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 local services.
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.

FISCAL

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