Lesson 2 - Fiscal Impact Analysis

Question 1

Fiscal Impact Analysis

Answer 1

also known as cost-revenue analysis, is used to estimate the costs and revenues of a proposed development on a local government. For example, if a developer plans to build a regional shopping mall, what will be the cost to extend and maintain infrastructure, provide police service, and transit access? The answers are then compared to the sales, property, and income tax generated from this new development. The fiscal impact is the difference between the revenues and expenditures generated by a proposed development. This is also known as the net fiscal impact. If revenues are greater than expenditures, a development has a positive fiscal impact. If expenditures exceed revenues, a negative fiscal impact results. If revenues and expenditures are equal, the impact is neutral.

The most common form of fiscal impact analysis is the development project. However, fiscal impact analysis can also be used to examine the cumulative impact of land use decisions. For example, if a city is considering an annexation or new zoning policy, a fiscal impact analysis may be conducted.

Fiscal impact analysis should be used with caution. For example, even if multi-family housing creates a negative fiscal impact, this does not mean that multi-family housing should be limited within the city. Additionally, there are many factors that are not fiscally related. For example, the provision of affordable housing means that employees who work in a community can also live there. This may have more social than economic value.

There are several methods for conducting a fiscal impact analysis, including average per capita, adjusted per capita, disaggregated per capita, and dynamic.

Question 2

Average Per Capita Method

Answer 2

This is the simplest method, but it is also the least reliable. It divides the total local budget by the existing population in a city to determine the average per-capita cost for the jurisdiction. The result is multiplied by the expected new population associated with new development. This method can be adjusted to determine jobs. The costs and revenues are divided by the population. The major problem with this method is that it assumes the cost of service to a new development is the same as the cost to service the existing community. This may not be true.

Question 3

Adjusted Per Capita Method

Answer 3

The Adjusted Per Capita Method uses the figure calculated above and adjusts this based on expectations about the new development. This relies on subjective judgment.

Question 4

Disaggregated Per Capita Method

Answer 4

The Disaggregated Method estimates the costs and revenues based on major land uses; for example, the cost of servicing a shopping center versus an apartment complex.

Question 5

Dynamic Method

Answer 5

The Dynamic Method applies statistical analysis to time-series data from a jurisdiction. This method determines, for example, how much sales tax revenue is generated per capita from a grocery store and applies this to new development. This method requires more data and time to conduct than other methods.

Question 6

Splitting Costs

Answer 6

One of the major challenges to conducting fiscal impact analysis is how to split costs. For example, capital purchases, such as roads, may occur in one year, but are financed over time. Multiple developments share the use of the facility. For example, a road may have to be constructed to service a new shopping center. However, this road will be used by many others. How much of the cost of the road should be attributed to this development? This may be calculated by determining either the average cost per capita or the capacity. If a library is designed to service 20,000 residents, the cost is divided by 20,000.