often de- fined somewhat differently. Descriptive Studies The two most broad-based sources of data on trends in suburban land values are a recent study by the National Association of Home Builders (NAHB)' and the Fed- eral Housing Administration's (FHA) se- ries on the average appraised value of developed lots used for the construction of new single-family houses with FHA in- sured mortgages." The NAHB Membership Survey (with a response from 7,100 build- ers throughout the country) gives the price being paid by builders for raw land and for finished lots in both 1960 and 1964. The information on price per acre for raw land would apply more particularly to the expanding urban fringe. The me- dian percentage rise in price per acre for the over 300 cities was a rate of about 10 percent a year.* For the finished lots the median rate was about 71/2 percent a year. 2. National Association of Home Builders, NAHB Special Report 65-8. Washington, National Associa- tion of Home Builders, 1965. 3. U.S. Federal Housing Administration, FHA An- nual Reports. Washington, D.C., Federal Housing Administration, 1946-1965. 4. Median appreciation for the total four-year pe- riod was 47 percent, which implies a rate compounded annually of slightly over 10 percent a year. 58 APPRAISL PRICES OF LOTS FOR SINGLE FAMILY HOUSES WITH MORTGAGES INSURED BY FHA 1946 1964 2000 1500 1000 500 c 1 HART 1 1 1 1 — 1 — 1 1 - - - - 1 SOL 1 JRCE F HA Ann ual Rep orts 1 _J 1 I I I I I . I 1 I I I 1 I I I 1946 48 50 52 54 56 58 60 62 64 One technical point worth noting. The average, in the sense of the central expe- rience of individual cities (median of city figures for percentage rise), is quite different from the change in the average price of acreage for all cities over the peri- od. The latter is vv^eighted more heavily by the cases where land prices were high and in- creasing strongly. This second sort of aver- age showed a compound rate of increase of 12 and 13 percent for acres and lots respectively, in contrast to the median averages of 10 and 71/2 percent. (Inciden- tally, note also that the relative size of the rise for acres and lots happens to be re- versed.) The median figures are more rele- vant to the question of what is likely to be encountered by individual city programs in advance acquisition. For purposes of anticipating change, the typical experience expressed in aver- age change should be supplemented by in- formation about differences in the experi- ences of various localities. The NAHB data shows that in 8 percent of the cities, the price of raw land per acre actually fell; for finished lots, a fall was less fre- quent (314 percent of the city reports). But to cover the cost of holding land, prices must not only fail to fall but actu- ally rise. An increase at a compound rate of 4.7 percent per year (reported as 20 per- cent for the four-year period) would not cover usual costs of interest and lost taxes. Rises smaller than this amount were re- ported by 12 percent of the cities for the prices per acre, and by 20 percent for the prices per lot. For about a fifth of the cities, then, advance acquisition over 1960-1964 period would have been ill ad- vised if benefits other than appreciation in land values failed to outweigh costs other than those of interest and taxes. Price rises between 4.7 and 6.8 percent per year may or may not justify advance acquisition on the basis of appreciation in land value alone. Changes in raw land prices for another 9 percent of the cities and in lot prices for another 17 percent fell in this range. The survey shows, then, that if only ap- preciation, interest, and tax costs are con- sidered, about 70 percent of the cities had experiences that showed a clear benefit if raw land acreage needed in 1964 had been bought in 1960; for finished lots the corre- sponding figure is 60 percent of the cities. These figures probably give an over-opti- mistic picture since they report only on sites that builders have seen fit to purchase. The data for FHA site values are avail- able for the years since 1946, and since 1955 they have been available with a breakdown for about 50 SMSA's. The FHA site values are generally accepted as accu- rate appraisals of improved residential building lots for new middle income housing at the active fringe of urban devel- opment. The national averages for 1946 through 1964 ai'e shown in the accompany- ing chart. CHART 1. A semilogarithmic scale is used for the prices per lot so that uniform rates of change appear as a straight line on the face of the chart. Clearly, rates of change are quite different over stretches of even five years. Over the whole period, prices rose at an average rate of 8 percent per year. However, prices increased at an average yearly rate of somewhat less than 59 5 percent between 1948 and 1953, and be- tween 1957 and 1962, whereas they rose by 15 percent a year between 1953 and 1957. Over the three year interval, 1948 to 1951, the rise almost ceased. The experience of local areas would necessarily show wider variation in rates of change. The price of improved lots includes, of course, not only the price of raw land, but also the value of improvements to the land such as rough grading, streets, sewers, and other utilities. The rise in construction prices and conse- quently in the cost of these improvements over time must have contributed to the rise in value shown here. Also, the average size of building lots seems to have in- creased somewhJat since 1946^ and this would also account for some of the in- creases in lot prices over time. The only attempt to disentangle the effects of different influences over time is an excel- lent study of the San Francisco area by Sherman Maisel." He separated the contribu- tion to change in price made by (1) size of lot, (2) cost of development, and (3) raw land value. Table 1 SAN FRANCISCO BAY AREA LOT PRICES, DEVELOPMENT COSTS, AND RAW LAND VALUES ^ FHA Appraised Value Per Lot Size of Lot (sq. feet) Oevelop- Cost Per Lot Raw Land Per Lot Value Per Acre 1950 $1,300 5,500 $ 700 $ 600 $ 3,300 1960 3,500 6,500 1,535 1,965 9,300 1962 3,850 6,500 1,615 2,235 10,600 > Source: Maisel, op. cit. The study covered subdivision applications for over 200,000 lots for the period 1950-1962. The figures for ravi land value are computed as residuals by subtracting the development cost per lot from the FHA finished lot value. Apparently the raw land price rose some- what faster than the other two components, though all elements associated with land acquisition for homes rose substantially in price over the period in the San Francisco Bay Area. The last column indicates that the raw land value rose at a compound rate of about 10 percent a year between 1950 and 1962. The figures of the NAHB and FHA stud- ies should reflect the broad long-term trend in land prices since they cover plots in more or less the same stage of develop- ment (fairly central in the transition from rural to urban) in each successive year. Needless to say, conversion from rural land to urban residential areas involves very large increases in value, and conver- sion to commercial properties larger still.' But for a local government to cap- ture the entire increase in land value re- sulting from the rural to urban conver- sion, advance acquisition would be required considerably ahead of any expected public use. Except for the case of large outlying areas needed for recreation, airports, etc., this is probably not feasible. The uncer- tainty as to whether the rural area will actually be developed for urban use may be too great, except in connection with comprehensive development planning, mat- ters touched on in Chapter 9. Nevertheless, in thinking about probable changes in land values on the urban fringe it is useful to keep the two dimensions of potential price change in mind. The relative contribution to total price change associated with trend and with transition will be very different for dif- ferent areas and therefore it is useful to consider them separately. For example, in the case of land on the urban fringe, the transitional dimension will be very large relative to what it is in areas which have already developed. As an instance, con- 5. Christopher Tunnard and Boris Pushkarev. Man- Made America. New Haven, Yale University Press, 1963, p. 94. 6. Sherman J. Maisel. "Background Information on Costs of Land for Single Family Housing." Cali- fornia, Governor's Advisory Commission on Hous- ing Problems, Appendix to the Report on Housing in California, 1963 pp. 221-281. 7. Some of these problems are examined in a forth- coming book by A. Allan Schmid. Converting Land From. Rural to Urban Uses, Washington, Resources for the Future, 1968. 60 sider the case of a piece of land which is suitable for a park site, but is in an area not yet touched by active urban develop- ment. Its price is $3,000 per acre. It is expected that future housing development in this area will give rise to the need for a park in about five years. How can one esti- mate what the price of this site would be if acquisition were delayed until the time of expected need ? A good rough guess would start with the transitional dimension. It may be approximated by the price that would currently be paid for a physically similar site in an area currently at the stage of development which the outlying park area is expected to reach in five years (say about $5,000 per acre). The trend di- mension of price is likely also to contribute to the total rise. The FHA and NAHB fig- ures indicate that the price of a similar site at a comparable stage of development might be somewhat higher in five years than it is now, if the trend in these figures were to continue. There may or may not be reasons to ex- pect the general trend in land values to continue. But there are certainly reasons to expect development to cause a rise in land prices. Analytic Studies Efforts to see into the future are of course aided by whatever knowledge of the dy- namics of price change can be acquired. What do the studies show about the factors that have been an important influence on prices ? Although unanimity in results is lack- ing, the significant variables which emerge are interesting. (The studies summarized are listed at the end of the chapter and re- ferred to here by number.) "Site accessi- bility" was introduced in a number of studies (1, 2, 4, 7) ; in each case it was found to be an important variable. How- ever, "accessibility" was defined quite dif- ferently in each study (e.g., accessibility to CBD, to employment, to urban function, etc.), so it is impossible to obtain a common measure of its impact. Another variable which is significant in every study where it was tried (6, 8, 9) is personal income. Other variables typically found significant when introduced were population (8, 9), and zoning (1). The only study to consider sewer availability found it highly impor- tant (1). Unfortunately, these studies seem to possess limited usefulness as direct aids to predicting the size of future changes in land values. All except three (1, 6, 8) em- ploy only cross section data, and only one (1) has a really excellent body of data on land values and related variables to work with. However, the results which have been produced are useful in that they have turned up factors which can be examined for hints on the probable trend in land values. Thus, if it is expected that past trends in population, income, and trans- portation improvements (accessibility) will continue into the future, there is rea- son to believe that the past trend of land values will also continue into the future. Similarly, if rezoning for more intensive use is expected, or if trunk sewers are to be installed, there is further reason to expect that land values will rise. These influences are, in a sense, self-evident yet it does not hurt to find common sense reinforced by the cold eye of numbers. For public de- terminations about advance acquisition the evidence is of special interest, since the particular time when these facilities are to be installed ought theoretically to be govern- ment knowledge before it is private knowl- edge. If only the several left and right hands in the bureaucracy could inform one another about what they are doing, the public as a whole could benefit. This infor- mation is particularly important if prop- erty values in the vicinity of a future public facility will increase as a result of public expenditure. By acquiring early, the public can avoid paying the higher land prices created by its ovm actions. Most of the recent descriptive and ana- lytic studies of land prices have referred to land in suburban areas which are under- going new residential development rather than to land in central cities. One reason for this is the difficulty of getting meaningful data on land prices where almost all of the 61 available land is improved. However, when land is needed for new public facil- ities in the central area, the problem is generally to guess what the future value of land plus improvements will be if acqui- sition is delayed until the time of actual need for a site. When the cost of acquiring the improvements is considered, the cost- benefit calculation can easily be dominated by the benefit of avoiding any new improve- ment, for although the central area is al- ready mostly built up, there is usually a con- tinual rebuilding on many sites. When the most important part of the guess about the future turns on whether new construction will raise the cost of acquir- ing and clearing a site, one way to handle it simply is to wait and see whether any construction is proposed for the site by its owner, and to acquire the site in advance only if some new construction actually is proposed. Of course, to carry this policy out requires some machinery for keeping an eye on all the properties suspected to be likely candidates for future public use (for instance, all properties in an area scheduled for a future urban renewal project). One well-handled program of this type is described in the Richmond Case Study. Even when there is no threat of new con- struction it may still be worthwhile to acquire the land in advance for other reasons, and in this case the guess about future property values may be a more im- portant component of the cost-benefit cal- culation. How much can be said about the trend in central city land values ? Perhaps the most important thing about them is that they seem quite volatile. A recent study (10) on the dynamics of cen- tral city land values in the decade of the 1950's found that not only are the trends in land values very different among different cities, but also very different among differ- ent areas in the same city. But within the various areas of each city, the trends in land value seemed to be closely related to the changing fortunes of each area as measured by retail sales, office occupancy, new construction, the character of population groups moving in and out of the area, the area's prestige, and tax and assessment policies. The trends in these variables were very clearly marked, and seemed to have a continuity and mo- mentum of the sort that should be recog- nizable when a gue.ss about the course of land values must be made. However, the case of each city, and of each area within each city, is highly particular, and not much can be said in general about what will happen to the trend in land values in these areas without detailed knowledge of trends in associated variables of the sort ju.st mentioned above. Despite the difficulty of empirical work on urban land values, many of the forces which influence the urban land market can be and are grasped at an intuitive level by people who have detailed personal knowledge and long experience with real estate business in any particular area. Even without the ideally desired statis- tical information, it is often possible for these people to recognize the salient forces at work in the land market at any time, and to make quite educated guesses about the likely trend of future land val- ues in any spot. In particular, almost all cities employ in their real estate assess- ment offices a number of professional ap- praisers whose job is to keep track of all land values in the city, and who have infor- mation on all real estate transactions tak- ing place in their jurisdictions. It seems very possible that the knowledge of these people could be tapped for estimates of fu- ture land values when such estimates are important to the cost-benefit calculation. There is another way in which this profes- sional familiarity with the real estate market can enhance the value of advance acquisition. When the acquiring agents are in close contact with the market, it should occasionally be possible to buy when owners are eager to sell rather than when the government is eager to buy. Use of this expertise skillfully handled can have the added advantage of reducing the dislo- cation and delays that accompany condem- nation or forced sale under threat of con- demnation. 62 Our efforts to determine the feasibility of assessing future land needs and values have developed a hierarchy of situations that affect the confidence with which the future can be foretold. When a number of the elements that contribute to sound guesses are present the crystal ball is brighter than when they are absent. Having now completed a description of how information should be used and what sort of information should be sought, a re- formulated summary of the structure of cost-benefit analysis for advance land ac- quisition is in order. The summary will also need to point to some conclusions con- cerning administrative procedures that have emerged, as the reader may have no- ticed, as corelatives of the analysis of costs and benefits. But before moving to these statements, two additional steps will be useful. Case studies help to picture the specifics of general problems. Accordingly, the next two chapters report on two such studies of going programs of advance land acquisition. The second step consists of an effort to sketch, however superficially, the broader aspects of land-use controls which it has not been possible to include as the central content of this study. This task is under- taken in Chapter 9. BIBLIOGRAPHY 1. Adams, F. Gerard, Grace Milgram, Edward Green, and Christine Mans- field. The Time Path of Undeveloped Land Prices During Urbanization: a Micro-Empirical Study. Discussion Paper No. 24, Department of Eco- nomics, University of Pennsylvania, July 1966. 2. Brigham, E. F. "The Determinants of Residential Land Values." Journal of Land Economics, Nov. 1965, Vol. 41 :4, pp. 325-334. 3. . A Model of Residential Land Values. Memorandum RM- 4043-RC, The Rand Corporation, Santa Monica, California, 1964. 4. Bums, Leland S. and Frank G. Mittel- bach, "Location — Fourth Determi- nant of Residential Value." Ap- praisal Jo7irnal, April 1964, Vol. XXXII, No. 2, pp. 237-246. 5. Citizens' Housing and Planning Council of New York, Inc. Land Dis- posal Policy in New York City. CHPC, New York, 1965. 6. Gottleib, Manuel. "Influences on Value in Urban Land Markets, U.S.A., 1956-1961." Journal of Re- gional Science, Summer 1965, 6 (1), pp. 1-16. 7. Knos, Duane S. Distribution of Land Values in Topeka, Kansas. Center for Research in Business, University of Kansas, Lawrence, Kansas, 1962. 8. Maisel, Sherman J. "Price Movement of Building Sites in the United States — A Comparison Among Met- ropolitan Areas." Regional Science Association Papers, Vol. XII, 1964, pp. 46-60. 9. Mittelbach, Frank G. and Phoebe Cottingham. "Some Elements in In- ter-regional Differences in Urban Land Values." Proceedings, Western Section Regional Science Association, 1964, pp. 16-29. 10. Wendt, Paul F. The Dynamics of Central City Land Values — San Fran- cisco and Oakland, 1950 to 1960. Research Report 18, Real Estate Research Program, Institute of Busi- ness and Economic Research, Uni- versity of California, Berkeley, Cali- fornia, 1961. 63 Chapter 7 MONTGOMERY COUNTY SCHOOL SITE PROGRAM The Board of Education of Montgomery County, Maryland has for a number of years been acquiring land for schools in advance of need. Montgomery County is a fast growing suburban area north of Washington, D.C. Between 1955 and 1965 its population in- creased by 167,000 and its public school enrollment by 54,000. The rate of increase per year was 5 percent for population and 71/2 percent for school enrollment. The im- pressive nature of this growth in school enrollment is shown in Figure 1. ORIGIN OF THE ADVANCE ACQUISI- TION PROGRAM The rapid grov^^h in school enrollment has created severe demands on the school system, and Montgomery County has car- ried on an active building program to meet its needs; between 1955 and 1965, 67 new schools were built. With this rapid grovd;h extensive advance planning for new facil- ities has been required to avoid such tem- porary burdens on existing facilities as crowded classrooms, double sessions, and bussing between schools. Most of Montgomery County's popula- tion growth has been in previously rural areas and the problem for the Board of Edu- cation has been to anticipate where and 65 FIGURE 1 MONTGOMERY COUNTY PUBLIC SCHOOLS NUMBER OF PUPILS OVER TWENTY-FIVE YEAR PERIOD 1941 1965 AS OF SEPTEMBER 30 OF EACH YEAR FOR GRADES KINDERGARTEN THROUGH TWELVE (SHOWN IN BLACK AND AS ADDITIONAL STUDENTS ARE THE ENROLLMENTS FOR MJC FOR YEARS 1946-65) ALSO INCLUDED IS THE PROJECTED ENROLLMENT FOR THE YEARS 1966-71. NUMBER OF PUPILS 15,432 I 16,196 16,018 16,180 17,222 18,546 20,900 24,132 27,772 32,380 37,494 42,322 47,260 52,294 57,316 63,015 68,056 74,523 80,557 86,177 92,258 97,792 102,020 106,125 111,260 116,235 121,265 125,630 129,945 16,475 I 133,920 |186 ]367 I 427 I 473 I 541 ]444 ]425 | 443 ]493 ] 614 | 731 ]892 1 1,091 J 1,407 I 1,613 I 2,026 ~B 2,391 B 2,652 B 2,845 B 3,886 ~B 4,363 J 4,799 J 5,139 B| 5,537 Jl 6,069 IH 6,503 SOURCE: Budget Request Capital Expenditures, for the School and Fiscal Year Ending June 30, 1967 (Board of Education, Montgomery County, Maryland) 66 when the suburban expansion will occur so that it can have schools ready to receive the additional enrollment from new homes. At the very least, anticipation of need by two or three years is essential. The planning of a new school takes about a year, and there is a further lag between the initial request for capital funds for construction and the opening of a school — about one year for an elementary and two years for a secondary school. Some advance planning, then, was unavoidable for an area undergoing growth of the kind expe- rienced in the County. In 1954 the Board of Education decided to extend the advance planning process to include the advance acquisition of school sites. No one person is credited with orig- inating the idea of an advance land acqui- sition program; rather it seems to have come in response to a widespread belief that such a program was needed to cope with the rapid growth in school needs. The belief appears to have been reinforced by an intense interest in education on the part of the inhabitants of Montgomery County; they want a public school system of high quality. The County has one of the highest individual average incomes in the entire country, and a large proportion of the working population is employed at the pro- fessional level, to a large extent in positions with the Federal government. Experience has indicated that these people are very vo- cal and effective in their support of a supe- rior educational system. In such an atmos- phere advance acquisition of school sites probably had more acceptance than it would have had in many other areas. Since the inception of the program the Board of Education has carried on a public relations program, and it is reported that there is now widespread voter support for advance site acquistion and that such groups as the P.T.A., the League of Women Voters, the Montgomery County Citizens Planning Association, and various neigh- borhood associations have given strong support. In any event, funds were asked for and granted. In 1954, the Superintendent of Schools requested $300,000 for an advance land acquisition revolving fund in the capital budget. The Board of Education in- cluded this request in the capital budget for fiscal year 1955, and the County Council approved it. The fund was increased by $150,000 in 1955, and was further increased every year between 1958 and 1962, and again in 1966, so that the advance land acquisition fund now totals $4,000,000. OPERATION OF THE PROGRAM Within the Department of School Facili- ties of the Montgomery County Board of Education, the Division of Planning and the Division of Site Acquisition carry out the program of acquiring future school sites. The Division of Planning has respon- sibility for forecasts of population, enroll- ment, and school needs. The Division of Site Acquisition is responsible for site location and acquisition. Predicting Future School Needs In order to buy school sites in advance, the Board of Education first needs reliable estimates of where, when, and how much land will in the future be needed for new schools. Making these estimates is the most difficult part of the advance acquisi- tion process. To predict the future school needs, the Board of Education's Division of Planning cooperates closely with the Maryland- National Capital Park and Planning Com- mission (the land planning organization for Montgomery County). This cooperation is important whenever future school needs are being predicted but it is best exempli- fied by the procedure for preparing master land use plans for areas within the County. When M-NCPPC develops a master plan proposal for a sector of Montgomery County, it coordinates with the Board of Education to ensure that the area can be efficiently served by schools. M-NCPPC first sends to the Division of Planning an initial draft of each area master plan proposal, complete with topographical maps showing all proposed zoning densities for the area. The Division of Planning projects 67 the impact of the plan on the need for school facilities in two steps : 1. Dwelling-units-per-acre fac- tors are used to estimate the num- ber of dwelling units that would be built in the area according to the proposed zoning. For example, in Montgomery County R-90 zon- ing produces 3.0 dwelling units per acre; R-20 zoning produces 21.7 units per acre. 2. Then, pupils-per-dwelling-unit factors are used. These factors are derived from yearly surveys of the school population. For example, current factors used for elemen- tary schools are: .8 pupils per sin- gle-family house, and .27 pupils per apartment dwelling unit for R-20 zoning. These factors are sub- ject to continuing study and are adjusted from time to time as con- ditions change. The Division of Planning is very much aware of the problems of uncertainty in using pupils-per-dwelling-unit yield factors : The accuracy of the factors used to estimate the number of public school pupils per occupied dwell- ing unit, on the average, is extremely important in determin- ing long range school facilities needs. These factors have been developed for houses as well as for apartments built under the various apartment zoning cate- gories. Some of the many causal forces acting upon pupil yield fac- tors are: number of bedrooms in each dwelling unit, purchase or rental cost, community aging, and parochial or private schools. Pupil yield factors, for any given area, will vary from year to year as well as from the time of initial construction and occupancy of new houses to the time the area ages and is completely developed. Many areas observe housing cy- cles whereby after low initial yields, a peak is gradually reached as pre-school children move into a school and advance through the grades. It is possible for a school service area to con- tribute twice as many children to the public school from the same number of houses, within the range of a housing cycle,^ However, some measure of flexibility can be achieved when pupil yields vary un- expectedly. It is possible to compensate for the error in prediction by adjusting the boundaries of the school area to include smaller or larger numbers of students. By this two-step process the Division of Planning obtains from the master plan proposal a distribution of elementary school pupils throughout the area and from this is able to predict the required general distribution of elementary school sites. Some of the considerations in setting boundaries for elementary school service areas are : • If possible, the school should be vdth- in walking distance of all its pupils. • Natural barriers, such as parks and major streams, are often used as school area boundaries. • Other barriers, such as railroad tracks, major highways, and industrial areas are also used as school area bounda- ries. • There should be a suitable school site in the area, preferably on level ground. • The history of parochial or private school enrollments is reviewed. The preliminary work on the master plan proposal by the Divisions of Planning and Site Acquisition may suggest that some changes in the plan would be desirable in order to provide a better distribution of schools, and if so, this is worked out with M-NCPPC before the master plan proposal is presented for public discussion and adop- tion by the County Council. 