Chapel Hill s Central Business District: Municipal Revenue Impact Analysis

Transcription

1 Chapel Hill s Central Business District: Municipal Revenue Impact Analysis Colin Dietch Central City Revitalization April 2012 DISCLAIMER: This document was prepared as a voluntary student project in cooperation with the Chapel Hill Downtown Partnership, in partial fulfillment of academic course requirements. The author received no consideration or exchange of value for preparation of this document. The author makes no warranty and offers no assurance as to the validity or correctness of the data, analysis, and methodology contained in this document. Use of or reliance upon this document and its contents by any party for any purpose releases and discharges the author from all claims, demands, obligations, suits, liabilities, and damages associated with or arising from such use, to the extent permitted by law.

2 Table of Contents Table of Contents... 2 Table of Figures Introduction and Overview... 4 A. A Note on Methods Defining the Central Business District Ad Valorem Taxation of Real Property... 6 A. Methodology... 6 B. Results Sales Taxes in Chapel Hill and the CBD A. Methodology: Chapel Hill s role in Orange County Sales Tax Revenues B. Methodology: Sales Tax Revenues originating in the CBD C. Results D. Synthesis: Ad valorem and sales tax revenues originated in the CBD Synthesizing and Operationalizing Taxation Data Complementary data: Population A. Methodology B. Results Policy Implications and Conclusions

3 Table of Figures Figure 1: The Central Business District... 5 Figure 2: CBD, Chapel Hill, and Orange County area... 6 Figure 3: Tax-exempt properties within the CBD... 7 Figure 4: Valuation of exempt and non-exempt properties in the CBD... 7 Figure 5: Real property valuation, FY Figure 6: Property tax density of the CBD relative to Chapel Hill and Orange County... 9 Figure 7: Estimates of CBD contribution to property tax revenues, Figure 8: Chapel Hill tax revenues as a % of Orange County total tax revenues, Figure 9: Location of firms engaged in taxable transactions, Figure 10: Location of firms engaged in taxable transactions, Figure 11: Total sales volume of firms engaged in taxable sales, Figure 12: Location of firms engaged in taxable transactions, Figure 13: Sales tax contributions of the CBD, FY Figure 14: Overall tax productivity of the CBD, FY Figure 15: Overall tax productivity of the CBD, FY Figure 16: Yearly budget revenue dividends of a 1% increase in CBD property values Figure 17: Effective direct tax rate on taxable transactions in the CBD Figure 18: Yearly budget revenue dividends of a 1% increase in CBD taxable sales Figure 19: Census blocks containing and immediately adjacent to CBD Figure 20: CBD population data Figure 21: CBD population density

4 1. Introduction and Overview The objective of this analysis is to quantify the contribution of Chapel Hill s Central Business District (CBD) to the tax revenue-based components of the town budget, and to contextualize the economic role of the CBD in Chapel Hill and Orange County. This analysis is not intended to estimate indirect contributions and ancillary economic benefits flowing to the Town of Chapel Hill and Orange County that are generated by the CBD. Rather, it seeks to establish a conceptual framework for use in the economic planning process. This analysis will focus primarily on two major sources of budget revenue for the Town of Chapel Hill: ad valorem taxes levied on real property and sales taxes, including local option sales and use tax. Reduction of a complex taxation and revenue distribution scheme to a unitbased revenue analysis will enable objective analysis of economic development proposals vis-àvis municipal revenue streams. In addition, complementary data on physical geography and demography will assist policymakers in appropriating funds for expansion of services and improvements. A. A Note on Methods In preparation of this analysis, I have used several technologies that I recommend to individuals conducting similar analyses in the future. QGIS, an open source GIS system, is a full-featured, flexible, and powerful tool for generating GIS maps and extracting data. Google Fusiontables is an excellent tool for manipulating large data sets, and enables easy visualization of complex geographical data in Google Maps and Google Earth. The Census Bureau makes available a rich repository of GIS data as well as raw data. Orange County and the Town of Chapel Hill maintain freely downloadable and information-rich GIS data files. 2. Defining the Central Business District The Central Business District (CBD), as defined for purposes of this analysis, is geographically coterminous with the Chapel Hill Downtown Service District. The Downtown Service District is a Business Improvement District centered on a certain portion of Franklin Street and Rosemary Street, as indicated in Figure 1. The CBD includes all parcels included in Chapel Hill zoning designations TC-1, TC-2, and TC-3. 1 This zoning designation indicates a highdensity commercial area. 1 See Chapel Hill Code of Ordinances, Appendix A, Land Use Management, sec

