1. Presented By: L. Carson Bise II, AICP Paul S. Tischler
Dealing with the Cost of Growth: From Soup to Nuts ICMA Conference
Presented By: L. Carson Bise II, AICP Paul S. Tischler

2. Overview of Presentation
Overview of cost of growth vs. fiscal impact analysis
L. Carson Bise II, AICP
Queen Creek/Maricopa, AZ case studies
Paul S. Tischler
Raising revenue without raising taxes

3. Cost of Growth Studies Landmark study
Real Estate Research Corporation’s The Cost of Sprawl
Estimated public and private costs for a variety of residential and nonresidential land uses/hypothetical 10,000 unit communities
Much of the cost of growth focus has been on capital costs
Frequently upfront revenue is not enough to cover infrastructure costs
Increased awareness since 1960’s and 1970’s

4. What We’ve Learned
Most studies indicate lower public infrastructure costs for higher density development
RERC study showed infrastructure costs for higher density was 53% of the lower density alternative
Streets and utility costs were 120% greater with “sprawl”

5. What We’ve Learned (continued)
The capital cost per dwelling unit varies by:
Density
Type of dwelling unit
Population characteristics
Proximity to service areas
Utility capacity utilization

6. Flaws Focus on infrastructure costs
Community specific studies usually only reflect the current growth trend
Capital costs are typically only 15-25% of a jurisdiction’s total budget

7. Fiscal Impact Analysis
Cash flow to the public sector
Are the revenues generated by new growth enough to cover the resulting service and facility demands?
Reflects operating expenses and capital costs (debt service and pay-go)
All revenues
Revenue minus expenditures = net surplus/deficit

8. Economic Impact Analysis
Reflects overall economy of the community
Residential
Primary factors are the construction phase and consumer spending
Nonresidential
Primary factors are job creation and real disposable income

9. Fiscal Impact vs. Revenue Forecasting
Municipal budgeting is primarily “revenue driven”
Revenue forecast is used to establish spending target
Fiscal impact analysis is not revenue constrained
Forecast expenses needed to maintain current LOS

10. Fiscal Impact Analysis
Growth Scenarios
City/countywide
Area plans
Annexation
Cost of Land Use

11. Observations
Most local governments do not know the true cost of development decisions
Most local governments do not know if the current land use plan is fiscally sustainable
Fiscal analysis is rarely required
Lack of formal standards
Considerable variation in methodologies employed

12. Observations (continued)
Overlap of governmental entities
Regional issues
Cumulative impacts in changing communities
Project-level analyses are typically reviewed in a vacuum
Costs can change over time
Does not address infrastructure replacement
Seldom reflect geographic differences

13. Methodologies Case study-marginal approach
Reflects fiscal reality
Dependent on local levels of service
Available capacity triggers the staging of facilities
Versus the average cost approach
Focuses on per capita/employee
Doesn’t consider available capacities
Masks timing
Uses average (current) costs
Budget in equilibrium

14. Which Methodology is Best?
Case study-marginal approach
City/Countywide analysis
Area/corridor plans
Planned unit developments
Average cost
Small/medium scale developments
Cost of land use studies

15. General Perceptions Residential development doesn’t pay for itself
Nonresidential development is a cash cow

16. Influencing Factors Revenue structure Levels of service
Sources
Distribution formulas
Levels of service
Infrastructure lifecycle
Existing capacities
Characteristics of new development
Demographic
Socioeconomic

17. Case Examples
Gross Receipts Tax

18. Case Examples
Income Tax by Place of Employment

19. Case Examples
Housing Characteristics

20. Case Example
Overlap of governmental entities

21. Case Example
Multiple Entities/Housing Characteristics

22. Evaluating Land Use Policy - Case Example
Anchorage, Alaska Comprehensive Plan
Five land use scenarios evaluated
Trends
Neighborhoods
Urban Transition
Slow Growth/Satellite Communities
Preferred
Each scenario was evaluated Ctiywide, as well as for six discreet subareas, or fiscal analysis zones

23. Anchorage, AK (continued)
There is not a dramatic difference between the various scenarios
four of the five scenarios assume essentially the same overall population/housing increases and four assume the same overall employment increase;
Differences result from the allocation among the various FAZs and the variations in specific types of housing units and jobs;
Many of the road improvements necessary to implement the scenarios are funded through State and Federal dollars.

