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Fiscal Impact Analysis: How Today's Decisions Affect
<br />Tomorrow's Budget
<br />Carson Bise, AICP, is president of TischlerBise, Inc., a Bethesda, Maryland, consulting firm specializing in fiscal
<br />impact analysis, impact fees, and revenue strategies. He has conducted fiscal evaluations in twenty-four states,
<br />ranging from evaluations of multiple land -use scenarios, specific development projects, annexations, urban
<br />service provision, tax -increment financing, and concurrency and adequate public facilities monitoring. He has
<br />also completed more than 125 impact fee studies for parks and recreation, open space, police, fire, schools, water;
<br />sewer, roads, and general government facilities. Mr. Bise has an MBA and is a member of the American Institute of
<br />Certified Planners.
<br />This report is intended to help local officials under-
<br />stand what a fiscal impact analysis is, how the process
<br />can benefit them, what steps they should take to con-
<br />duct fiscal impact evaluations, and how they can inte-
<br />grate fiscal impact evaluations with revenue strategies.
<br />Defining Fiscal Impact Analysis
<br />A fiscal impact analysis projects the net cash flow
<br />to the public sector (the local government and, in
<br />many cases, the school district) resulting from new
<br />development —residential, commercial, industrial, or
<br />other. It is important to distinguish a fiscal impact
<br />analysis from an economic impact analysis. A fiscal
<br />impact analysis projects the cash flow to the public
<br />sector, but an economic impact analysis projects the
<br />cash to the private sector as measured in income,
<br />jobs, output, and indirect impacts. A fiscal impact
<br />analysis is similar to the cash flow analysis a devel-
<br />oper conducts in order to project costs and revenues
<br />likely to result from a proposed development for
<br />two to ten years in the future. Just as a household
<br />benefits by forecasting its long-term cash flow needs
<br />(incorporating anticipated expenses for higher educa-
<br />tion and other large -cost items) and setting money
<br />aside to pay for future outlays, local governments are
<br />better prepared to manage during changing financial
<br />circumstances if they anticipate and plan for future
<br />costs and revenues.
<br />Fiscal analysis enables local governments to esti-
<br />mate the difference between the costs of providing
<br />services for new development and the taxes, user
<br />fees, and other revenues that will be collected as a
<br />result of new development. Fiscal impact analysis
<br />can be used to evaluate the fiscal effect of an indi-
<br />vidual project (such as a request for rezoning), of
<br />a change in land -use policies (such as increasing
<br />allowable densities for development), or of a pro-
<br />posed annexation.
<br />It is important to keep in mind that the fiscal
<br />impact of development policies, programs, and activi-
<br />ties is only one of the issues that local government
<br />officials should consider when evaluating policy or
<br />program changes relating to land use and develop-
<br />ment. Local government should not use the results of
<br />a fiscal impact analysis to practice "fiscal zoning," the
<br />practice of excluding or denying development proposals
<br />that are a financial drain or are less beneficial fiscally
<br />than other alternatives. While a fiscal impact analysis
<br />is an important consideration in planning decisions,
<br />it is only one of several issues to be considered, since
<br />the project may advance a community's goals related
<br />to affordable housing, economic diversity, and quality
<br />of life. Moreover, localities have a responsibility to con-
<br />sider other impacts as well. Court cases have suggested
<br />that, in addition to fiscal impacts, local governments
<br />need to evaluate environmental impacts, regional needs
<br />for housing and employment, and other concerns. Nev-
<br />ertheless, fiscal impact data can be used as part of a
<br />larger cost -benefit analysis to craft a land -use plan that
<br />incorporates the appropriate mix of land uses neces-
<br />sary to achieve fiscal sustainability or, at a minimum,
<br />fiscal neutrality.
<br />Numerous factors influence the fiscal results for
<br />different land uses. These factors include but are not
<br />limited to the local revenue structure, local levels of
<br />service, capacity of existing infrastructure, and the
<br />demographic and market characteristics of new growth.
<br />Local Revenue Structure
<br />The key determinant in the calculation of the net fis-
<br />cal results generated by new development is the local
<br />revenue structure. Every community relies on at least
<br />one predominant revenue source, and some communi-
<br />ties rely on several. Common revenue sources include
<br />property tax, local sales tax, and local income tax.
<br />An important component of the revenue struc-
<br />ture is the formulas that are used for the distribution
<br />and collection of various taxes. With the exception
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