City Council Agenda and Packet 2024 05 14 - SP

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Fiscal Impact Analysis: How Today's Decisions Affect Tomorrow's Budget 9 costs for purchasing parkland and equipment, mak- ing necessary improvements to facilities, and meeting annual operating expenses. Some communities may want levels of service that are nearly impossible to achieve because they are not able to raise enough revenues to provide them. Other communities may be experiencing pressure for higher levels of service from newer residents who have relo- cated from larger communities. Another interesting phenomenon is pressure on city or town levels of service from what are sometimes called "shadow citi- zens." Shadow citizens are those located in the unin- corporated county, on the fringes of a city or town, who think of the municipality as their primary ser- vice provider. In other words, they use the municipal parks, community center, and recreation programs, but they pay no direct taxes to fund these services. A fiscal impact analysis can provide useful background information for addressing all of the above situations. Fiscal impact analysis also can help determine realistic assessments to be made against new develop- ment. New development cannot be charged for facili- ties that will provide a higher level of service than already exists in a community. Furthermore, user fees and other development impact fees collected from new development cannot be used to upgrade facilities for existing development. Quantifying existing levels of service and the costs of different service levels can help all parties understand the fiscal consequences of changing the level of service. Methodologies There are two basic approaches to fiscal evaluations: using average costs and using marginal costs.' Aver- age -cost approaches are simpler and more popular: costs and revenues are calculated on the basis of the average cost per unit of service multiplied by the demand for that unit. Average -cost approaches assume a linear relationship and do not consider excess or deficient capacity of facilities or services over time. A per capita relationship is an example of an average -cost approach. Marginal -cost approaches describe the unique characteristics of a jurisdiction's capital facilities. Over the long term, average- and marginal -cost techniques will produce similar results, but the real value of fis- cal analysis is in the two- to ten-year time period. Marginal -cost analysis is most useful in this time frame. Because average -cost techniques are generally simpler to use, some local governments may prefer them for relatively small development projects with modest impacts or a long time frame. Local govern- ments may also find it worthwhile to use more than one analysis approach and compare the assumptions and results as part of the decision -making process. In communities where facilities in specific geo- graphic areas already are insufficient, the average -cost approach will underestimate costs, and the marginal - cost approach will more accurately project the short- to mid-term costs of infrastructure that will be required to accommodate the new development. The average -cost approach would divide the expenditure for school ser- vices, for example, by the number of students in order to arrive at a figure of, say, $2,135 per student. This cost would occur regardless of any spatial distribution of new homes and resulting schoolchildren. The marginal -cost approach, in contrast, would reflect the current enrollment versus the capacity in each school. If new residential growth were to occur in areas where elementary schools have excess capac- ity, the only real cost increase would be for operating costs. If new residential development were to locate in an area with no elementary school capacity, costs would be incurred for additional school capacity as well as the associated operating expenses. