Fiscal Impact Assessment: Definitions
Fiscal impact assessment is, in many ways, an accounting tool.
But since the comparison is primarily internal (change between
two times) and there is little reason to assure comparability
across jurisdictions, the definitions of the various terms are
not as rigorously defined as they are in accounting. There
are a few terms with specific or technical meaning, and
their definitions follow:
- Fiscal Impact: Fiscal impacts are the direct, current,
and public costs and revenues accruing to a local jurisdiction
as a result of the development of land. A fiscal impact assessment
is the net (positive or negative) of the costs incurred and the
revenues received by the local jurisdiction.
- Average Cost/Marginal Cost: These are two different
approaches to allocating the cost of delivering services.
In an average cost approach, the total cost (capital or
operating) of providing a service is divided by the total number
of employees. It is assumed that the addition of one unit
of service (i.e., one employee) will impose the average cost
of an employee.
Average Cost = Total Cost / Number of Employees
The marginal cost approach takes into account the possibility
of under-or over-utilization of current resources, and calculates
the cost of each additional unit of service based on the
additional (rather than average) costs imposed. There is no
single way to calculate marginal cost; the two models which
use it in this chapter use two different approaches.
Average cost techniques are most appropriate for analyzing
small projects for jurisdictions which have neither a great
surplus nor a severe shortage of available capacity. If
the project is large (in which case it will create a shortage
just by its size), or if the local jurisdiction has been experiencing
strong growth (thus already putting pressure on its service
capacity) or strong decline (in which case there might be considerable
unused capacity), marginal cost techniques are more appropriate.
- Capacity: The carrying capacity for service delivery
is never directly defined. It is, instead, a shadow-term,
defined by the experience of other cities of comparable
size and comparable growth rates. It is assumed that as
cities of comparable size grow, they experience comparable
stresses on their carrying capacity; as they decline, they
experience comparable excess capacity.
- Real Value: Real value is the assessed property value
of the city. It is needed to determine the revenue which
will be generated by a project.
- Operating Costs: Operating costs are the expenses
incurred for salaries, supplies, and maintenance used to provide
- Capital Costs: Capital costs are long-term debts
incurred to provide physical improvements (buildings, water
and sewer lines, some vehicles and equipment) which are necessary
to provide local services.
- Revenues: A major source of revenue for local jurisdictions
is the tax on real property and other taxes. Local governments
also receive a substantial part of their budget from state
and federal "transfer payments," or grants. Revenue
is also commonly derived from various fees and licenses.
Since there are three distinct models in this chapter,
the mathematical basis of each will be discussed, when appropriate,
in the discussion of the calculation process for each.
© 1996 A.J.Filipovitch
Revised 15 November 96