1. "A Plan for Elementary Schools to ser\'e the Aspen Hill-Norbeck Area," Montgomery County Public Schools, Rockville, Md. 1965, pp. 2-3. 68 In addition to the work on master plan proposals done in cooperation witli M-NC- PPC, the Division of Planning makes its own independent studies to predict future school needs. Such studies use a procedure similar to the one outlined in the case of a master plan proposal, and are usually made for special areas where some development is already under way but where a master plan does not exist, or where changes have been made in a previous master plan. En- rollment forecasts are made using the ex- isting zoning for the area; however, such forecasts are co'nsidered less reliable be- cause without a master plan there is often greater pressure for rezoning to a higher density as development occurs. Accurate enrollment forecasts for a developing area depend to a large extent on stability in land use planning. With an adopted master plan for an area some spot changes in zoning can be expected, but a massive breakdown of a master plan is considered unlikely. Once the expected pattern of required school sites has been determined in the man- ner just described, the timing of need for the future sites must also be estimated. Master plans have been prepared for large parts of Montgomery County, and the funds available for advance acquisition set a lim- it to the number of sites that can be held at any time. Therefore it is necessary to estab- lish the priority in which future school sites should be acquired. To predict the timing of need for the fu- ture sites, the planning and site acquisition staffs keep watch on a number of indicators of the housing development in the County. The most important of these is the path of future sewer and water extensions project- ed in the five-year capital improvements pro- gram of the Washington Suburban Sani- tary Commission. Development usually fol- lows quickly after sewers are extended into an area, so the sewer extension plans are a good indicator of the timing of future popu- lation movement into an area. In addition, development activity in the County is mon- itored by examining the building permits issued each month, telephone connection re- quests, and by keeping in personal contact with housing developers in the area. In this way, the planning and site acquisition staffs obtain a very good idea of where and how much current development activity is going on, and can reasonably predict where and, in a rougher way, when development in the near future will take place. The previous paragraphs suggest an or- derly sequence: first future school sites are identified, and then the time when they will be needed is determined. But actual prac- tice is often less systematic. Often, signs of new or expected development in an area lead the planning staff to make the study of where the future school sites should be lo- cated. In any case, both questions — where and when — must be answered. Only then does the site acquisition staff consider spe- cific possible sites for purchase in light of the funds available, with priority given to the sites that will be needed soonest. Site Selection and Acquisition The procedure for specific site selection and acquisition is relatively clear-cut. Topo- graphical and tax maps are used to select a number of promising parcels of land, and field surveys are made to cull the most likely prospects. The possibility of a combination park and school site is discussed with M-N CPPC, and if M-NCPPC is interested, a site to serve both purposes is sought. (In such cases, M-NCPPC and the Board of Ed- ucation share the cost of the site.) The site acquisition staff develops the data necessary to determine the adequacy or inadequacy of the possible sites under consideration. Stud- ies are made of topography and grade prob- lems; of access and location related to school needs; and of road and sewer lines and projected plans for each. When a speci- fic site has been selected, an appraisal is made and soil tests are taken to determine rock condition and foundation problems. When information on a possible site has been developed and it is acceptable to the staff, the proposal for its acquisition by pur- chase or condemnation is presented to the Site Selection Advisory Committee. This Committee consists of the following mem- bers: • Two from Board of Education — Direc- tor of School Facilities, Director of Physical Education. 69 • Two from Maryland-National Capital Park and Planning Commission — Director of Parks, Land Planning Director. • Two from Montgomery County — Direc- tor of Public Works, Director of Recreation. • One from the Washington Suburban Sanitary Commission — Design Engineer. The members of this committee are well equipped to evaluate the suitability of sites recommended, as each is an expert on one of the various aspects of site selection. The site acquisition staff felt that review by this committee exerts a valuable discipline over site recommendations; they know that a site has to be the best possible one before pre- sentation to an expert working committee. Present practice is to present to the Site Selection Advisory Committee the data on all sites before action by the Board of Edu- cation. If there is unanimous approval by the Site Selection Advisory Committee, the request is forwarded to the Board of Edu- cation for consideration. Failing approval by the Site Selection Advisory Committee, the matter is referred to the Co-ordinating Committee. The Co-ordinating Committee consists of the following members : • County Manager • Superintendent of Schools • Maryland-National Capital Park and Planning Commission — represented at com- missioner level. » • Washington Suburban Sanitary Com- mission — represented at commissioner level. If the Co-ordinating Committee approves the site it is presented to the Board of Edu- cation. In practice, if the Site Selection Com- mittee or the Co-ordinating Committee ap- proves the site, the acquisition is authorized by the Board of Education. After final ap- proval, the actual acquisition of the sites is handled by the Site Acquisition Division and the attorney for the Board of Education. Payment for school sites acquired in ad- vance is made from the Future Sites Ac- count, a revolving fund created for advance land acquisition. When a site is acquired in advance, the Future Sites Account is debited with the purchase price plus incidental costs such as appraiser's and lavi^er's fees. The Future Sites Account is reimbursed by the same amount when capital budget funds are appropriated for construction for the school (about one year before occupancy for ele- mentary schools and two years before occu- pancy for secondary schools). The reim- bursement is not automatic, however ; it has to be requested in the Board of Education's capital budget and appropriated by the County Council each year. In 1964, a recently elected "economy in government" County Council deleted the Future Sites Account reimbursement of $887,000 from the Board of Education's capital budget request, and in 1965 deleted a further $350,000. However, because of numerous public protests and ur- ging by the Board of Education, the cuts were fully restored in the following year. An important disadvantage of this annual reappropriation procedure is that the school board is not able to enter into installment purchases or options for future sites, be- cause it cannot legally commit funds that have not yet been appropriated. EVALLATION OF THE COST AND BENEFITS When the Future Sites Account was cre- ated in 1954, the Board of Education had a very limited staff to undertake advance land acquisition (the present Divisions of Plan- ing and of Site Acquisition consisted at that time of one person each). In the early years of the program most of the funds in the Future Sites Account were actually used to acquire sites immediately needed. The fol- lowing table shows the breakdown of school sites between those acquired more than one Table 2 NUMBER OF SITES BOUGHT BY NUMBER OF YEARS IN ADVANCE OF CONSTRUCTION FUNDS Year of Purchase More Than Less Than Ratio of Advance One Year One Year (Col. 2) in Advance in Advance to Current (Col. 3) 1956 2 5 0.4 1957 1 4 0.25 1958 2 4 0.50 1959 2 4 0.50 1960 5 9 0.56 1961 6 6 1.0 1962 3 1 3.6 1963 4 6 0.67 1964 9 3 3.0 70 year in advance of appropriation of school construction funds, and those acquired less than one year in advance of appropriation of construction funds.' The figures illustrate the growth of the program. It was not possible to build up a "reservoir" of future sites while still under pressure to acquire sites necessary for im- mediate use. Only by 1961 had the program progressed to the point where over half on the sites were purchased more than one year in advance of need, and not until 1964 were almost all sites being purchased more than one year in advance. The goal of the Site Ac- quisition Division is to acquire all school sites about five years in advance of construc- tion, but so far lack of funds and inability to forecast precise site requirements that far ahead have prevented them from achieving this. Though the program has grown slowly, enough experience has been generated to permit a rough evaluation of the costs and benefits that have resulted on a sample of properties. The more accurately measurable costs and benefits are calculated and set against each other, and then the important intangible costs and benefits are described. Appreciation in Value Unfortunately, no estimates of apprecia- tion are available for properties that were acquired for future use and have since been used. However, estimates of current market value are available for properties held in the Future Sites Account as of January 1966, and for these properties it is possible to cal- culate the appreciation in value between the date of acquisition and January 1966. Esti- mates of current 1966 market value were made by the staff of the Division of Site Ac- quisition using data on actual sale prices or appraisals of similar adjoining or nearby properties. The estimates were prepared at the request of the Superintendent of Schools for presentation to the County Council ; we have discussed them with an independent appraiser who finds them very realistic. Table 3 shows the compound rate of ap- 2. Note that a year in advance of the provision of funds means two to three years in advance of use as a school building. preciation (center column) for the 17 cur- rently owned sites that have been held for longer than one year, along vdth the size of the site and number of years it has been held. Table 3 ANNUAL RATE OF APPRECIATION, PURCHASE TO JANUARY 1966 Appreciation,* Years Held f* n m nniinri Intprpct year 8 mrt n f he Q 1 year 8 months 9 17.5 1 year 8 months 11 30.3 2 years 10 months 13 11.2 1 year 7 months 15 30.0 4 yea rs 8 months 16 8.4 3 years 8 months 20 33.0 1 year 8 months 20 9.3 4 years 4 months 21 30.0 7 years 3 months 23 30.4 4 years 9 months 23 8.9 1 year 3 months 25 20.0 1 year 2 months 25 7.9 4 yea rs 11 months 28 9.7 2 years 1 month 30 5.3 4 years 8 months 40 33.6 1 year 3 months 46 7.5 * The rates are compounded annually. No clear pattern emerges, but there is a general tendency for the properties that have been held longest (4 to 7 years) to fall in the mid- range of appreciation (16 to 28 per- cent per year) ; the properties held for short- er periods (1 to 3 years) are closer to the ex- tremes in appreciation (0 aaid 46 percent per year). This is perhaps because properties held for longer periods are more influenced by the general upward trend in all land val- ues, while properties held for shorter peri- ods are more influenced by sudden jumps in value connected with nearby development. These rates of appreciation are impressive but not surprising to those familar with real estate values in Montgomery County. Much of the appreciation can be accounted for by the fact that the Board of Education is, in the nature of its operations, buying and using land on the fringe of urban develop- ment. It is in this area that new school sites are required as the outward growth of pop- ulation expands onto land newly converted from rural to urban use. By acquiring sites in advance of development, the Board of Ed- ucation has in many cases acted early enough to anticipate at least part of the rise in land prices usually associated with this conver- sion from rural to urban use. The map on the 71 following page gives the location of land currently being held or authorized for pur- chase for future school sites as of November 1965, and it shows quite clearly this pattern of acquisition of the fringe of the developed areas of the County. In addition to the rise in value in specific areas associated with the conversion of land from rural to urban use, there has also been a general rise in almost all land values throughout Montgomery County and this must influence the rate of appreciation of the future school sites. One illustration of this general increase in all land prices is the NAHB survey cited in Chapter 6. For the Washington, D.C. area as a whole, the in- crease in land price per acre was reported as 71 percent, and in lot prices 62 percent, over the four year period, or a rise at annual rates of about 14 and 13 percent respectively. Al- though this survey included the whole Wash- ington metropolitan area, it is probably rep^ resentative of what has happened in Mont- gomery County. Measurable Benefits The dollar benefits result from apprecia- tion and temporary income. Their amounts are developed in accordance with the analy- sis of Chapter 4. The tables show them for each site (and this is likewise done for costs) in order to make the procedure entirely clear. Appreciation. In order to set a dollar val- ue on benefits, the appreciation in site value over the holding period' must be converted to "present value" as of the date of purchase. This is done for each site in Table 4. The dis- counting is shown for two rates : the bond rate of 3-1/2 percent, and a higher figure, 6 percent, selected for comparative purposes. Thus the benefit from appreciation at these alternative rates appears in the last two col- umns of the table. Return from temporary nse of land. Over half of the 29 sites now held in the Future Sites Account are wooded land for which there is no significant temporary use. Of the unwooded sites, three are leased at rentals which provide a very small return. They are : 3. The terminal date used for all calculations has been taken as January 31, 1966, rather than the ac- tual date of use. No dates of expected use of a suf- ficiently precise sort were available. Yearly Size Rent in Acres $ 150 30.4 840 33.6 1,500 18.2 Market Value of Site 1/31/66 $212,800 302,000 212,600 Rent as Percent of Market Value .007 .028 .068 The rents are very low in relation to the market value of the land because the prop- erties are being temporarily leased for farm- ing or pasture, while the market value of the land is determined by its potential for residential or commercial development. On one other site the former owner was given a special "use permit" as part of the pur- chase agreement as an inducement to sell. He can continue to farm the land until not- ified by the Board that it is needed for school construction. Although the returns are low, at least the properties are taken care of by the tenants during the holding period. This is useful since two of the rented properties have farmhouses which would have to be guarded against vandalism or improper use if not occupied. Table 4 APPRECIATION Value of Site Appreciation, Purchase Date to Jan. '66 At Purchase Estimated Present Value, Discounted to Pur- chase Date at Date Price ■ Value In Jan. '66 Total Amount 3.5 Percent 6 Percent (1) 1958 1961 1962 1963 1964 (2) $ 46,700 38,100 80,100 67,400 62,000 92,000 101,600 70,900 24,700 229,100 221,600 194,400 68,300 228,500 151,500 60,700 93,200 (3) (4) (5) (6) $212,800 $166,100 $131,000* $110,500* 126,000 87,900 74,000 65,500 160,000 79,900 67,200 59,500 178,000 110,600 93,000 82,500 302,000 240,000 202,000 179,000 210,000 118,000 103,000* 93,500* 198,000 96,400 84,000 76,200 100,800 29,900 27,000 25,000 42,400 17,700 16,500* 15,800* 262,000 32,900 30,700 29,300 221,600 240,000 45,600 42,600 40,600 93,000 24,700 23,000 22,000 272,000 43,500 40,600 38,700 200,000 48,500 46,900* 45,700* 79,000 18,300 17,700* 17,300* 150,000 56,800 54,900* 53,600* * Properties acquired in the second half of the year are counted as having been held from the beginning of the follow- ing year. (Other properties were acquired in the first half of the year and are counted as having been held for the full year.) 72 8 fc, B ^ J H I o o o y p o o : o 2 G 1=) 73 Only four sites have been put to a tempo- rary private use, and none has been used for any temporary public purpose. The reasons that so few have been used are : • Many of the sites have a covering of trees which makes the land unsuitable for use. • A tenant's lease is of uncertain length and is terminated upon notification that the Board of Education will need the site. • The Board of Education is increasingly buying land from speculators rather than farmers, and the cleared sites have often al- ready been withdrawn from agricultural use before purchase by the Board of Education. Therefore they are not desired on any lease- back arrangement for farming or pasture. None of the three sites being rented is leased to the former owner of the property, and it is difficult for the Site Acquisition Division to search out tenants for short term leases. The present value of these returns, dis- counted back to the date of acquisition as described in Chapter 4, are shown in Table 5. Table 5 INCOME FROM RENT— DATE OF PURCHASE TO JANUARY 1966 Present Value of All Rental Income, Discounted to Purchase Date At 3.5 Percent 6 Percent Amount Amount Year Yearly Annuity (Cols. Annuity (Cols. Bought Rent Factor " 2x3) Factor " 2x5) (1) (2) (3) (4) (5) (6) 1958 $ 150 6.11* $ 915 5.58* $ 838 1961 840 4.52 3,800 4.21 3,540 1964 1,500 1.90 2,850 1.83 2,740 " The present value of an annuity consisting of the yearly rental income is read from tables that apply the formula 1— (1 + i)- i * Properties acquired in the second half of the year are counted as having been held from the beginning of the fol- lowing year. (Other properties were acquired in the first half of the year and are counted as having been held for the full /ear.) I Measurable Costs Cost of Capital. The funds required for advance acquisition of school sites are in- cluded in the capital budget request which the Board of Education submits to the Mont- gomery County Council. The Council holds public hearings on the budget request and, after any changes in it are made, votes the appropriation. The Council also determines the financing of the Board of Education's capital program, and in the past the main source of funds has been the sale of bonds by the County or borrowing from the State of Maryland. Small additional sources of funds are the sale of former school sites and state and federal grants. The size of the advance land acquisition revolving fund (Future Sites Account) was over $4,000,000 for the fiscal year 1967. Following the discussion in Chapter 5, we aim to use the marginal rate on munici- pal bonds as the interest cost on funds invest- ed in advance acquisition. But in view of the relatively small amount of such investments, it is reasonable to assume that the marginal rate — the cost of acquiring the extra capi- tal required for site acquisition — will be vir- tually the same as the average rate. Accordingly, the rate applicable to Mont- gomery County Bonds has been calculated for the years 1955-1965.* It averaged 3.57 percent, and approximately this figure, 31/2 percent, was the discount rate applied to costs and benefits. As mentioned earlier, an alternative way to view the cost of capital used for advance acquisition can be its opportunity cost in other school or county uses. But there is no clear indication that this procedure is called for here. The opportunity cost of advance land acquisition is the foregone benefit of using the funds for some other public pur- pose. This assumes that use of funds for ad- vance acquisition has actually displaced some other projects. But in Montgomery County aggregate size of the Board of Education's capital budget does not appear to be prede- termined. Rather, individual projects are determined and the budget is the total of those needs as recognized by the Board of 4. Moody's Ratings for Montgomery County General Obligations were obtained from Moody's Municipnl and Government Manual, Moody's Investors Service, New York, N.Y., Feb. 1966. The interest rate for each year was taken as Moody's Average Bond Yield for the rating assigned to Montgomery County in that year. 74 Table 6 COST OF CAPITAL, DATE OF PURCHASE TO JANUARY 1966 Present Value of Interest Cost, Discounted to Purchase Date at Yearly Interest 3.5 Percent 6 Percent Payment ^^"""i^^^^^"" Amount Amount Year Price at 3.5 at 6 Annuity (Cols. Annuity (Cols. Bought of Site Percent Percent Factor ' 5x3) Factor ' 7x4) (1) (2) 1958 $ 46,700 1961 38,100 80,100 67,400 62,000 92,000 1962 101,600 1963 70,900 24,700 1964 229,100 221,600 194,400 68,300 228,500 151,500 60,700 93,200 (3) (4) $1,630 $ 2,800 1,330 2,280 2,810 4,810 2,340 4,050 2,170 3,720 3,220 5,520 3,550 6,100 2,480 4,250 865 1,480 8,000 13,700 7,750 13,300 6,800 11,600 2,390 4,100 8,000 13,700 5,300 9,100 2,130 3,640 3,260 5,600 (5) (6) 6.11* $10,000 4.52 6.000 4.52 12,700 4.52 10,600 4.52 9,800 3.67* 11,800 3.67 13,100 2.80 6,900 1.90* 1,600 1.90 15,200 1.90 14,700 1.90 12,900 1.90 4,500 1.90 15,200 0.97* 5,100 0.97* 2,100 0.97* 3,200 (7) (8) 5.58* $15,600 4.21 9,600 4.21 20,200 4.21 17,000 4.21 15,700 3.47* 19,100 3.47 21,200 2.67 11,300 1.83* 2,700 1.83 25,100 1.83 24,300 1.83 21,200 1.83 7,500 1.83 25,000 0.94* 8,600 0.94* 3,400 0.94* 5,300 "The present value of an annuity consisting of the yearly 1— (1 + i)-" * Properties acquired in the second half of the year are coi Education anci the County Council. Insofar as there is little evidence of "capital ration- ing," there is not the necessity in this case to examine the rate of return that other capital projects might have yielded. Need- less to say, the question is not black and white, and we illustrate the implications of a different interest rate by also making the calculation of costs and benefits with an al- ternative interest rate of 6 percent. In Table 6, the interest cost (at both 3-1/2 and 6 percent) is shown for each property from date of purchase to January 1966. The present value of the stream of payments over the holding period is the cost of capital which needs to be set against the present value of the benefits. Property taxes foregone. The tax loss on sites being held for future use depends on the property tax rate and on the assessed value of the property. In Montgomery County the tax rate on assessed value differs within the County, as there are individual area taxes for such interest payments is read from tables that apply the formula nted as held from the beginning of the following year. special services as fire protection, parking lots, recreation, etc. For 1965, the minimum tax rate was 3.09 percent and the maxi- mum 4.21 percent of assessed value. Real property is officially assessed at approximately 60 percent of estimated cur- rent market value. This 60 percent figure applies to the value of both land and im- provements, which are assessed separately. But Maryland also has a special agricul- tural assessment law which provides that land used for agriculture be assessed at its value in agricultural use regardless of possible higher market value due to po- tential development.^ Assessment on this 5. This special assessment provision was instituted by amendment to the Maryland Constitution in 1960 to help presei'\'e open space agricultural land in growing urban areas, particularly around Washing- ton. However, as the criteria for including prop- erty in the agricultural assessment categorj- are very liberal, there is widespread concern that a ma- jor i-esult of this law has been to reduce the taxes on land being held for speculative purposes, and that the law may not permanently preserve signifi- cant open space. 