5 The Downtown Services District map is primarily used to define the boundaries of the special assessment district of the BID. The Central Business District, as used here, is intended to encompass residential as well as commercially oriented uses. Unlike the Downtown Services District, which includes only property used for commercial purposes, the Central Business District includes residential property. The Central Business District also includes certain properties that are exempt from taxation; these parcels are not included in the ad valorem taxation analysis, and do not generate revenues from taxable retail transactions. Figure 1 shows the CBD. Detailed property recording and Geographical Information Systems permit highresolution, parcel-level analysis of ad valorem taxation, and retail surveys enable methodical extrapolation of retail density within the CBD. Regrettably, there is no population data available at a comparable level of detail. Therefore, this analysis will employ 2010 Census block-level data for population information. The variation between CBD dimensions and census block dimensions is addressed in the population portion of this analysis. Figure 1: The Central Business District is indicated in orange. Sources: Orange County GIS, Town of Chapel Hill GIS. Chapel Hill s city limits include a small portion of Durham County as well as Orange County. This area is included in the total area of Chapel Hill, as Chapel Hill s property assessment (49.4 cents per $100 of valuation) is the same in Durham and Orange County. The 5

6 overwhelming majority of Chapel Hill s area inside Durham County is zoned residential use, institutional use, parks and open space, or is undeveloped. Its inclusion will therefore not substantially affect sales tax analysis. Geography Area % Chapel Hill % Orange County CBD 104 acres/44 ha Chapel Hill 13,506 acres/5465 ha Orange County 256,742 acres/1,039 km 2 * 100 Figure 2: CBD, Chapel Hill, and Orange County area. Sources: Orange County GIS, Chapel Hill Databook. 3. Ad Valorem Taxation of Real Property The first and most important source of municipal budget revenue generated by the CBD is ad valorem tax revenues. Property taxes levied on real and personal property constitute 41% of the Town of Chapel Hill s total budget revenues in the 2012 budget. 2 This analysis focuses on ad valorem taxes assessed on real property, and excludes taxes assessed on personal property. While taxable personal property may be located in the CBD, the value of the real property located there is more readily ascertainable, and constitutes the great majority of taxable value. A. Methodology Orange County GIS data is available for all parcels of real property in Orange County. The Town of Chapel Hill provides zoning layer overlays for GIS systems. In order to calculate property values for the CBD, zoning layers from the Town of Chapel Hill were joined to parcel-level data from Orange County, and all properties within the CBD (see above) were selected. Additional informational layers, such as street names, were added to ensure geographical accuracy and for reference. Orange County data includes parcel-specific tax and valuation of real property (land and improvements). After isolating parcels in the CBD, the GIS entries for CBD parcels were exported to a spreadsheet format for easy manipulation. Parcel records are coded according to taxable status: exempt and non-exempt. Exempt properties (e.g. properties owned by Orange County, the Town of Chapel Hill, the state of North Carolina, and 501c(3) organizations such as churches) were omitted from analysis. The total 2 Town of Chapel Hill, 2012 Adopted Budget. 6

7 taxable value of these non-exempt properties represents the total assessment value of the CBD. 3 Figure 3 shows exempt properties located within the CBD. Figure 3: Tax-exempt properties within the CBD (in yellow). Certain parcels outside of the CBD are included in this schematic, due to Orange County s recording of parcels. Their inclusion in this figure does not affect or alter the analysis, which is limited to the CBD. Source: Orange County GIS. Figure 4 shows the total assessed value of non-exempt properties within the CBD. Exempt properties represent less than 6% of the assessed value of the CBD (certain exempt parcels are assessed at $0 valuation.) Total assessed value, $ Assessed value of exempt properties, $ Assessed value of exempt properties as % of CBD total Total nonexempt assessment, $ Assessed value of non-exempt properties as % of CBD total 317,263,006 16,893, % 300,369, Figure 4: Valuation of exempt and non-exempt properties in the CBD. Sources: Orange County GIS. 3 For budget purposes, the assessment value of the Downtown Service District the BID is frozen at $230,000,000 from FY forward. The actual value of the Downtown Service District (commercial properties only) was $262,488,450 in FY See Town of Chapel Hill, 2012 Adopted Budget. 7

