URBS 502—Cost/Benefit Assignment

 

Cost/Benefit

1. You are evaluating two projects for Urban Development Action Grants for a moderate-sized, rural city. One project, an expansion of a local business, will cost a total of $700,000. It will generate (or "leverage") $580,000 of investment from private sources, and will generate full-time, permanent, private-sector employment for 12 low-income workers and 21 middle-income workers. The second project, a downtown redevelopment package, will cost $5,593,600. It will generate $2,065,300 of investment from private sources, and will generate 85 new private-sector jobs for low-income workers and 45 for middle-income workers. For the purpose of the analysis, measure the employment benefits by the wages paid--an average of $15,000 for low-income and $25,000 for the middle-income employees.

  • Does either project produce enough benefits to justify the cost?
  • Is one project more cost-effective than the other?


2. Suppose, in the prior problem, that your agency had a preference for projects which generate new employment for low-income people (weight=2.O). Suppose, further, that the next priority was leveraging private money (weight=1.5). The third priority is providing general employment (weight=1.0). Now which project is more cost-effective?


3. Suppose two alternatives for the same project have been proposed to the Housing Redevelopment Agency in Fairmont. One alternative, costing $1,440,000 (annual debt service of $205,750), will provide 10 one-bedroom units, 25 two-bedroom units, and 5 three-bedroom units. (A one-bedroom unit rents for $325/month, a two-bedroom unit rents for $400/month~ and a three-bedroom unit rents for $475). The second project, costing $1,465,000, will provide 40 two-bedroom units. Assume that average occupancy for a one-bedroom unit is 1.3 persons; for a two-bedroom unit it is 3.0 persons; for a three-bedroom unit it is 4.2 persons.

  • Which alternative is more cost-effective for housing people? Which is more cost-effective for generating rent?
  • Suppose the city has a policy encouraging "family housing," and the weight for a three-bedroom unit is 2.0, a two-bedroom unit is weighted 1.5, and a one-bedroom unit is 1.0. Now which project is more cost-effective for housing people?



4. Suppose you are on the staff of North-South Neighborhood Development Corporation, in the Twin Cities area. You own a property, which costs $32,800 to acquire and clear. Now you want to move a house onto the site. You could acquire a shell and move it to the site for $8,000, and then rehab the whole thing for another $50,000. You could also acquire and move a better house for $17,000, and only spend $35,000 for rehab. Or, finally, you could acquire and move a house for $40,000, with no rehab costs. The city will finance half the rehab costs, charging 0% for 1/3 of the rehab loan and 2% for the remaining 2/3 (the rest of the rehab will have to be financed from conventional sources at 9%). [As a measure of benefits, figure that a comparable house in your neighborhood would sell for $95,000.]

  • Which option do you pick?

Fiscal Impact Assessment

Use the following information to answer the questions below:

 
                           PLYMOUTH (1996)      BROOKLYN PARK (1996)
                     Operating    Number     Operating    Number
                     Costs        Employees  Costs        Employees
General Govt.
  Finance            2,563,500      8           592,900      11 
  Control            3,165,600     12         1,015,800      25
Public Safety
   Police            7,495,693     50         2,086,600      50
   Fire              1,129,000     10           314,300       2
Public Works
   Highways          1,266,230     19         1,761,500      28
   Sewers            1,043,700      6         1,491,000      10
   Sanitation        0                           0
   Water               668,470      6           834,000      10
Recreation
   Parks             1,351,000      9         1,051,000      19
   Libraries         0                           0
Debt Service         6,112,500                  538,200
Real Value         204,785,200              262,770,460
Population              31,165                   43,332
Households              10,491                   15,268
Growth rate               3.0%                     3.5%
Revenue:
Taxes:
   Property              .0218                    .0228
Fees
   Interest             103,092                   6,000
   Sewer              1,224,432               1,700,600
   Water                870,000               1,209,300
Transfers
   Road Aid             568,363                 789,394
   Revenue Share        127,880                 177,612
 

1. According to planning projections, the city of Plymouth, MN, should experience a growth between 6,000 and 18,000 units of housing by the year 2000. Using 10,000 as a best estimate, and assuming that most of the units will be detached, single-family dwellings worth $110,000 each, and assuming an average household size of 3.6 persons, what would you project to be the ultimate fiscal impact of this growth on the city?

2. Assume that a mix of housing units will be built to meet the growth in Plymouth. The projected increase is 36,000 people, divided into equal numbers of single-family dwellings (worth $110,000 and averaging 3.6 people per household), duplexes (worth $85,000 and averaging 2.25 people), and apartments (worth $75,000 and averaging 1.75 people). What are the fiscal impacts of this growth strategy on the city?

3.  Suppose a major industry approached the city of Brooklyn Park, a growing city, for an industrial expansion project. The expansion will increase employment by 500, and will generate the following revenue stream:

    • Property taxes -- $22,800
    • Water & sewer -- $19,132
    • CDBG transfer -- $10,000

What are the fiscal impacts of this project as proposed?

4. A developer has approached the city of Brooklyn Park with three proposals for a large parcel of land. Under one proposal, the land would be developed with 400 single-family units (averaging 3.6 persons) valued at $110,000 apiece. The second would develop the same land with a garden apartment complex of 6,000 units (averaging 1.75 persons) valued at $70,000 apiece. The third would combine both ideas, with 2,000 units (averaging 2.25 persons) and an average value of $85,000 per unit. Using the service standards method, which proposal is most desirable for its fiscal impacts on the city?

5. Recalculate problem #4 using the comparable city method. Assume the project will take 5 years to complete. What do the results tell you about the impact of choice of method on the conclusion eventually reached?

 

MSU

 

© 2006 A.J.Filipovitch
Revised 6 January 2007