Development Doesn’t Always Pay: Economic Impacts of Proposed Cardinal Stritch South Campus on the City of St. Francis, Wisconsin
January 30, 2009
Development Doesn’t Always Pay:
Economic Impacts of the Proposed Cardinal Stritch South Campus on the City of St. Francis, Wisconsin
By
Douglas E. Booth
Economics Professor (ret.)
Marquette University
January 2, 2009
414-795-5840
douglas.booth@marquette.edu
Development Doesn’t Always Pay: Economic Impacts of the Proposed Cardinal Stritch South Campus on the City of St. Francis, Wisconsin
Conventional wisdom holds that development is always good for communities such as St. Francis, Wisconsin. Recent economic research tells us that a blind acceptance of such conventional wisdom can be dangerous to the well being of communities faced with decisions about large development projects. This may well be the case for the proposed Cardinal Stritch South Campus.
In its Planned Unit Development (PUD) zoning change request, Cardinal Stritch is proposing to create a 129-acre campus that will serve 1,800 students and house 420 faculty and staff on the old Cousins Center and WE Energies land in St. Francis Wisconsin. Ten new academic and residence buildings would be constructed on the site, along with a sports complex, including soccer fields, baseball and softball diamonds, a soccer/track stadium, athletic practice fields, a field house, a parking structure, and a large surface parking lot. Because Cardinal Stritch University is a nonprofit institution, it will pay no property taxes to St. Francis, nor has it publicly indicated that it would make any payments in lieu of taxes for the municipal services it will receive.
The essential economic impacts of the South Campus on St. Francis will take form as reduced property values from the loss of significant open space, property value declines associated with negative spillover effects from off-campus student housing, and the added costs of municipal services the city will have to bear because of the presence of the South Campus and its students, faculty, and staff. The essential positive economic impact on St. Francis will take form as increased expenditures on restaurant meals and groceries purchased by students from St. Francis businesses. As I will now explain, the costs of the proposed South Campus to St. Francis appear to substantially outweigh the benefits. The economic loss most directly felt by St. Francis homeowners will come from a decline in property values caused by the destruction of open space on the WE Energies land for the purpose of developing a campus sports complex.
Open Space and Property Values
In spring and summer, many St. Francis residents wander through the 90-acre WE Energies grassland enjoying the expansiveness of the landscape and marveling at the beautiful wildflowers and rare grassland birds that populate the site. To extend their walk, St. Francis residents can wander through an entirely different kind of ecosystem right next door-the beautiful old-growth maple and beach 60-acre forest known as Seminary Woods. An economic study finds that individuals who live nearby a 1,000 acre parcel of farmland are willing to pay as much as $50 to see such land permanently protected. This is for ordinary farmland, not open grassland or beautiful woodlands. Presumably many who live in St. Francis and the larger Milwaukee area would be willing to pay at least this much to see both Seminary Woods and the WE Energies permanently protected from development. Open space is clearly valued by those who walk through it, but, more than that, open space is of significant economic value to nearby landowners. People love living near large chunks of open lands and natural woodlands. A growing body of economic research shows that natural landscapes and open spaces have substantial positive impacts on the market value of close-by residential properties. A recent important research article in a well-regarded economics journal documents the impact that open space protection can have on residential property values. This study shows that permanently protecting a 10-acre parcel of farmland in a Maryland suburb near Washington D.C. would increase the average value of a residence within 400 meters (about 1,200 feet) of the parcel by 2.5 percent. Applying the results of this study to St. Francis suggest that permanently keeping the WE Energies land in open space increases the market value of St. Francis residential properties by approximately $3 million. In other words, if this land is converted from its current status as open grassland into athletic fields, the likely result will be a reduction in neighboring residential property values of at least $3 million just because the open space will be gone. The number in practice will probably be larger than this because the WE Energies land and Seminary Woods constitute such rare and beautiful environmental gems. Property values will likely be reduced by even more if the South Campus project proceeds because of light and noise pollution from the athletic facilities impacting the local neighborhood. Rather than an open space that has a positive spillover effect on local residents, the South Campus project will bring to the area an athletic complex that will have a negative spillover effect. Having such a large area of open space so close by is a blessing few communities in the Milwaukee area have these days, and it is a blessing that has real economic value.
