The Dollars and Sense of Annexation

This article is co-authored by Will Creasy, a geospatial analyst at Urban3.

A few months ago, Chuck Marohn wrote an article asking when it's okay to annex property, and it struck a nerve in the Urban3 office.

As Chuck explained, “Annexation — the act of bringing property outside of the city limits into the municipal boundaries—is rarely more than an economic sugar high for a city, one with long-term consequences that are nearly always negative.”

If you want your city to grow in a financially healthy, productive way, it takes discipline and a balanced diet. But if you only seek that sugar high when you’re hungry, you’ll grow, alright—but in a manner that will leave you bloated and unsatisfied. 

Annexation is effectively a release valve for the city, and it’s natural. Every growing city has to expand its boundaries at some point. In fact, 90% of cities that could annex additional land in the 1990’s did so. At Urban3, we were most curious about why, where, and when cities annex land.

Chuck pointed out that “a common (incorrect) argument that city staff often put forth when they recommend annexations goes something like this: we already have a fire department, a police department, a library and parks….why not have more taxpayers sharing those costs?”

Another argument is that if workers are moving outside the city, why not move city boundaries outward so they still pay for services? The answer is that annexation is almost always a poor investment that doesn’t consider long term stability. Simply put, annexation is a bailout. So what’s the difference between natural growth and a sugar high? Where do we draw the line?

There are many explanations for the placement of city boundaries, the most obvious of which is geography. In Boulder, the city limits directly abut the Rocky Mountains, so that’s a sensible place to draw the line. Some city boundaries can be drawn across cultural or political lines, but those can seem absurd in situations like where the Missouri River splits Kansas City in two across state lines. In situations where geography isn’t a factor, who’s to say that someone just over the border of a city’s official boundaries is not a citizen, but their next-door neighbor is?

Annexation Around the Country

We at Urban3 analyzed the annexation patterns of dozens of cities, and it turns out that the closer you look, the more you discover that annexation shows a city’s priorities in clear detail. Here are a few examples:

Los Angeles: Access to ports

Los Angeles has several strange features within the shape of its boundary. It has holes to accommodate the boundaries of other cities (Santa Monica, Beverly Hills) or non-urban land uses (Inglewood Oil Fields). The most notable feature of LA's footprint is the narrow protrusion extending to the Port of San Pedro to the South. Los Angeles annexed the land in the 19th century to forestall the Southern Pacific Railway from gaining a monopoly on port activities in the area.

Dallas: Access to lakes

The most prominent annexations in Dallas were both taken on to increase access to the region's lakes. This gives the city better control over its water supply, but it also means that the city incurs all related maintenance costs for the roads and highways leading there. Interestingly, the hole in the center of the city is home to the Park Cities, one of the highest income areas in the city. It turns out that some of the richest and most educated Texans don’t pay many taxes for their metro area at large.

Chicago: Access to O’Hare

Chicago made its last major annexation in 1956 when it added O’Hare Airport and its environs (the bubble in the northwest corner) in order to consolidate its control over the airport’s operations. Aside from this protrusion, the boundaries of Chicago are fairly regular. Improving infrastructure and schools at the turn of the 20th century gave citizens of the Windy City reason to accept higher taxes.

But the shape of the City of Chicago is only part of the story of the greater Chicago metro area. Adding the surrounding cities into the picture, and you'll see that while Chicago is bounded by its historical limits, the municipalities nearby are under no such restrictions. Some of the most complex city boundaries in the entire country can be found in this area.

Houston: Access to ports & more

In 1913, Houston annexed the length of the Buffalo Bayou river from the city to Burnet Bay. This was an attempt to preserve shipping and maintain wharfage rights. In 1999, Texas laws regarding annexation were changed, severely limiting the annexation of large tracts of land. As a result, the city switched to a method of annexation it called “limited purpose” annexation—a unique system in the US. This system does not impose property taxes, but it does increase sales taxes and requires limited increases in services. However, we can’t intuit the purpose of the addition of many miles of roads that lead to nowhere, with no publicly available plans for development.

The Cost of Annexation - A Case Study

The basic tenets of the Growth Ponzi Scheme can help us intuit that annexation has a negative economic cost. But exactly how big is that cost?

When Urban3 worked in Kingsport, TN last year, we had the unique opportunity to delve into the economics of a city that has annexed huge swaths of land in the last 30 years. Kingsport’s charming downtown, designed by comprehensive planning pioneer John Nolen, still produces a lot of value despite stagnant population growth rates. The local economy is chugging along at a decent rate thanks to mid-sized manufacturing plants and the city’s status as a regional medical hub. Yet despite Kingsport’s relative strength, it’s been gobbling up land at a rapid pace for decades, with questionable returns on the new investments.

We made the above map to show tax value per acre for Kingsport. Taller, red and orange plots are those with high tax value per acre. Lower green plots are those with little tax value per acre. It’s evident that the areas closest to downtown contribute most to the economy, yet in the last 30 years Kingsport has continued to add land that produces almost no value. Let’s look even closer.

We broke down the annexed land into five zones based on geography and proximity to central features. ("City Without Annexation" encompasses the original city and contiguous areas into which it has gradually expanded over time—as opposed to the "leapfrog" annexation pattern exhibited by the five colored zones.) At this detailed level, it’s clear that only the small “Fall Creek Subdivisions” contribute positively to the city’s overall value per acre; the rest of the scattered annexations drag the city’s productivity down.

There’s nothing inherently wrong with developing land on the periphery of a town, but it’s a big problem if the costs aren’t accounted for. Fortunately, laws allowing de-annexation are gaining ground in Tennessee and around the country.

The Annexation Equation

Just looking at the boundary of a city can tell you a lot about it. There’s a story in each example about how cities got to be the way they are.

If a city is annexed oddly, with tendrils reaching out into the countryside and gaps of unincorporated land left behind, it’s more likely to include cherry-picked parcels that actually detract from the city’s value. Since there’s a correlation between cities that look like an inkblot test and financial productivity, we created a tool that analyzes municipalities across the country by shape and then we mapped them. The equation is a simple ratio of boundary length to total area.

The most broadly annexed towns in America 

If your town is on the map above, it’s likely that your city officials have made dire miscalculations in annexation decisions in the past.

Annexation is the Growth Ponzi Scheme in its purest spatial form. We’ve done the math to break down the effects in all their complex glory, but in the end, it’s simple: If you have more land, you need more utilities and services to upkeep it.

It’s a precarious gamble to annex long stretches of road that service small parcels of property. While development fees provide an up-front infusion of cash that obscures short-term costs, taxpayers are left with a steadily growing maintenance bill in the long term.

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