Fiscal impact analysis is a technique used to assess the financial feasibility of future growth, including residential and non-residential development for a jurisdiction. The use of fiscal impact analysis by communities across the country has so far been confined to analyzing the impacts of a particular development resulting from future growth. Using fiscal impact analysis to assess the financial feasibility of a comprehensive plan has been a relatively recent movement. Nevertheless, this approach is increasingly being used by planners to judicially select the type and intensity of growth, based on the capacity of a jurisdiction to absorb that growth.

Over the past 50 years, different techniques to understand the relationship between municipal spending and the ability of a municipality to raise funds through taxes, impact fees or grants from state and federal government. Two important works epitomized this emphasis of financial consideration in the local planning process.  One is the “Fiscal Impacts of Land Development: A Critique of Methods and Reviews of Issues” by Thomas Mueller (1976), and other is the “Fiscal Impact Handbook” by Robert Burchell and David Listokin (1978). These works were published when presumably, urban America was moving towards suburbia and planners were wrangling with the idea of providing services and the cost of doing so.

Since then, many communities in America have used different approaches to analyze the fiscal impacts of new growth and existing deficiencies to make informed choices on the pattern and density of development. The state of Florida passed legislation requiring all local bodies to introduce a fiscal impact component in order to assess the financial feasibility of their comprehensive plans. There are numerous other examples of such initiatives where communities have tried to utilize fiscal and economic approaches into comprehensive planning.

A. Approaches for Fiscal Impact Analysis

Fiscal impact approaches can be divided into two groups. The first set of approaches is based on average cost while the second set consists of marginal cost approaches. Average cost approaches rely on the average cost of providing infrastructure per unit and multiplying it with the total number of new units in development, assuming a linear relationship for assessing the cost of services. Marginal cost approaches account for excess or deficiency of an existing infrastructure service by analyzing the supply and demand patterns. Over the long-term, both average cost and marginal cost approaches provide similar results. However, in some instances, the marginal cost approaches could underestimate or exceed the projections from average cost approaches. This is largely dependent on the characteristics of the area. For example, in an area where the services are underutilized the marginal cost would be low whereas if capital investment would be required for creating new infrastructures facilities, marginal cost would be high.

There are six methods of fiscal impact analysis outlined in the “Fiscal Impact Handbook” that can be used to estimate the cost and revenues associated with development (Burchell 1978). These are per capita multiplier, case study, service standard, comparable city, proportional valuation, and employment anticipation. The method chosen is largely a result of the characteristics of a jurisdiction and the question being asked about the nature of fiscal impact.

Three of these approaches– per capita multiplier, service standard and proportional valuation- are average cost techniques, whereas case study, comparable city and employment anticipation are marginal cost techniques. Out of these, proportional valuation and employment anticipation are used for nonresidential uses. The remaining four can be used for residential uses. Case study approach can be used for both residential and nonresidential developments.

i. Per Capita Multiplier is the most commonly used and most flexible of all the approaches. This method utilizes average costs per person in a jurisdiction along with the average school costs per pupil. Demographic multipliers for household size and average number of pupil per household are used to calculate the total residents and pupils for a new development. Multiplying the average costs per person to the total residents and per pupil school cost to the total number of pupils provides the estimated public expenditure. Per capita multiplier assumes that the cost of providing services for future development will not be significantly different from today. This technique has a number of advantages over the other methods mentioned above: it is relatively inexpensive, utilizes general expenditure and revenue categories, and is less resource demanding.

ii. Case Study Method is the second most commonly used approach for both residential and nonresidential land uses. This method uses future projections of service costs by interviewing the heads of the municipal departments and the administrators of School Board. Case study method assumes that the most accurate estimates of future costs can be derived based on the knowledge of the officials and current local conditions. This method is more costly than the other methods but provides more accurate estimates.

iii. Service Standard Method uses data from the U.S. Census of Governments to get average per 1000 people. The fiscal estimates are then derived using future population, manpower requirements, local salaries, statutory obligations and expenses per employee. This approach requires suitable assumptions for the service standards based on the population of the jurisdiction.

iv. Comparable City Method hasn’t been used as frequently as the other methods and relies on selecting a municipality similar in size to the municipality of the study with respect to the population and growth rate. This method is suitable for projecting the long-term fiscal impacts that a large scale development would have on the population of a city. The basic assumption of this method is that cities of similar size and growth rate tend to have a similar pattern of municipal costs and revenues.

v. Proportional Valuation Method hasn’t been used as frequently as the other methods and relies on selecting a municipality similar in size to the municipality of the study with respect to the population and growth rate. This method is suitable for projecting the long-term fiscal impacts that a large scale development would have on the population of a city. The basic assumption of this method is that cities of similar size and growth rate tend to have a similar pattern of municipal costs and revenues.

vi. Employment Anticipation Method hasn’t been used as frequently as the other methods and relies on selecting a municipality similar in size to the municipality of the study with respect to the population and growth rate. This method is suitable for projecting the long-term fiscal impacts that a large scale development would have on the population of a city. The basic assumption of this method is that cities of similar size and growth rate tend to have a similar pattern of municipal costs and revenues.