75 Table 7 TAXES FOREGONE, DATE OF PURCHASE TO JANUARY 1966 Present Value of Taxes Foregone, Discounted to Average Purchase Date at Date Assessed Value of Site Annual Tax at ^^hmh^^^^bh. of b™™^^^^^™^^™™*^™^^^^^^^^^™ 4.21 Percent 3.5 6 Purchase At Purchase For Jan. '66 Average * Rate"' Percent' Percent' (1) (2) (3) (4) (5) (6) (7) 1958 $ 5,800 $36,590 $21,195 $ 894 $5,450 $5,000 1961 9 040 19 400 14 220 600 13,870 28,420 21,145 890 4,030 3,750 10,700 42,270 26,485 1,130 5,100 4,760 22,690 40,970 31,830 1,340 6,050 5,650 2,280 30,000 16,140 680 2,500 2,360 1962 17,060 17,060 17,060 719 2,640 2,500 1963 17,090 29,450 23,270 980 2,740 2,620 4,830 12,520 8,675 364 690 665 1964 19,030 19,030 19,030 800 1,520 1,470 NA NA . NA NA (5,300) " (5,100) " NA NA NA NA (5,300) <• (5,100) <" 10,070 18,000 14,035 593 1,120 1,080 41,700 90,890 66,295 2,790 5,300 5,100 2,300 60,000 31,150 1,310 1,270 1,230 11,410 34,300 22,855 965 935 905 19,820 52,500 36,160 1,520 1,470 1,430 " Average ot value at puchase and in January 1966. Column 4 x 0.0421. Column 5 multiplied by annuity factors as given in Table 6. (Or see interest tables on present value ot an annuity.) >■ Assessment figures not available. Taxes foregone are estimated by applying taxes for property of about the same pur- chase price in 1954. basis may apply to a good bit of land in the urban fringe, and for such land assessment may be extremely low in relation to mar- ket value." Considerable underassessment is suggested by 'the figures for the proper- ties acquired by the Board of Education. At time of acquisition, the assessment ranged from 1 percent to 37 percent of the purchase price for 15 properties, (assessments for two properties were un- available), and the 1966 assessment ranged from 7 to 43 percent of the estimated 1966 market value. Table 7 gives the calculation of dis- counted value of taxes foregone on each property held for future use. As explained in Chapter 5, taxes should be based on ris- ing property values. As a rough approxi- mation of what such a procedure would generate, we use the midpoint in assessed value over the period held, and assume for purposes of discounting the tax stream that this applies to the whole period.' The col- umn heads of the table spell out the proce- dure that generates the present value of the cost to the County of tax income fore- gone by advance acquisition of land for public purposes. 6. One study found that in some areas of Maryland nearest urban centers, assessments were as low as one-fifteenth of what they would have been if based on market value. Peter House, Prejerential Assess- ment of Farmland in the Rural-Urban Fringe of Maryland. Economic Research Service, U.S. Depart- ment of Agriculture, Washington, D.C., 1961, p. 10. 7. We have purposely made what we believe to be a liberal allowance for the tax cost. The tax rate chosen is the highest in the range of actual rates. which varied from $3,090 to $4,210 per $100 of assessed valuation. The choice of the midpoint of assessed value also tends to give a high figure. An upward bias is also implied by the fact that for over half the acquisitions, the assessments were raised immediately after the Board of Education purchased the property. As assessments are often based on recent sales data, this is an indication that the assessments would not have been raised if there had been no transfer of the property. 76 But there is a further possibility of tax loss. If properties had remained in private hands improvements might have been con- structed on the land. If so, there would have been taxes paid on these improve- ments. Should this potential income from taxes also be viewed as a cost of advance acquisition? In most cases a negative answer seems in- dicated and therefore we neglect this aspect of foregone taxes. There are two main reasons. First, in a rapidly grow- ing area like Montgomery County, any improvements which might have been made on these properties were probably merely diverted to other land in the vicinity rather than blocked completely. If so, the total new improvements (and taxes) would remain about the same, and only the geo- graphic distribution would be slightly different. Second, even if some potential im- provements were blocked completely and not just diverted to other land, schools are usually required very shortly after the time that active development gets under- way in any area. Thus, it is at just about the time that the property will be needed as a school site that any potential im- provements would be blocked, and any taxes which might have been lost on po- tential improvements would probably be lost for only a very short time. The figures in Table 7, then, remain our best estimates of taxes foregone during the holding period of land purchased by the County in advance of use. Administrative costs of operating the pro- gram. The staff of the Divisions of Site Acquisition and Planning felt that very little additional working time on thair part was required to conduct the advance acquisition program, because most of the work involved in advance acquisition must also be performed in the case of acqui- sition for immediate use. In addition to the work on acquisition of sites, both Divisions have a number of other responsibilities. The Division of Site Acquisition aids in the development of sites for school construction and in the improvement and rehabilitation of exist- ing school sites. The Division of Planning furnishes and equips new schools and addi- tions to existing schools, prepares specifi- cations for new school buildings and works with the architects, makes surveys of the school system and adjusts school dis- trict boundaries, and works on improving school building design. Thus, only a small proportion of the operating budget of the Divisions of Site Acquisition and Planning can be attrib- uted to the advance nature of the school site acquisitions. The staff felt that 10 percent would be a high estimate for this figure. The total operating budget of the two Divisions was $113,435 in fiscal year 1965. This would suggest that $11,000 is a liberal estimate of the administrative cost of the advance acquisition program in fiscal 1965. The cost in earlier years would have been lower because there were fewer employees and lower salary levels. For instance the total number of full staff positions in both Divisions was 13 in 1965, 91/2 in 1963, and three in 1955. Using this information, we construct the exceed- ingly rough estimates shown in Table 8 covering the years when any of the 17 properties in the sample were acquired. Since the expenses accrue at the time the decision and purchase are made, they are already on a present value basis and need no further adjustment. They are ready to be added to the present value of the other costs. But the table indicates that the figures are small. Furthermore, attribution of Table 8 ADMINISTRATIVE COSTS FOR ADVANCE ACQUISITION Estimated Year Amount 1958 $ 3,000 1961 5,000 1962 7,000 1963 8,000 1964 10,000 77 costs to individual projects can only be done in some arbitrary fashion, as on the basis that the cost per project is the same for all projects done in one year but differs from year to year (since the overhead may be charged to one project in some years or divided among as many as eight in one year). A further ambiguity derives from the fact that the administrative costs also cover the sites acquired in advance but put to use prior to January 1966, and there- fore not included in our sample. In view of the smallness of the charge and the unavoidable inadequacy of its estimation, we have not included administrative over- head in our computations. The chief rea- son for putting it in would be to point to the need for a better figure. Comparison of Measured Costs and Benefits Each cost and each benefit has now been estimated and discounted back to its value at the time when the decision to buy or not to buy was made. These present value fig- ures may be added together. The results are shown in Table 9 using the 3.5 percent di.scount rate and in Table 10 using the 6 percent rate. Table 9 SUMMARY OF COSTS AND BENEFITS, PRESENT VALUE INTEREST AT 3.5 PERCENT (Thousands of Dollars) Benefits Year Rental Bought Appreciation Income Total " 1958 131.0 0.9 131.9 1961 74.0 — 74.0 67.2 — 67.2 93.0 — 93.0 202.0 3.8 205.8 103.0 — 103.0 1962 84.0 — 84.0 1963 27.0 — 27.0 16.5 — 16.5 1964 30.7 — 30.7 — 2.8 2.8 43.0 — 43.0 23.0 — 23.0 40.6 — 40.6 46.9 — 46.9 17.7 — 17.7 54.9 — 54.9 Total 1,054.5 7.5 1,062.0 Average Interest on Taxes Net Capital Foregone Total Benefit 10.0 5.4 15.4 116.5 6.1 2.7 8.8 65.2 12.7 4.0 16.7 50.5 10.6 5.1 15.7 77.3 9.8 6.0 15.8 190.0 11.8 2.5 14.3 88.7 13.1 2.6 15.7 68.3 6.9 2.7 9.6 17.4 1.6 0.7 2.3 14.2 15.2 1.5 16.7 14.0 14.7 5.3 20.0 —17.2 12.9 5.3 18.2 24.8 4.5 1.1 5.6 17.4 15.2 5.3 20.5 20.1 5.1 1.3 6.4 40.5 2.1 0.9 3.0 14.7 3.2 1.5 4.7 50.2 155.5 53.9 209.4 852.6 Figures nnay not add precisely because of rounding. Clearly the financial results of the pro- gram have been good. All but one of the purchases show a net benefit even at a time discount rate of 6 percent a year rather than 31/2 percent. The average of the iiet benefit for the 17 projects at the 31,2 percent dis- count rate was $50,200 and at 6 percent $38,700. Thus far only costs and benefits measur- able in dollars have been considered. It is necessary to judge whether the net benefit that these measurable results yield may be overweighed by intangible costs of some sort. 78 Table 10 SUMMARY OF COSTS AND BENEFITS, PRESENT VALUE INTEREST AT 6 PERCENT (Thousands of Dollars) Benefits Costs Interest Year Rental on Taxes Net Bought Appreciation Income Total » Capital Foregone Total » Benefit 1 1 n K iXU.3 U.o 1 1 'I Q 15.6 5.0 20.6 90.7 1961 65.5 65.5 9.6 2.5 12.1 53.4 59.5 59.5 20.2 3.8 24.0 35.5 82.5 82.5 17.0 4.8 21.8 60.7 179.0 3.5 182.5 15.7 5.6 21.3 161.2 93.5 — 93.0 19.1 2.4 21.5 71.5 1962 76.2 — 76.2 21.2 2.5 23.7 52.5 1963 25.0 25.0 11.3 2.6 13.9 11.1 15.8 15.8 2.7 0.7 3.4 12.4 1964 29.3 29.3 25.1 1.5 26.6 2.7 2.7 2.7 24.3 5.1 29.4 —26.7 41.0 41.0 21.2 5.1 26.3 14.7 22.0 22.0 7.5 1.1 8.6 13.4 38.7 38.7 25.0 5.1 30.1 8.6 45.7 45.7 8.6 1.2 9.8 35.9 17.3 17.3 3.4 0.9 4.3 13.0 53.6 53.6 5.3 1.4 6.7 46.9 Total 955.1 7.0 961.6 252.8 51.3 304.1 657.5 Average 38.7 « Figures may not add precisely because of rounding. Intangible Costs The most obvious and important intan- gible cost is the risk of acquiring proper- ties that are found not to be needed when the projected time of use comes along. As stated earlier, the impact of this cost will be very different if the power and the willingness to sell property has been built into the program from the start. The risk of acquiring unneeded or inade- quate sites. There were no reports that any of the sites which had been acquired in advance and subsequently used were unwisely chosen. There is, however, the possibility that some of the sites now being held may be found to be less than optimal when the time comes for future schools to be constructed. Conditions can quickly change in areas of rapid growth, and ex- pectations of population movement may not materialize. However, the Board of Edu- cation has full authority to sell or ex- change any property which it finds no longer to have any educational purpose and so is not committed to use a site for school 79 construction merely because it was origi- nally acquired with that intention. This flexibility greatly reduces the risk of pos- sible disadvantages associated with mis- taken land use forecasts. Recent innovations in Montgomery County's zoning and subdivision regula- tions have introduced a new consideration into the future site acquisition process that may cause additional uncertainty in acquiring elementary school sites in ad- vance. The County now has a provision for cluster zoning of subdivision tracts greater than 50 acres, which enables developers to increase the housing density on part of their land in return for dedicating a por- tion of the land for school sites or parks. This raises the possibility that many fu- ture school sites will be contributed free to the Board of Education if large areas are developed under the cluster zoning arrangements. Thus the Site Acquisition Division must now decide between acquir- ing school sites in advance, when land values are lower, or waiting until devel- opment actually occurs, in the hope that the school sites may be donated. As the cluster development ordinance was passed only in March 1966, it has not yet had, but soon may have, an effect on site acquisition procedures. The chief effect will probably be on elementary school site acquisition, be- cause it is not expected that subdivision developers will donate enough land or land of the right sort for secondary schools, which usually draw their students from areas much larger than the typical subdivision. In the case of the Montgomery County program, then, intangible costs seem to have been of little consequence. Were they greater, it would in any event be neces- sary to weigh them against intangible ben- efits before judging their impact on the cost-benefit calculation as a whole. Intangible Benefits As it is, there are a number of intangible benefits for which dollar figures are not readily available but which add to the value of the program as a whole. Though it would be possible to try to make some rough judgments about their impact in dol- lar terms, there is no need to do so here. The projects were worth undertaking without these added advantages. However, the character of these additional, but not readily measured, advantages should be recognized. Securing the best site. The staff of the Site Acquisition Division felt that this is the most significant benefit of the future sites program. By acquiring in advance of development, there is a greater selection of suitable school sites from which to choose. If acquisition is delayed until time of need, some or most of these sites are pre-empted by the very development that makes the new school necessary. The choice of sites is then restricted to what- ever land has been left vacant, since the cost of purchasing and demolishing new improvements makes the price of such property much too high for consideration as a school site. Thus, by acquiring in advance of need, there is more likelihood of obtaining the site best suited to school needs. Some of the factors important in selection of a school site are : • The site should be near the center of the neighborhood it is to serve. This is espe- cially important for an elementary school because it is considered desirable that most students should be within walking distance of the school. Also, a central lo- cation reduces the amount of school bus service required. As this service is esti- mated to cost $30 per student per year, a location that minimizes bussing to school has an advantage in operating costs. • Elementary schools should be located away from major roads and heavy traffic. • High schools should have access to a major thoroughfare and should be insu- lated from residential uses by natural or manmade physical separators. • The site should conform to the state requirement for minimum size of ten acres for elementary, twenty acres for junior high and thirty acres for senior high schools. • The site should be level, properly drained and otherwise suitable for build- ing without excessive cost. These requirements are so specific that some land is clearly much more valuable as a school site than it would be for any other use. For this reason it is desirable to reserve such land for future school use. Just how valuable this is would be impos- sible to say with any precision, but it is clear that the impact of the quality of the site on school costs and services can be sub- stantial. The cost of the site usually ac- counts for only about one-sixth of the total investment in a new school, but even small differences in the quality of the site can have a magnified effect on both construction costs and annual operating costs. Improving the site acquisition proce- dures. The procedures introduced by the advance acquisition program have im- proved the administrative and planning process in several ways and thereby made it possible to improve the quality of the sites acquired. For one thing, the creation of the Future Sites Account has greatly helped to sim- 80 plify the budo'etary procedure for school site acquisition. The revolving fund elim- inates the need to wait for appropriation of specific funds for each school by the County Council before site acquisition can take place. Therefore the Site Acqui- sition Division can carry out the job of land acquisition w^ith a minimum of delay and red tape. This may even make it pos- sible to buy sites more advantageously than is sometimes possible v^hen the v^^hole gamut of sequential negotiations and au- thorizations needs to be played out one by one. This freedom of action, combined with detailed advance planning and careful re- view by the Site Selection Advisory Com- mittee seems to be a decided improvement. An improvement in the quality of sites is also implicit in the increased coopera- tion between M-NCPPC and the Board of Education, an outgrowth of the advance land acquisition program. Before the pro- gram began, there was little contact be- tween the two. Now there is an effective coordination of school site acquisition with the master planning process. One result of this coordination is the recent policy of joint consideration by M-NC- PPC and the Board of Education of com- bined school and park facilities for all new elementary school sites. The park- school provides consolidated facilities educa- cational, recreational and community activi- ties in a neighborhood. It is an effi- cient arrangement because the park-school can be located on a site smaller than would be required by separate locations, and the recreational building can be combined with the school building at a further saving in cost. Another result of the growing coopera- tion between the M-NCPPC and the Board of Education is the feedback that advance planning for schools has had on the master planning process itself. Formerly, master plans for areas within the County were prepared without detailed knowledge of the resulting pattern of school require- ments. Now the preliminary area master plans are checked by the Board of Educa- tion's Planning Division, and changes are suggested if a plan would cause difficulty in locating schools properly. Boiefits to private development in the Coinitii. The Suburban Maryland Builders Association has encouraged the advance acquisition program not only as good pub- lic policy but also as an aid to developers in i)lanning their operations in the County. Knowledge of where future schools will be located enables housing developers to plan their subdivisions more effectively, and reduces the chance that the Board of Education will need to take part of their property after plans for subdivision have been made. Also, future school sites are prominently signposted to announce the location of the future schools, and this benefits homebuyers by reducing uncer- tainty as to the proximity of new houses to schools. Thus, although the intent of the advance acquisition program has not been to influ- ence the path of development in any way, it has had the beneficial effect of reducing an important aspect of uncertainty, that of school location, for both the builders and buyers of new housing. EVALUATION OF THE PROGRAM The conclusion of this examination of the advantages and disadvantages attribu- table to the Board of Education's advance land acquisition program is clearly that it has been of substantial net benefit to Montgomery County. Better school sites have been acquired at lower costs than would otherwise be possible, and the proc- ess of site selection has been improved so that it now has a positive effect on the mas- ter planning process. Alternative Measures of Benefit Granted, then, that important intangible benefits have been present, it will be use- ful to return to the measurable benefits and consider what information is con- veyed by the measures that have been de- veloped. Evaluation is limited to the por- tion of the program here examined, though there is no reason to suppose that advance acquisition for the 16 sites already in use, 81 and therefore not covered by our tables, was any less advantageous. For the acquisitions examined, there was a total net measured benefit of $850,- 000 (assuming a 31/2 percent interest rate) on the $1,830,000 invested. The average net benefit was roughly $50,000 a project ($39,000 at the 6 percent rate), and there was only one for which benefits failed at least to equal costs. If administrative costs are added, as they must be, the average net benefit is slightly reduced, perhaps to something on the order of $48,000 ($37,000 at 6 percent). This apparently advantageous result might be criticized on the gounds that the advance acquisition program did not go far enough, and that it should have been ex- tended to include advance acquisition of other school sites that were needed. Profit- able opportunities may have been lost by failure to do more. However, it may be argued that there are limits to the funds that may be devoted to advance acquisition, and that these lim- its are reached at a level where more projects than can be undertaken show sub- stantial net benefits. What do the figures suggest concerning criteria for choosing among the candidates, all of which are ap- pealing? In order to answer this question it is use- ful to study a set of figures. Shown in Table 11, they are the data for the results experi- enced, though to throw light on decision criteria we shall have to pretend that they refer to expectations instead. Column 3, the net benefit, seems to pro- vide a poor basis for preferring one proj- ect to another. Projects 2 and 4, for example, promise about the same net bene- fit, but project 4 ties up almost twice as much money as does 2. Similarly, projects 3 and 17 promise very similar net rewards, but in the case of project 3, funds are tied up for five years; in project 17, the return is achieved in one year and the funds are freed for other purposes in the second and third years. All that can be said is that all four are worth doing. Table 11 MEASURES OF ADVANTAGE At 3.5 Percent Interest At 6 Percent Interest Project Number Years ' Held Purchase Price ($000) Net Benefit Benefit Cost ($000) Ratio Net Rate of Return » Percent Net Benefit ($000) Benefit Cost Ratio Net Rate of Return " Percent (1) (2) (3) (4) (5) (6) (7) (8) 1 7 46.7 116.5 8.5 41 90.7 5.4 35 2 5 38.1 65.2 8.4 38 53.4 5.4 33 3 5 80.1 50.5 4.0 14 35.5 2.5 10 4 5 67.4 77.3 5.9 25 60.7 3.8 22 5 5 62.0 190.0 13.0 68 161.2 8.5 62 6 4 92.0 88.7 7.2 26 71.5 4.3 22 7 4 101.6 68.3 5.3 19 52.5 3.2 15 8 3 70.9 17.4 2.8 9 11.1 1.8 6 9 2 24.7 14.2 7.2 30 12.4 4.7 28 10 2 229.1 14.0 1.8 3 2.7 1.1 1 11 2 221.6 —17.2 0.1 — 4 —26.7 0.1 —7 12 2 194.4 24.8 2.4 7 14.7 1.6 4 13 2 68.3 17.4 4.0 13 13.4 2.6 11 14 2 228.5 20.1 2.0 5 8.6 1.3 2 15 1 151.5 40.5 7.4 28 35.9 4.9 25 16 1 60.7 14.7 5.8 25 13.0 4.0 23 17 1 93.2 50.2 11.8 56 46.9 8.0 53 Total 1,830.1 852.6 657.5 Average 107.7 50.2 5.7 24 38.7 3.7 20 Net rate after all costs including interest, see text. 82 If they could not all be undertaken (that is, under capital rationing), these diflfer- ences in the size and duration of the invest- ment necessary to earn a given rev^ard need to be taken into account. A rough way to do so is to calculate the ratio of benefits to costs. The major costs are interest and taxes foregone, and these are related to the size of the capital investment. As a result, bene- fits divided by costs (column 4 of the table) are bound to show^ a higher ratio for project 2 than for project 4 (8.4 and 5.9 respec- tively), and likev^ise for project 17 than for 3 (11.8 and 4.0 respectively). Columns 4 and 7 of the table give the ratios for each proj- ect at the 3.5 percent and 6 percent interest rates. Incidentally, their rank position is virtually the same regardless of whether the cost of capital is calculated at the borrowing rate or at the higher figure.'' Ranking the school site purchases in terms of the benefit-cost ratio answers the problem of recognizing the implications of the size and duration of the investment. However, it still is a somewhat awkward notion. True, it is useful to know that bene- fits are four times costs; nevertheless, the statement is ambiguous. For one thing, definitions are shifty, because the size of either benefits or costs depends on the details of the accounting methods that are used — for example, income from rent could have been counted as a negative carrying cost offsetting interest. For this reason, then, we propose a transposition of the net benefit to a figure of net annual return on capital after all costs, including interest, have been cov- ered. The annual return can be read from standard mathematical tables giving the annuity that yields a specified present value — that of the net benefit. This annual return is divided by the purchase price to find the annual net rate of return. The figures for annual net rate of return are shown in columns 5 and 8. Projects 2 and 7 earn 38 percent and 19 percent per year on funds invested in advance purchase, after all costs including interest at SVo percent. An interest rate of 6 percent (col- umn 8) cuts down the net yield to 33 and 15 percent respectively. The annual rate of return after all costs seems to be a meaningful gauge of achieve- ment. It is interesting, incidentally, that it gives virtually the identical rank order for the 17 projects as does the benefit-cost ratio. However, the similarity is due to the fact that costs have an almost identical structure for all projects. Were the struc- ture to differ among projects, the two measures would give a different rating. Among different government programs, since cost structures are likely to differ, return after costs seems to provide a basis of comparison preferable to that of net benefits or a benefit-cost ratio. At the same time, it has the advantage of easy calculation as an adjunct to the estimation of net benefit. It is still important to know the value of total measurable benefits and costs so that intangible benefits and costs, which also tend to be bulk quantitites, can be compared with them. Consequently, the basic form of the cost-benefit analysis needs to be preserved." REASONS FOR THE SUCCESS OF THE PROGRAM Since substantial programs of advance land acquisition are uncommon, it is nec- essary to explain the existence as well as the effectiveness of the program in Mont- gomery County. Of course, the development of the planning and acquisition proce- dures which have been described was not 8. We pointed out in Chapter 5 that this tended to be the case for projects whose general time-pat- terns of costs and benefits were similar. 9. The return after all costs has a form similar to an earnings rate or "internal rate of return" — the discount rate that equates the present value of bene- fits with that of costs. This rate cannot be calcu- lated by means of a transformation of net benefit, but requires a somewhat awkwai'd set of e.xperi- mental calculations. It has the further disadvan- tage of applying diff"erent time discounts to more profitable than to less profitable alternatives. The subject is elaborately debated in most texts on managerial economics. For an excellent discussion of the subject in the context of government deci- sion-making see Efficiency in Governvients Through Systems Analysis by Roland N. McKean (New York, 1958), Chapters 5 and 7. 