Fiscal Impact Assessment: Description

In its simplest form, fiscal impact assessment is an estimation of the difference between the public costs and the public revenues generated by a development project. Usually, the model attempts to estimate only direct, current, and public costs and revenues, and only those costs and revenues which affect the jurisdiction in which the development occurs. In this form, fiscal impact assessment is similar to any cost-revenue analysis. It is not the same as cost-benefit analysis, since it does not consider indirect and intangible costs, does not consider externalities (costs imposed on other parties), nor does it return a ratio of the costs to the benefits. The model further simplifies the assessment by assuming that current costs and revenues are the best estimate of the future costs and revenues of similar activities.

This chapter is based on a family of fiscal impact models developed by Robert Burchell and David Listokin (1978). They developed six models: Employment Anticipation, Service Standard, Comparable City, Proportional Valuation, Per Capita Multiplier, and Case Study. Several of them serve similar purposes, but differ in their data requirements. The three models in this chapter were selected for their flexibility and accessibility of necessary data.

The Service Standard Method estimates the impact of development through its effect on service levels (measured in terms of manpower and capital facilities). In other words, it assumes that every additional person requires some fractional increase in manpower and facilities for each of the city services. This approach is called "average costing," since it divides the total budget for providing a service equally among current employees (thus arriving at an "average cost per employee" for providing a service). The new demand for services is expressed in terms of the number of new employees, and the cost of services is determined by multiplying the demand by the average cost per employee. Since the method is based on population increase, it is primarily used for residential development projects. It is similar to the Per Capita Multiplier Model, but where the per capita approach provides a single estimate of increased costs, the service standards approach provides an estimate of costs for each service function.

The Comparable City Method is a "marginal cost" approach. Based on a city's projected size and growth rate, a comparison is made to comparable cities in the same region. The cost increments are calculated as a percentage increase (or decrease) over current costs, accounting for the possibility of under- or over-use of existing capacity; hence the term "marginal cost." This method is suitable for particularly large projects. Such projects break from the historical growth pattern, making past local experience inapplicable. The strategy here is to identify cities which are similar in size and growth to what the city is becoming, and to project local costs based on the comparable city's experiences.

The Employment Anticipation Method is a marginal cost approach for evaluating the impact of commercial and industrial development. Increased local costs are calculated on the basis of the increase in employees which the development will bring in. Like the comparable city method, employment anticipation uses multipliers derived from the experience of cities of comparable size with similar growth rates. There is another method, the proportional valuation method, which arrives at similar results based on the property value of the commercial or industrial development.

There is one more method, the Case Study Method, which is not modeled here. The case study approach is the most accurate of the six, and it is the approach of choice when the new development is unique or sufficiently different that comparisons with past trends or comparable cities would be misleading. It is also the most expensive. Burchell and Listokin estimate that the other five approaches require 30-40 hours of staff time to develop; the case study approach requires about 300 hours. In the case study method, the analyst interviews key officials to determine the excess or deficiency in operating and capital capacity for each department. A service-standard method is then used to estimate the change in the demand for services attributable to the new development. The key officials are again interviewed to determine how they will respond to the demand, and the cost of the response is then calculated.


© 1996 A.J.Filipovitch
Revised 15 November 96