8 B. Results In total, 435 non-exempt taxable parcels 4 in the CBD have a total assessed value of $300,369,628. This figure represents 4.3% of the total assessed value of all taxable real property in Chapel Hill, and 2.1% of the total assessed value of all taxable real property in Orange County. Figure 5 shows the tax valuations of the CBD relative to Chapel Hill and Orange County total tax bases. Geography Assessed taxable value, $ % of total assessed value, Chapel Hill % of total assessed value, Orange County CBD 300,369, Chapel Hill 6,896,081, Orange County 14,349,991,992 * 100 Figure 5: Real property valuation, FY Sources: Orange County GIS, Town of Chapel Hill, Town of Chapel Hill Comprehensive Annual Financial Statement FY2011, Orange County Comprehensive Annual Financial Statement FY2011, N.C. Department of Revenue, Taxable Real Property by County FY The CBD produces a substantial amount of tax revenue relative to its small geographic footprint. In order to establish a meaningful metric by which to evaluate the tax productivity of the CBD relative to other parts of Chapel Hill and Orange County, it is necessary to develop a consistent method of comparison. The property tax productivity of an area may be express in terms of density, i.e. property tax paid per area. In the case of the CBD, this ratio is approximate $2,888,170 per acre per year. However, a more meaningful figure is the total contribution of an area to overall property tax revenues relative to its geographical area. For example, if 1% of an area contributes 10% of total property taxes, the tax density of the area would be 10. Stated abstractly, this value represents the tax productivity of an arbitrary unit within a target area relative to an equivalent unit of the total area. Applying this model to the Central Business District, we find that the CBD has a tax density of 5.58 relative to Chapel Hill parcels: a parcel of land in the CBD generates 5.58 times more annual property tax revenue than an average parcel of equivalent size in Chapel Hill. The CBD occupies only 0.77% of the area of Chapel Hill, but represents 4.3% of its total property tax base. Figure 6 shows the property tax density of the CBD relative to average parcels of equivalent size in Orange County and Chapel Hill. 4 Includes condominiums. 8

9 CBD represents: Chapel Hill Orange County % of property tax base % of area Property tax density relative to: Figure 6: Property tax density of the CBD relative to Chapel Hill and Orange County. Sources: Orange County GIS, Town of Chapel Hill GIS, Town of Chapel Hill Comprehensive Annual Financial Statement FY2011, Orange County Comprehensive Annual Financial Statement FY2011. The CBD is also highly productive relative to Orange County, with a tax density of This is to be expected given Orange County s substantial agrarian areas with lower assessed value per area. In addition to determining tax density relative to other parcels in Chapel Hill and Orange County, it is possible to estimate the overall property tax contributions of the CBD to municipal budgets. Two modes of analysis are employed to confirm reliability of calculations: (1) estimation based on proportion of total tax base; and (2) estimation based on assessed value and municipal tax rate. The results of these calculations should be approximately equal, accepting some error and variation between the two. Sources of error include the reduction of significant digits due to rounding, uncollected taxes, and the aggregation of real and personal property in ad valorem revenue estimates in budget materials. Figure 7 shows the estimated contributions of the CBD to property tax revenues in Chapel Hill and Orange County, and variation between the two estimation methodologies. Taxing Authority Total property tax revenues, $m Chapel Hill Orange County CBD contribution based on proportion of tax base, $m 1.47 (4.3% of total) 2.65 (2.1% of total) CBD contribution based on assessed value and tax rate 1.48 (@ 49.4 cents per $100 of valuation) 2.58 (@ 85.8 per $100 of valuation) Variation between estimates 0.6% 2.6% Figure 7: Estimates of CBD contribution to property tax revenues, Sources: Town of Chapel Hill 2012 Budget, Orange County 2012 Budget, Orange County GIS. The total property tax revenue of the Town of Chapel Hill in FY was estimated at $34.07m. The CBD represents 4.3% of the total Chapel Hill tax base, which indicates a total contribution of 1.47m to the Town of Chapel Hill budget in FY The total property tax 9