83 an overnight process, and it was several years before the present smoothly opera- ting working arrangements were evolved. Three factors responsible for the success of the advance acquisition program stand out. First, the political climate was favor- able. Montgomery County has a "school minded" population, and it is reputed to have one of the finest public school sys- tems in the country. In 1965, 73 percent of all county expenditures were for educa- tion. There is effective political pres- sure in the County for good performance, and when school enrollment is growing fast, good performance means planning ahead. Second, the environment was favorable. With the strong upward trend of land values in the developing areas of the County, it is hard to make a mistake about price by buying land in advance. The im- pressive appreciation in value of the sites held for future use has enabled the pro- gram to show large dollar benefits. Also, with the fast upward trend in school pop- ulation of about 5,000 new students a year, it is hard to make a mistake about the need for new schools in the future. Third, the institutional framework was favorable. It seems clear that econo- mies of scale are present in the operation of the program. A single Board of Educa- tion is responsible for the whole County (493 square miles), and in its planning arrangements it deals with other agencies which are also responsible for the whole County. If the area had been divided into a number of separate school districts, no one of them would have had the incentive or resources to assess the broad problem of suburban growth or to develop the tech- niques required to prepare for it. But, as one authority responsible for all of Mont- gomery County, the Board of Education has been able to benefit from the continuing experience of growth and has been able to develop an appropriate response. The growing edge of the urban area has not been left in limbo, waiting until after the growth occurs before effective authority is exercised. 84 Chapter 8 ADVANCE ACQUISITION PRO- GRAM IN RICHMOND, VIRGINIA Richmond, in contrast to Montgomery County, is an old city which is densely populated as the result of a long history of continuous growth. In the 1950 to 1960 decade, the city experienced its first popu- lation decline (4.5 percent), although the metropolitan area of which it is the core city continued to grow rapidly. But the recent population decline in Richmond it- self is expected to level or reverse, since the city continues to have a dynamic and diversified economy. It is the state capital, an important educational and financial center, and one of the chief regional cen- ters of the South.^ ORIGIN OF THE ADVANCE LAND ACQUISITION PROGRAM Richmond's advance land acquisition program originated in the late 1940's, dur- ing a period of marked change in the structure of its municipal government. 1. For Richmond population data see U. S. Bureau of the Census, Census of Population, 1910 to 1960. For population forecasts and data on the economic composition of the area and analysis of economic and employment trends see Richmond, City Plan- ning Commission. Master Plan of Land Use, Com- munity Facilities and Trafficways, 1964 (adopted and approved 1965), and A Master Plan for the Physical Department of the City, 1946; and Rich- mond Community Renewal Program, 1966, prepared by the City and the Richmond Redevelopment and Housing Authority. 85 The most important event of this reorgani- zation period was the establishment of the council-manager form of government in 1948. Throughout the long campaign for change in the form of government and the period of charter preparation, widespread citizen interest and activity played a prominent role, and there developed a gen- eral receptiveness to new ideas and inno- vations. The first step towards a policy of ad- vance land acquisition was the adoption in 1946 of Richmond's first master plan, the Master Plan for the Physical Development of the City. The plan was a twenty- year projection of the growth of the city, and it set forth the location of many future cai)ital im])rovements projects. This plan (and subsequent revisions) became the foundation of Richmond's advance land acquisition program by sujiplying an es- sential ingredient: information on what sites would in the future be needed for public use." The second step was the enactment in 1949 of a City Ordinance which set up procedures for the city to acquire any property on which new private construc- tion was contemplated if the property was one designated in the master plan for some future public use." This ordi- nance was designed to block any new pri- vate construction on sites scheduled for later acquisition by the city, and envi- sioned advance acquisition only in situa- tions where it would be necessary to forestall such new construction. The third step in creating the advance acquisition program as it exists today was the establishment in 1951 of a City Real Estate Agency. Prior to that time the re- sponsibility for acquisition and manage- ment of city real estate was scattered among a number of departments, and infor- mation on properties already owned by the city was not readily available. The new 2. Richmond is currently operating under its sec- ond plan, Master Plan of Land Use, Community Fa- cilities and Trafficways, 1964 (adopted and approved 1965). 3. Richmond City Ordinance No. 49-8-24, adopted agency was formed, with the strong sup- l)ort of the City Manager, to bring together all city real estate functions into a single administrative agency. One of its initial duties was "to formulate, in cooperation with the city planning commission a long- range plan for the acquisition of prop- erty required for the future needs of the city.'" OPERATION OF THE PROGRAM Richmond's advance land acquisition pro- gram is centered on the master plan and the building permit application proce- dure. Building Permit Application Procedure The process by which a future site is acquired starts with the Commissioner of Buildings, who among other things is re- sponsible for the review of all building plans to assure conformance with appro- priate regulations and the issuance of per- mits for new construction and structural alterations. The 1949 Ordinance requires that the City Planning Commission file a copy of the master plan and all amendments there- to with the Buildings Commissioner. In considering applications for building per- mits in excess of $1,000, the Buildings Commissioner is required to determine whether the property involved in the application has been designated in the master plan as needed for future public use. If it is so determined, the Commis- sioner is required to notify the Director of City Planning, and to delay any action on the permit application for thirty days. Little in the way of new improvements or alterations of designated properties can be undertaken without bringing the provi- sions of this ordinance to bear. Affected are all applications for building permits "to erect, construct, add to, enlarge, alter, repair, move, convert, or extend any build- March 14, 1949, amended by Ordinance No. 50-18-20, adopted 1950. 4. Memorandum from the City Manager to the Rich- mond City Council, dated May 3, 1951. This merno- randum reviews the early efforts to establish a city real estate agency. 86 ing, structure or sign, the estimated cost of which shall exceed $1,000 . . ." if they involve property which ". . . is set apart in the master plan or in any other plan implementing or executing the master plan for acquisition by the city.'" Role of the Planning Staff and the City Estate Agent The planning staff plays the most de- cisive role in the process of advance acquisition, although its recommendations are subject to review and approval by the City Planning Commission and finally by the City Council. When the Director of Planning is informed that an application for new construction is pending on a prop- erty identified in the master plan for pos- sible future public use, he must make a decision as to whether the city should then purchase the property in order to prevent the construction. This decision turns largely on whether an alternative site suitable for the planned public facil- ity would still be available if the prop- erty under consideration were built on. If the property is located in the path that has been set for a future street widen- ing or expressway project, the property is clearly scheduled for eventual acquisi- tion by the city (unless the plan is changed), and the decision in this case is almost always to acquire the property in advance. Exceptions are usually made only when the cost of the improvement is rela- tively small in proportion to the purchase price and when the date of expected use is not close. For some future facilities, however, only the general location has been set, and the planning staff must exercise its discretion in recommending acquisition. The new master plan, adopted in 1965, shows the location for many planned facil- ities, including parks, schools, libraries, fire stations and highways, and for some of these there is more than one poss ble site. In these cases, only the genera, location for the facility is shown in the plan, but the planning staff keeps a record, usually confidential, of the several possible sites. 5. Richmond City Code, Chapter 38, Article I, Sec- tion 7. If a building permit is applied for on one of these sites, the planning staff must ex- amine the alternatives still available to see if the property in question would be the best site for the purpose. If it is, the staff would recommend its acquisition, but if an equally suitable alternative site is still available, the Director of Planning would notify the Buildings Commissioner that the property is not needed, and the building permit application is then proc- essed with the ordinary procedures. In practice, few of the properties con- sidered in the building permit review procedure fall into the category of sites that require the planning staff to reexamine in detail the alternatives available. Most of the sites located in the master plan have been precisely identified in special studies undertaken with the cooperation of the operating departments; many are for street widenings or highways, which are determined long in advance, and many others are for the expansion of existing facilities, such as schools, parks, and ceme- teries, about which there is also little doubt as to location. Only for new facili- ties on new locations is there much flexibil- ity in location, and in a built-up city like Richmond, these are in the minority. How- ever, the planning staff does make a re- view of the factors which dictated the initial decision, and reevaluates this de- cision in light of any unforeseen changes which might have occurred in the meantime. In its consideration of the acquisition, the planning staff often requests an ap- praisal of the property from the City Real Estate Agent. His advice is also re- quired when there is some doubt as to whether the building permit has been applied for simply in order to force the city to purchase the property. When there is some doubt about whether or not the application is genuine, the City Real Estate Agent (who has had 32 years of experience in the real estate business) considers the real estate market in the area of the site, the financial resources of the owners, and other relevant factors, and if he believes that the application is not genuine, he advises the planning staff 87 to take a calculated risk and let the build- ing permit application go through. Even after this weeding out process, the plan- ning staff estimated that perhaps 25 per- cent of the acquisitions were properties where the permit application did not signify a genuine intent to build. Role of the Planning Commission and the City Council The Director of Planning has the re- sponsibility of recommending a course of action to the City Planning Commission. If he does not recommend acquisition of the property in question, the building permit application is not delayed further. However, if he does recommend acquisi- tion, the application is delayed another 30 days for the Planning Commission to act. The Commission, it is reported, usu- ally though not inevitably follows the recommendation of its professional staff. If the Planning Commission approves the acquisition, the building permit application is delayed a further 30 days to give the City Council time to consider the acquisition. Any acquisition of property by Richmond must be finally approved by the City Council. The Council considers the recommendation of the Planning Commission and the property ap- praisal and recommendation made by the City Real Estate Agent. It has almost always authorized the recommended acquisition. When the Council decides in favor of ac- quisition, it passes ordinance declaring that "a public necessity exists" for the purpose shown in the official plan of the city, and that "the public necessity requires the ac- quisition" by the city of the particular prop- erty in question. This constitutes merely a declaration of interest, and empowers the City Real Estate Agent to negotiate for the property. The city attorney is responsible for carrying through the legal duties in con- cluding the acquisition. A second Council res- olution, stipulating the price and conditions of purchase, is required for final approval and purchase. So far, there has been no challenge to the legality of the program, even though some properties have been acquired more than 10 years in advance of need. Scope of the Program Data on advance land acquisitions are not complied in any systematic way. Informa- tion is available on the total number of ac- quisitions for both immediate and advance use that are made in any one year, and on the total funds committed for such purchases, but the record does not distinguish between acquisition for current and future use. To obtain this breakdown would require an exhaustive review of each acquisition with the assistance of a knowledgeable official. Such an effort was not possible for the pur- poses of this study. The amount of land acquired for public purposes, whether for present or future use, is indicated in Table 12. Table 12 NUMBER OF ACQUISITIONS AND FUNDS EXPENDED, 1960-1965 Year Number of Acquisitions Funds Expended 1960-61 108 $ 982,000 1961-62 32 600,000 1962-63 91 972,000 1963-64 81 395,000 1964-65 74 576,000 Total 386 $3,525,000 Source: Annual Reports, Division of Real Estate Manage- ment. The City Real Estate Agent and the plan- ning staff made a rough estimate that 150 properties have been acquired in advance of need since the start of the building permit review procedure, and that 100 of these have been acquired five or more years in advance of need. Richmond also purchases sites after projects have been set up in the Capital Im- provement Program. Most of such purchases are for i;Timediate use, but some can be clas- sified as in advance of need. The practice of establishing a capital project with planning, site purchase, and development funds budg- eted several years in advance of the con- struction funds is not uncommon. Such ac- quisitions would tend to be for a relatively 88 shorter period in advance of need than the average for those purchased under the build- ing permit review procedure. It was not pos- sible to estimate the scope of purchases fall- ing within this category but the officials con- cerned with land purchase reported that it was considerable. In addition, other properties scheduled for future use are occasionally acquired in advance of need when the owner offers them for sale to the city. Such purchases do not occur often and are almost certain to be small properties with modest purchase prices. Conditions for purchase normally would require a definite site location and an absence of any suitable alternative sites. Funds for advance acquisition are drawn from a project's capital budget, if one has been set up, or from a special Land Acquisi- tion Account if the project has not yet been included in the capital budget. Funds appro- priated to the Land Acquisition Account since 1951 have averaged $354,000 per year, and $300,000 per year is budgeted for the next five years. However, not all of the funds in the Land Acquisition Account are used for advance acquisition; the account is also used where usual or unanticipated demands for currently needed land occur ; the amounts for current and future acquisitions are not segregated. Unfortunately, these figures provide only a hazy notion of the amount acquired in ad- vance. There is some evidence to suggest that the figure could be as much as a third of the total. In any event, the estimate of 150 cases of advance purchase is itself an indication that this is one of the larger city programs in the country, at least in terms of number of cases. EVALUATION OF COSTS AND BENE- FITS A sample of 21 properties was selected for analysis from the files of the Real Es- tate Division. Most of the acquisitions in the sample were for two projects. One is an ex- pressway which is planned for 1969 (12 ac- quisitions) and the other a street widening planned for 1972 (6 acquisitions). The other Table 13 RAW DATA FOR COST-BENEFIT CALCULATIONS Estimated Value Year Target Purchase Improvements, Rentals, Bought Date Price In 1966 " At Target Date >> Cost Estimate Annual Acquis! (1) (2) (3) (4) (5) (6) (7) >ition for Expressway 1961 1969 $ 3,000 $ 3,500 $ 3,800 $ 15,000 $ — 1961 1969 2,200 4,800 5,200 36,000 1962 1969 1,000 1,650 1,800 13,500 1962 1969 1,300 2,000 2,200 12,500 1962 1969 1,100 NA 1,400 6,700 1963 1969 3,000 4,200 4,600 19,900 1963 1969 800 1,500 1,600 1964 1969 1,400 1,500 1,600 7,500 1965 1969 2,800 3,200 3,500 10,000 1965 1969 27,800 30,000 32,800 75,000 1965 1969 25,000 25,000 27,300 30,000 1965 1969 27,800 NA 31,200 250,000 >ition for Street Widening 1961 1972 13,600 13,600 16,200 70,000 100 1961 1972 27,500 28,000 33,400 35,000 940 1962 1972 25,000 NA 33,600 35,000 1963 1972 32,000 37,500 44,800 150,000 1,800 1964 1972 36,000 36,000 43,000 35,000 1965 1972 35,000 35,000 41,800 415,000 600 >ition for School Additions 1964 1972 4,400 NA 5,700 1964 1972 4,500 NA 5,700 1965 1971 45,000 45,000 51,100 8,000 3,000 Estimated by the City Real Estate Agent. Assuming appreciation 1966 to target date at 3 percent per year, compounded annually; e.g., (for line 1) 1966 value of $3,500 X 1.093 =; $3,826, the estimated 1969 value; for the properties for which 1966 estimates were not available, we assumed 3 percent appreciation over the entire holding period. For the basis of selecting the 3 percent rate, see text below. 89 three acquisitions were for school projects scheduled in 1971 and 1972. Information was obtained for each site on : the date of purchase and the date of ex- pected use, the purchase price, the assessed value at time of purchase, the estimated 1966 value, rents received from temporary use, the purpose of the building permit applica- tion, and the estimated cost of the projected improvement on the site. The City Real Es- tate Agent made a rough estimate of the cur- rent value of the property in 1966. The data are shown for each property in Table 13. As in the Montgomery County study, the dollar-measurable costs and benefits are first calculated and compared, and then the im- portant intangible costs and benefits are de- scribed. However, rather than show all the calculations for each benefit and cost for each property, as done in Chapter 7, we shall instead merely refer back to Chapter 7 for the methods used. The data for each acquisition will be shown only in Summary Tables 14 and 15, giving the present values of major costs and benefits. Measurable Benefits The measured benefits in the Richmond program have been (a) appreciation in value of the sites purchased, (b) the rental re- turn on temporary use and, most important, (c) avoidance of the cost of buying and de- molishing newly constructed improvements at the target date for public use. Appreciation. Estimates of 1966 market value of the 21 properties were made by the City Real Estate Agent. The median rate of appreciation from purchase date to 1966 for the 21 properties was about 6 percent per year. An estimate of the value of the properties at target date requires an assumption about the further appreciation that will occur be- tween 1966 and the target date of use. A con- servative one was selected — ^that the prop- erties will experience further appreciation at a rate of 3 percent per year until the tar- get date, half the median rate of apprecia- tion that has been experienced so far. It also seems conservative in light of the fact that the assessed value of all taxable land in Rich- mond rose at a rate of 6 percent per year between 1955 and 1966,' a period during which the ratio of assessed value to mar- ket value has remained stable.' After the value at target date is estimated (see Table 13, column 5) the estimated ap- preciation between acquisition and the tar- get date is found, and the present value of this appreciation at the date of acquisition is calculated at two discount rates: the mu- nicipal bond rate of 3 percent, and the higher 6 percent rate for purposes of comparison. The computations were performed as in Ta- ble 4 of Chapter 7. The present value of appreciation for each property is shown in Table 14, Column 2, for a 3 percent discount rate and in Table 15, Column 2, for a 6 per- discount rate. Return on temporary use. As of January 1966, 37 properties purchased by the city for some future public use were being rented." Some of these rents are only a nominal $1.00 per year charged certain educational or philanthropic organizations. Also, some properties acquired in advance are used in the interim for some municipal functions at no fixed rent. Therefore, the actual benefits to the community of the temporary use are underestimated by the dollar figures. For the 21 properties in the sample, rents are col- lected on 6. None of the 12 properties ac- quired for the expressway are rented because they are in a decaying part of town and the properties are shabby. However, 4 of the 6 street-widening properties are rented. The computation of present value at date of acquisition of rental income was per- formed as in Table 5 of Chapter 7. The re- sults for each acquisition are shown in Column 4 of Tables 14 and 15 (for the 3 per- cent and 6 percent discount rates). Avoiding the cost of purchasing and de- molishing new construction. The chief eco- omic benefit of Richmond's advance land acquisition comes from avoiding the need to 6. Information supplied by Richmond Assessor of Real Estate. 7. Richmond Assessor of Real Estate, Annual Report, 1964-1965. 8. Report of the City Manager to the City Council, January 1, 1966, on city real estate transactions. 90 purchase and demolish recently constructed improvements when land is needed for public use. A rough but conservative estimate of the purchase cost saved by forestalling new improvements is based on the estimated cost of the new construction for which permits were requested. A construction cost estimate is required in each building permit applica- tion, and this information is shown in Col- umn 6 of Table 13. The present value of this benefit is found by discounting the savings in purchase cost from the target date back to the date of ac- quisition. The results for each property are shown in Column 3 of Tables 14 and 15. Naturally, this benefit does not materi- alize if at the target date it turns out that the property is not used for any public pur- pose. If plans change and the property is later sold, the city will in the interim have maintained its option to use the site, but will not finally realize the benefit of having avoided new construction on it. There is now some doubt as to whether the express- way route for which 12 of the sites in the sample were acquired will actually be used. The possible effect of this eventuality on the evaluation of the costs and benefits is taken up in the discussion of the Summary Tables. There seems little doubt that the 9 sites in the sample acquired for purposes other than the expressway will be used, and since the locations of the sites necessary for the street widening and school additions are so defi- nite, there is almost no possibility of alter- native sites. Even when a site acquired in advance is used, the apparent benefit of avoiding the cost of purchasing and demolishing new con- struction is not real if the permit applica- tion does not signify a genuine application to build, or if a suitable alternative site is available at the target date. In calculating the benefit of avoiding new improvements, the effect of the bogus permit applications can be taken into account in a rough way by assuming that some percentage of the new improvements applied for would not have been built even if the property had not been acquired in advance. The planning staff's estimate of 25 percent is used for this in the discussion of the Summary Tables, The benefit of avoiding the cost of de- molishing new improvements at the target date is more difficult to estimate, and we have not attempted to do it here. One reason for not doing this is that many permit applica- tions are for replacement or repair of exist- ing structures, and the cost of demolishing the new improvement may not be much higher than the cost of demolishing the ex- isting structure. If the new improvement were to be put on vacant land, the demoli- tion cost would be more important, but prob- ably still small in relation to the purchase price. Measurable Costs Cost of capital. Following the discussion in Chapters 5 and 7, we have used Rich- mond's borrowing rate to represent the in- terest cost on funds invested in advance land acquisition. The rates applicable to Rich- mond General Obligation Bonds have been calculated for the years 1960-1965.' They averaged 3.14 percent, and approximately this figure, 3 percent, is used to discount costs and benefits. As in Chapter 7, we illus- trate the implication of a higher interest rate by making the calculation of costs and benefits at an alternative rate of 6 percent. The interest payments on the purchase price for each site have been calculated at both 3 and 6 percent. The present value of the stream of payments over the holding pe- riod from date of acquisition to target date is shown for each site in Column 6 of Tables 14 and 15. The computation was performed as in Table 6 of Chapter 7. Property taxes foregone. Richmond is required by state law and city ordinance to assess property at full market value, and re- cent assessment ratio studies have shown that this is reasonably maintained. Between 1960 and 1965 the ratio of assessed value to sales price of properties sold has varied be- tween 92 and 105 percent.'" Therefore, we 9. Moody's Ratings for Richmond General Obligations were obtained from Moody's Municipal and Govern- ment Manual, Moody's Investor's Service, New York, N.Y., February 1966. The interest rate for each year was taken as Moody's Average Bond Yield for the credit rating assigned to Richmond. 