Dancing with Zombies

September 2010 – There are several million “zombie subdivisions” spread across the Intermountain West; subdivisions that are approved – but largely vacant. Teton County, Idaho finds itself at ground zero for zombie subdivisions.

Dancing with Zombies
Teton County, Idaho, Learns New Moves
in Coping With a Mountain of Vacant Building Lots

Friends,

The fallout associated with unbridled real estate speculation continues to echo across the West. Most states, counties, and communities are struggling financially - many as a direct consequence of new housing projects gone bust. In Arizona, we have counted over a million approved - but vacant - housing lots. "Zombie subdivisions," we call them, neither living nor dead. We estimate that there are at least another million lots in zombie subdivisions spread across the other seven states of the Intermountain West.

Teton County, Idaho, a small, rural county of jaw-dropping western beauty has found itself at ground-zero of the once high-flying real estate market, now crashed and smoldering. Teton County and its leaders are feeling the pain, forced to choose between funding multiple compelling priorities - fire protection, law enforcement, education, roads, etc. - without the property tax revenue to pay for them.  But, they are also determined to look to the future, and work their way out of this debacle. The hard work taking place in Teton County is an inspiring story of local resolve, partnership, and collaboration.

A Thrill Ride Followed by a Crash

With an estimated 75 percent of approved home lots vacant, and almost $250 million in foreclosed real estate, Teton County, Idaho, could be considered the poster child for real estate speculation run amok in the West. County officials, residents, and developers are now locked in a complicated dance for financial survival.

"The numbers are staggering, and yet we have not seen the bottom of this financial mess," said Anna Trentadue, staff attorney for Valley Advocates for Responsible Development (VARD). "This year alone, we have 438 properties that are three years delinquent in property taxes, and may soon be foreclosed for failure to pay taxes.  Idaho law requires that if you fail to pay property taxes for three consecutive years, the property must be deeded back to the state. Unfortunately, this is just the first wave, with more to come next year. Many developers simply did not plan for the long-term carrying costs associated with their subdivisions. With no market demand for these lots, annual property taxes become a significant burden."

"Teton County is paying a steep price as a result of the go-go development years," said Randy Carpenter, a Sonoran Institute senior planner based in Bozeman. "Their fiscal situation could impact the county's ability to provide core services to its residents for years to come."

The boom, which lasted from about 2000 until 2009, kept county officials very busy. Over 5,600 residential lots were approved in this time period, almost five times the pace considered normal for the region. The boom reached its peak in 2007 with 1,800 lots recorded on 3,600 acres. The red-hot development activity both thrilled and blinded local officials.

We are Starving Here!

"What we are seeing unfold in Teton County is unmatched in the West in terms of scale and complexity," said Gabe Preston, with the Colorado-based RPI Consulting. "Not only is there a huge amount of empty lots for a relatively small county, but the lots and the vacant subdivisions are all relatively new, having been approved in the last five years. We typically see older subdivisions in trouble, not new ones. This is unusual in my experience."

The combined effects of development gone wild, and a California-like law in Idaho that limits the amount of new property tax revenue communities can extract from its residents, has placed Teton County in a fiscal "straightjacket," according to Randy Carpenter.  "Unfortunately, Teton County is learning in spades that residential development does not pay its own way for services received."

According to VARD's Trentadue, for years the county had used informal fiscal impact studies for proposed residential subdivisions, relying solely on estimates prepared by the developers of the subdivision. Not surprisingly, their fiscal forecasts were often rosy, and wrong. "Idaho law requires cities and counties to evaluate the fiscal impacts of development, but this do-it-yourself approach was producing inaccurate data," said Trentadue. "Fortunately, the County Commissioners came to the same conclusion and realized, "the developers were projecting huge surpluses, but we are starving here.' Something had to change - fast."

How do you Spell Relief? F-I-P-S

VARD, which soon will celebrate its 10th year working to promote responsible development, reached out to the Sonoran Institute for help. Randy Carpenter got the call and knew exactly what to do.

"We were very familiar with growth and land-use-related issues across the Northern Rockies, and especially in Teton County, Idaho, and Wyoming," said Carpenter. "We knew the situation was dire. They needed ideas, tools, and resources, so the first thing we did was to was to hook up VARD with Gabe Preston of RPI."

"Our immediate focus was to help the county and its leaders get their financial house in order," said Preston. "We needed to give them the ability to link land-use planning with financial outcomes. This capability is supremely important to fiscal soundness."

RPI, VARD, the Sonoran Institute, and our partner, the Lincoln Institute of Land Policy, went to work developing a customized "calculator" for the county to estimate cost impacts associated with all types of development. Dubbed the Fiscal Impacts Planning System, or FIPS, the calculator uses data like the number of building lots in a subdivision, estimated sales price, and miles traveled on county roads in order to produce hard numbers on the benefits and costs associated with new home development.

"The calculator has been designed so it can be used early in the development process to estimate costs required to provide infrastructure and services to the subdivision," said Angie Rutherford, Teton County Planner. "Once we know the costs, we can get creative about mitigation options."

The Teton County Commissioners adopted the FIPS by resolution on June 28, 2010. The commissioners directed their planning staff to use and apply the calculator to all future development proposals.

Calculating Back to the Future

While clearly valuable for looking forward, the calculator will also be used to examine proposals designed to breathe life into the county's staggering number of zombie subdivisions. "The county recently passed a re-platting ordinance in an effort to identify subdivisions that are no longer viable," said Rutherford. "The calculator will help us understand the real numbers associated with plans to revitalize these zombie subdivisions."

VARD's Trentadue also indicated that FIPS will be central to the 20-year comprehensive land-use planning effort the county has just begun. "FIPS has put the county back into the driver's seat, not only in terms of estimating financial impacts, but also with land-use planning. The calculator will help to inform the process as we go, and enable the county to project various build-out scenarios."

Trentadue says the calculator will also be valuable in retooling how fiscal impact fees are applied in the county. "We have all learned that we really low-balled our impact fees. The calculator will help us make sure that whatever impact fees the county decides on will be realistic."

The New Norm

There is a moral to Teton County's story: Don't allow development without a true understanding of the associated benefits and costs to the community. We simply can't afford the cost of bad development.

We now live in an era of fiscal restraint.  Local governments can't afford to both approve sprawling development patterns and provide local residents with essential community services.  Following the lead of Teton County, Idaho, local governments around the West should look hard at their land-use codes and policies to ensure that they are fiscally responsible and that the community can afford to provide services for proposed new development. Until this becomes the new norm, dancing with zombies will preoccupy us all.

Sincerely,

Luther Propst