City Council Agenda and Packet 2024 05 14 - SP

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Fiscal Impact Analysis: How Today's Decisions Affect Tomorrow's Budget 7 Applications for Fiscal Impact Analysis Fiscal impact analysis is helpful in short- and long-range land -use policy planning and finance planning. Its appli- cations for decision making are discussed below. Planning Issues The six applications below indicate how fiscal analysis can be an effective policy tool for long-range planning. Land -use policies Should a jurisdiction encourage higher -density land use or allow an overlay district in a certain area? Are fiscal benefits associated with development that incorporates "new urbanist" prin- ciples? Do a jurisdiction's current land -use policies make sense? If costs as well as other factors are to be considered, a fiscal impact evaluation will help in the decision -making process. Land -use requirements and regulations, including zoning, can be viewed from many different perspectives. Fiscal impact analyses help local officials translate land -use changes into ser- vice costs, revenues, and net cash flow to the public sector. They can explain how the delivery or cost of services and facilities will be affected by new develop- ment: Will new roads be needed? New parks? Demographic -economic changes Many elected and appointed local government officials can tell interested parties how they think their community will look in ten or twenty years in terms of population, housing, and employment. But very few can say what the fis- cal impact will be: whether service levels will remain the same or deteriorate under pressure from a growing population. What happens if the current residential base ages in place versus if residents move elsewhere and contribute to continued housing turnover? Either scenario has implications for a community in terms of the number of schoolchildren as well as the age demographics, which can affect the demands on social services and recreation services and facilities. Similarly, understanding the alternative development scenarios helps local officials explain the financial pros and cons for the community of maintaining or changing the demographic and economic status quo. Rezonings Fiscal analysis can be helpful in local government -developer negotiations. Some rezonings require expansion of public infrastructure to support more intensive development, causing high costs for the local government early on. If a well -designed and supportable fiscal analysis indicates local government investment will be required, the local government is in a strong position to negotiate with the applicant to help pay for those front-end infrastructure costs. Annexation Many communities perceive annexations as cash cows because they focus on the additional rev- enues that will accrue as a result of annexation and do not consider the costs. Fiscal impact analysis can ascer- tain the costs of improving the services and facilities in the area proposed for annexation in order to make them comparable with the annexing jurisdiction's existing level of service. For example, local streets originally con- structed to a rural standard may need upgrading to meet a city's standards. The analysis can calculate whether an annual fiscal surplus or deficit will result from the proposed annexation during each year of the forecast period. The analysis can be expanded to look beyond the issues associated with bringing the existing level of service in annexed areas up to community standards; it can also look at the fiscal impact of anticipated develop- ment in the annexed area as part of the process of evalu- ating land -use policies. Factors that influence the fiscal sustainability of annexations are numerous and include the development potential on vacant land, the timing or staging of development potential, assessed value of the existing development base, local and state revenue struc- tures, local levels of service, and the remaining capacity of existing capital facilities. Infrastructure planning A good fiscal analysis fore- casts infrastructure needs to meet anticipated changes in a community. Any change in land use, population, or employment will have an impact on a number of capital -intensive services, including streets and utili- ties. The fiscal impact process requires that local officials specify the types of infrastructure provided by the community (for example, local roads) and the level of service to be provided (for example, provision of sidewalks and street lighting on all local roads). The analysis will indicate how much new infrastruc- ture will be required to serve an anticipated level of new development. Costs can then be projected for land, equipment, improvements, and operating expenses for maintaining the new infrastructure. It is important to consider whether existing infra- structure seems to have unused capacity in order to determine whether it should be considered as part of the analysis. If there is significant unused capacity, it will be available to serve new development, thus reducing the need for new infrastructure. On the revenue side, the analysis will take into consideration special revenues from user fees or other sources such as impact fees, improvements to be made by the developer, and general fund revenues to be allo- cated to infrastructure development, as appropriate. A similar type of analysis is done for utilities because land - use changes can result in changes in the demand for water and sewer service, which may in turn affect the costs and revenues of various distribution and treatment approaches. Changes in water and sewer service have an effect on one-time revenue sources such as connect or hookup charges as well as on operating revenues. Leveraging public dollars Fiscal evaluations can help local officials who are considering how to promote 14