Fiscal Impact Analysis: Does Method Matter?

By Edwards, Mary | Journal of the Community Development Society, January 2001 | Go to article overview

Fiscal Impact Analysis: Does Method Matter?


Edwards, Mary, Journal of the Community Development Society


ABSTRACT

Fiscal impact analysis, which is intended to estimate the impact of a development or land use change on the costs and revenues of governmental units serving the development, is used in a variety of planning contexts. The technique is commonly utilized by community practitioners to project the fiscal consequences of alternative development proposals, boundary changes, and annexations. Furthermore, it is often used as an advocacy tool to preserve farmland or to promote growth management. There are a number of standard approaches to conducting a fiscal impact analysis. Each approach is based on different assumptions, and each differs essentially in the manner in which population change or land area change is translated into local costs and revenues. Does the approach used matter to the final outcome of the analysis? This is an important question from a community perspective, as it is often the bottom line or the net fiscal impact that allows proponents and opponents of development to argue their cases. This study applies three standard fiscal impact approaches to the same development situation and finds that method does matter and offers suggestions on how to approach fiscal impact analysis in light of this finding.

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INTRODUCTION

Fiscal impact analyses are used in a variety of planning contexts and are commonly used by communities to project the fiscal consequences of alternative development proposals, boundary changes, and annexations, and as one dimension of environmental impact statements. Furthermore, they are often used as advocacy tools to preserve farmland or to promote growth management. The technique, which is intended to estimate the impact of a development or land use change on the costs and revenues of governmental units serving the development, is an important tool as it allows for a realistic examination of the viability of a development, assists in evaluating alternative development proposals on a fiscal basis, and assists communities in evaluating more general plans or growth management strategies.

Concern with the financial implications of development has intensified over the past few decades, as state and federal aid to local governments has lessened, and local governments are required to incur many of the capital improvement costs of development themselves. As anti-sprawl coalitions become increasingly vocal, the public has become more skeptical of new development and is less likely to readily accept the notion that development is fiscally beneficial to a community. Such a claim must be backed by some reliable estimates of the impact of the development. Many organizations have encouraged analysis of fiscal impacts. The Minnesota Extension Service developed a step-by-step workbook for small communities to assist in an examination of the fiscal impacts of residential development (Minnesota Extension Service, 1996). The Community Policy Analysis Network (CPAN), a network of over 50 researchers, educators, community developers, and policy analysts located nationwide, has developed a series of computer-based labor market and fiscal models to assist communities in estimating development impacts and examining development alternatives. Nationally, the Smart Growth Network, a coalition of private sector, public sector, and non-governmental partner organizations concerned with the implications of growth, strongly encourages communities to examine not only the fiscal impacts of development, but also the social, economic, and environmental consequences of development (International City/County Management Association, 1998).

RESEARCH APPROACH

There are a number of standard approaches to conducting a fiscal impact analysis. Each approach is based on different assumptions, and each differs essentially in the manner in which population change or land area change is translated into local costs and revenues. In The New Practitioner's Guide to Fiscal Impact Analysis, Burchell, Listokin and Dolphin (1985) present six standard approaches to fiscal impact analysis. …

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