10 revenues of Orange County in the same period were $126.2m. The CBD represents 2.1% of the total Orange County tax base, indicating a total contribution of $2.65m to the Orange County budget in FY The Town of Chapel Hill assesses a real property tax of 49.4 per $100 of valuation. Applying this rate to the assessed value of the CBD ($300.37m) indicates a total contribution of $1.48m in taxes on CBD property to the Town of Chapel Hill budget in FY Orange County assesses a real property tax rate of 85.8 cents per $100 of valuation. Applying this rate to the assessed value of the CBD indicates a total contribution of $2.58m to the Orange County budget in FY The small variation between these two figures may be due to a small balance of uncollected taxes and the reporting of taxes in budget estimates. Variation is expected to be higher at the county level, as the higher tax rate increases the scale of small error. The estimates of CBD ad valorem tax contributions of $ m to the Town of Chapel Hill budget and $2.58m-2.65m to the Orange County budget are reasonably reliable as they are approximately equivalent having been produced using two distinct calculations and sets of data. 4. Sales Taxes in Chapel Hill and the CBD Taxes collected on certain types of sales transactions constitute the second largest source of municipal revenue for Orange County and the Town of Chapel Hill. Sales taxes are collected on most retail transactions at the point of sale. In addition to the 4.75% state sales tax, Orange County assesses a local option sales tax 5 on all taxable transactions in Orange County. Most tax revenues from the local option sales tax are disbursed by the state to the County, and then shared with the municipalities according to one of two revenue-sharing schemes. Certain other proceeds from sales taxes are retained exclusively for use by the county. 6 In Orange County, sales tax revenues are distributed to the municipalities according to the per capita method, wherein municipalities receive revenues according to an adjusted population formula. 7 In FY , Orange County budget revenues from sales taxes amounted to $15,114, the same period, Town of Chapel Hill budget revenues from sales taxes totaled $8,941, In 5 See N.C. Gen. Stat. 105, Arts. 39, 40, 42, and 46. The current local option sales tax rate totals 2.25%. The actual rate is of no analytical utility here, as it is applied uniformly across Orange County. 6 See, e.g., N.C. Gen. Stat. 105, Art For more information about ad valorem and per capita distribution formulas, see N.C. Gen. Stats (b) and Orange County Comprehensive Annual Financial Report, Town of Chapel Hill Comprehensive Annual Financial Report,

11 A. Methodology: Chapel Hill s role in Orange County Sales Tax Revenues To determine the proportional contribution of the CBD to each of these revenue items, it is necessary first to establish Chapel Hill s place as the sales tax engine of Orange County. Sales tax receipts are currently reported at the county level, and sales tax revenues generated in Chapel Hill must be disaggregated in order to permit further analysis. Until June 2009, the North Carolina Department of Revenue reported taxable transaction and gross receipt information 10 for municipalities with over 5,000 inhabitants, including Chapel Hill. In July 2009, however, the state adopted a new system for collecting sales taxes, and ceased to publish this data. 11 However, there are 131 months of data available from July 1998 to July 2009 that permit extrapolation of Chapel Hill s role in taxable sales in Orange County. Figure 8 plots the proportion of Chapel Hill tax collections as a percentage of total tax collections in Orange County from July 1998 to July A regression line (in red) indicates relative stability in the proportion of Chapel Hill taxable receipts and collections in Orange County s overall sales tax revenue. A 12-month moving average indicates only limited volatility about a fairly constant mean. 10 In July 2005, the Department of Revenue ceased reporting gross retail sales and began reporting taxable sales. This change only very slightly alters the analysis here, as the calculation effectively remains municipality productivity relative to county receipts. The effect of this change may be observed in the 12-month moving average in figure 6. Municipality and county are being compared on the basis of the same variable. 11 See Kenneth R. Lay, Memorandum: State Sales & Use Tax Gross Collections and Taxable Sales by Cities with Populations in Excess of 5,000, N.C. Department of Revenue, August 31,

