The city’s cost-benefit analysis

The city report shows three scenarios on how quickly the proposed 751 South development could be built, and how soon the city would reap property taxes and other revenue from the project if it were to be included in Durham city limits.

The first scenario assumes the developer’s suggestion that the 167-acre project would be fully built in 10 years and would garner top property values.

The second scenario assumes less than half the project will be built in 10 years, and that the residential and commercial properties would be worth less, therefore generating lower property taxes.

The third scenario assumes that less than a quarter of the project would be completed in 10 years, and would bring fewer tax dollars into city coffers. If the city annexed the site and less than a quarter ended up being built as planned, the city would lose money for the next decade at least.

Why does it cost so much?

The detailed city report shows how adding 1,300 homes and 600,000 square feet of office and retail space would require fire services, new police officers, administrative support, expensive equipment and other costs.

A previous commitment Southern Durham Development made to donate land for a new fire station and space for police doesn’t go very far, according to the report. The land for the fire station was much too small, and the police don’t need office space because officers transmit reports and other information from computers built into their patrol cars.

Up next

What: Durham City Council meeting

When: Monday, June 27, 3 p.m.

Where: Durham Council Chambers in City Hall, Mangum Street and City Plaza

Why: Discussion of whether to provide city services to the 751 South development

Read more

Previous stories about 751 South

A time line of the six-year project

Durham city leaders would gamble with more than $1 million in taxpayer money if the council decides to annex 751 South. Even if the controversial development became the most successful project of its kind in the Triangle, rivaling Meadowmont in Chapel Hill, the city could sink as much as $1.1 million into police and fire protection and other services before breaking even. And there’s no guarantee that the city would get the money back.

That’s the least drastic scenario, according to a city report (see “City’s cost-benefit analysis” at right) on 751 South, 167 acres of homes, offices and shops to be built near the Streets at Southpoint mall and Jordan Lake.

Durham City Council is scheduled later this month to discuss the costs of providing city services to 751 South and widening N.C. 751, which is already congested. As most city council members already know, the numbers don’t look favorable.

Southern Durham Development has requested that the city annex the development, which would require it to provide services such as trash pickup, parks, and police and fire protection. But the developer and number crunchers for the city disagree on how quickly Durham could collect enough property taxes and other fees to offset the cost.

By the developer’s optimistic forecast, the community would be complete in 10 years and command some of the best residential and retail space prices the Triangle has ever seen, generating viable tax revenue for the city after five years. But given the recession and the anemic real estate market, the developer’s prediction that it will fully build out the project within 10 years, and with maxed-out property values, is unrealistic, city staffers say.

“Things in general are really slow,” said Durham City Manager Tom Bonfield. “We could not come up with a scenario that indicated this project would be built out in 10 years.”

A more realistic scenario: Developers would build no more than half the project within a decade. Meanwhile, the city would pour hundreds of thousands of dollars into serving the community for most of the next 10 yearsor in the worst-case scenario, the entire timebefore making back any money.

No one would expect that if the project were annexed, it would generate enough tax revenue to pay for itself within the first year, Bonfield said. The real question: How long could the city reasonably spend more money on the development than it reaped? “There’s no magic number,” he said.

When the council hears the full details, annexation will likely no longer be an option. But what Southern Durham Development needs at the very least is a commitment from the city to extend water and sewer services to the site.

Lewis Cheek, a former city councilman and now an attorney for Southern Durham Development, pitched the option in a letter to Bonfield last week. Initially, such a move appears less risky than annexing the project. The city would incur no costs up front, and the developer would pay for the pipelines and other infrastructure.

“Under those circumstances, if the city decides it wants to wait to see how the project performs, it can act on annexation at a later time,” Cheek said.

The city could actually make moneyabout an additional $1 million a year, by Cheek’s calculationsby charging double rates for water and sewer services to the properties.

But council members have more than just the immediate water and sewer revenue to consider. There are other financial and environmental costs.”If we don’t think it’s good enough for annexation for the city, then essentially we’re putting the burden on all taxpayers,” said City Councilmember Diane Catotti. “I’m very concerned about passing on costs to anyone.”

The proposed 751 South project ranks among the most divisive development issues in Durham’s history. Plans call for dense development in the protected watershed of Jordan Lake, which could drain more pollution into a regional source of drinking water that is already tainted and costly to clean. Since the project was first proposed to Durham County Commissioners nearly six years ago, hundreds of environmental activists and residents of neighboring properties signed petitions opposing the project. But last year, county commissioners approved a rezoning to allow the project to move forward.

Durham County elected officials have been named in three lawsuits challenging how they handled the process. In one lawsuit, which is still pending, property owners near the site say the county didn’t follow the voting procedure required by the petition they filed against the rezoning. The suit argues the county’s approval should be reversed. A trial date has been scheduled for Nov. 28.

The lawsuit complicates the city’s decision, Bonfield said. If the city annexed the project, it would nullify the lawsuit. But even extending water and sewer to the site could impact the case, Bonfield said.

“If we provide utility service and they begin development, and that lawsuit extends out three or four years, does [the utility extension] give them standing?” Bonfield offered as one concern. “That’s the thing that makes it a little more complicated to me, and I need to have more consult with our attorney.”

If the city agrees to provide water and sewer service to the development, even without annexing it, contractors could break ground within days. That could trigger an avalanche of new traffic onto N.C. 751, a two-lane highway.

Residents, city and county staff experts and some elected officials have long been concerned about the ability of N.C. 751 to handle the thousands of shoppers, workers, schoolchildren and residents who would travel the road if the project were built.

When Southern Durham Development was seeking zoning approvals from the county, it committed to about $6 million to improve some intersections and widen N.C. 751 in front of the subdivision. County commissioners didn’t impose any other requirements. But the city report looks more broadly at traffic patterns and considers the project in the context of other new developments in the area, said Bill Judge, a city transportation engineer.

According to the city report, a one-mile portion of N.C. 751 from Renaissance Parkway to Massey Chapel Road would have to be widened to four lanes to avoid a dangerous bottleneck. The estimated cost is $7 million.

“It really depends on the phasing of their project and how quickly they would build,” Judge said. “There’s not a lot of excess capacity out there right now. It would likely be required fairly soon.”

The Durham-Chapel Hill-Carrboro Metropolitan Planning Organization has prioritized widening N.C. 751 but hasn’t specified a funding source, Judge said.

Without holding annexation as a bargaining chip, it’s unlikely the city could squeeze additional money from Southern Durham Development to pay for the road improvements. The developer has already met requirements to improve the intersections on which the project would have a direct impact.

“It would be just too much for the developer to bear the entire cost of that,” Cheek said.

So taxpayers would carry the expense. That could happen directly, through a locally funded project, or at the cost of another regional road improvement project. If the developer’s rapid build-out happens, widening N.C. 751 would likely jump ahead of other road projects.