Infrastructure for urban expansion could cost developers $345M. Lexington plan could help
When the Lexington-Fayette Urban County Council voted to expand the city’s urban service boundary in 2023, one of the consultants who helped create the master plan for the expansion areas estimated it would cost just under $570 million to build all the necessary infrastructure to support new developments over roughly 30 years.
In Lexington, developers are expected to pay for and build most public infrastructure like roads, sidewalks and sewer lines. The city estimates that more than $345 million of the expansion areas’ infrastructure will need to be built and paid for by developers.
The new areas are planned to be the most dense neighborhoods in Lexington. The city has recently moved to adopt a new street design manual that requires more robust safety construction than developers have historically been required to make on roads. And since Lexington is a hilly city not immediately adjacent to a river, sewer and stormwater infrastructure is more complicated to build.
A new infrastructure funding plan approved by the council’s budget, finance and economic development committee Tuesday aims to make the high costs easier for developers to bear.
Under the plan, any given developer will be required to pay for all the necessary infrastructure to support their development upfront. But they will be able to earn some of that money back over time.
Building a new road or sewer line is hardest on the first developer in an area. Successive nearby property owners, though, have an easier time building their infrastructure because it can more readily connect to the first developer’s existing pipes or roadways.
The plan says city staff will identify nearby property owners who benefit from new infrastructure when they eventually develop their land. Those nearby property owners will have to pay the city a “privilege fee” once they submit plans to build projects on their own parcels.
That fee, calculated based on how much of their land benefits from the nearby project, will be used to reimburse the original developer who constructed the first pieces of shared infrastructure in the area.
“(The plan) allows for new development to pay for itself by giving developers the tools to go and follow the market and begin building tomorrow if they have the resources in place,” administrative officer Shaun Denney told the council committee. “It also creates a mechanism to enforce future payment, so no future development that benefits from the original infrastructure installed can move forward without paying their bills.”
However, nearby property owners who choose not to develop their land will not have to pay any kind of privilege fee until they decide to build — even if they benefit from the infrastructure by having access to a new roadway, for example.
The privilege fee for nearby developers will have an interest rate attached. When the first developer in an area finishes construction on a project, the calculated fee for nearby developers will begin to grow. The sooner a neighboring land-owner chooses to develop their land, the lower their privilege fee will be.
This will hopefully incentivize developers to build on their land quickly, rather than waiting years to begin a project, Denney said.
However, there is a 20-year cap on the entire fee structure. So if a landowner waits 21 years to build a shopping center on their property after their next-door neighbors have fully developed their land, that owner would not have to pay any fee of any kind for the infrastructure they tap into.
Denney told the council that cap is meant to prevent a situation where a developer, should they wait a while before deciding to develop, doesn’t accrue a privilege fee so large that it prevents them from building at all.
Concerns that developers may ‘sit’ on undeveloped land
Vice Mayor Dan Wu cautioned that there should perhaps be a consequence for property owners who wait longer than 20 years to build on their land.
“If they continue to not develop, continue to sit on it, we have the same situation that we did with the (1996 urban service boundary) expansion,” he said.
Fayette Alliance, a nonprofit that advocates for agricultural preservation and infill development, estimates just half of the 4,200 acres added to the boundary in the 1996 expansion have been developed.
Denney acknowledged the tension between the interest rate’s intent to spur development and the 20-year cap potentially giving some developers reason to wait decades before building.
“This is a front-end project, very front-end,” Denney said of planning for growth in the new expansion areas. None of us know how it would go over time.”
Denney said staff will be in regular contact with developers in the new expansion areas who are not moving projects forward to determine why they are not building.
“You need to find out why. What is the tension? If they just don’t want to develop, there’s not a whole lot you can do about that. But if there’s a real barrier, there might be something.”
The city council will take up this plan at its Aug. 25 work session. But there may be a special meeting before then for council members to discuss the funding plan at length and make any changes they see fit.
