Fiscal Impact Assessment: Interpretation

Fiscal Impact assessment is a powerful and useful tool. It provides a rational, quantified way to talk about the effect of a development on a locality. It does, however, have its drawbacks.

Fiscal impact assessment assumes that costs are divisible. It allows costs that are less than a whole unit of service. In many cases, this is a reasonable assumption: part-time employees may be hired, supplies may be ordered in lesser amounts. In other cases, the assumption can be misleading. Frequently one cannot buy half of a garbage truck or fire truck (sometimes one can--maybe through a cost-sharing arrangement with a neighboring locality). Certainly it is not possible to lay half a sewer pipe; a full-capacity pipe will be installed and the excess cost carried by current users until usage comes up to capacity. Even operating costs are sometimes not divisible: a part-time police officer or firefighter may not be an option, or may cost more, on a percentage basis, than a full-time employee.

Fiscal impact assessment is also based on the assumption that past trends are the best predictor of future behavior. While true (after all, on what other basis shall be predict?), it can be a dangerous assumption. Systems tend to stay in equilibrium, but if a change is great enough or if its timing is right, it can throw the system out of equilibrium and the new state of affairs will be qualitatively different from what preceded it. It is not always possible to predict such an event, but it is wise to always be aware of the possibility.

Fiscal impact assessment also only measures the direct impacts of a project on one jurisdiction. Depending on the environment, the indirect effects can be as important as the direct ones, and certainly the effects on other jurisdictions which share the revenue base (and incur expenses) will be of some interest. Again, these impacts are not easily measured and there probably is not a practical, cost-effective alternative. But it is wise to be aware of the potential ramifications.

Finally, fiscal impact assessment measures only the fiscal impacts. It ignores the social and even the economic (as opposed to fiscal) impacts of a project. It is no criticism of a tool to say that it fails to do something it was never designed to do in the first place. But a carpenter who treats everything like a nail simply because s/he happens to have a hammer is certainly open to criticism.

In other words, these techniques of fiscal impact assessment perform their function fairly easily and fairly economically. But the direct fiscal impact of a project on a single local jurisdiction does not exhaust the policy questions which should be addressed when evaluating a proposal for the development of land.


© 1996 A.J.Filipovitch
Revised 15 November 96