10. Assessor of Real Estate, Annual Report, 1964-65. Richmond, Virginia. 91 have assumed that the assessment is the same as the estimated value for each prop- erty, and have calculated the tax loss of the base. In Richmond, the tax rate on all tax- able property is $1.84 per $100 of assessed valuation. As in Chapter 7, we have used the tax on the average assessment over the hold- ing period to represent the stream of lost taxes on each property acquired. However, in the present case the taxes lost on improvements that would have been made if the properties had remained in pri- vate hands must also be considered. To do this we have assumed that if the property had not been acquired the construction pro- posed in the building permit would have been carried out and the new improvement would have entered the tax rolls two years after the permit was applied for. Therefore, we have calculated the tax loss on the basis of an assessed value for the new improve- ment equal to the construction cost estimate, and for a period of two years less than the full holding period. The taxes lost on the ex- isting property and on the prevented new im- provements are shown in Columns 7 and 8 of Tables 14 and 15. The computation was per- formed as in Table 7 of Chapter 7. The figures for foregone taxes probably overestimate the loss to the city for three reasons: (1) they do not take into account the fact that requirements for city services are also somewhat reduced when there are fewer new improvements. However, this sav- ing would probably not be large, and it has not been possible to estimate it; (2) some of the improvements would probably not have been made if the properties had not been ac- quired. Again, the planning staff's estimate that 25 percent of the applications are not genuine can be used to indicate the amount by which the figure for the lost taxes on im- provements should be reduced; (3) some of the new improvements may not actually have been blocked, but merely diverted onto other sites. The importance of this factor is diffi- cult to state. Presumably, if there existed a demand for the services of these buildings, this demand might have been met by similar construction elsewhere in the vicinity. Despite the difficulties of estimation, these three possibilities indicate that the estimate of taxes lost on new improvements is a lib- eral one. Administrative costs of operating the pro- gram. The City Planning Staff and the Division of Real Estate undertake most of the work of the advance acquisition program. Both agencies felt that this program was such a small part of their duties that their operating expenses would not be noticeably lower if the program did not exist. For most acquisition the work is asimple routine. A precise estimate of the cost would be diflS- cult to make and somewhat unreliable. In any case, the cost per acquisition would cer- tainly be very small, and therefore it has not been included in the calculations. Comparison of Measurable Costs and Benefits For each acquisition the measurable costs and benefits have now been estimated and discounted back to the date of acquisition. The results are displayed in Table 14 (using the 3 percent discount rate) and in Table 15 (using the 6 percent rate) . If all the properties are actually used at the target dates, and if all the permit ap- plications were genuine, the average net benefit per acquisition is $43,200 at the 3 percent discount rate and $32,600 at the 6 percent rate. If we assume that 25 percent of the permit applications were bogus, the average net benefit is reduced to $32,500 and $24,000 at 3 percent and 6 percent, respec- tively." Most of the benefits of the program clearly come from avoiding the construc- tion of new improvements that would later have to be purchased and demolished: 90,5 percent of the total benefit is due to this one cause, at either discount rate. Even on the most pessimistic assumptions that the expressway sites are not used, that 25 percent of the permit applications were not genuine, that none of the new improve- ments was diverted to an alternate site, and that the interest rate is 6 percent, the net benefit is still $227,000 and the benefit cost 11. This figure is found by reducing both the benefit of preventing construction and the cost of lost taxes on new improvements by 25 percent. All other costs and benefits remain the same. 92 ratio is 2.1 for the 21 acquisitions in the sami)le.'" The results on a project-by-project basis are also interesting. For the expressway project, the estimated net benefit is $327,600 at the 6 percent rate. If we assume that 25 percent of the permit applications were bo- gus, the net benefit is reduced to $242,600. If the expressway sites are eventually not used and if 25 percent of the permit applica- tions were bogus, the result would be a net cost of $29,500 for holding the twelve proper- 12. This figure is found by deducting the entire bene- fit of preventing construction on the freeway sites and 25 percent of the benefit of preventing con- struction on other sites, and also deducting 25 per- cent of the cost of lost taxes on new improvements on all sites, all calculated at the 6 percent interest rate. ties. In this case, the net measured cost would have to be set against the intangible bene- fits to arrive at a judgment. For the street widening, the net benefit of the six acquisitions is $352,800 at the 6 percent rate. If 25 percent of the permit ap- plications are false, the net benefit is re- duced to $254,900. The only acquisitions that fail to show a net benefit are two of the school sites. Since there was no building permit included in these two acquisitions, appreciation is the only benefit. Table 16 displays for each acquisition the three measures of advantage that were dis- cussed in Chapter 7 ; the net benefit, the ben- efit-cost ratio, and the net rate of return on capital after all costs, including interest, have been covered. Even when the interest Table 14 SUMMARY OF COST AND BENEFITS, PRESENT VALUE INTEREST AT 3 PERCENT (Thousands of Dollars) Benefits Costs Taxes Foregone Years Appreci- Prevented Net Held ation Construction Rents Total « Interest Property Improv'ts Total " Benefit (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Acquisition for Expressway 8 0.7 11.8 12.5 0.6 0.4 1.5 2.5 10.0 8 2.4 28.4 30.8 0.5 0.5 3.5 4.4 26.4 7 0.7 11.0 11.7 0.2 0.2 1.1 1.4 10.2 7 0.8 10.2 10.9 0.2 0.2 1.0 1.5 9.5 7 0.2 5.4 5.7 0.2 0.1 0.6 0.9 4.8 6 1.3 16.7 18.0 0.5 0.4 1.3 2.2 15.8 6 0.7 0.7 0.1 0.1 0.2 0.5 5 D.2 6.5 6.7 0.2 0.1 0.4 0.7 6.0 4 0.6 8.9 9.5 0.3 0.2 0.3 0.9 8.6 4 4.5 66.6 71.1 3.1 2.0 2.6 7.7 63.4 4 2.1 26.6 28.7 2.8 1.8 1.0 5.6 23.1 4 3.1 222.0 225.1 3.1 2.0 8.6 13.7 211.4 Sub-Total 17.3 414.1 431.4 11.8 8.0 21.9 40.9 390.5 Acquisition for Street Widening 11 1.9 50.5 0.9 53.4 3.7 2.5 9.8 16.0 37.3 11 4.3 25.3 8.7 38.2 7.6 5.1 4.9 17.6 20.6 10 6.4 26.0 32.4 6.4 4.5 4.4 15.3 17.1 9 9.8 114.9 14.0 138.7 7.5 5.4 16.8 29.7 109.0 8 5.5 27.6 33.1 7.6 5.0 3.4 16.0 17.1 7 5.5 337.4 3.7 346.6 6.5 4.3 34.2 45.1 301.6 Sub-Total 33.4 581.7 27.3 642.4 39.3 26.8 73.5 139.7 502.7 Acquisition for School Additions 8 0.9 0.9 0.9 0.6 1.5 —0.6 8 0.9 0.9 0.9 0.6 1.6 —0.6 6 6.0 6.7 16.3 28.9 28.9 4.7 0.5 12.6 16.4 Sub-Total 7.8 6.7 16.3 30.7 9.1 5.9 0.5 15.7 15.2 TOTAL 58.5 1,002.5 43.6 1,104.5 60.2 40.7 95.5 197.1 907.6 Average 2.8 47.7 2.1 52.6 2.9 1.9 4.6 9.4 43.2 Figures may not add precisely because of rounding. 93 cost is charged at the higher 6 percent rate, the net rate of return on capital is substan- tial for most of the acquisitions: 14 show a net rate of return above 20 percent per year, and only two show a negative return. It should be pointed out, however, that these high rates of return do not necessarily indicate that Richmond has been neglecting acquisitions that would show a lesser, but still positive, return. Rather, it reflects the fact that when new construction is pre- vented on a site scheduled for future public use, the benefit is great. When all such sites are automatically acquired, there may be very few other instances, in a city like Rich- mond, where advance land acquisition would be clearly favorable. The measured results of the sample of acquisitions have been good. However, they must be weighed against the intangible costs and benefits to see if the net result is still favorable. Intangible Costs Risk of acquiring unneeded sites. The most important unmeasured cost of the program is the risk of acquiring sites that will turn out to be not actually needed. The financial results of acquiring sites later not needed is mitigated for the city by the fact that the city has authority to sell any land it has ac- quired in advance of needs which do not materialize. The city may even make a pro- Table 15 SUMMARY OF COSTS AND BENEFITS, PRESENT VALUE INTEREST AT 6 PERCENT (Thousands of Dollars) Benefits Costs Taxes Foregone Years Appreci- Prevented Net Held ation Construction Rents Total" Interest Property Improv'ts Total Benefit' (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) tion for Expressway 8 0.5 9.4 9.9 1.1 0.4 1.3 2.8 7.1 8 1.9 22.6 24.5 0.8 0.4 3.2 4.4 20.1 7 0.6 9.0 9.5 0.3 0.1 1.0 1.5 8.1 7 0.ft 8.3 8.9 0.4 0.2 0.9 1.5 7.4 7 0.2 4.5 4.6 0.4 0.1 0.5 1.0 3.6 6 1.1 14.0 15.2 0.9 0.3 1.2 2.5 12.7 6 0.6 0.6 0.2 0.1 0.3 0.2 5 0.2 5.6 5.8 0.3 0.1 0.4 0.8 5.0 4 0.6 7.9 8.5 0.6 0.2 0.3 ' 1.1 7.4 4 4.0 59.4 63.4 5.8 1.9 2.5 10.1 53.3 4 1.8 23.8 25.6 5.2 1.6 1.0 7.8 17.8 4 2.8 198.0 200.8 5.8 1.8 8.2 15.9 184.9 >-Total 14.9 362.5 377.3 21.8 7.2 20.5 49.7 327.6 Acquisition for Street Widening 11 11 10 9 8 7 Sub-Total 1.4 3.1 4.8 7.6 4.4 4.5 25.8 36.9 18.4 19.5 88.8 21.9 276.0 461.5 Acquisition for School Additions 0.7 8 8 6 Sul>Total TOTAL Average 0.8 5.0 6.5 47.2 2.2 5.6 5.6 829.6 39.5 0.8 7.4 12.2 3.3 23.7 14.8 14.8 38.5 1.8 39.1 29.0 24.3 108.6 26.3 283.8 511.1 0.7 0.8 25.4 26.9 915.3 43.6 6.4 13.0 11.0 13.1 13.4 11.7 68.6 1.6 1.7 13.3 16.6 107.0 5.1 2.1 4.3 3.9 4.7 4.4 3.9 23.3 0.6 0.6 4.3 5.5 36.0 1.7 8.6 4.3 3.9 15.1 3.1 31.4 66.4 0.5 0.5 87.4 4.2 17.1 21.6 18.8 32.8 20.9 47.0 158.2 2.2 2.2 18.1 22.5 228.9 11.0 21.9 i t 5.5 75.8 5.4 236.8 352.8 —1.4 —1.5 73 4.4 686.3 32.6 " Figures may not add precisely because of rounding. 94 fit on land sold if the appreciation and rental income outweigh the interest cost and lost taxes. But in the meantime the city will have unnecessarily interfered with private con- struction plans on the sites it has acquired. For instance, if the expressway route is re- located, the property owners along the old route will have had all plans for re-use of their property blocked for several years un- til the new location for the route is decided. It is difficult to say how much of a problem this is in Richmond. It is probably not very serious for the expressway route because most of the sites are in a rather depressed section of the city. In any case, the possibil- ity of this disadvantage points up the ne- cessity for careful planning for future needs before advance acquisition is undertaken. Risk of encouraging bogus building per- mit applications. Another problem with ad- vance land acquisition programs tied to the building permit application process is the possibility of stimulating bogus applications if a landowner thinks he can get a better price from the city than from anyone else. This risk can be reduced, as it is in Rich- mond, by evaluation of the applications to weed out those that seem the least likely to be carried out, but some undoubtedly do get through anyway. However, the reverse effect might also be working: some owners may not apply for building permits if they feel that the city would then step in and ac- quire their property. In these cases the city would achieve the benefit of avoiding new construction on some sites scheduled for fu- ture public use without actually having to acquire the property. Intangibles Benefit Avoiding future relocation problems. An important benefit from avoiding new con- Table 16 MEASURES OF ADVANTAGE At 3 Percent Interest At 6 Percent Interest Net Net Purchase Net Benefit Rate of Net Benefit Rate of Time Price Benefit Cost Return » Benefit Cost Return • Held ($000) ($000) Ratio (percent) ($000) Ratio (percent) (1) (2) Acquisition for Expressway (3) (4) (5) (6) (7) (8) 8 3.0 10.0 4.9 47 7.1 3.5 38 8 2.2 26.4 7.0 175 20.1 5.6 151 7 1.0 10.2 8.1 173 8.1 6.5 152 7 1.3 9.5 7.5 122 7.4 5.8 106 7 1.1 4.8 6.3 70 3.6 4.6 59 6 3.0 15.8 8.2 97 12.7 6.2 86 6 0.8 0.5 2.8 11 0.2 1.7 6 5 1.4 6.0 9.6 95 5.0 7.1 86 4 2.8 8.6 11.0 83 7.4 7.7 76 4 27.8 53.4 9.2 61 53.3 6.3 56 4 25.0 23.1 5.2 25 17.8 3.3 21 4 27.8 211.4 16.5 205 184.9 12.6 192 Acquisition for Street Widening 11 13.6 11 27.5 10 25.0 9 32.0 8 36.0 7 35.0 Acquisition for School Additions 8 4.4 8 6 Average 4.5 45.0 15.2 37.3 20.6 17.1 109.0 17.1 301.6 —0.6 —0.6 16.4 43.2 3.3 2.2 2.1 4.7 2.1 7.7 0.6 0.6 2.3 5.8 30 8 8 44 7 139 —2 —2 7 67 21.9 7.4 5.5 75.8 5.4 236.8 —1.4 —1.5 7,4 32.6 2.3 1.3 1.3 3.3 1.3 6.0 0.5 0.3 1.4 4.2 21 3 3 35 2 121 —5 —5 3 57 Net rate after all costs including interest. See text. 95 struction which would later have to be re- moved is elimination of the problem of re- locating tenants from the new buildings. This forced relocation would have both a monetary and a non-monetary aspect. First, relocation payments would have to be paid to some tenants. Second, the eviction of bus- inesses and residents from new buildings might cause enough political opposition to hamper public plans for use of the site. We have no measure of the importance of this benefit in the Richmond program. Strengthening the planning process. An- other important intangible benefit of the advance land acquisition program is the boost it has given to city planning in Rich- mond. The building permit review procedure ensures that plans, once made, will still be feasible at the time they are intended for execution. And the existence of the building permit review has provided a further incen- tive to identify the best sites for future pub- lic needs so that they will be protected in the master plan. The orderly and almost auto- matic process for carrying out land acquisi- tion for projects in the master plan is a method of translating the master plan from proposal to reality, at least so far as land requirements are concerned. Achieving some of the benefits of "excess condemnation." One unmeasured and even unintended result of this program has oc- curred in some of the street-widening acqui- sitions. Usually, only a part of an abutting property is required when a street is wid- ened. And after the street widening has taken place, the remainder of the property usually has a higher value because of better access and the general rebuilding in the area. In Richmond it is not legal to condemn the whole property when only a part is needed for street widening, but it is legal to purchase the whole property if the owner is willing to sell. Owners have been generally willing to sell whole properties to the city 96 when street widening- is not an immediate prospect. Thus, after the future street wid- enings take place, the city will be able to sell off the remainders of the parcels it acquired in advance, perhaps at a substantial pro- fit. Though this potential benefit has not been estimated, it is possibly of great sig- nificance, and it could be measured after several street widening projects have been completed. EVALUATION OF THE PROGRAM The examination of both the measured and intangible costs and benefits attribut- able to this sample of 21 acquisitions leads to the conclusion that Richmond's advance acquisition procedure has been of great serv- ice to the city. The measured results point in the right direction even under very pessi- mistic assumptions about future needs, and the intangible benefits seem substantial. The intangible costs do not seem to weigh heavily. The advance acquisition program has pro- tected the sites for all future public facili- ties included in the master plan, and it has done so with a minimum expenditure of funds. The essence of the program is actu- ally to avoid acquiring property selected for future use unless some new improvement is contemplated by the owner. Therefore, prop- erty remains in private hands so long as this does not interfere with any plans the city may have for its future use. The operation of the program has been remarkably unobtrusive. Although it has been underway since 1949, it has received little public recognition, and no special ef- fort has previously been made to evaluate its economic implications or its impact on the planning process. Moreover, the routines which have been set up seem to require rel- atively little effort in carrying out the nec- essary acquisitions, and yet the program seems to have been eminently successful. 97 Chapter 9 ADVANCE ACQUISITION AS AN IMPLEMENT OF LAND-USE CONTROL Thus far analysis has focused on what ad- vance land acquisition can contribute to the efficient production of the roster of services normally provided by governments. But land serves far wider functions in a community than that of an input for gov- ernment services. These broader functions — private as well as public — can be improved by advance land acquisition and other sorts of land-use controls. To deal with these ques- tions at all adequately would require a trea- tise twice as long as this one. Nevertheless, at least some mention of the wide problem of advance acquisition for the purpose of im- proving the process of urban extension is necessary, if only to put the narrower ques- tions on which the monograph focuses in proper perspective. Accordingly, this chapter considers the government function of improving the use- fulness to present and future generations of that scarcest resource in an urban environ- ment, land. It is largely restricted to one technique, that of advance acquisition, and says very little about the important variety of further techniques for land-use control — zoning, mapping, subdivision control, op- tions and the like. 99 The discussion starts by sketching in a somewhat impressionistic fashion some of the major advantages and disadvantages of large-scale advance acquisition of land for the purpose of improving urban extension. In the second section the discussion is illus- trated by references to a few cases where some form of large-scale advance land ac- quisition has actually been tried. BENEFITS FROM ADVANCE ACQUISI- TION AS AN INSTRUMENT OF LAND- USE CONTROL It is necessary to think systematically about the sorts of advantages that may re- sult from acquisition as a tool of public pol- icy in improving land use. However, because of the broad social nature of these advan- tages no attempt is made to devise measures of the advantage. Disadvantages of the usual sort — the cost of financing and taxes foregone — are of course present. In addition there may be other opportunity costs in terms of moti- vation, and other intangible matters in both the private and public sectors. These mat- ters, however, are either routine or far too subtle to be dealt with except in terms of a number of new case studies. Government Income from Land Appreci- ation Capturing a rise in price of land is a bene- fit when the objective of advance acquisi- tion is defined in terms of land-use controls, as well as when it is defined in terms of the sites required for specific government services. However, in the broader context of this chapter there are other aspects of the benefit from appreciation in land values or rents on acquired land that also apply. A typically unmentioned yet often quite active reason for advocating public purchase of land is the basic notion that it is somehow improper for private individuals to make and retain "speculative" profits from land. These ideas are variously based and take various forms. An important reason for believing that the government should receive the income from land is that rents (and increases in land values) can be tapped for revenue with less disruptio'n to private incentives in pro- ductive processes than can income which represents a reward for effort, imagination, or risk-bearing. This is the original princi- l)le that underlies Henry George's tax the- ories, and it is still widely regarded as cred- itable. This point of view is sometimes reinforced by a philosoi)hy. It has long been held (and again Henry George is the best known ex- ponent) that appreciation in the value of land rightfully belongs to the public, for it is generated by the actions of the commu- nity, rather than by those of the landowner. This basic ethic seems to gain special force in the context of current urban land-use problems. Governments have taken on re- sponsibility for promoting better land use and have spent vast sums upon it. In conse- quence, one might argue that much of the ap- preciation in land values belongs to the gov- ernment as a result of its own actions in creating the additional value of particular parcels, as well as of broad areas, of urban land. This reason reinforces the more ab- stract notion of justice mentioned above. The community, in other words, is entitled to the appreciation partly because of socie- tal behavior, but also because of the specific actions of its agent, the government, in fun- neling public funds into the creation of ur- ban land value. We mention it here simply to make sure that each individual considers the question openly. Facilitating Efficient Production of Public Services Getting "the best site" appeared as an im- portant reason for acquiring sites in advance of their use for schools. In large scale ac- quisition for urban extension, an analogous qualitative benefit is present. Indeed "getting the best sites" for community facilities ac- tually takes on a new meaning in the con- text of large-scale planning and acquisition. First, there are some things that virtually cannot be done at all if they are not done in association with advance acquisition. Wait- ing may result in land prices being so high that the service itself is priced out of the market, even the government market. An example might be the construction of a com- 100 plete lower deck to a city reserved solely for vehicles, their movement and storage. A second example of the potential of ad- vance acquisition to improve, if not indeed to make possible, the provision of a service is in the field of housing, particularly low income housing. A few of the many sorts of examples are mentioned below. Third, advance acquisition on a large scale is capable also of greatly improving the effi- ciency with which standard governmental services such as sewage disposal, water, transport and the like are provided. The po- tential increase in efficiency exploits the interdependence of the location of services and the location of people to be served. Thus it makes possible, in a sense, the creation of "best sites," as well as exploitation in the public interest of the knowledge of where they will be. An illustration of how land ownership can promote efficient provision of services is pre- vention of "leapfrog" development. If a new community has to leap a sitting owner who refuses to sell land adjacent to existing de- velopment, utilities have to travel longer distances. While it is impossible to general- ize about the magnitude of the resultant costs, it does not seem impossible to estimate them in particular cases. For example, one recent study of a leapfrog subdivision devel- opment in Lexington, Kentucky, estimated that 40 percent of the added costs were borne by the gerferal public, and 60 percent by the residents of the subdivision itself.^ It is widely recognized that this problem of scattered leapfrog development can also be meliorated by planning measures short of acquisition in full fee, particularly by zoning and subdivision controls. But an approach which seems relatively neglected is marginal cost pricing for public utilities. If builders and residents of leapfrog subdivisions were required to bear all of the added costs, this would provide an appropriate economic in- centive for a more efficient pattern of urban growth and a deterrent to high-cost sprawl.^ Improved Community Development Planning Urban communities intermesh with the lives of people who live in them, and who contemplate doing so, in a large number of ways — their homes, their work, play, educa- tion (and access to each), intellectual and artistic development, social contacts, per- sonal as well as community services and so on and on. Purposive community develop- ment aims to improve and enrich aggregate community welfare in all these directions. Government responsibility for community development harks back to the notion that better communities can be achieved by de- sign than by the sole operation of that re- nowned triumvirate — the private profit mo- tive, consumer choice, and the price system. Needless to say, a plan does not necessarily depose the triumvirate; indeed, good plan- ning may even serve it, at the same time that anti-social "externalities" are diverted or suppressed. Design, then, which may be very subtle or very heavy-handed, endeavors to improve development by means of a plan of some sort, and by means of an apparatus to make the plan effective. Advance land acquisition can be an important piece of that apparatus. Its role as enforcing apparatus has been illus- trated in a small way earlier in this report. We saw, for example, how the acquisition of a substantial number of small sites seemed to help strengthen planning in Richmond and Montgomery County. Broad-scale ad- vance acquisition of land and other land-use control devices could contribute even more to effective overall community planning. 1. Roy Bahl, A Bluegrass Leapfrog, Lexington: Bu- reau of Business Research, University of Kentucky, 1963. 2: A very interesting case study of how the con- struction and pricing policy for new sewers and water supply has affected the pattern of develop- ment in Prince Georges and Montgomery Counties, Md., is given by Francis X. Tannian in Water and Sewer Supply Decisions: A Case Study of the Wash- ington Surburban Sanitary Commission, a Ph.D. dis- sertation at the University of Virginia in 1965. One of the conclusions is that the sewer and water supply extension policies of the WSSC has in many cases worked directly counter to the goals of the Mary- land-National Capital Park and Planning Commis- sion, and that a change to marginal cost pricing for sewer and water supply would greatly assist the planning process. 