Fiscal Impact Assessment

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.

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1996 A.J.Filipovitch
Revised 11 March 2005