Presented By: L. Carson Bise II, AICP Christopher Cullinan The Cost of Growth: It’s Not Just the...

Presented By:

L. Carson Bise II, AICPChristopher Cullinan

The Cost of Growth: It’s Not Just the Capital Costs

2006 ACMA Summer Conference

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

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

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”

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

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

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

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

Fiscal Impact Analysis

Growth Scenarios Cost of Land Use

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

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

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

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

General Perceptions

Residential development doesn’t pay for itself

Nonresidential development is a cash cow

Influencing Factors

Revenue structure– Sources– Distribution formulas

Levels of service Infrastructure lifecycle

– Existing capacities

Characteristics of new development– Demographic– Socioeconomic

Case Examples

Gross Receipts Tax

General Fund Net Revenues - Per 1,000 Square FeetCity of Scottsdale

$887

$2,083

$75 $14

($100)

$400

$900

$1,400

$1,900

$2,400

Resort Retail Office Industrial

Case Examples

Income Tax by Place of Employment

Annual Net Fiscal Results - Per 1,000 Square FeetCity of Dublin Prototype Analysis

($772)

$2,621

$1,412

($1,000)

($500)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Retail Office Industrial

Case Examples

Housing Characteristics

Net Fiscal Results-Residential PrototypesSarasota County Economic and Fiscal Impact Analysis

(Per Unit)

$1,494

$274$483

($1,030)

($5)

$230 $178

($177) ($279) ($255)

($1,208)($1,929)

$1,724

($2,106)

$229

($2,500)

($2,000)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

$2,000

Bel-Air Estates Greenfield Summerwood Summit HeronApts.

Lazy River MHP

General Fund School District Total

Case Example

Overlap of governmental entities

Annual Net Impact-Residential Land UsesHempstead, New York

$275$407

$164

($1,768)

($187) ($82)

($2,000)

($1,500)

($1,000)

($500)

$0

$500

$1,000

SFDU Condo. Apt.

Village School District

Case Example

Multiple Entities/Housing CharacteristicsNet Fiscal Results-Residential Prototypes

Sarasota County Economic and Fiscal Impact Analysis(Per Unit)

$1,494

$274$483

($1,030)

($5)

$230 $178

($177) ($279) ($255)

($1,208)($1,929)

$1,724

($2,106)

$229

($2,500)

($2,000)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

$2,000

Bel-Air Estates Greenfield Summerwood Summit HeronApts.

Lazy River MHP

General Fund School District Total

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

Anchorage, AK (continued)

Municipalitywide Annual Net ResultsScenario Comparisons

Municipality of Anchorage Fiscal Analysis

($30,000)

($25,000)

($20,000)

($15,000)

($10,000)

($5,000)

$0

$5,000

$10,000

(X 1

,000

)

Trends Neighborhoods Urban Transition Slow Growth Preferred

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

Hillsborough County, FL - Case Example

Is comprehensive plan financially feasibleAnnual Net Fiscal Impacts (x$1,000)

Current Growth Trend Scenario, 2003 to 2025Hillsborough County Fiscal Impact Analysis

($160,000)

($140,000)

($120,000)

($100,000)

($80,000)

($60,000)

($40,000)

($20,000)

$02003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Hillsborough County School Board Combined

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

Arizona Case Studies

City of Maricopa, Arizona


Incorporated in 2003. Approximately 20 miles south of Phoenix. Agricultural community rapidly transitioning to

a full-service, suburban community.


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


Development fees 2005 Parks & Recreation, Library, General

Government, Police, Transportation Plan-based approach with a higher level-of-

service for Library, General Government, Police


Single Family (per unit)

Public General

Library Safety Government TOTALCurrent LOS $161 $45 $98 $304Higher LOS $436 $140 $674 $1,250

NET DIFFERENCE $274 $95 $576 $946


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.


Maricopa, AZ Projected Development Impact Fee Revenues Next Six Years

Compared to Funds Needed to Raise Existing LOS Deficit

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Library Public Safety General Gov't

$1,0

00's

Development Fee Revenues Existing LOS Deficit

Public General

Library Safety Government TOTAL

Development Fee Revenues (6 years) $19,857 $8,896 $36,369 $65,122

Existing LOS Deficit $1,038 $591 $2,574 $4,204

Figures are expressed in millions of dollars.


City dedicated construction sales tax to fund LOS deficiency for existing development.

$1 construction sales tax = $15 development fee revenue

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


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).


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.


Annual Net ResultsScenario Comparisons: Normal Nonresidential Growth

Town of Queen Creek

($30,000)

($25,000)

($20,000)

($15,000)

($10,000)

($5,000)

$0

$5,000

$10,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Su

rplu

s/D

efi

cit

(x$1,0

00)

1. Accelerated Growth: Normal Nonresidential Growth

2. Current Growth: Normal Nonresidential Growth

3. Slower Growth: Normal Nonresidential Growth


Annual Net ResultsScenario Comparisons: Slowed Nonresidential Growth

Town of Queen Creek

($30,000)

($25,000)

($20,000)

($15,000)

($10,000)

($5,000)

$0

$5,000

$10,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Su

rplu

s/D

efi

cit

(x

$1

,00

0)

1a. Accelerated Growth: Slowed Nonresidential Growth

2a. Current Growth: Slowed Nonresidential Growth

3a. Slower Growth: Slowed Nonresidential Growth


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.


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.


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)

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

Options

Revenue enhancement and/or diversificationInfrastructure Financing Funding Criteria

Revenue Potential

Technical Ease

Proportionate to Demand

Public Acceptance

Bonds positive negative negative negative

Special Districts negative negative positive positive

Developer Exactions negative neutral negative positive

Impact Fees positive negative positive positive

Excise Taxes positive neutral positive positive

Property Tax positive positive negative positive

Sales Tax positive positive negative negative

Transfer Tax positive positive negative neutral

User Charges positive positive negative negative

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

Presented By: L. Carson Bise II, AICP Christopher Cullinan The Cost of Growth: It’s Not Just the...

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