12 Chapel Hill Sales Tax Collections as % of Orange County Sales Tax Collections % 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Jul-98 Apr-01 Jan-04 Oct-06 Jul-09 Date (07/ /2009) CH Collections/OC Collections 12 per. Mov. Avg. (CH Collections/OC Collections) Linear (CH Collections/OC Collections) Figure 8: Chapel Hill tax revenues as a % of Orange County total tax revenues, Source: NC Dept. of Revenue, Monthly Sales and Use Tax Reports. Extrapolation from this data set indicates that approximately 64.8% of sales taxes collected in Orange County are collected in Chapel Hill. This figure recognizes Chapel Hill as the most important force driving retail and economic productivity in Orange County, but additional analysis is required to analyze the role of Chapel Hill s Central Business District. B. Methodology: Sales Tax Revenues originating in the CBD In order to estimate what proportion of revenues are generated in the CBD, an additional source of data is needed. Two of the most accurate sources of this data, tax records of individual business establishments and affidavits of gross receipts accompanying applications for privilege licenses, are not public records in North Carolina. It is therefore necessary to estimate the CBD s productivity using retail density analysis. In 2007, ESRI created a GIS data set including the locations, business categories, and estimated sales volumes of all business establishments in Wake, Durham, and Orange Counties. 12 In order to use this data to deduce the retail density and sales tax productivity of the CBD, extraneous data was removed and the data set was reduced to businesses located in Orange County. A concurrent dataset was produced for businesses in Chapel Hill. These modifications were 12 ESRI Business Data (Durham, Orange, and Wake), GIS Shapefile,

13 accomplished using address information in the data set. A third data set was produced containing only information about firms located in the Central Business District. This data set was produced using precise locational data (longitude and latitude) applied to the geographical scope of the CBD. These three data sets were then sorted by business category. Business categories that did not engage in taxable transactions (e.g. professional services, wholesale, etc.) were removed, creating three lists of business that engage in taxable transactions. These three data sets were then compared across two separate dimensions to examine the role of the Central Business District relative to the Town of Chapel Hill and Orange County. The first dimension of comparison is in raw number of firms engaging in taxable transactions across geographies. This figure does not include certain sectors of the economy that may be highly represented in other areas, such as professional services (e.g. law offices, physicians, architects, etc.) These business categories, while economically stimulative in other ways, do not produce sales tax revenues, and are therefore excluded from this analysis. Figure 9 shows the high concentration of firms engaging in taxable transactions in the CBD relative to Chapel Hill and Orange County. Geography Firms engaged in taxable transactions % of total firms in Chapel Hill % of total firms in Orange County Orange County 824 * 100 Chapel Hill CBD Figure 9: Location of firms engaged in taxable transactions, Source: ESRI Business Data (Durham, Orange, and Wake), GIS Shapefile, The CBD, which comprises approximately 0.77% of the total land area of the Town of Chapel Hill, contains 25.3% of firms engaged in taxable transactions in Chapel Hill, and 16.3% of firms engaged in taxable transactions in Orange County. This statistic reflects the highly commercial nature of the area. Figure 10 visualizes this data geographically across a wider area of Chapel Hill. Businesses engaged in taxable transactions are indicated by a red dot. The area in yellow indicates census blocks containing the CBD. Even in the absence of highly detailed information, the very high density of the CBD is apparent relative to other commercial areas of Chapel Hill. 13