101 But improved land use is also one of the central targ'ets of planning. Land is a re- source that, more than most, is subject to improved use by means of explicit and inte- grated government policy. For one thing, each man is subject to hurt or benefit by the use to which his neighbor puts land. For an- other thing, all of the interrelationships that constitute a community are affected by spa- tial patterns of location and movement. Con- trol over land gives at least partial control over these spatial elements in planning. Planning then is an intermediate step be- tween advance acquisition and improved ur- ban development. Further, the relationship between advance acquisition and planning runs in two directions: land purchase is an implement in the planning kit and planning is an implement in the acquisition kit. This means that benefits of advance acquisition in terms of its contribution to improved ur- ban development interlace with the contri- butions of planning to the same cause. Advance acquisition can contribute to bet- ter planning and thereby to better urban development in several ways. First, advance acquisition has the capac- ity to help structure and utilize a wide vari- ety of intra-urban relationships, functional as well as spatial. An example is its capacity to improve the calibre of transportation and utilities which are so central to an urban community. This is, as previously indicated, a benefit from advance acquisition which improves site selection, and in consequence enhances the quality and efficiency of the service generated. But there is a further benefit in the effect of these improvements on the total planning operation and the over- all benefit therefrom. It is this aspect that we wish to emphasize here. A second pervasive contribution (in which, incidentally, the two-way association with planning is strong) consists of improving the self-fulfilling capacity of expectations on which planning is based. Third, many of the economic and political obstacles to effective planning in general, and to land-use planning in particular, are reduced by advance acquisition. Since it per- mits acquisition prior to solidification of vested interests, it permits planning deci- sions on the timing and location of new de- velopment which, if the land were owned privately, would infringe the property rights of some owners and unduly reward other owners. This has been an especially impor- tant factor in the Stockholm experience dis- cussed below. Timing and Scale Each of these basic ways in which advance land acquisition can contribute to optimal urban development tends to be strength- ened by the appropriate timing and scale of acquisition. Timing. By and large, control is greater when land is acquired prior to development of any sort. This means that planning can start with a clean drawing board and deter- mine how best to use land without paying the costs of altering previous uses. As we have seen, these costs are political as well as financial and they can be so high as to rule out a number of otherwise desirable alterna- tives. The proper phasing of land use is also facilitated when early acquisition provides the whole gamut of choice. Unless holding costs are disproportionately great, early ac- quisition is also likely to increase income from appreciation of the land. Scale. Planning in general and advance acquisition in particular are more efficient when they are applied to areas the size of which is commensurate with the require- ments of the particular problem. Thus there appears to be a minimum size necessary to planning residential development. Proper spatial relationships demand that the area be large enough to include commercial cen- ters, schools, recreational space and the like. These individual communities in turn need to have external linkages of various sorts, e.g., to places of work and to other residen- tial areas. Yet, as the area that is covered spreads, management and financial prob- lems no doubt multiply. The point is simply that scale is an element in determining the advantage of advance acquisition for land- use controls, and must, therefore, be explic- itly considered. 102 CASES OF LARGE-SCALE AOUISITION OF LAND FOR LAND-USE CONTROL This sketchy list of possible advantages from advance land acquisition may help to structure a brief review of some interesting examples of experiments on planned urban extension. Integral Communities or New Towns The most ambitious form of public land acquisition to influence urban growth is the building of complete new towns. This ap- proach has been tried more extensively in Great Britain than elsewhere. However, the land for the British new towns has gener- ally not been acquired far in advance of con- struction, and thus the British experience does not illustrate how long range acquisi- tion improves the development process, ex- cept insofar as it indicates some problems encountered that advance acquisition might have avoided. One of the chief problems in the British program has been in selecting suitable town sites. Requirements include: that the land "not have too high agricultural value, that it can be adequately drained, that sufficient water can be produced conveniently, that road and rail connections be excellent, and that, above all, the area be attractive to in- dustrialists.'" Naturally, most sites answer- ing this description are already developed. Therefore, many of the new towns have had to be planned as enlargements of existing centers, and this has created considerable difficulties, including opposition from exist- ing local authorities and from landowners in the area.' The timing of acquisition, in other words, has certainly not been optimal. However, a large number of the other ob- vious advantages of combining land acqui- sition with comprehensive planning have en- sued, including substantial revenues and improved planning capability. One moot point concerns the objective of self-sufficient 3. London County Council, Planning a New Town. London, London County Council, 1961, p. 13. 4. These problems are thoroughly described in The British New Town Policy, by Lloyd Rodwin, Cam- bridge, Harvard University Press, 1956. 5. An early proponent of the procedure is Irving communities which minimize home-to-job transportation problems. Questions have been raised as to whether this has in fact materialized. The best-known U.S. experiment in direct government participation in large-scale land acquisition for the purpose of urban devel- opment is the Greenbelt Town program car- ried out by the Resettlement Administration between 1935 and 1938. The primary pur- pose of the program was an emergency em- ployment measure, but an additional aim was to demonstrate the advantage of large- scale city planning. Three complete commu- nities were constructed in suburban areas near large cities: Greenbelt, near Washing- ton; Greenhills, near Cincinnati; and Green- dale, near Milwaukee. The largest of the three, Greenbelt, was built five miles from Washington on a site that included an encir- cling belt of park and fann land to protect against unplanned neighboring developments and to allow for future expansion. Aside from the Greenbelt towns, there has not been in the United States much experi- ence with large-scale public acquisition of outlying land for the purpose of planning new development. However, there have been many instances of smaller-scale acquisition of land, both public and private, and some of these serve to illustrate what advance land acquisition could contribute to the planning process. One sort of work that involves at least temporary public land ownership is urban renewal, which has of course been an im- portant field in this country. When large areas of a city are involved in multifaceted renewal or reconstruction, many of the ele- ments of town planning and urban extension are present. Indeed the suggestion has been made that public bodies ought retain title to land rather than assemble it and then re- sell it to private parties.^ Though small in scale, comprehensive community planning carried out under sin- gle ownership has frequently taken place. D. Robbins who was responsible for a report by The City Club of New York entitled, "A Practical Program for Replanning the City of New York, The Problem, The Method, The Means." Since then, the ideas have been put into practice and also more extensively developed. 103 Many years ago, the National Resources Com- mittee described 144 of these experiments." They included governmentally-developed planned communities (chiefly war housing) and planned communities sponsored by in- dustrial companies, philanthropic organiza- tions, and real estate developers. One example is the "company town." But only a few of these could be regarded as examples of comprehensive community plan- ning of the sort that would be the aim of a public policy. However, a small number have been highly successful, among them Chicopee (Georgia), Hopedale (Massachusetts), and Indian Hill (Massachusetts). Planned communities undertaken by phil- anthropic organizations have usually been experiments to demonstrate desirable new concepts of urban development which would be possible and profitable for private enter- prises to undertake. Therefore, in these proj- ects there has been a greater willingness to take a large risk and to depart from accepted practices in search of better ways to organize a community. Examples of this sort of new community are Radburn, New Jersey, Chat- ham Village in Pittsburgh, and Forest Hills Gardens, New York. Forest Hills, which was financed by the Russell Sage Foundation, is notable in that complete financial records were kept in order to evaluate the worth of the undertaking. Though the project had primarily an educational objective, it was in- tended to yield a reasonable return on the investment in order to set an example for purely commercial real estate developers; however, the net result was a small loss after 11 years of development and operation. Nevertheless, Forest Hills did make an im- portant contribution to the practice of resi- dential site planning and many of its tech- niques were repeated in later developments. Private real estate organizations have also been active in developing planned communi- ties, though few of these have until recently been on a very large scale. Naturally, the prime motive of these developments has been 6. U.S. National Resources Committee, Urban Plan- ning and Land Policies. Washington, Government Printing Office, 1939. profit, but in many cases this has not con- flicted with highly satisfactory planning. Among the most notable of these privately planned communities are Shaker Heights, Ohio; Coral Gables, Florida; Palo Verdes Estates, California ; and Roland Park, Mary- land. The National Resources Committee tried to make some generalizations on the basis of the case studies. They did not attempt to formulate a balance sheet of advantages and disadvantages ; however, the most important achievements were pointed out. Chief among these was the advantage of organizing the development in terms of neighborhood units, each unit with its own facilities for resi- dence, shopping, schools, and recreation. The best results were presumably obtained when these neighborhood units were protected on their peripheries against nonconforming or incongruous use of adjacent land, and when the neighborhoods were adjacent to but not bisected by major transportation routes. These principles were found to apply regard- less of whether the development authority was public or private, and some of the most successful of the communities were profit- motivated enterprises. Apparently, then, this study underscores the importance of scale in realizing the advantages inherent in plan- ning new communities on owned land. It ar- rives at some specific prescriptions concern- ing what that scale should be. The advantages of large-scale land devel- opment itself are more recently illustrated by the private sponsorship of the "new towns" at Reston, Virginia ; Columbia, Mary- land ; and on the Irvine Ranch in California. These privately-planned communities closely approximate the sort of new urban develop- ment of outlying land that would be the ob- ject of a policy of outright public ownership and development, with one notable exception — the appropriate public emphasis on accom- modating a cross section of society and pro- viding low-income housing. In other respects, the correspondence between public and pri- vate interests is close and very interesting. It appears to be the result of the responsi- bility of a single authority for a large area over a long time, since what would be spill- over effects (both of costs and benefits) for 104 smaller developments and shorter time- spans are internal to the larger area over longer time-spans. Consequently, the author- ity is sensitive to a range of considerations resembling the public interest at large (at least for the group of people included in the community) . In passing, it should be pointed out that a number of the advantages of large-scale de- velopment planning under single ownership can be achieved by public policies short of public land acquisition. One of the most promising of these is the promulgation of zoning ordinances designed to encourage pri- vate development of land on the scale of new towns. An example is the Montgomery County, Maryland "Town Sector Zone" ordi- nance which is applicable to developments of 1,500 acres or larger. The purpose of the Town Sector Zone is to assist "the building of new towns or satellite towns located far enough from the present built-up areas to permit a high degree of self-sufficiency and independent existence as a separate func- tioning economic and social unit.'" To en- courage development of this kind, the new ordinance "eliminates, in the Town Sector Zone, some of the specific restrictions which, in other zoning categories, regulate the height, bulk, and arrangement of buildings and the location of the various land uses." Instead, the development is judged on its overall plan, which must conform to certain standards of self-sufficiency, diversity, den- sity, and service by transport facilities and public utilities. Without this sort of provision, the zoning ordinances can actually deter new town de- velopment by enforcing a single form of de- velopment on large areas and by not permit- ting high densities in some sections to be offset by lower densities in other sections in the same development. In effect, this "new town zoning" is simply the cluster zoning on a very large and very comprehensive scale. 7. Montgomery County Zoning Ordinance, Section 104-19A. 8. "GE Proposes to Develop Planned Cities Near Major U.S. Metropolitan Centers," Wall Street Jour- nal, August 18, 1966. 9. Leo Grebler, Urban Renewal in European Coun- Another way in which public policy can encourage comprehensive planning on a large scale is to facilitate flexibility of ap- proach in the construction of new towns. Recently, major industrial companies have announced plans to develop planned cities, and one criterion noted in the selection of sites for these new cities is the favorable- ness of the local government's building codes, and labor's attitude toward innovation in construction techniques. The General Electric Company is planning to build new cities of approximately 100,000 residents and has selected areas that appear receptive to the idea of some sort of "Planned Com- munity Development Authority" which would be empowered to prescribe its own building codes and requirements.* This capacity to innovate is especially valuable for the larger companies that, like GE, have the resources to develop more than one new community and can take advantage of lessons learned in initial projects. Advance Acquisition for Large Scale Urban Extension In Europe, the experience with public land acquisition to influence the pattern of urban land use is quite different from that in the United States. While the emphasis in the United States has been on the problems of urban renewal, European countries are only now beginning to undertake this task on the scale common in the United States.' In Eu- rope, however, public acquisition of outlying areas has been used to give direction to ur- ban extension. An excellent picture of European practices has recently been presented in the United Nations "Seminar on the Supply, Develop- ment and Allocation of Land for Housing and Related Purposes" which took place in 1965." The techniques employed in the European countries are, of course, diverse, but the gen- eral approach was summed up by the con- tries: Its Emergence and Potentials, Philadelphia, University of Pennsylvania Press, 1964, pp. 11-12. 10. United Nations Economic Commission for Europe, Proceedings of the Seminar on the Supply, Develop- ment and Allocation of Land for Housing and Re- lated Purposes, New York, United Nations, 1965 (ST/ECE/HOU/15) Volumes 1 and 2. 105 ference chairman: ". . . in these countries town-planning and land price control poli- cies are harnessed to a single principle: ini- tiative in urban development should belong to the public authorities and not to private interests." The work reported in the confer- ence is strongly focused on public responsi- bility for providing housing. To dispatch the responsibility at a reasonable cost, it is nec- essary to anticipate increases in land prices associated with development. In addition it seems to be assumed that private profit from speculation in land ought not to be allowed, especially since it tends to be associated with actions that forestall the use of land for the sort of housing that is of particular public concern. The volume provides a wealth of illustra- tions, especially of the first and second bene- fits that we listed earlier — the forestalling of appreciation in land values and the more efficient provision of services (the emphasis here is on housing). Rather than summarize this material, which is readily available, we shall discuss the one experiment that pro- vides the richest illustration of the whole range of possible benefits from large-scale advance acquisition : Stockholm. Stockholm" In 1904, the City Assembly inaugurated a policy of buying large areas of farm and for- est land within a 9-mile radius of the city's center. By the late 1930's, 32 square miles of rural land had been acquired, and this in- cluded much, though by no means all, of the surrounding territory.'" Stockholm's bounda- ries were extended to include this land, on which new satellite cities and garden sub- urbs were planned to provide for future urban expansion. Eighteen such communities with a total population of 250,000 have since been built on the ])reserved land, including Hammarby, Farsta, Bjorkhagen, Vastertorp, and Val- lingby. Over half the population of Stock- holm now lives in suburbs which have been built on municipally-owned land." The new communities are strung along subways and are separated from one another by tracts of wooded land. Some of the acquired areas were held for as long as twenty years be- fore they were developed, and in the mean- time the city was able to practice "family planning" for new development, waiting un- til transi)ort and other ])ublic improvements were available before development was al- lowed to take place." Like the British new towns, the Stockholm centers were originally intended, at least by one group of the active proponents, to de- cant Stockholm residents into the suburbs on a non-commuting basis. But there appear to have been others who thought diff'erently, since the policy of simultaneously extending the subway lines to the new subcenters made commuting to the city's center relatively easy."" For instance, in 1960 Vallingby pro- vided jobs for 9,000 persons, only 2,000 of whom were residents. Seven thousand work- ers commute daily into Vallingby and 25,000, residents commute out, half into the center of Stockholm. Other explicit moves on the part of public officials sometimes supported and sometimes inhibited the tendency that the subways ini- tiated for the new communities not to be self-contained. The inconsistencies and inac- tion reflected a controversy between the Real Estate Director, on one side, who advocated a policy of garden suburbs with single fam- ily homes, and the Building Commissioner, on the other side, who advocated a policy of 11. A major source of the information discussed be- low is Institute of Public Administration, Urban Government for Stockholm, Frederick Praeger, Inc., New York, 1967. 12. U.S. National Resources Committee, Urban Plan- ning and Land Policies, Washington, Government Printing Office, 1939, pp. 313-314. 13. Yngve Larsson, "Building a City and a Metrop- olis" in Stockholm Regional and City Planning, Stockholm, Planning Commission of the City of Stockholm, 1964, p. 19. 14. Goran Sidenbladh, "Stockholm: A Planned City," Scientific American, September 1965, pp. 106-118. 15. Originally the city planning authorities, who do veloped the general plans for these areas, and the City Housing Exchange, which handled allocation of housing in the new areas, concluded a "treaty" giv- ing priority to people who had jobs in the area; however, this policy proved unworkable. 106 self-contained satellite cities." After long controversy, a compromise program was finally developed which set aside two areas as garden cities and two as satellite cities. Nevertheless, the Real Estate Director re- signed and subsequent development seems to have run along the satellite city lines. It is noteworthy, however, that in order to effectuate these ideas considerable nego- tiation was required between the govern- ment and the business community. While some of the communities were eventually constructed by the Municipal Housing Cor- porations, others were built by private con- tractors on a cost-plus basis. Although advance acquisition has been considered vital to Stockholm's urban expan- sion policy, there are now a number of other planning devices which are to some extent substitutes for large-scale, long-range ad- vance acquisition. One of the most important of these is regional planning for Greater Stockholm and peripheral communes. The plan covers the physical development of the region only, and there are different levels of detail for various districts within the plan- ning region. All facilities that pass through communes or which affect several communes, as well as the location of major groups of land uses, are incorporated in the regional plan. The director of the regional planning staff has summarised the process of plan formu- lation as one of negotiation and bargaining: As a result of . . . exchanges of views between different local and re- gional interests, colored by different forms of living and political opinions, and with the collaboration between the representatives of laymen and experts, a plan was evolved that met, on the one hand, the need for a uniform and bal- anced framework for the development of the region and on the other hand. the individual claims of the municipal- ities. There was certainly some measure of suspicion and jealousy at earlier stages and apparently insuperable con- flict of interests. But the final plan was adopted unanimously." It appears that the main difficulties in gaining acceptance arose from the fact that a number of the communes around Stock- holm had made ambitious plans for trans- forming their communities into densely populated areas, whereas the regional plan- ners wished to provide space for various forms of dwellings, industry and recreation facilities. The plan has now been accepted though it is not binding on the communes. There is, however, considerable pressure to conform, and the central government bases its approval of projects on conformance to the plan. At the local level, further planning func- tions are exercised. For example, the com- munes can, by means of their town plans, hinder utilization of land for purposes con- sidered contrary to the public interest. Land- owners do not have the right to erect high- rise, high density buildings on privately owned land unless the communes deem such a use appropriate under the town plans. The system of building permits guarantees that existing regulations will be observed by landowners and builders. Planning has taken a further step toward realizing the benefits of public ownership of land by moving to capture increments in value gained under town plans by private investors. A special ground for expropria- tion, i.e., for acquiring land to be subse- quently leased to builders, and a zonal ex- propriation arrangement have recently been put into effect. Under these procedures the communes can make application for expro- priation at an early stage in the planning 16. To overcome the plans of the Real Estate Direc- tor, proponents of the satellite city concept had to engineer the formation of a new committee to special- ize in programs for the Western sector of the city, under the direction of the Building Commissioner, and a new city planning director supported by him. The controversy was thus initially between the pol- itically-appointed commissioner of one division and the civil service director of another. 17. C.F. Ahiberg, "The Regional Plan for the Stock- holm Area," Stocklujlm Regional and City Planning. Stockholm, Planning Commission of the City of Stockholm, 1964, p. 37-38. 107 process and do not have to await the com- pletion of plans, and hence a rise in land prices.'" The compensation of the private owner is arrived at by weighing the price of similar real estate in the commune and the level of return the owner is receiving on his investment; the use to which land is to be put after expropriation should not be con- sidered, and thus the owner cannot realize profits from values added to land by commu- nity action. Stockholm is a venture from which the full complement of benefits from advance ac- quisition might have been realized. The pur- chase was early, the scale was large. How, then, does the record look? A careful answer to this question is a research project. Some observations, however, are possible even on the basis of our cursory examination. Clearly, services have been provided of a quality and even character not otherwise possible (Benefit Number 2) : transportation and utility systems efficiently related to resi- dences; wooded areas for recreation sur- rounding each local community. In addition, land use has been improved: subcenters planned on the basis of functional neighbor- hood units with most of the dwellings with- in walking distance of schools, shops, recrea- tion and public transport. Whether or not it is possible to interpret these advantages meaningfully in even the roughest sort of dollar measure, it is clear that they are ad- vantages and that their full character ought to be understood. The income from appreciation and rents (Benefit Number 1) is of course present, but how much is impossible to say without care- ful study.'" At least it is clear that a large proportion of housing is provided by the city; 45 percent of the housing units built in the past few years were constructed by city building corporations. As to the benefit from enhancing the power of planning and advance acquisition, in combination, to improve urban develop- ment (Benefit Number 3) two interesting facts stand out. First, in spite of the unusual facilities available, and even perhaps partly because of them, disagreement, political wrangling and stalemate interfered with the course of rational progress. Second (to greatly simplify what is really a two-way process), advance acquisition served so suc- cessfully to nurture the planning process that the child may now have successfully shelved the parent. Very recent developments appear to have devised a way whereby even Benefit Number 1, appreciation, can be real- ized through planning without public acqui- sition of land much in advance of its use. 18. Grants for expropriation are issued by the cen- tral government, upon application by the commune. After the communes obtain the grant the/ must file applications for expropriation with a special court composed of a judge and two technical ex- perts. 