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The economic benefits of preserving community character.

While most communities recognize the social and cultural benefits in preserving open spaces, historic buildings and scenic viewsheds, not as many realize that there also may be economic and fiscal benefits. The GFOA's Government Finance Research Center was asked by the National Trust for Historic Preservation to assist in developing a methodology for analyzing and documenting the economic and fiscal benefits of historic and other preservation activities. Governmental activities undertaken to preserve a community's historic and natural heritage can be characterized as aesthetic regulations or fiscal incentives. Examples of aesthetic regulations are historic districts, tree ordinances and open space preservation laws. Fiscal incentives, intended to stimulate certain types of private investment activity, include property tax abatements, freezes and credits, as well as direct grant or loan programs.

Aesthetic regulations often are controversial because they are perceived as detrimental to the economic interests of property owners. While they may in some cases prevent an individual owner from maximizing profits on a particular building, aesthetic regulations can enhance the physical attractiveness of an entire area, making the properties in the area more valuable than similar properties located elsewhere in the community. In districts able to attract shoppers and tourists, local businesses may profit even more from patrons' expenditures for lodging, food, gasoline and souvenirs. Fiscal incentives are less controversial because home and business owners can choose whether they want to take advantage of a particular incentive; however, debate often centers around the desirability of allocating public funds to promote special interests or to subsidize uneconomic land uses.

The costs of preservation activities, especially aesthetic regulations viewed from the perspective of a private property owner, have generally been more fully documented than the benefits. This is largely because citizen groups and others interested in community preservation techniques have lacked the technical orientation and/or resources to examine and assess the economic benefits of community preservation. The methodology developed for the National Trust provides an approach for examining and quantifying the increase in economic activity and the accompanying fiscal benefits to the local government that can result from preservation activities. The workbook in which the methodology is published describes three major areas of inquiry for documenting economic benefit, the data needed for the analysis and where to obtain the data; it also includes a series of worksheets designed to facilitate assembly and analysis of the data.

Overview of Methodology

The methodology is designed to analyze three areas of private economic activity that may arise from preservation programs: construction and rehabilitation, real estate and commercial. Any fiscal benefits that flow to government as a result of the private economic activity, such as an increase in property tax revenues from increases in property values, also are assessed.

Construction and Rehabilitation. Expenditures made for the construction or rehabilitation of property provide important short-term benefits to the economy in addition to longer-term improvements in property values and neighborhood stability. Contractors hire construction workers from the local labor market and purchase supplies and materials from area suppliers. Rehabilitation projects tend to be more labor-intensive than new construction, thus creating relatively more construction jobs. The construction of several projects over a period of years can generate significant effects.

The economic benefits of construction activity are defined as the number of jobs created and the salary and wage income earned. The first step in the analysis is to determine the total number and dollar value of rehabilitation projects (and/or new construction projects) over a defined period of time in the area under study. This step can provide valuable information: it can document that the amount of rehabilitation work significantly increased over time as a result of a particular action or in comparison to rehabilitation activity occurring in other parts of the community. Building-permit records maintained by local governments are generally the best source of information. The next step in the analysis is to estimate what portion of the total dollar value was spent for wages, materials and overhead. From the data on wages and materials, an estimate of the number of jobs created can be made by applying standard industry ratios and average local wage rates to the total.

Real Estate. The local real estate market is another sector likely to be affected by the application of community preservation tools. For example, it may be possible to compare property values in historic districts or areas covered by a tree-protection ordinance against those in areas not affected by the ordinance. It may not be possible to attribute any differences in property values solely to the district or ordinance; however, a finding that property values in the affected area are of equal or higher value can help to mitigate concerns that property subject to additional regulatory requirements lose value or are difficult to sell.

The primary measure of benefit in this section of the analysis is property values. Generally, the workbook advocates examining changes in property values over a period of time and between the affected group of properties and another set of properties that serves as a comparison group. Two measures of property value can be used: property assessment records maintained by local government and sales data generally maintained by the local board of realtors. Other potential impacts of preservation activities on the real estate market can be assessed, including changes in the total inventory of properties available for sale or rent, the number of substandard properties, vacancy rates and the number of sales occurring in the area.

Commercial Activity. Another important source of economic benefit is the increase in retail sales generated when an area becomes a popular place in which to shop and dine. Increases in sales enhance the economic health of existing businesses and can lead to the creation of new businesses. One aspect of this analysis estimates the amount of sales coming from tourists and shoppers living outside the area in question. The goal of this analysis is to estimate the amount of tourist expenditures, the amount of jobs created and wage income earned. There are two methods for estimating the total amount of expenditures made by tourists. One method is to collect information on total sales of all firms in the community that do business with tourists, and then survey them to determine the percentage of their total sales they think is due to tourism. Another method is to collect data on how many people visit the area in question and then to estimate or conduct a survey of tourists to determine their average expenditures during the visit.

A second area of analysis is to estimate the benefits of historic or cultural attractions themselves, such as museums or historic houses. The number of employees that are local residents, as well as the amount of supplies and materials purchased from local firms, are economic benefits flowing to the community.

