Post #202: MAConomics 101

Posted on March 20, 2019

Please attend tonight’s meeting.

Today, Wednesday, 3/20/2019, at 7:30 PM in Town Hall, in what will probably be the first and last time ever, all three Town of Vienna governing bodies will meet in a joint work session.  The Town Council, Planning Commission and Board of Architectural Review will sit in the same room and look over proposed changes to MAC zoning regulation.  You can find the meeting materials on this web page.

I think you should attend this, if only for the spectacle.  The logistics alone are tough.  There are going to be something like 20 people sharing the stage.  For one thing, I can’t imagine how they’d let every elected or appointed official up there have a say without having this run to the wee hours of the morning.  For another thing, there’s no defined way to arrive at decisions, because they can’t vote on anything.  Legally, this is a “work session”, not a “meeting”, and they can’t take a vote in a work session.  So what, exactly, they are going to do, I don’t know.   My fear is that they don’t, either.

And all this — ado — seems to be purely to serve the hurry-up schedule promoted by the department of Planning and Zoning.  As of today, based on the schedule as-published, Planning and Zoning wants this over and done with before the June 27 end of the MAC moratorium.  And they seem determined to do that, despite these opinions of that schedule by Town Council members Majdi, Noble, and Springsteen:

MAConomics 101.

Why are we here, at this point, with this MAC rezoning?  What’s driving this?  As an economist, I suggest that you follow the money.

Let me start by quoting Councilman Majdi’s March13 2019 memorandum on MAC zoning (.pdf).  The bold face below is mine.  (I haven’t made it all the way through that yet, but I have to say, his intro sums up the situation as I see it.)

"From 1976 through 2000, Mayor Charlie Robinson maintained Vienna’s small town feel by blocking growth and resisting trends in commercial development over two decades. This strategy made Vienna a unique small town in Northern Virginia. It also accumulated hundreds of millions of dollars of value in untapped growth potential. The Town holds that value and governs its allocation through zoning laws.

In short, Mayor Robinson handed us a gift in the form of a downtown with a lot of land that hasn’t been built up.  And I don’t mean gift in just some touchy-feely way, although that is true.  I mean money.  Economic value.

We’re now seeing Robinson’s gift being dispensed as MAC has become a reality.  Most notably, the Giant Food property was sold for just about twice the tax valuation (about $60M, when the tax valuation was about $30M).  And that’s hardly an isolated incident.  Search this website for “twice the tax valuation” to find numerous such instances.  Giant is less than 10% of all the land covered by MAC.  And that $30M is only the profit to the land owner, not the developer.  Do a little rough arithmetic, and that “hundreds of millions of dollars of value” seems to be no exaggeration whatever.  My best guess is that there’s somewhere around $0.5B in profits waiting to be made with MAC redevelopment.

Now I’m going to show the basic problem with one simple diagram explaining MAC zoning as simply as possible.

In theory, as it was described, MAC zoning was supposed to be a privilege that developers had to pay for, in some way.  MAC relaxes the existing commercial zoning requirements, and allows for taller buildings used primarily for high-density housing.   Those buildings are worth a lot — ten to twenty times as much, by my estimate — than the buildings that are commercially viable under existing zoning.

And in exchange, the Town was supposed to get something back of substantial benefit for the Town.  Foremost, these buildings were supposed to maintain the small-town character of Vienna.  But in addition, the Town was to obtain amenities for the citizens — something like “parks and plazas” in the language of the statute.

So, the point was that some of the value of what Robinson bequeathed us was to be used to benefit the Town.

And now we run into the basic problem with MAC zoning:  The Town started by giving essentially all that value to the land owners and developers.  That’s the economic flip side to “these buildings are huge.”  The huge building is what makes the most money for developers and, by inference, for land owners.  And that should be no surprise, as Maple Avenue land owners and associated business professionals literally oversaw the drafting of the MAC statute.  And now stand to benefit from it.

As I have put it on this website, builders can “fill the box”, where “the box” is defined by the legally required setbacks and height limits.  In a nutshell, MAC says, take the lot, take back 20′ for the Maple Avenue sidewalk, 15′ for all other sidewalks, shave 10′ off the back lot line, keep the flat roof of the building under 54′, and then, beyond that — whatever you want to do, it’s yours to do.

In theory, the developers have to provide significant open space on their lots.  But in practice, the open space requirement is a sham.  It double-counts space that is legally required to be open in any case.  Just the mandatory street and lot line setbacks either fully or nearly satisfies the “open space” requirements.

So, at its simplest, here’s MAC, in one diagram:

OK, sure, there’s a little more to it than that.  But dollar-weighted, that’s a pretty good summary.  Take that space, and build up to the height limit.  The box is yours to fill.

And that’s the problem.  The builders do have to pay to bury the utility lines, or, at least some of them, if there are in fact lines running past the property.   (Some properties along Maple don’t have that issue, others have lines crossing Maple that would be prohibitively expensive to move.)  And the builders must put in some retail space.   And the Town can usually squeeze them for a few dollars more.  There’s some mandatory landscaping.  And … that’s about it.

The problem is that once you’ve allowed builders to “fill the box” with the biggest building that will fit, asking them to do anything else takes money out of their pocket.  The Town has put itself — purposefully or accidentally, no one can say — in the weakest possible bargaining position, for purposes of claiming some part of the value of Mayor Robinson’s gift, for benefit of Vienna as a whole.

So at root, that’s what the fight is about.  Size = profit.  Any benefit that the Town wants to extract from MAC comes at the builders’ expense.

And so far, the Town has shown more-or-less zero inclination to try to claim any significant portion of that benefit.  For example, they propose to replace the useless “open space” clause with a more-or-less equally useless “gathering space” clause.  (As shown about halfway down this page.)  The only ray of sunshine that I see is that they’ll require the sidewalks to be a few feet broader.

But here’s the most recent example.  The Town appears to be getting ready to allow five floors, if the fifth floor is used for parking.  My suggestion is, trade that fifth floor for more green and open space. But, near as I can tell, the Town will simply give that away.  The plan is to write that into law, so that nobody can question it.

So that’s where it stands.  Early on, the Town had a lot of rhetoric about these big new buildings preserve small-town Vienna.  That’s objectively wrong, and they appear to have quit saying that.   So now it comes down to, is the Town going to scale back MAC or not?  Is it going to ask for any real value on behalf of the citizens, or no?  Or, in addition to “small town”, was all that rhetoric about “parks and plazas” also just so much hot air?

There’s a final nuance here, in that MAC zoning, and its apparent generosity toward developers, is, to some extent, a child of the 2008 financial collapse and the hard times that ensued.  The Town’s tax revenues stagnated for the better part of a decade (though they are increasing healthily now).  I believe there were fears that downtown Vienna would become a collection of abandoned buildings.  And in that context, maybe tipping the scales so heavily in favor of developers was sound judgment.  Now?  With what appears to be a thriving Maple Avenue with low retail vacancy rate, not it’s not so clear that was the right thing to do.  And now we get to see if the Town Council will change its mind on MAC or not.