Assessing the Fiscal Impact of Local Development: A Survey

            By Anthony J. Filipovitch, Minnesota State University, Mankato

            ICSC Research Quarterly, 2004, 11(4), 27-34 (with slight modifications)

The development of land imposes costs on a city. A 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 that 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 such as 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 that 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 are timely enough for informing development decisions. Most practitioners have opted instead for a simplified model that returns a reasonably close estimate in a fairly short time.

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 that affect the jurisdiction in which the development occurs. (In other words, a city does not consider costs and revenues to the county, school district, region, or state). 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, and 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 estimates of the future costs and revenues of similar activities.


This discussion is based on a family of fiscal impact models developed by Robert Burchell and David Listokin (1978 and 1985). 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 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 while the per capita approach provides a single estimate of increased costs, the service standard 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 that 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 that 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, Proportional Valuation, which arrives at similar results based on the property value of the commercial or industrial development rather than the employment levels.

There is one more method, Case Study, which is the most accurate of the six.  It is the approach of choice when the new development is unique or sufficiently different in 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 to 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 the 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.

Common Terminology

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, however, a few terms with specific or technical meanings:

  • 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 three marginal cost models discussed in this article, for example, use different approaches.

Average cost techniques are most appropriate for analyzing small projects for jurisdictions that 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 usually measured by the assessed property value of the city. It is needed to determine the revenue that 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 budgets from state and federal "transfer payments," or grants. Revenue is also commonly derived from various fees and licenses.

Much of the data for a fiscal impact assessment will come from the local government itself and from the project developer. In addition to these two major sources of information, Burchell and Listokin (1978 and 1985) have developed tables of regional multipliers for local government services for the various methods, based on information from the Census of Governments. These tables represent considerable effort by the authors, and are a great convenience for the analyst. However, they do have their drawbacks. The information is dated (although they have revised the Fiscal Impact Handbook, even those tables are based on data that are now old and may not adequately reflect the shift in service demands created since the Reagan Administration). It is also (of necessity) grouped into crude categories by region and (especially for cities with populations over 100,000) by size. If you will be calculating fiscal impacts for a single jurisdiction, or a group of similar jurisdictions, it is probably advisable to recalculate those portions of the tables to represent current local circumstances.  In addition to the Census of Governments, supplemental information may also be obtained from the Municipal Yearbook series published annually by the International City/County Management Association.

Illustrations:  Comparable Cities Method and Fiscal Impact Tool

There is not adequate space here to describe all of the models in detail; but it is useful to examine two commonly used tools: Burchell and Listokin’s Comparable Cities Method and the Federal Reserve Board’s Fiscal Impact Tool.

Comparable Cities:  The comparable cities method illustrates the basic principles.   It is a marginal cost method, which is used for larger projects and for commercial/industrial projects, and it examines the relationships in greater detail than, say, the employment anticipation method.  In its basic structure, it describes the project, the current cost structure for providing services and the current rates at which revenue is generated; and it calculates the multipliers which will be used to project future costs.  An Excel spreadsheet, based on Burchell and Listokin’s 1978 model, is available at

Project Description:  The comparable cities model uses a two-step procedure to estimate the impact of a development.  "Current size of the city" and “current % population change” place the locality in the context of other similar places.  The impact of a new project in a small town can be expected to be different from a similar project in a large city; the impact in a growing city will be different from the impact in a city that is declining in size. "Project size" captures the relative magnitude of the project.  It is the ratio of the population increase from the project to the current population size. A worksheet array is displayed in Figure 1[*].  From these data, one can calculate the projected city size (current size plus the projected size of the new development) and the projected annual rate of change (the ratio of projected to current size, divided by the number of years over which the increase will occur). Notice that this model assumes that all future growth will be channeled through the project; in other words, all other future growth is ignored. This simplifying assumption is necessary for calculating the impact of the project on the city's budget. It also guarantees that the model will not give an accurate estimate of the future budget of the city, but only of the increment in the budget which will be needed to service the project.


Figure 1
                         PROJECT DESCRIPTION

   1       ......    ......    ......   ......      xxxxx    xxxxx
   2       ......    ......    xxxxx    xxxxx       xxxxx    xxxxx
   3       ......    ......    xxxxx    xxxxx       xxxxx    xxxxx

Current Costs estimate the operating costs and the share of the capital costs from the major functions of government.  While state-mandated charts of accounts differ in the details, common categories for cities include general government (administration), public safety, public works, health and welfare, and recreation.  These categories can be further subdivided (General Government can be divided into Finance and Control; Public Safety into Police and Fire; Public Works into Highways, Sewers, Sanitation, and Water; Recreation into Parks and Libraries); However, it creates a significant increase in the need for data and, in some cases, can result in too few cases to make a stable comparison.  Other categories are also possible — counties and school districts will use different categories, for example.  Comparison data for similar cities can be obtained from the Census of Governments; because of the data demands for obtaining the multipliers, costs are commonly calculated only for the major categories (although, if the data are available, there would be no reason not to pursue a more detailed analysis). A worksheet array is displayed as Figure 2.