14 Figure 10: Location of firms engaged in taxable transactions, Sources: Census Bureau, ESRI Business Data (Durham, Orange, and Wake), GIS Shapefile, The second dimension of comparison across geographies is total sales volume. Total sales volume includes all taxable transactions, but the two terms are not interchangeable. Certain transactions that are not subject to sales tax are included in ESRI s estimates of total sales volume data, but are not included in the North Carolina Department of Revenue s taxable transactions data. Stated differently, not every transaction in which a firm engages is necessarily a taxable transaction. For example, where a single firm offers both goods and services for sale, only transactions of goods are subject to sales tax. A cellular phone store may report high sales volumes, but engage in few taxable transactions relative to non-taxable transactions. Likewise, a hair salon may engage in taxable transactions in selling hair care products, but most of its revenue is derived from non-taxable service transactions. Total sales volume represents both taxable and non-taxable transactions. This methodological discrepancy, and the proprietary opacity of ESRI s methodology, diminish the statistical robustness of this portion of analysis. However, some independent verification of ESRI data estimates indicate that, at the very least, the data sets are likely to be representative of reality. In addition, the ESRI data set employed here uses data from While this data may be outmoded, it is unlikely that retail density patterns have shifted dramatically in the intervening period. At a minimum, this analysis models the use of this type of data for future analyses employing more current information. 14

15 Figure 11 shows the ESRI estimates of total sales volume of firms engaged in taxable transactions in the CBD, Chapel Hill, and Orange County. Geography Total sales volume of firms engaged in taxable transactions, $m % of Chapel Hill total % of Orange County total Orange County 1,169 * 100 Chapel Hill CBD Figure 11: Total sales volume of firms engaged in taxable sales, Source: ESRI Business Data (Durham, Orange, and Wake), GIS Shapefile, This data indicates the CBD s status as a retail center of Chapel Hill and Orange County. Of firms engaging in taxable transactions, 8.7% of the total sales volume of Orange County occurred in the CBD. This represents 13.5% of total sales volume of Chapel Hill. In order to ascertain the reliability of this data, we may compare equivalent data sets from the North Carolina Department of Revenue in As discussed above, Department of Revenue figures include only taxable transactions, and will always be less than total sales. In 2006, the Department of Revenue maintained data for both the county and municipality level. Comparison of this data with the estimates derived from the ESRI data set will allow for some limited confirmation of reliability: Department of Revenue figures should be lower than ESRI figures, and not proportionally inconsistent. Estimates of Chapel Hill s proportion of sales and tax activity should be consistent across both ESRI and Department of Revenue datasets. Figure 12 shows the results of this analysis: % of ESRI total Geography Department of Revenue total taxable sales, $m % of Chapel Hill total % of Orange County total sales volume of firms engaged in taxable transactions Orange County * Chapel Hill Figure 12: Location of firms engaged in taxable transactions, Sources: ESRI Business Data (Durham, Orange, and Wake), GIS Shapefile, 2007, NC Department of Revenue, State Sales and Use Tax Statistics. To the extent possible, the Department of Revenue data recommends the reliability of the ESRI estimates: taxable transactions are less than total sales volume, as expected, and the 15

16 proportion of measured activity located in Chapel Hill relative to Orange County is approximately consistent (Department of Revenue: 62.3%, ESRI: 64.8%). The approximate congruence of Department of Revenue and ESRI data suggests that approximately 20% of the sales reported in ESRI total sales volume for firms engaged in taxable transactions represent non-taxable transactions. C. Results On the basis of this methodology, approximately 13.5% of the Town of Chapel Hill s budget revenues derived from sales tax originate from transactions conducted by firms in the CBD. Approximately 8.9% of Orange County budget revenues derived from sales tax originate in the CBD. Applying these estimates to FY (the last year for which actual revenues are available) budget revenues, the CBD contributed approximately $1.3m in sales tax revenues to the Town of Chapel Hill budget, and $1.2m to the Orange County budget. The density methodology articulated above is again helpful in illuminating and quantifying the productivity of the CBD in terms of sales tax revenues. Figure 13 summarizes the CBD s sales tax revenue contributions and expresses sales tax density relative to geographical area. Municipal budget authority/geography Budget revenue derived from sales tax, $m CBD estimated contribution, $m CBD estimated contribution, % of total CBD % of total geographical area Sales tax density relative to aggregated average Orange County Chapel Hill Figure 13: Sales tax contributions of the CBD, FY Sources: Town of Chapel Hill 2012 Budget, Orange County 2012 Budget, Orange County GIS. These data indicate that the CBD is highly sales tax productive, and provides a means of comparing sales tax productivity to ad valorem real property tax productivity. The CBD is highly tax-productive in both categories, but is more productive in terms of sales tax. This conforms to commonsensical expectations in a jurisdiction employing a zoning-based approach to land use: only a limited area of Orange County is zoned for commercial use, so those areas with zoning that allows retail will be much more sales-tax productive than the aggregated average of all property. D. Synthesis: Ad valorem and sales tax revenues originated in the CBD The above analyses of ad valorem real property taxation and sales taxes derived from taxable transaction in the CBD enable a broader analysis of the CBD s contributions to the municipal 16

