FISCAL IMPACT ANALYSIS

1. FISCAL IMPACT ANALYSIS

2. TOPICS • What is a FIA • FIA methodologies • FIA Shortcomings • Rethinking FIA • FIA and economic development policy

3. WHAT IS A FIA • A tool to determine whether or not a given decision on urban development is fiscally sound (i.e. Costs=Revenue) • A tool to evaluate the efficiency of different urban models (sprawl vs. compactness) • A tool to guide public decision regarding the advantages or disadvantages of pursuing a specific decision (e.g. to subsidize a specific development such as sport arena) • A tool to evaluate the fiscal impacts of a given industry coming to or leaving the town

4. FIA METHODOLOGIES AVERAGE COST APPROACH • Per capita multiplier:(Assumes that the best estimate of future costs is current per capita cost multiply by the future population increment) • Service Standard:(Estimates future costs increases based on average per capita costs for comparably cities) • Proportional valuation:(It is an average cost approach applied to non-residential development)

5. FIA METHODOLOGIES MARGINAL COST APPROACH • Comparable city method:(Uses a cross-sectional sample of average expenditures of cities in varying size and from there infers the marginal costs of development) • Employment anticipation method:(It uses multivariate regression analysis to predict the change in municipal expenditures attributable to variation in commercial and industrial employment) • Case study method:(It uses qualitative methods-interview- to gather information)

6. Cost function of public services Cost function of public services $ $ TC MC MC Q (pop) Q (pop)

7. AVERAGE VS. MARGINAL

8. AVERAGE COST FUNCTION

9. SOME IMPLICATIONS • Average costs would be fine as long as there is some excess capacity of public service • Marginal costs approach become important in fast growing cities under pressure to accommodate additional growth which requires expansion of public services

10. FIA SHORTCOMINGS (G. Bunnell) • It takes into account only direct costs and revenues but does not take into account the spillover effects (costs and benefits) of development • Costs are often over emphasize than benefits because they are easy to calculate • Some expenditures consider as costs such as education bring benefits but they are solely considered as costs • We may come to perhaps wrong conclusions such as that communities are better off not growing taking into account that the costs of any development (commercial or residential) are more than what it generates in revenue.

11. FIA SHORTCOMINGS (G. Bunnell) • Evidence suggests that impact fees have not produced more compact cities or smarter growth patterns of urban development • Impact fees have fostered the “secession of the successful” and overlook social issues that are important to society regardless of fiscal effects (affordable housing, good education, etc.) • FIA should be used only to educate and generate debate regarding public policy instead of being the ends of public policy

12. RETHINKG FISCAL IMPACTS • FOCUS SHOULD BE PLACED ON OUTCOMES INSTEAD OF INPUTS (Heikkila) • Planners should focus more directly in the relationship inputs and outputs which is also called the production function • An example of production function could be represented by the combination of trucks (capital) and employees (labor) needed to collect all the garbage in a neighborhood or city. s = f(x,n) s= level of service X= inputs N=neighborhood attributes

13. Source: Heikkila, 1996

14. FIA IN PRACTICE Source: http://www.littletonma.org/MasterPlan/Chap10

15. Source: http://www.littletonma.org/MasterPlan/Chap10

16. Source: http://www.littletonma.org/MasterPlan/Chap10