A third area of analysis is to compare the sales of establishments located in the historic area to those of firms located outside the area. The primary measure used is sales per square foot of selling space. The findings may help to mitigate concerns about the potentially higher costs of doing business in an area such as a historic district that imposes additional regulations on the properties therein.

Findings from Fredericksburg, Virginia

Fredericksburg, Virginia, is a town having a population of approximately 25,000 which is located mid-way between Washington, D.C., and Richmond, Virginia. A thriving commercial center in colonial days, home to two of America's presidents and the site of four major battles during the Civil War, Fredericksburg is one of America's most historic small cities.

Downtown Fredericksburg maintained its prosperity until the late 1960s, when several stores began moving out to new shopping centers on the outskirts of town leaving behind an increasing number of vacant storefronts. In developing revitalization strategies, city officials decided to emphasize Fredericksburg's historic character, recognizing that its character and charm could be a competitive draw in attracting the public to visit and spend money. In 1971, most of downtown was designated as a national historic district; local designation followed a year later. Among other significant actions of the city government were the aggressive promotion of historic tourism, creation of a tax exemption program for rehabilitated properties and capital improvements in the downtown area. Today, downtown Fredericksburg is lively and prosperous, drawing both daytrippers from Washington, D.C., and Richmond, as well as residents of Fredericksburg. Several properties have been rehabilitated, and many new stores and restaurants have opened in formerly vacant buildings.

The economic benefits that have accrued to property owners, shop keepers and employees in the historic district, as well as to local area governments, were estimated in all three areas addressed by the methodology.

Construction. By examining building permit records of the town of Fredericksburg, it was found that 777 rehabilitation projects totaling $12.7 million were undertaken in the historic district between 1982 and 1989 (data covering a longer time period were not available). The projects led to the creation of approximately 293 temporary construction jobs and approximately 284 jobs in sales and manufacturing. The fiscal benefits to Fredericksburg area governments included building permit fee revenues of $33,442 realized by the city of Fredericksburg and $243,729 in locally redistributed state sales tax revenues shared among the surrounding counties and the city.

Property Values. Changes in value of a sample of properties located within the historic district as compared to changes in value of properties located elsewhere in the city also were examined using property assessment records. The investigation revealed significant differences in the rates of increase. Between 1971 and 1990, residential properties in the historic district increased in value by an average 674 percent, while residential properties located elsewhere increased in value by an average 410 percent. Commercial properties inside and outside the historic district also showed differences in average percent increases: 480 percent and 281 percent, respectively.

These findings indicate that properties within Fredericksburg's historic district gained appreciably more in value over the past 20 years than properties located elsewhere in the city. While the higher rates of increase cannot be ascribed solely to the historic district designation, as it is only one of several measures taken by the city to encourage community preservation in the downtown area, it appears likely that the historic district designation has helped, not hurt, property values within the district.

Tourism Revenues. Tourism is the third area in which the economic benefits of historic preservation activities in Fredericksburg were assessed. The expenditures tourists make while visiting an area--for meals, lodging and shopping--represent new funds coming into the community. These funds, in turn, are respent--as shop owners pay their employees and restaurants restock their food supplies--and result in more economic benefits to the local area. To estimate how much money historic tourism brings into the Fredericksburg area economy, a door-to-door survey of downtown merchants and a telephone survey of area inns, hotels and motels were conducted. Based on survey findings, it is estimated that, in 1989, tourist purchases from local businesses totaled approximately $11.7 million within the historic district and another $17.4 million outside the historic district. These initial tourist sales generated an additional $13.8 million in secondary impacts, resulting in an estimated $42.9 million in sales generated in the local economy from historic tourism. The city's fiscal benefits from these tourism sales were estimated at $1,128,060.

Summary

This article summarizes the main features of a workbook for assessing the economic benefits of community preservation activities which was developed for the National Trust for Historic Preservation with the assistance of GFOA's Government Finance Research Center. While the workbook is designed to assist in the development of quantitative estimates of economic benefit, it should be emphasized that any numbers derived from application of the methodology are estimates, not precise figures that can be established with certainty. The larger purpose of the workbook is to foster an understanding of the ways in which economists measure economic benefit and the ways in which preservation efforts can contribute to the local economy.

The workbook, titled The Economic Benefits of Preserving Community Character: A Practical Methodology, can be obtained for $35 from the Center for Preservation Policy Studies, National Trust for Historic Preservation, 1785 Massachusetts Avenue, N.W., Washington, DC 20036 (202/673-4255). Case studies of benefits of historic preservation in Fredericksburg, Virginia, and Galveston, Texas, will be available for purchase from the National Trust in the spring of 1993.

This article was written by JONI L. LEITHE, assistant director of GFOA's Government Finance Research Center. Leithe participated in the development of the methodology for the National Trust for Historic Preservation.
COPYRIGHT 1993 Government Finance Officers Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Leithe, Joni L.
Publication:Government Finance Review
Date:Feb 1, 1993
Words:2102
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