The development of land imposes costs on a city. The new development
will draw on water and sewer service supplied by the city and
will add to the load on the city's street system. The city will
be expected to inspect the development as it is being constructed,
and to supply fire and police protection once it is built. The
new development will also generate a flow of revenue, especially
if it is a private development which pays property tax. But even
tax-exempt properties add to a city's resource base through payment
of fees, and the population growth associated with the development
will increase state and federal transfer payments.
City planners and managers need to be aware of the public costs
of private development, and of the public revenue generated by
development. They need to be able to project the demand that land
development places on city services and the city budget. They
need to plan for meeting the less obvious impacts of implementing
public policies like zoning decisions, economic development activity,
and growth strategies. They need a rational basis from which to
evaluate land development, particularly if the project comes to
them with a request for special consideration.
A city is not a profit-making venture. A city has no right to
refuse a development project simply because it will cost the city
more than it will raise in revenues. But that does not mean that
the city should not know what its expenses are likely to be, and
at least be able to plan for meeting them.
There is no cost-effective method for measuring the total fiscal impact of land development. Many of the costs, and even some of the revenues, are fugitive; the increased accuracy is offset by the cost of achieving it. Other costs and revenues are difficult to assign, particularly the secondary impacts of a project. How do you assign the increased sales following an economic development project: How much shall be assigned directly to the project, how much to spillover benefits coming from the project to other businesses, and how much to other forces such as inflation, national economic trends and shifts, and pre-existing local trends? It might be possible, given enough time and money, to gather enough data to feed a complicated enough model to provide a fairly close measure of the fiscal impacts of a project, but it would still require built-in assumptions and some estimation. In any event, the model would be too expensive to run for most projects, and would not be able to produce results that were timely enough for informing development decisions. Most practitioners have opted instead for a simplified model which returns a reasonably close estimate in a fairly short time.