24. Anchorage, AK (continued)
Revenue structure problem
City benefits from encouraging increased densities in the Northwest FAZ
Existing Fire Station/School capacity
Southeast FAZ is the least desirable for new residential development
Existing schools are overcapacity

25. Hillsborough County, FL - Case Example
Is comprehensive plan financially feasible

26. Conclusions Cost of development analysis should:
Address the complete fiscal picture
All costs and revenues
Look far into the future to account for infrastructure replacement
Calculate costs using a marginal cost approach
Will capture geographic differences and existing infrastructure capacity

27. Case Studies

28. City of Maricopa, Arizona

29. City of Maricopa, Arizona
Incorporated in 2003
Approximately 20 miles south of Phoenix
Agricultural community rapidly transitioning to a full-service, suburban community

30. City of Maricopa, Arizona
Planning considerations:
2004 Population: 5,000
2010 Population: 92,000
Averaging 600 single family permits/month
Financial considerations:
Primary revenue sources: local sales tax, licenses and permits (no City property tax)
Low levels of service for operations and capital, high expectations

31. City of Maricopa, Arizona
Development fees 2005
Parks & Recreation, Library, General Government, Police, Transportation
Plan-based approach with a higher level-of-service for Library, General Government, Police

32. City of Maricopa, Arizona

33. City of Maricopa, Arizona
Development fee must be assessed in a non-discriminatory manner
Cannot charge new growth for a higher LOS than is currently being provided unless there is a funding plan to raise the LOS for existing development

34. City of Maricopa, Arizona

35. City of Maricopa, Arizona
City dedicated construction sales tax to fund LOS deficiency for existing development
$1 construction sales tax = $15 development fee revenue

36. Town of Queen Creek, Arizona

37. Town of Queen Creek, Arizona
Planning Considerations:
1990 Population: 2,667
2000 Population: 4,316
Current Population: 18,500
2010 Population: 34,667
Financial Considerations:
Has been creating new departments, hiring staff
Currently in the midst of building several, first-ever municipal facilities (Town Hall, Parks, Library)
Local sales tax is primary General Fund revenue source

38. Town of Queen Creek, Arizona
Development fees since 1997
Added new development fee categories as Town has increased LOS, developed master plans
2002 fee update triggered questions about operating impacts and whether Town could afford to staff and maintain new capital facilities
Fiscal impact analysis of growth scenarios (net operating and capital impacts)

39. Town of Queen Creek, Arizona
6 Development Scenarios
Residential
Scenario 1. Accelerated Growth: Average annual growth of 1500 housing units
Scenario 2. Current Growth: Average annual growth of 1000 housing units
Scenario 3. Slower Growth: Average annual growth of 750 housing units
Nonresidential
Normal growth of nonresidential development to reflect the Town of Queen Creek’s desired increase in jobs-to-population ratio from .37 to approximately .5 (identified as a goal in the Town’s General Plan) over time; and
Slowed growth of nonresidential development maintaining a .37 jobs-to-population ratio

40. Town of Queen Creek, Arizona

41. Town of Queen Creek, Arizona

42. Town of Queen Creek, Arizona
Major Findings
The faster the growth, the deeper the deficits
Deficits are brought about by the construction and purchase of land for capital facilities such as the library, park and recreation facilities, and the police facility to serve new growth
Cash financing of capital facilities
As more capital facilities come online, operating expenditures start to increase without a corresponding increase in operating revenues

43. Town of Queen Creek, Arizona
Major Findings (cont)
Less nonresidential development detracts from the bottom line, since sales tax revenue is the major revenue sources for the Town
The majority of operating revenues are generated from sales taxes from retail and construction. However, the construction sales tax is a one-time revenue source
The amount of commercial development—even assuming the faster nonresidential growth—is insufficient to cover the shortfalls brought about by the overall growth in the Town for all growth scenarios over the long term

44. Town of Queen Creek, Arizona
Actions taken by the Town as a result
Hired financial consultant to monitor long-term fiscal health of Town (both operating and capital)
Developed comprehensive debt financing plan (built up fund balances, now include financing costs in development fee calculations)
Update development fees on an annual basis
Have adopted a dedicated sales tax for transportation projects
Focus on quality retail development for sales tax generation
Focus on operating costs of services and capital facilities and alternatives for financing and delivery of services (Fire Services)