Negative Spillovers on Property Values from Off-campus Student Housing
Providing our young with a college education is one of the most important things we do as a society. Sadly, the presence of student housing in a community is a mixed blessing as recent research documents. Cardinal Stritch projects a student population of 1,800 on the South Campus, of which 800, mostly freshmen and sophomores, will be housed on the campus itself. Projecting exactly how many juniors and seniors will end up living in St. Francis is a chancy business, but the number will likely be somewhere in the 200-400 range. To illustrate the impact of students on St. Francis, let’s assume that 300 end up living within the city limits. Given that three or more students will probably live together in a single residence in order to economize on rent, around 100 units of housing in St. Francis will end up in student occupancy. The essential profit maximizing strategy by landlords to make high incomes from renting residences to students is skimping on property maintenance. This strategy cuts costs directly, but also has the indirect effect of stimulating nearby property owners to sell out in order to escape the decline in the visual quality of the neighborhood. Absentee owners can then purchase more properties to convert to rental housing and in effect create a student ghetto. This whole process is not particularly the fault of the students themselves but follows from the market dynamics of student rental housing. This dynamic causes a general deterioration in neighborhood quality around off-campus student housing. For anyone who wants a visual example of such deterioration, I urge you to drive around a few blocks just to the south of the UW-Milwaukee campus.
Unfortunately, little research has been undertaken on the impact student-housing has on local residential property markets. Clearly, the value of neighboring residences near student housing will tend to diminish over time as well as the value of the occupied housing itself because of its under-maintenance. Conservatively, at least 200 residential dwellings-one occupied dwelling and at least one neighboring-are likely to be affected by the negative consequences of student housing. One can easily imagine at least a 5 percent reduction in property value for these dwellings over the long-haul because of the presence of student housing. If this turns out to be the case, St. Francis could experience an added reduction in property values of as much as $1.4 million on top of the loss from the development of open space.
The Cost of Municipal Services and the Proposed South Campus
Whenever more people enter a municipality’s boundaries on a daily basis, the costs of local government services goes up. This is especially the case for police and fire protection. The proposed South Campus would bring more traffic and traffic accidents for the St. Francis Police and Fire Departments to deal with as well as a greater need for emergency first aid responses. The added cost will have to be borne by the taxpayers of St. Francis, not the actual users of the services since Cardinal Stritch will pay no property taxes. Cardinal Stritch will get a free-ride for the services its students and employees use. A recent economic study of exactly this issue suggests that commuters coming into the local area on a daily basis will cost an addition $54 a year for a typical local municipality to provide police services. For all protective services, including those provided by the police and fire departments, the annual cost per added commuter or new student resident would equal $89.
Based on the $89 estimate for an additional user of St. Francis public protection services, the total annual cost for the added 2,200 South Campus students, faculty, and staff will amount to about $196,000 a year. To pay for this in perpetuity would require a fund equal to approximately $3.9 million paying 5 percent interest annually. This means that the wealth of St. Francis residents will be permanently reduced not just by property value reductions, but also as a consequence of a need to permanently fund added public protection for Cardinal Stritch South Campus employees and students. Other municipal service costs will likely rise as well including those for street and highway maintenance and sewage and stormwater disposal.
The Economic Benefits of the South Campus
Undoubtedly, higher education provides huge benefits to society as a whole, but the added educational benefits of the South Campus to the residents of St. Francis will be negligible simply because the total educational options available in the Milwaukee area won’t expand any, and most St. Francis residents will no doubt choose to attend less expensive public institutions such as UWM or MATC. Nonetheless, the presence of students in the St. Francis community could provide a local economic boost in the form of added retail expenditures. This in turn will increase incomes for local businesses and create local employment opportunities.
Students, like most of us, spread their money around to a variety of retailers, the majority of whom are not located in the neighborhood in which they live. The one type of expenditure commonly directed to the local area is spending on meals in restaurants and food in grocery stores. A recent study suggests that expenditures by a typical student living off-campus on restaurant meals and groceries amount to about $2,000 a year. Students living on campus get most of their meals there. For 300 students living in St. Francis, the total annual expenditure adds up to $600,000 a year. Probably much of this spending will be directed outside of the city. After all, these days most students have cars and are willing to travel to popular eateries. Even if half of student spending found its way to St. Francis retailers, the amount in total would be a minor blip on the retailing radar, and not much of that would find its way into the hands of St. Francis residents.
Conceivably, some Cardinal Stritch faculty would choose to live in St. Francis giving the housing market a small positive boost. Because of the availability other local housing opportunities, such as those in the popular nearby Bayview neighborhood, probably only a few of the 420 South Campus faculty and staff would end up living in St. Francis. Since Cardinal Stritch will be operating a graduate campus on the north side of the Milwaukee area as well as a downtown campus, faculty will be moving from one campus to another in order to teach classes. St. Francis will probably not be the most convenient location for these individuals. Institutions such as Cardinal Stritch employ an increasing number of part-time adjunct faculty that are paid a few thousand dollars per course and either have other careers located elsewhere in the Milwaukee area or earn insufficient incomes to become homeowners.