Figure 2

                       CURRENT COSTS
                             OPERATING CAPITAL
          FUNCTION           COST      COST
      GENERAL GOVERNMENT     ......    ...... 
           PUBLIC SAFETY     ......    ......
            PUBLIC WORKS     ......    ......
        HEALTH & WELFARE     ......    ......
              RECREATION     ......    ......

Revenue Projection estimates the funds coming to the local jurisdiction from the new development (Figure 3). Generally, this is generated through an “average cost” method — total revenue for the previous year is divided by the number of units (households or persons) in the city.  However, if the development project has special characteristics that will affect its revenue-generating properties, one may substitute whatever is judged to be an appropriate unit cost.  Revenues are divided between own-source funds and transfer funds.  Own-source funds come from taxes and fees; transfer funds come from the state (highway aid is common; many states also set aside funds for cities based on population category) and federal governments (from revenue-sharing formulas and from categorical grants-in-aid).  This model does not consider any indirect revenue impacts due to secondary growth generated by service to the new project. 

Figure 3
                     UNIT   REVENUE   
1. REAL PROPERTY     ......  xxxxx    
2. PERSONAL PROPERTY ......  xxxxx    
3. FRANCHISE         ......  xxxxx    
4. OTHER             ......  xxxxx    
SUBTOTAL                     xxxxx    
1. INTEREST          ......  xxxxx    
2. PERMITS           ......  xxxxx    
3. FINES             ......  xxxxx   
4. SPECIAL SERVICS   ......  xxxxx    
5. GARBAGE           ......  xxxxx    
6. SEWER             ......  xxxxx    
7. WATER             ......  xxxxx    
8. OTHER             ......  xxxxx    
SUBTOTAL                     xxxxx    
1. URBAN AID         ......  xxxxx    
2. ROAD AID          ......  xxxxx    
SUBTOTAL                     xxxxx    
1. REVENUE SHARE     ......  xxxxx       
2. OTHER             ......  xxxxx    
SUBTOTAL                     xxxxx    
TOTAL REVENUES               xxxxx   
Projected Annual Costs:  At the heart of the comparable cities model is the calculation of the multipliers for future costs.  It is based on an empirical estimation of the average operating and capital costs per unit in the city, using data from the US Census of Governments.  The data indicate a relationship between city size and average costs, although the relationship is different for different functions and for different regions of the country, and is not even necessarily linear (generally, average costs decline with size but some costs like fire protection and recreation increase).  Two sets of multipliers are calculated.  The current multiplier uses the current growth rate (percent population change) of the city to determine the appropriate operating and capital costs that would be anticipated without the development.  The future multiplier repeats the process using the projected growth rate and the projected city size to determine the appropriate rates. The model then calculates the annual operating and capital costs due to the project in a three-step process: 
  1. Future per capita costs: The marginal change in future costs is determined by the ratio of future to current multipliers. This ratio, multiplied by current per capita costs, provides the future per capita costs:
    • Future per capita Costs = (Future Multiplier/Current Multiplier) X (Current Costs/Current Population)
  2. Future total costs: The total future cost for services (holding all other growth constant) is the future per capita cost multiplied by the future population:
    • Future Total Costs = (Future per capita Costs) X (Projected City Size)
  3. Net annual cost: The net annual cost due to the project is the difference between current costs and future total costs:
    • Net Annual Costs = (Future Total Costs) – (Current Total Costs)

The results of the calculations are presented in a Projected Annual Costs worksheet (Figure 4).


Figure 4

                     ANNUAL     ANNUAL  
                     OPERATING CAPITAL 
FUNCTION             COSTS      COSTS
GENERAL GOVERNMENT   xxxxx      xxxxx  
PUBLIC SAFETY        xxxxx      xxxxx  
PUBLIC WORKS         xxxxx      xxxxx  
HEALTH & WELFARE     xxxxx      xxxxx  
RECREATION           xxxxx      xxxxx  
TOTAL                xxxxx      xxxxx  

Finally, we arrive at the object of the whole process - the Table of Impacts (Figure 5).  This displays the costs, the revenues it will generate, and (the bottom line) the net impact.   One can also calculate the estimated number of future employees, the annual operating and capital costs associated with those new employees, and the total increase in annual costs attributable to the project. This allows the city to predict where the new demands will hit hardest, and to prepare to meet them.