17 budget. This analysis is not exhaustive: it does contemplate, for example, the special assessment associated with the Downtown Service District 13 or ad valorem taxation of personal property sitused in the CBD. 14 In this respect, these estimates are likely underinclusive. Figure 14 shows the tax revenues and total budget revenues of the Town of Chapel Hill and Orange County for FY Municipal budget authority Total tax revenues, $ Total budget revenues, $ Orange County 154,227, ,356,300 Chapel Hill 35,670,983 48,457,934 Figure 14: Overall tax productivity of the CBD, FY Sources: Town of Chapel Hill Comprehensive Annual Financial Statement FY2011, Orange County Comprehensive Annual Financial Statement FY Figure 15 summarizes the total tax contributions of the CBD to municipal budgets in FY , the last year for which actual revenues are available. The CBD s proportional contribution to tax revenue and overall budget revenue is also included. Orange County Chapel Hill Ad valorem real property revenues originated in CBD, $m Sales and use tax revenues originating in CBD, $m Total, $m % of total tax revenues originating in CBD Tax revenue production density of CBD % of total revenues Total revenue production density of CBD Figure 15: Overall tax productivity of the CBD, FY Sources: Town of Chapel Hill Comprehensive Annual Financial Statement FY2011, Orange County Comprehensive Annual Financial Statement FY2011. The total tax productivity of the CBD, encompassing less than 0.8% of Chapel Hill, is substantial: in , 6.09% of total budget revenues for the Town of Chapel Hill originated with the CBD. 13 This assessment of 7.1 cents per $100 of valuation is allocated to a fund to support improvements in the area, and is not part of general budget revenues. 14 E.g. personal motor vehicles and certain business equipment. These types of property are inherently mobile and are difficult to localize for analytical purposes. 17

18 5. Synthesizing and Operationalizing Taxation Data These data permit analysts and policymakers to more easily evaluate proposed expenditures in terms of budget revenue costs. They are easily operationalized in terms of budgetary return on investments in increasing property value or retail transactions in the CBD. Figure 16 demonstrates the yearly budget revenue dividends arising from a 1% increase in property values within the CBD for the Town of Chapel Hill, based on current assessed values. Total assessed real property value, $m 1% increase in valuation, $m New yearly ad valorem 49.4 cents per $100 of valuation, $k $14.8 Figure 16: Yearly budget revenue dividends of a 1% increase in CBD property values. Source: Orange County GIS. Thus, a 1% increase in property valuation in the CBD translates in to $14,800 in new budget revenues for the Town of Chapel Hill each year. Town authorities may consider this figure when considering long-term projects that may stimulate an increase in CBD property values. Figure 17 demonstrates the calculation of an effective direct sales tax rate to quantify the budget revenues flowing to the Town of Chapel Hill from sales and use tax revenues generated in the CBD. Orange County taxable sales, $m CBD taxable sales (@ 8.7% of Orange County), $m Chapel Hill sales tax revenue, $m CBD contribution to sales tax revenue (@ 13.5%), $m Effective direct tax rate (Chapel Hill sales tax revenues derived from transaction in the CBD), % 1, Figure 17: Effective direct tax rate on taxable transactions in the CBD. Source: Orange County GIS. On the basis of the above analysis, the CBD was the location of 8.7%, or about $88.5 million in taxable sales in In the same period, Town of Chapel Hill collected approximately $1.2 million in sales and use tax budget revenues originating in the CBD. This is an effective tax rate of 1.36% on transactions conducted in the CBD: i.e. for each dollar spent in a taxable transaction in the CBD, Chapel Hill collects 1.36 cents in budget revenue. 18

