1. Presented By: L. Carson Bise II, AICP Christopher Cullinan The Cost of Growth: It’s Not Just the Capital Costs 2006 ACMA Summer Conference

2. Overview of Presentation Overview of cost of growth vs. fiscal impact analysis – L. Carson Bise II, AICP Queen Creek/Maricopa, AZ case studies – Christopher V. Cullinan

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 Analysis Growth Scenarios Cost of Land Use

10. 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

11. 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

12. Methodologies Case study-marginal approach – Reflects fiscal reality – Dependent on local levels of service – Available capacity determines the staging of facilities Versus the average cost approach – Focuses on per capita/employee – Doesn’t consider available capacities – Masks timing

13. 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

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

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

16. Case Examples Gross Receipts Tax

17. Case Examples Income Tax by Place of Employment

18. Case Examples Housing Characteristics

19. Case Example Overlap of governmental entities

20. Case Example Multiple Entities/Housing Characteristics

21. 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

22. Anchorage, AK (continued)

23. 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

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

25. 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

26. Arizona Case Studies

27. City of Maricopa, Arizona

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

29. 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

30. 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

31. City of Maricopa, Arizona

32. 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.

33. City of Maricopa, Arizona

34. City dedicated construction sales tax to fund LOS deficiency for existing development. $1 construction sales tax = $15 development fee revenue

35. Town of Queen Creek, Arizona

36. 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

37. 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).

38. 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.

39. Town of Queen Creek, Arizona

41. 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.

42. 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.

43. 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)

44. 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

45. Options Revenue enhancement and/or diversification

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