Annexation 101: When (if ever) is it a good idea?

Take a look at a map of your city. Do the borders make sense? Do major roads or county lines serve as delineators? Or does it look like a child's LEGO construction?

Those strange protuberances in my town (Venice, Florida) are evidence of annexation, in which certain parcels or developments were appended to municipal borders by elected officials and planning staff. These expansions often come with promised benefits — impact fees and new real estate tax revenue are the usual suspects — and a sales pitch for why your town or city should annex that land.

Part of that pitch is the (mistaken) assumption that infrastructure is an asset and not a liability. If you believe the former, even far-flung, disjointed expansion must be good. But the reality is that each annexation decision is its own case study requiring its own economic analysis. And the math almost never adds up.

An annexation map of Fresno, California, showing several leaps in size the city made from 1897 to 2010.

Graphic from Strong Towns

The Case For Annexation

There are a few scenarios in which expanding municipal boundaries may make sense. Edward Erfurt, Strong Towns' director of community action, outlines some examples:

If two contiguous places are each economically productive in their own right and one is unincorporated, annexing the unincorporated place may be a good outcome. With both parties starting from a strong position with existing infrastructure, neither inherits a disproportionate burden, and they can plan for their future liabilities with an existing record of accounting and managing projects. They may also find efficiencies in services that bring cost benefits.

Some counties or cities designate an urban growth boundary to guide future land use. In such circumstances, development may occur within the boundaries but outside the existing city borders, so it may be advantageous to annex certain areas to “clean up the maps” and “provide consistency so that everybody in one neighborhood falls under the same rules.”

An analysis by Urban3 looked at how some big cities had executed previous annexations. The analysis found that Los Angeles annexed land to include access to the port of San Pedro, while Chicago added a corridor to consolidate control over O’Hare Airport. In each of these cases, the linkage to an important asset combined with the relative success of the contiguous areas made adding the new land fiscally responsible (and the maps look crazy).

The Case Against Annexation

Strong Towns founder Charles Marohn has written frequently on this subject, and identified serious flaws in the pro-annexation rhetoric, chiefly that it ignores “the long-term consequences that are nearly always negative.”

The most glaring flaw is the way in which annexation contributes to the Growth Ponzi Scheme. It starts with what Marohn calls the short-term “sugar high” of development fees coupled with added tax revenue from those new residences and/or businesses. That sugar high is sweetened by developers who promise to create all the roads, pipes and streetlights before handing them off to the municipality as if they were a gift. But 25 years down the road, that gift becomes a liability, as the type of development enabled by the annexation can’t possibly cover its maintenance. This problem is exacerbated by the fact that so many annexations include large greenfield developments with detached single-family homes, a notoriously low-productivity pattern.

Another way annexation can be pernicious is by diverting attention away from actual solutions. A better outcome for every municipality that's considering expansion is to improve the utilization of its existing land and resources. Strong Towns calls this thickening, and the arguments for it are undeniable. Your city has infrastructure that it already maintains, as well as a combination of publicly and privately held land that is underutilized. So an ideal outcome is to increase productivity within existing borders, which can add housing and commerce without incurring any new liability. Think of annexation and expansion as a gimmicky diet — forget the hard work of managing your resources responsibly and just take this magic pill.

That leads to the number one question to ask when annexation is on the table: “Are we doing a good job with the resources and infrastructure we already maintain?” If your city is like most in North America, it has a staggering maintenance backlog and faces tough accounting decisions to address it. If it were honest about entering the per-mile costs of all roads, sewers and electrical lines into the equation, there’s almost no line of reasoning that makes adding more land and infrastructure a reasonable response.

Verdict

“You should never annex anything again, you idiots,” says Marohn. Erfurt qualifies that with a unicorn-like caveat: “If you can manage everything you have in your area, and you’re net positive, and you're maturing gradually over time, maybe at that point you look to take your good management to the edge of town and get some more land and develop incrementally over time.”