45. Key Ideas Integration of planning and finance
The quality and specificity of the financial data and projections are only as good as the planning data and projections (Comprehensive Plans, Impact Fees, CIP)
Need to consider fiscal impacts of both operating and capital
Consideration of current levels-of-service versus higher levels-of-service
Know and evaluate options

46. Options Cost reduction
Modify levels-of-service (both current and planned)
Delay or reduce construction of capital facilities
Spread out costs of capital facilities (debt financing, lease-purchase)
Integration of planning and finance policies and procedures
Incorporate fiscal impact analysis in planning efforts
Set financial targets for permits and fees (% of costs covered, annual review)
Update impact fees every __ years
Use of one-time revenues versus on-going revenues

47. Raising Revenue Without Raising Taxes

48. Funding the Gap Impact fees Stormwater & transportation utilities
Wheel tax
Special authorities/taxing districts
Excise/development taxes
Jurisdictional revenue sharing
Interim service fees

49. Evaluation Matrix

50. Impact Fees New development’s pro rata share of infrastructure costs
At last count 27 states have enabling legislation
Not a revenue raising mechanism
A way to provide growth-related infrastructure
Fee payers must receive a benefit
Timing of improvement
Geographic service areas
Accounting and expenditure controls

51. Impact Fees (continued)
New and innovative approaches
Progressive residential fee schedules
Impact fees that increase with distance from urban areas
Link fees to plans and a funding strategy for infrastructure
City/County cooperation to implement fees

52. Innovative Examples (continued)
Missoula, MT
Progressive housing multipliers
Housing affordability is a big issue in Missoula and progressive household size multipliers were used address this issue. Provide a brief description of the American Housing Survey data by floor area and the calibration of the data to 2000 census data for both the City of Missoula and unincorporated Missoula County.

53. Innovative Examples (continued)
Greeley, CO
Tiered road fee based on VMT
As density and mix of development decreases VMT increases
Fees should vary by Traffic Analysis Zone (TAZ) based on Vehicle Miles of Travel
Geographic service areas determined by $/trip

54. Innovative Examples (continued)
Average Vehicle Miles Traveled

55. Innovative Examples (continued)
Collection and Expenditure Zones

56. Special Assessment District
Separate unit of government
Residents of the district pay through property taxes, user fees
Used for transportation, parks, open space, sewer/water
Used for both operating and capital needs
Typically applied in urban/suburban areas
Usually covers a defined period of time
Can create reluctance for communitywide tax increases

57. Metro Districts/Community Facility District
Variation of special assessment district
Beware of CFD’s allowing too much infrastructure cost pass throughs

58. Real Estate Transfer Tax
Tax on the sale/transfer of property
Typically dedicated to capital projects
Being used in Washington, North Carolina, Florida, Maryland and Hilton Head, SC
Will “excite” realtors

59. Business Improvement Districts
Similar to a special assessment district in structure
Organization of property owners who tax themselves for neighborhood improvements
Approximately 2,000+ districts nationwide
Lend private sector creativity towards the solution for public problems
Used for operating and capital needs

60. Tax Increment Financing
Helps target new revenue to specific geographies
Curtails General Fund revenue
Can help make development project feasible
Catalyst for redevelopment
Can help stop stagnation/disinvestment

61. Other Financing Mechanisms
Stormwater & transportation utilities
Greeley, CO – stormwater fee of $45 per single family unit annually
Ashland, OR – transportation utility charges $39 per month on utility bill
Special authorities/taxing districts
Over 1/3 of Florida counties use MSTUs
Community Development Districts
Community Facilities Districts

62. Other Financing Mechanisms
Congestion pricing
Certificates of participation (COPS)
Sales tax surcharges
Property tax surcharges
Developer exactions
Homeowner association funding

63. Other Financing Mechanisms
Wheel tax
Lincoln, NE - $39 annual fee for transportation projects
Excise/development taxes
Boulder, CO – transportation and housing excise taxes
Jurisdictional revenue sharing
Westminster/Thornton, CO – sharing of sales tax