19 Figure 18 demonstrates the yearly budget revenues flowing to the Town of Chapel Hill arising from a 1% increase in CBD taxable transactions, based on FY values. CBD taxable sales, $m 1% increase in sales, $k Effective direct tax rate on CBD flowing to CH budget revenues, % Figure 18: Yearly budget revenue dividends of a 1% increase in CBD taxable sales. New yearly sales tax revenues (@1.36% effective direct tax), $k Thus, a 1% increase in taxable (i.e. retail) sales in the CBD generates $12,000 in annual budget revenue for the Town of Chapel Hill. While these figures enable policymakers to evaluate economic development proposals in terms of long-term budget revenue dividends, it is important to note that these estimates are not discrete but rather interactive. Increases in property value are driven, in part, by increases in retail sales volume. It is therefore likely that an increase in property values indicates some increase in retail sales. Similarly, an increase in retail sales volume will drive property values, thus increasing dividends for the municipal budget. 6. Complementary data: Population In addition to property value and sales tax revenue data, population data should constitute an important component of planning decisions that affect the CBD. Increasing residential capacity through mixed-used development will further improve density in the CBD, enhancing both property values and commercial revenues. A. Methodology Census 2010 provides the most recent population data available. This data is available at the census block level, which does not correspond to tax assessment maps or zoning designations. Therefore, it is necessary to approximate census blocks. In order to do so, census blocks containing any portion of any parcel of the CBD were included. The CBD and the area immediately surrounding it are densely populated. Figure 19 shows the census blocks containing the CBD and immediately adjacent areas: 19

20 Figure 19: Census blocks containing and immediately adjacent to CBD. Source: US Census Bureau. B. Results The geographical footprint of the census blocks containing the CBD is slightly larger than that of the CBD itself. It is therefore difficult to ascertain the precise population of the CBD, but it is possible to estimate the population of the CBD and the areas immediately adjacent to it. Figure 20 shows the population of the CBD relative to Chapel Hill and Orange County. Geography Population % of Orange County % of Chapel Hill Orange County 133, * Chapel Hill 57, CBD 2, Figure 20: CBD population data. Source: US Census Bureau. The CBD is a residential center of Chapel Hill as well as a commercial center. While students residing in Granville Towers likely constitute a plurality of CBD residents, 5.11% of Chapel Hill s population lives within easy walking distance of the CBD. Given the small footprint of the CBD, this represents a high-density residential area. Figure 21 shows the density of the CBD relative to Orange County and Chapel Hill. 20

21 Geography Population Area (km 2 ) Density Orange County 133,801 1, /km 2 Chapel Hill 57, ,037/km 2 CBD (census blocks) 2, ,273/km 2 Figure 21: CBD population density. Source: US Census Bureau. Thus, the 0.82-km 2 area comprising the CBD and adjacent areas is more than three times denser in terms of population than the Chapel Hill average. This figure is likely to increase as highdensity mixed used projects with residential and retail components are developed in the CBD. 7. Policy Implications and Conclusions The CBD is a highly productive center of economic activity in Chapel Hill and Orange County, and makes vital contributions to budgets in the form of property taxes and sales taxes generated. Due to its small footprint, the CBD consumes fewer geography-dependent services than larger, less dense areas of Chapel Hill and Orange County. High property values and vibrant retail activity effectively subsidize less dense and less economically productive areas of Chapel Hill and Orange County. High concentrations of commercial activity and population make the CBD an ideal target area for maximizing return on budgetary investments in service improvements. Owing to the smaller geographical area and higher density, improvements serve a great number of residents and businesses per dollar. Additionally, revenue returns on improved property values and retail trade are greater than the Chapel Hill average. Appropriately targeted public investments in improvements to the CBD will enhance livability, retail sales, and density across all dimensions. Future proposals for developing the CBD should be evaluated in view of the yearly budgetary costs and benefits. Public investment to improve density, property values, and retail sales within the CBD may well generate positive budget yields for the Town of Chapel Hill and Orange County, particularly when public investment successfully catalyzes private investment. 21