19. The city budgets for recent years show only about 6 to 7 percent of total revenues derived from rents and another 7 percent from charges and fees at least some of which are doubtless associated with yields of publicly owned land. (From Institute of Public Administration, op. cit. Table on "City of Stockholm Finances," data adapted from Statistical Abstracts of Sweden with additional data from the Swedish Central Bureau of Statistics.) But the meaning of these figures is lost in the intricacies of special departmental budgets and agencies. 108 Chapter 10 TO BUY OR NOT TO BUY Advance acquisition of land by public bod- ies can serve purposes that range from sav- ing money on the production of a particular government service, like fire prevention or education, to providing a new kind of urban environment. The task of the remaining pages is to summarize possible generaliza- tions concerning hoyv deliberative attention directed to whether, when, and how advance acquisition should be undertaken, can con- tribute to the ends that may be served. THE PREDECISION DECISION The first generalization concerns the point at which deliberation starts. It does not start with a decision among alternatives, but with deciding what to decide. The importance of this predecision phase cannot be over- stressed. It is perfectly clear that a good selection among poor alternatives is not a good deci- sion in any meaningful sense. Yet the full implications of this obvious fact are difficult to take into account. To do so implies careful and imaginative attention to devising occa- sions for considering advance acquisition and searching out specific alternatives worth in- vestigating. Unfortunately, having said this we can say little more; and that is perhaps one reason why the point is ordinarily two- thirds lost. Nevertheless, the predecision rule 109 had better be formulated: concentrate tal- ent and attention on finding alternatives worth considering. THE STRUCTURE OF DECISION Turn now to the decision itself. Theoreti- cally, alternatives have been presented, in- cluding the alternative of doing nothing, and the question is how to choose among them. General Characteristics The previous chapters have evolved a list of possible benefits and costs associated with advance land acquisition — both those readily formulated in dollar terms and those resis- tant to quantification. They have suggested how their magnitudes may be measured or at least broadly evaluated. To recapitulate, the benefits associated with the advance acquisition of sites ex- pected to be used in the production of the usual list of government services are: (1) forestalling rising prices ; (2) improving the chances for getting a better site by pre- venting new private construction on de- sired land; (3) temporary return on land; (4) better procedure for site selection and planning; (5) improved related land use. Benefits (1) and (2) combined spell more efficient investment of land as an input in producing a service; benefits (3) through (5) add supplementary advantages. The costs are: (1) interest or other opportunity costs of capital ; (2) taxes foregone ; (3) op- erating expenses of the program. When attention turns to advance ac- quisition as a means of improving the proc- ess of urban extension, each of these types of benefit is still present. However, they take on far wider and more subtle meanings ; this is particularly true of benefits (4) and (5) which involve the capacity of advance acqui- sition and planning jointly to improve pat- terns of land use. Particulars were discussed in the first section of Chapter 9 and need not be repeated. For each of the benefits associated with advance acquisition, the problem of evalua- tion, in monetary or other terms, has been discussed and the conclusions need to be briefly reviewed. But consider first how the value of all expected benefits and costs can be consolidated to provide the basis of deci- sion. First, three general characteristics of the decision situation: 1. The information upon which decision rests concerns expectations, not history. The past or present is useful to decision only as a guide to expectations. In the case of ad- vance acquisition expectations reach well into the future. 2. Expectations about the future can never be sure; instead they are inevitably uncer- tain. Expected outcomes are therefore de- scribed by a value and its likelihood. Thus, each element in the tally of advantages and disadvantages is, in actuality, a guess about outcomes and these guesses may be relatively confident or little more than a vague fear or hope; and this is true whether the benefit is subject to sharp quantification in dollar terms or only to vague hefting. A relatively sure benefit is worth more than a relatively unlikely one: uncertainty reduces value, other things the same. All estimates of outcome, in other words, are twins; there is an estimate of a value (quantitative or qualitative), and of its likelihood. 3. Evaluation of a future benefit or cost must be transposed to its expected value at the time the decision is made. A benefit which will occur ten years hence is smaller, and a cost greater, than one which will occur today; the time discount is basic. Today's decision, therefore, rests on an estimate that converts expected future values to their value at the time the decision is made. The Decision Matrix The task now is to draw the materials to- gether into a more structured form — one which deals properly with the inevitable un- certainty of expectations. How may this be done? Classic statistical decision theory presents a straightforward answer.^ It is summar- 110 ized by a matrix and a decision rule. Alter- native acts (rows) confront various states of nature (columns), each having a knovi^n likelihood of occurring. The outcome of each act under each state of nature has a speci- fied present value (cells of the matrix). The average outcome of each act is the sum of the cell entries for that act (row) weighted by their likelihood, in short, the Expected Value.^ The decision rule is: choose the act having the largest Expected Value. Though this conception is far too slilf to apply fully to the complexities of advance acquisition, it is, nevertheless, useful as a conceptual prototype that presents the stark structure of any choice. The first point to which it speaks concerns the circumstances to which the decision rule applies. An Expected Value can only have obvious relevance to situations that permit successive drawings from a probability dis- tribution. A single drawing, as in the extreme "small-numbers" case, has one outcome only, the one that happened to come out. Any of the results that seem at all likely must be tolerable. The second point that is sharpened by the matrix concerns the essence of the large- number case. Only if frequent drawings are made is there an opportunity for a weighted average outcome to show up in the cumula- tive result. The drawings do not, however, have to be made from the same matrix, as when a fair coin is flipped a large number of times. Lloyds of London insures many single drawings from, in effect, a large number of different probability matrices. The average Expected Value (weighted for the size of the venture) will dominate, provided each bet is placed on the basis of a properly constructed and unbiased probability distribution. The Montgomery County or Richmond programs are examples of this sort of situation. Finally, the matrix and its decision rule have a measure of direct applicability to the advance land acquisition decision of the large-number type in which efficiency — in- creasing the service output from a dollar spent on the input, land — is a major aspect of the total benefit. This parallelism is closest when it is pos- sible to develop a consolidated estimate of net measurable benefits of several possible magnitudes for which likelihoods can be roughly assigned. Often such an objective can be approximated because of two charac- teristics of the decision situation for the large-number case in advance acquisition: (1) Costs can be specified with reason- able clarity and assurance, and (2), the major benefits, the two dimensions of ef- ficiency — appreciation in land values, and obtaining a best site — are subject to dollar evaluation in terms of a range of figures for which probabilities can also be estimated. Accordingly, the Expected Value to the local community of each of the benefits may be summed and the Expected Value of the costs deducted to obtain a net Expected Value of these relatively measurable items.* The others can be evaluated thereafter. It will be useful to review for each cost and benefit, what the study has brought out con- cerning, first, how measurement may be achieved and, second, how probabilities may be assessed. Costs: Their Amount and Probability Costs of capital and taxes foregone. These costs are based primarily on the logic of management rather than on guesses about the future.* The marginal borrowing rate is an appropriate capital cost for local govern- ments. If capital requirements for advance acquisition are not too large relative to all borrowing, marginal borrowing costs may not be materially higher than the average rate on new borrowing; 3 or 4 percent is a 1. An excellent, readily comprehended description of the essentials is given by Irwin D. Bross, Design for Decision, New York, Macmillan Co., 1953. 2. Expected Value is capitalized throughout to call attention to its technical usage. There is a lively debate concerning whether other rules are preferable, at least at times. However, if the values in each cell represent true utilities (not necessarily with a linear relationship to dollars) most of the argument subsides. 3. A few qualifications are mentioned later. 4. The logic demands that expected changes in bor- rowing rates or taxes also be considered. But ex- cept where holding periods are very long their im- pact is not controlling. Ill usable, though perhaps low, estimate. The cost of taxes foregone is a function of real estate tax rates and assessment practices — say about 2 percent of market value of the land. Thus, a 6 percent carrying cost is a conservative estimate for local governments. In any event, the appropriate figure can be estimated in terms of a range for which probabilities can be assigned. The Expected Value and what a decision maker may re- gard as the "most likely result" may tend to be much the same, or more probable figure will tend to be the same. In general, the costs of about this magnitude (or whatever higher rate is indicated) are relatively sure. Benefits: Their Amount and Probability The two aspects of the benefit from in- creasing the efficiency of public expenditure on land — enjoying appreciation in land value, and getting a "best site" by prevent- ing new private construction on desired land — are measured by the present value of the difference between what the government pays for the advance purchase and the high- est price that it would be willing to pay at the time of expected use. However, the bene- fit need never be smaller than the present value of the appreciation in the value of the site, since the latter benefit can be achieved simply by selling the property at target date. What the government "would be will- ing to pay" for the land at the time of use is determined by whichever of the following three considerations dictate the smallest fig- ure: (1) the cost of purchasing and clearing new construction from the best site; (2) the price, given the quality, of alternative sites still avaibable ; (3) the capitalized value of the services that the site is expected to afford during its public use. Forestalling a rise in land prices. A gener- al rise in prices tends to increase proportion- ally what governments would be willing to pay for land (unless consideration (3) dic- tates a lower limit). Expected changes in land prices are readily conceptualized in terms of possible prices and their likelihood. For example, say that an official knows that a site can now be bought for $100,000. The best information that can be assembled sug- gests the following estimate: out of ten chances, there are two that the property will be worth $110,000 in seven years; four that it will be worth $140,000; and four that it will be worth $200,000. Thus the Expected Value is $158,000.° If the figures applied to a site that was part of an ongoing well- established program in advance acquisition, the figure of $1.58,000 (an increase of almost 7 percent a year) would be the relevant basis for decision. Over the years, for some ven- tures appreciation would turn out high, and for others low, but just as long as the esti- mates were unbiased, the average results would presumably approximate the average of the Expected Values.' Note, however, that if we were dealing with a small-number case in which the ven- ture must stand or fall on its own (and carry its sponsors with it), six out of ten chances of a price no higher than $140,000 might well be too large a chance of loss to take. Of course, the surer and larger the ex- pected rise in prices, the more advantageous advance purchase will be, other things the same. Chapter 6 indicated that three condi- tions tend to warrant a confident guess : 1. The transition from rural to urban use appears very typically to involve large in- creases in value; the upward trend persists 5. It may seem more realistic to describe the judg- ments in terms of adjectives: there is a "small chance" of $110,000 and "about even chances" of $140,000 and $200,000. However, the numbers are doubtless also sometimes used. Recent experiments at the Bureau of the Census on a survey of con- sumer buying intentions has found that purchases of durables conform better to respondents' state- ments about the likelihood of making a purchase when these statements are made in terms of a num- ber-scale from 1 to 10, than when they are made in terms of verbally described likelihoods. See Thomas Juster, Consumer Buying Intentions and Purchase Probability: An Experiment in Survey Design, National Bureau of Economic Research, Occasional Paper 99, September 1966, particularly p. 89. The judgments about both prices and probabilities most often (perhaps typically at least for small lots) refer to prices in a general area rather than for the particular site. If so, the price ranges for the latter are likely to be somewhat broader than the figures suggest. This statement assumes a ran- dom variation of prices for particular lots relative to average prices in the neighborhood. 6. This statement is not strictly true since, if some purchases in a program are substantially more costly than others, there is a weighting problem by size of purchase that needs to be taken into account. 112 (though often at a lesser rate) as develop- ment continues in the form of more concen- trated residential use. Transition to commer- cial use tends further to spur the upward trend. Experience suggests, then, that when the transition to urbanization is clearly about to get under way or is actually in process, substantial increases in prices are the norm. 2. For the country as a whole, a long-term rise in urban land prices seems unavoidable, though, except during inflationary periods, there is no reason to assume that the rate of rise will be sufficient to do more than support other reasons than appreciation alone for acquiring land in advance. The fact of the broad trend alone is seldom relevant to the small-number type of advance purchase; is strongly relevant to a situation where the appropriate grouping of purchases is na- tional in scope ; its relevance to other group- ings increases with the geographic diversity of their coverage. 3. The broad average trend for the coun- try as a whole comprehends substantial dis- persion among price trends in particular cities and areas of cities; whether prices in any one of these localities will move with or against the trend depends on particular judgments about the population and about land-use trends of the area. Such questions call for the expertise of the professional on whose judgment, concerning both outcomes and their likelihoods, sound action can be predicated. Obtaining a "Best Site." Since the power of eminent domain means that a government can always obtain a desired piece of prop- erty, the advantage of its advance acquisi- tion involves obtaining it at a lower price than would otherwise be possible. Advance purchase may provide this possibility by forestalling the need to purchase and demol- ish improvements. A major part of this benefit may be estimated in dollar terms ; the rest, the portion involving political feasibil- ity, is an intangible value. The dollar part is commensurable with the benefit of appre- ciation and should be added to it. It is equal to or less than the value at target date of the new improvements that would have been constructed, in the absence of advance ac- quisition, plus the cost of their removal. The benefit is equal to the cost of ac- quiring and clearing the new improvements and relocating occupants if the particular site remains the most eflficient purchase despite the added costs. It is less if there are other properties available at target date that can be purchased for less, after allow- ing for difference in quality, than the tar- get-date price of the prepurchased site plus the savings from forestalling the need to ac- quire and demolish improvements. It is also less if the service to be produced on the site does not justify a site of this value, that is, if the capitalized value of the services to be produced on the site over the years does not justify expenditure on land of that mag- nitude. Needless to say, only a rough estimate of either of these values can usually be made — of the value of the service to be produced on the land or of the value to the public of dif- ferences in quality of sites. However, in principle both are quantifiable. With the conceptual basis of quantification in mind, estimates can be made which are at least informed guesses. When is the likelihood of getting a best site large and an unneeded one small, other things being the same ? The estimate involves prediction of the need for a particular prop- erty, its differential advantage over proper- ties likely to be available at the later date, and the likelihood that it would be built upon if it were not purchased in advance. On the latter score, the surest guess can be made if development plans are underway as in the Richmond program. As to predicting need, this too can rest on plans that establish need and simply defer acting on it. Second, char- acteristics that make a property uniquely suitable are readily recognizable when they are topographical and related to existing de- velopment to which its purpose is tied, exam- ples being a park site in a large empty area surrounded by city development, a beach- front property near a city, areas adjacent to existing municipal buildings or streets that require widening. A third aid to identifica- tion is the need for schools and other public 113 facilities, which usually arises when urbani- zation occurs. This was the situation that made the Montg'omery school program so successful; at the other end of the acquisi- tion spectrum, it was the basic characteris- tic of the Stockholm case. Fourth, since needs for facilities come in sets, the provision of one or more in a set will stimulate need for the rest. Thus, improvement of areas asso- ciated with the construction of streets, transportation facilities or urban renewal causes population movements with attendant needs for the usual package of public facili- ties. Finally, effective planning — either by means of master plans, long-term capital improvements programs or other variants — designates in advance specific properties needed for public purposes; moreover, the capacity of plans to channel development greatly improves the bases for guessing what properties may be required. The Bases of Choice Large-number case. The twin aspects of an estimate of the major measurable costs and benefits — the present value of outcomes and their probabilities — have been described. For the large-number case the Expected Value of each of the benefits can be added and that of the costs subtracted to obtain an estimate of net measurable benefits.' In- tangible costs and benefits then need to be added — costs such as relative political ad- vantage, benefits such as increased viability of planning or improved land use. For projects that are part of a very large, ongoing program, the Expected Value of the total net benefit for each project is the cor- rect basis for action. Then for the program as a whole, the average of all actual out- comes will come very close to the average of the Expected Values (assuming that they are unbiased). Small-numher case. For the large, unique project, Expected Value calculations are not 7. The statement assumes independence among the several benefits and costs and their probabilities. Actually they are no doubt often associated. The text cites an example. The probability distribution of a general efficiency benefit that combined the two ele- ments would tend to have greater kurtosis (be more peaked) than the additive calculation. How- ever, the additive calculation seems simpler to make and adequate for the purpose. useful. Instead, all of the outcomes that are real possibilities need to appear tolerable, and the most likely outcomes clearly desir- able. The final decision takes these ranges into account. Moreover, when benefits (or costs) of the several sorts seem to be cor- related, it is necessary to view them in this associated fashion. For example, if a prop- erty were bought and it turned out to lie, as expected, in the path of urban extension, its price would tend to rise and good sites would become scarce. In the event of failure to purchase ahead, structures might have to be bought and demolished. But if the city happened to extend in a different direction none of these things would occur. The point is that the combined worst result that seems at all likely, all things (including the intan- gible values) considered, would need to be deemed tolerable. Intermediate case. Most actual programs are neither large nor small in an absolute sense but something in between. The direc- tion of even a relatively large ongoing pro- gram is sensitive to outcomes along the way for which average results may not have had time to work out. This demands that the basis of action is something between that of the large-number and the small-number case. The attention to the whole range of out- comes advocated for the small-number case in effect takes uncertainty into account by allowing for the dispersion of expected re- sults. The net benefit that provides the basis of action tends to be smaller than "the most likely result." If we translate "most likely result" as "Expected Value," the procedure may be generalized to apply to the real-life situation — the intermediate case — which lies between the two extremes. The rule is: discount the Expected Value for the uncertainty associ- ated with dispersion. A Short-Cut Method. The bases of choice that have just been summarized for three sorts of programs presumably take the full compliment of costs and benefits, measur- able and intangible, into account. But it is often not necessary to go through some of the more difficult and dubious steps of the evaluation for one rather obvious reason: 114 the major costs are reasonably clear and sure. If the figure of 6 percent a year is ac- cepted, then we know that benefits must at least equal this amount.' One way to determine whether they do or not is to start with those relatively easy to measure and move progressively through those more difficult to quantify. For example, if prices were very likely to rise at a 6 per- cent annual rate — that is increase by 50 per- cent in seven years, double in twelve years and triple in eighteen — then advance pur- chase would look pretty good for the reason alone. If in addition, the more advantageous sites would tend to get bought up, then this would add to the benefit from forestalling the price rise. There is no need to go through the exercise of making an educated guess as to what this added advantage would be, pro- viding it seemed substantial. (This assumes, of course, that the site would be needed or if it were not needed that it would be sold promptly). Further, intangible advantages, such as those resulting from more orderly development, may also be expected to add an unmeasured plus quantity to the total re- sult. In another case, it may be necessaiy to evaluate very carefully in just what ways, and therefore by how much, the improved site would add to the efficiency of land use in order to establish an Expected Value of benefits which, after an appropriate dis- count for uncertainty, clearly exceeded that of the costs. OBSERVATIONS ON THE ADMINIS- TRATIVE SETTING The analysis of benefits and costs of ad- vance acquisition and the way they need to be conceptualized and combined has logical corollaries in the field of how programs should be administered. We have made no effort to cover this fur- ther problem — administration in the broad sense — systematically. Nevertheless, it is sensible to harvest the suggestions on this subject which arise as a by-product of the study's central concern. The subject is im- portant. Indeed the improvement in deci- sions that can be achieved by the proper 8. This statement is an approximation since the time patterns of benefits and costs are not identi- cal. structuring of decision itself may well be minor when compared with the potential of improving the alternatives that are consid- ered and the administrative framework within which choices are made and, particu- larly, carried out. These include devising ways of reducing risk and developing the proper administrative organization for ad- vance acquisition, and also consideration of acquisition in the context of long-term