In short, the economic benefits of the proposed Cardinal Stritch South Campus to the residents of St. Francis will probably be modest at best.
Table 1: The Economic Costs to St. Francis of the Proposed Cardinal Stritch South Campus Project
|
Impact on St. Francis
|
$ Cost to St. Francis |
Total |
3.0 million
1.4 million
3.9 million
8.3 million |
|
|
Summary
If Cardinal Stritch paid property taxes, the South Campus would probably be an economic boon to the residents of St. Francis much like the old Wisconsin Electric power plant was at one time. Unfortunately, because of its nonprofit status Cardinal Stritch is not legally required to pay any property taxes. Instead, the residents of St. Francis will suffer $8.3 million or more in economic losses as outlined in the above table because of the disappearance of beautiful open space, the negative spillover effects of off-campus student housing, and the increased costs of local government services. The proposed Cardinal Stritch South Campus project lends support to the hypothesis that development does not always pay for a local community.
References
City of St. Francis. “St. Francis City Budget.” St. Francis, WI: City of St. Francis, 2008.
Davis, William W. “The Impact of Western Kentucky University: 2005/2006.” Bowling Green: Department of Economics, Western Kentucky University, 2006.
Gumprecht, Blake. “Fraternity Row, the Student Ghetto, and the Faculty Enclave: Characteristic Residential Districts in the American College Town.” Journal of Urban History 32, no. 2 (2006): 231-73.
Hubbard, Phil. “Regulating the Social Impacts of Studentification: A Loughborough Case Study.” Environment and Planning 40 (2008): 323-41.
Irwin, Elana G. “The Effects of Open Space on Residential Property Values.” Land Economics 78 (2002): 465-80.
Shields, Martin, and David Shideler. “Do Commuters Free-Ride? Estimating the Impacts of Interjurisdictional Commuting on Local Public Goods Expenditures.” Journal of Regional Analysis and Policy 33, no. 1 (2003): 27-42.
Wisconsin Department of Revenue, Bureau of Equalization. “2008 Statement of Assessments.” Madison: Wisconsin Department of Revenue, 2008.
Notes
Elana G. Irwin, “The Effects of Open Space on Residential Property Values,” Land Economics 78 (2002).
An analysis using Google Earth suggests that about 12 percent of St. Francis housing units are within 400 meters of the WE Energies open space. These houses are some of the nicer ones in St. Francis and probably account for more than 12 percent of the total residential property value. Since there is no easy way to estimate the actual proportion, I will stick to the 12 percent figure, which amounts to about $45 million in total value. On average each house appears to have at least a fourth of a 400 meter circle around it in open space. If this is the case, then according to the Irwin article, the value of a typical house would increase by about 7 percent because of the presence of permanently protected open space. The total of this increase adds up to a little more than $3 million. Ibid; Bureau of Equalization Wisconsin Department of Revenue, “2008 Statement of Assessments,” (Madison: Wisconsin Department of Revenue, 2008).
Blake Gumprecht, “Fraternity Row, the Student Ghetto, and the Faculty Enclave: Characteristic Residential Districts in the American College Town,” Journal of Urban History 32, no. 2 (2006); Phil Hubbard, “Regulating the Social Impacts of Studentification: A Loughborough Case Study,” Environment and Planning 40 (2008).
A total of 200 dwellings amount to about 7.4 percent of all dwellings in St. Francis. This same percent of residential assessed value adds up to around $27.8 million, 5 percent of which is $1.4 million. Wisconsin Department of Revenue, “2008 Statement of Assessments.”
Martin Shields and David Shideler, “Do Commuters Free-Ride? Estimating the Impacts of Interjurisdictional Commuting on Local Public Goods Expenditures,” Journal of Regional Analysis and Policy 33, no. 1 (2003).
The City of St. Francis spends $532 per resident (8,662 residents at the last census in 2000) on public protection as a whole of which $322 is for police protection. See City of St. Francis, “St. Francis City Budget,” (St. Francis, WI: City of St. Francis, 2008). In their research paper, Shields and Schideler, find that adding another user of public services (resident or commuter) increases per capita police expenditures by $54. Using the ratio of the total public protection expenditures to the amount for police alone in the St. Francis budget, we can estimate the increase in per capita expenditure on public protection from another user to be approximately $89 (1.65x$54).
Extra sewer and run-off flows caused by the South Campus may move St. Francis from direct dumping into the lake to having to comply with MMSD rules and fees. This would likely increase costs to St. Francis residents.
William W. Davis, “The Impact of Western Kentucky University: 2005/2006,” (Bowling Green: Department of Economics, Western Kentucky University, 2006).
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