Figure 5
                 NUMBER  TOTAL  TOTAL   NET 
        1         xxxxx  xxxxx   xxxxx  xxxxx
        2         xxxxx  xxxxx   xxxxx  xxxxx
        3         xxxxx  xxxxx   xxxxx  xxxxx
        4         xxxxx  xxxxx   xxxxx  xxxxx



Fiscal Impact Tool (FIT):  The Federal Reserve Fiscal Impact Tool is similar to the Comparable Cities model, but it is focused more on helping local economic developers assess the local tax impacts of economic development projects. It is much more detailed in its analysis of the potential revenues generated, but it does not consider the costs associated with those revenues.  A (free) copy of this workbook is available from the Federal Reserve Board at


In addition to performing an automated tax revenue assessment, FIT can be used for many data purposes. It contains information on all counties and independent cities in the Upper Midwest as well as all incorporated places in the region it covers. Historical city and county population estimates and county per capita income and labor force figures are provided.  Also included is information for cities and counties from the 1997 Census of Retail Trade on the number of retail establishments, total retail sales, retail sales per capita and per dollar of income.


FIT includes a number of parameters (“rules of thumb”) that, while provided by the model, can be changed by the user.  Annual sales for manufacturing, for example, are estimated at five times the cost of production (the sum of payroll and purchases); for services they are estimated at twice the cost of production.  Similarly, purchases subject to sales tax are estimated at one percent for manufacturing and ten percent for services.


FIT consists of six worksheets.  Two are used for the basic analysis:

  • The user enters pertinent information in the Data Entry and Cost Module worksheets.
  • The tool's revenue-related results are presented in the Output worksheet.

The other four worksheets may be of interest for more advanced analysis:

  • The Cost Module worksheet produces a cost-benefit analysis, based on anticipated revenue and the costs of one-time capital outlays and of ongoing new annual expenses based on education, public safety, and utilities.
  • The County Data worksheet provides four pages of tables and charts related to the geographic area being evaluated. 
  • The Summary worksheet contains a list of contents and represents all of the table and text summaries generated by FIT in a form that is readable by the user; the tables in this sheet are also formatted for easier cutting and pasting.
  • The Retail Sales & Pop(ulation) worksheet primarily contains population and retail sales data for cities.  While these data are used in the analysis, the user makes no direct use of this worksheet.


In addition, there are two Word Documents, a Users Guide  and Instructions for saving FIT scenarios in Excel.  It is highly recommended that the user refer to the Users Guide.  Besides giving an overview of FIT and many step-by-step instructions, it discusses all data entry and default assumptions used in the tool.  The Guide also contains hyperlinks to make it easier to assemble some of the data.


Short descriptions and associated spreadsheet templates for the Service Standards method and the Employment Anticipation method are also available.


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. But 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 will be 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 we 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 usually 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. Certainly, the effects on other jurisdictions that share the revenue base (and incur expenses) will be of some interest. Again, these impacts are not easily measured.  The FIT model makes an attempt at measuring the indirect impacts, but in the process collapses all economic activity into manufacturing and service and uses broad parameters to estimate those impacts.  It also attempts to capture the impacts on all units of government, but does so by simplifying the cost categories it can examine.

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 that should be addressed when evaluating a proposal for the development of land.


Bise, L. Carson, II.   2010.  Fiscal Impact Analysis:  Methodologies for Planners (PAS Report 561).  Chicago:  APA Press.

Burchell, R.W. and D. Listokin.  1978.  The Fiscal Impact Handbook: Estimating Local Costs and Revenues of Land Development. New Brunswick, N.J.: Rutgers Center for Urban Policy Research.

Burchell, R.W. and D. Listokin.  1985.  The New Practitioner's Guide to Fiscal Impact Analysis. New Brunswick, N.J.: Rutgers Center for Urban Policy Research.

Christensen, K.  1976.  Social Impacts of Land Development. Washington, D.C.: The Urban Institute.

Edwards, M.M. & Huddleston, J.R.  2010.  Prospects and Perils of Fiscal Impact Analysis,” Journal of the American Planning Association, 76(1), 25-41.

International City/County Management Association. 2003.  The Municipal Yearbook, 2003. Washington, D.C.: ICMA.

Muller, T. 1976.  Economic Impacts of Land Development. Washington, D.C.: The Urban Institute.

U.S. Bureau of Census. 2002 Census of Governments.  Available online at









© 1996 A.J.Filipovitch
Revised 11 March 2005





[*] The convention in these figures is that “….” represents user-supplied information and “xxxx” represents data calculated by the worksheet.