plan- ning. Moreover, the federal government can help to bolster the effectiveness of state and local land acquisition programs. Ways to Reduce Risk Where a risky situation can be identified, the risk can sometimes be avoided or modi- fied. How this can be done is partly a question of the proper structuring of the decision sit- uation as a whole and partly a matter of administrative procedures. Picking the time when purchase is under- taker). Since futurity is a source of uncer- tainty, waiting for time to pass can reduce uncertainty. This is particularly useful when the mere passage of time is assisted by the march of events. The location of streets and sewers and the character of or changes in zoning regulations appeared, in some of the analytic price studies and in the Montgom- ery County case study, to clarify future developments. Elective timing can some- times take the form of phasing. For exam- ple, a central and essential property such as a lot surrounded by a constellation of city offices can be acquired first; outer edge properties may be bought later as oppor- tunities arise. But in considering the matter of how the timing of purchasing can reduce risk, it is perhaps paradoxical that injudicious wait- ing can increase risk or at least reduce the value of the outcome discounted for its prob- ability. This occurs when delay sacrifices the opportunity to purchase at a time when prices are very low and opportunities for ad- vantageous use very high. The point was dis- cussed in Chapter 9. Use of measures other than purchase in full fee. Options and easements are tech- niques which incorporate some of the ad- 115 vantages of outright purchase but pay a smaller price for them. Accordingly, they are useful if it is not clear that advantages of outright ownership are sufficient to cover its cost. Subdivision control can reduce the cost still further when subdividers are required to dedicate land for schools and other public facilities as a condition to obtaining cluster zoning or other desirable regulations. Carrying the matter one step further, public options can be preserved by means of other sorts of regulatory measures. Mapping maintains the right-of-way for streets. Zon- ing is a tool of broad usefulness. Even mar- ginal cost pricing can, as has been observed, contribute to the orderly extension of utili- ties into outlying urban developments. Clarification of the law. The examination of the legal record in Chapter 2 did not sug- gest that legal restraints had operated as a serious curb on advance acquisition. Never- theless, there are many areas of uncertainty that could usefully be clarified. Local governments embarking on an ad- vance land acquisition program would be well advised to check carefully the constitu- tional and statutory bases for acquiring and disposing of land. In some instances, specific enabling legislation may be desirable, but in any event the action to acquire should clearly state the intent and, where feasible, relate it to the planning and development program of the government. It may even be useful to develop model or sample legislation. To pre- serve the ability to dispose of land or to use it for some other purpose which may prove more advantageous, the local government in acquiring land should avoid restraints on alienability. Condemnation of the property (the fee simple absolute) will generally solve the problem. And, of course, good faith must be observed. Administrative Organization The study has highlighted a number of matters that bear very specifically on how a program in advance acquisition should be organized and administered. The large-number decision situation. De- cisions can be made more advantageously for programs for which success or failure depends on the outcome of a substantial number of individual decisions over a rea- sonable period of time. The smaller the pro- grams, the more does the need to allow for uncertainty tend to interfere with optimal results. This counsels the central adminis- tration of acquisition programs, with juris- diction over enough work to permit the aver- aging of over-all results. Sale as a routine adjunct of purchase. The intrinsic uncertainty of what lies ahead implies that a site that was expected to be needed for the production of a government service will sometimes in fact not be needed, either because the service itself is not needed or because the site is no longer desirable. When this occurs the site must be sold or transferred. It is essential therefore that the administration of acquisition programs clear the way for sale to take place. It is es- sential also that an error in the administra- tion of the acquisition program be defined not as the liquidation of a mistaken expec- tation by selling the property, but as the failure to recognize the mistake by retaining the property. The pinch of costs and the stimulus of gain. Holding land for future use involves a cost. Given the ways of bureaucracy, it is probably important for the operating agen- cies, for whom land is acquired in advance, to bear the cost of holding it. In any event, efficient management is contingent on man- agers being aware of the effect of their deci- sions in terms of their own record of achieve- ment, records on which they are judged by their superiors. There has been no evidence of accounting systems that generate this sort of record of achievement for advance acqui- sition programs. This lack can only make for less than optimal results. Inter-agency flow of information. Good infonnation is essential to a well-run ad- vance acquisition program, and some of it is necessarily generated in agencies other than the one in charge of land acquisition. For example, knowledge of where roads or sewers are being planned would help deter- mine whether sites for schools should be re- served. Changes in zoning regulations are particularly important. This set of possi- bilities for improvement was illustrated in the Montgomery County study. It would be 116 useful if a government agency involved in advance acquisition had access to this in- formation before the general public. SOME BROADER IMPLICATIONS Planning In many places in this study the potential of advance acquisition has appeared to be interlocked vi^ith the potential of planning. For one thing, a master plan or long-term capital improvement budget provides a basis for forecasting land requirements by sup- plying information about specific sites that wiW be needed for specific purposes. Insofar as planning is respected in the community, private action tends to fall in line and cause the forecasts to materialize. In addition, public plans and associated ac- tion concerning all sorts of things having no direct bearing on the need for sites help in- directly to validate that need. Zoning, for example, influences residential use vi^hich in- fluences the need for schools. Planning also provides tools that can be used to validate expectations concerning ad- vance purchase of large tracts of land. In connection with new cities, and wide- scale acquisition for urban extension, plan- ning and advance acquisition are insepara- ble parts of a single set of objectives and interlocked techniques for achieving those objectives. Potential of Intergovernmental Collabo- ration Collaboration among local governments in a metropolitan area, or among state and lo- cal governments, can fortify advance land acquisition programs in at least two ways. First, the collaboration promotes the large- number decision situation with its attendant advantages. Second, by adding a more com- prehensive dimension to planning, it im- proves in each of the ways mentioned above, the viability of an advance acquisition pro- gram. Potential of Federal Action We have discussed ways in which local governments and their collaborative efforts can improve the effectiveness of advance acquisition programs. However, there are four areas in which a far wider jurisdiction has a significant role to play. Creating the largc-mimber decision situcu- tion. Federal interest in local programs af- fords the advantage of a broad jurisdiction. A small-number decision for a locality can be converted to a large-number decision for the country as a whole. Chances that must be handled as unique or small-group cases for a town, and therefore must pay off on an in- dividual basis, are pooled if the federal gov- ernment undertakes the role of insuring against loss on an actuarial basis. Moreover, in the national context, broad rather than local land-price trends govern the amount of average appreciation. The excessive time discount of govern- ment officials. Advance acquisition offers fu- ture, not present, rewards to the decision maker. Officials of local governments inevi- tably value the latter far more than the former. If so, decisions to acquire properties in advance are in actuality being required to cover a time discount not of the 4 percent or even the 6 percent that we utilized in our calculations, but of a substantial further dis- count which represents the politician's pref- erence for present reward. It is measured by the amount by which a reward offered five years hence must exceed a reward offered today in order to be preferred to it. If ad- vance acquisition is to compete on an even basis with other forms of local government expenditures, this extra time discount may often need to be carried by the federal gov- ernment. This is perhaps an important jus- tification for federal aid to local acquisi- tion programs. Inadequate evaluation of benefit to future generatioyis. Even time discounts that do not have the politician's bias may fail to give proper weight to benefits for future genera- tions. Land use is often irreversible. If open land is incorporated in a city, the opportu- nity to use it for recreation or beautification is permanently foreclosed. Yet the need for such open space increases as population in the area increases. This intensification of need, that is, the increased utility of the service that the land produces, is not readily 117 recognized by local governments. But in the context of nation-wide planning its impor- tance stands out and provides a further rea- son for federal facilitation of advance land acquisition. Benefits External to Localities The nation as a whole benefits from well designed land use in local areas. These bene- fits, which are over and above those accru- ing to local residents, may be of several sorts. Residents of one town benefit from parks or well designed land use in neighbor- ing towns. They benefit from such amenities in any town insofar as they may, for other reasons, wish to move there. But in a broad sense, since well designed land use is an as- pect of the "good life," its manifestation anywhere in the country is advantageous to all. Investment in Land as a Source of Government Revenue The pervasive series of interrelationships that this study has encountered reintroduces an old question for new reasons: Is invest- ment in land and the income derived there- from a proper source of revenue for govern- ments? Government has for good or ill become re- sponsible for stemming the process of urban decay and improving the process of urban development. It has become responsible for reconstituting decaying areas, for providing transportation, water mains within streets, clean air above them. Governments, in other words, are creating urban land values by channeling large quantities of public funds into this essential work. Advance acquisi- tion of land is a tool in pursuing this work. But ought it not also be thought of as a potential source of revenue? The question seems insistently put by the material that we have reviewed. An answer would need to consider the justice of causing the benefit from the results of public investment in ur- han development to accrue directly to the public rather than to private builders, real estate interests and property owners. More particularly, it would have to consider the overall impact on economic welfare of sub- stituting transfers achieved by government investment in land for some transfers from the private to the public sector that are achieved by means of taxes or bond issues. 118 APPENDIX TWO QUESTIONNAIRE SURVEYS: THE QUESTIONS AND TABULATION OF ANSWERS (The Material Presented Here Supplements The Discussions In Pages 16 to 18) Early in 1966 the National League of Cities and the National Association of Counties conducted a questionnaire survey on advance acquisition of land for public purposes. The In- stitute of Public Administration analyzed the returns. This appendix presents the question- naire along with the tabulations and analyses associated with each question. The Sample The city questionnaire was mailed to the entire direct membership of the National League of Cities. These were all cities that were dues paying members of the NLC, rather than mem- bers by virtue of their membership in the various state municipal organizations. They are considered a representative group of American cities in each size category above 50,000 population. The county questionnaire was mailed to 117 selected counties — ^those counties with planning directors who were members of the National Association of County Planning Directors. It seems likely that the basis of selection would increase the likelihood of advance acquisition programs because of the close relationship between planning and advance acqui- sition. If so, the sample counties are more likely to have advance acquisition programs than otherwise comparable counties. Number of Advance Acquisition Programs Question 1. Is there in your city (county) a program for acquisition of land in advance of intended use ? Yes No If yes, for how long has the program been in operations ? Years Question 2. In about how many instances has land been acquired in advance of need? Number a. 1 or 2 years ahead b. 3 to 5 years ahead c. Over 5 years ahead d. About when were the first of these properties ac- quired ? 119 Table A CITIES AND COUNTIES SURVEYED AND QUESTIONNAIRES RETURNED AND REPORTING ADVANCE ACQUISITION OF LAND Cities Counties Number Percent Percent Number Percent Percent of of of of of Ol Cases Mailings Answers Cases Mailings Answers Questionnaires Mailed 100 117 100 Returned 144 47 57 49 Not Returned 162 S3 60 51 Questionnaires Completed and Returned 144 47 100 57 49 100 Reporting Advance Acquisition Program* 73 24 51 18 15 32 Reporting Occasional Advance Acquisitions 32 10 22 12 10 21 Reporting No Activity 39 13 27 27 23 47 » Whether or not a city or county had a "program" was indicated primarily by its answer to question 1 — "Is there in your city (county) a program for acquisition of land in advance of intended use?" A "no" answer was taken literally. In a very few cases a "yes" answer v^as thrown out because the number of cases reported seemed too small to be meaningfully interpreted in terms of a "program." The returns for cities (but not for counties) were classified by city size. They showed that programs are somewhat more usual for the cities in the 100,000 to 500,000 population group than in either the largest or smaller cities. Table B ADVANCE ACQUISITION OF LAND, BY CITY SIZE GROUPS Population Group Over 100,000 Under 500,000 500,000 100,000 Total Num- Per- Num- Per- Num- Per- Num- Per- Cities Reporting ber cent ber 1 cent ber cent ber cent Program of Advance Acquisition 10 42 28 60 35 48 73 51 Occasional Advance Acquisition 5 21 10 21 17 23 32 22 No Advance Acquisition 9 37 9 19 21 29 39 27 Total 24 100 47 100 73 100 144 100 But the frequency with which advance acquisition is reported in the questionnaires does not necessarily describe, even very approximately, its frequency among the NLC member cities. It does so only if there is no difference with respect to land acquisition in the cities that did and those that did not return the questionnaires. Yet it seems probable (and dis- cussion with officers at the NLC support the notion) that cities having no program of advance acquisition are unlikely to answer a questionnaire; they have no one to fill it out and, besides, nothing to report. Following this line of thinking the figures in Table C were developed. The second column is based on the extreme assumption that all of the programs in the sample were to be found in the cities that filled in questionnaires. 120 Table C PROGRAMS, BY CITY SIZE, RELATED TO VARIOUS SAMPLES Percentages Programs to Programs to Cities Questions Cities Surveyed to Answered Surveyed Cities in US • All Cities In Group 51 24 10 Over 500,000 42 40 93 100,000-500,000 60 35 65 50,000-100,000 53 23 42 Under 50,000 40 12 4 « Cities over 5,000 population only. Source: Classification by size based on population data in The Municipal Year Book, 1966. The data show a marked dechne in the frequency of programs as city size declines. Since there must certainly be some programs in the non-reporting cities, the level of the figures is doubtless low. For example, more than 24 percent of the NLC membership probably have programs; but the correct qgures seems likely to be much nearer 24 percent than the 51 percent that applies to the proportion of the returned questionnaires that reported pro- grams. (Top line of Table C.) Further, there seems no reason to suppose that the ratio of unreported to reported programs for the membership as a whole should differ materially by city size. Accordingly, we conclude that programs in the smaller cities having League membership are far less usual than those in the very large ones — something of the order of one-third as frequent. Do these figures provide any basis for hazarding a guess about the incidence of advance ac- quisition for the country as a whole? The answer depends, of course, on the size and char- acteristics of the NLC membership for the several size categories. In general, officials of the League believe that their national member cities do not have characteristics that would tend to make their behavior with respect to advance land acquisition systematically different from that of other cities of about the same size. If so, conclusions concerning the incidence of ad- vance acquisition for cities of the several size groups among the NLC membership may throw some light on the presence or absence of programs in other cities in the country of the same size. However, for the very smallest cities, those under 50,000 population (of which there are about 100 among the national membership of the NLC) is too small a portion of the total in the country to provide an adequate sample, however well randomized it may be.^ For this group then, no conclusions for the country as a whole are possible. 1 Actually it is not a random selection since cities of under 50,000 people are only eligible for membership if they are one of the 10 largest in the state or a state capital. 121 For the largest cities, those of 500,000 or more people, it is clear that something called a "program" of advance acquisition is present in about 40 percent of the 27 cities in the country, since all but two are in the sample and virtually all answered the questionnaire. For the 100,000 to 500,000 group, the NLC sample includes about two-thirds of the size group for the country. However, substantial non-response leaves the incidence of programs ambiguous — it can be no less than 35 percent but it could be substantially larger. But the guess has something else to go on: in view of the systematic association between advance acquisi- tion and city size, the ratio for the largest cities — about 40 percent — can be thought of as an upper bound for the next 100,000 to 500,000 group. If so, the smallest estimate — 35 per- cent — may not be far from correct. Though the figure may be low for the NLC membership, the membership itself may be a bit more likely to have programs than other American cities in that size class. It seems reasonable to suppose that NLC members are more likely to be more than less progressive than non-members. All in all, if we were forced simply to make the best guess that we could about the incidence of advance acquisition in American cities, we would point to the three figures in column 2 (Table C) — those for cities of the three largest size groups. Weighting each by the number of cities in each class in the country as a whole produces the figure of 28 percent. The choice of this basis of estimation assumes that two errors tend to counteract each other: the figures in column 3 are somewhat low to represent accurately the frequency of programs for the NLC sample as a whole, but, with the exception of the largest cities, the NLC samples may have a higher incidence of programs than do the cities of comparable size in the country as a whole. Our guess then, and it is no more than a careful guess, is that perhaps one-third of the cities of over 50,000 population have programs of advance acquisitions, albeit, as it will be seen presently, they may often be veiy small programs. If one were to include the smaller cities, the figure would, of course, drop way down.' For counties, the information is too incomplete to provide a basis for extrapolation. Clearly, however, the programs appear to be infrequent and small in size. Characteristics of Advance Acquisition Programs The survey asked a number of questions about the characteristics of land problems con- fronted in advance acquisition programs. The substantive findings are given in the text of Chapter 2, pages 16 to 18. The questions and tables are presented below without further discussion. 'According: to the 1966 Mvnicipal Year Book there are 27 cities over 500,000 population; 123, 100,000 to 500,000; 232, 50,000 to 100,000; and 2,812, between 5,000 and 50,000. 122 Age: Table D AGE OF PROGRAM Number Percent of Percent of of All Cities All Counties Cities Reporting Reporting Ana nt Drncrram Hge oi rrografn Reporting Program n tn ^ Voarc -7 / DO 4 to 6 Years 13 7 to 9 Years 8 44 28 10 to 12 Years 14 13 to 15 Years 10 16 to 20 Years 7 26 11 21 to 25 Years 1 Over 26 Years 11 Unreported 2 3 5 Total 73 100 100' ' There were 18 counties that reported programs. Table F FREQUENCY DISTRIBUTION OF PROGRAMS BY THE AVERAGE NUMBER OF ACQUISITIONS PER YEAR Cities Reporting Number of Acquisitions Per Year " Number Percent Under 1 Case 15 20 1 to 5 Cases 29 40 6 to 10 Cases 10 11 to 15 Cases 16 to 25 Cases ii 5 26 and Over Unreported 18 25 Total 73 100 • Advance acquisition is defined as land purchased three years or more in advance of expected use. Size of Programs : Table E FREQUENCY DISTRIBUTION OF PROGRAMS, BY THE TOTAL NUMBER OF ACQUISITIONS REPORTED Cities Reporting Counties Number of ™ Acquisitions > Number Percent Percent 1 to 5 Cases 16 22 22 6 to 10 Cases 17 23 17 11 to 15 Cases 7 10 17 16 to 30 Cases 5 7 5 31 to 50 Cases 4 5 Over 50 Cases 6 8 17 Unreported 18 25 22 Total 73 100 100 ■ • Advance acquisition is defined as land purchased three years or more in advance of expected use. There w/ere 18 counties that reported programs. Table G MAJOR MOTIVES FOR ADVANCE ACQUISITIONS Reason Number of Cities Reporting Percent of Cities with Programs Percent of Counties with Programs To Forestall Rising Land Prices 59 81 83 To Secure the Best Location 56 77 78 To Avoid Demolition Costs 21 29 22 Other 31 42 50 Note: Respondents typically reported several reasons. Motives: Question 3. What have been the major reasons for advance ac- quisition? If more than one, please underline the most important. Check (and underline) a. To secure the best location b. To avoid demolition costs c. Rising land prices d. Others: 123 For what public purposes is land acquired in ad- vance? Please rank them by relative importance. Rank Agency (1 is high) Responsible a. Schools b. Parks c. Government buildings d. Fire stations e. For purposes of influencing orderly develop- ment of fairly broad areas f. Industrial park development g. Public off-street parking h. Other: Is advance purchase for any of the purposes you have checked done under what could be described as a separate program ? Yes No If yes, please name (in the column provided) the agency responsible for it. Table H INTENDED USES OF SITES ACQUIRED IN ADVANCE AND IMPORTANCE RANK* Ranking by Cities Counties First Second Third Total for First Three Places Total for First Three Places Schools 31 9 2 42 9 Parks 19 19 11 49 14 Government Buildings 5 8 11 24 8 Fire Stations 1 9 18 28 1 For Purposes of Influencing Orderly Development 2 4 2 8 1 Industrial Park Development 2 . 7 2 11 1 Public Off-Street Parking 2 4 9 15 Street Widenings 8 4 2 14 Other 9 9 3 21 8 • Respondents did not always select a third rank and in six cases they assigned two first ranks. Purposes assigned lower than third rank are not included in the Table. Operation of Programs Assessment of costs and benefits: The information conveyed by answers to question 5 is discussed in the text, Chapter 2. Question 5. For properties which have been acquired in advance, is there an appraisal of market value made before the prop- erty is put into use ? Yes No Are carrying costs (e.g., interest payments and lost taxes) on holding land for future use calculated? Yes No If yes, please describe Purposes: Question 4. 124 Methods of reserving land: Question 6. Is land reserved for future public use by methods other than acquisition of fee simple? Check a. Easements b. Options c. Mapping d. Subdivision control e. Utility extension policy f. Other: Table I METHODS OF RESERVING UNO OTHER THAN BY PURCHASE Methods Number Cities Using Percent ■ Counties Using Percent » Easements 47 64 39 Options 19 26 28 Mapping 17 23 11 Subdivision Control 54 74 61 Utility Extension Policy 10 14 other 24 33 44 • The base of the percentage is all cities and counties re- porting programs. Other characteristics: The information conveyed by answers to questions 7 through 11 is discussed in the text, Chapter 2. Question 7. Does your city (county) have a program that considers the desirability of reserving for future public use prop- erties acquired through tax delinquency ? Yes No If yes, what department is responsible for the program ? Dept. Question 8. Are there any particularly troublesome legal restrictions on advance land acquisition in your city (county) or state? Yes No. Please describe Question 9. Are there any restrictions on the source of funds you can use for advance land acquisition in your city (county) or state ? Yes_ . No. For example, which of the following can be used? Check a. General fund revenues b. Unappropriated surpluses c. Capital reserve funds d. Special revolving land acquisition fund e. Bond issues f. Public Law 89-117 (see enclosure) g. Other: Question 10. Are there any other impediments to advance acquisition? Yes No. Please describe 126 Question 11. Has there been any evaluation of the effectiveness of advance acquisition in your area ? Yes No. If so, is this available in published or unpublished form ? Yes No. If yes, please include a reference. Comments: Questionnaire Prepared By: Name: Title: Agency: Address: Date iSrU.S. Government Printing Office: 1968—0 — 297-889 127 ML TS-13 August 1968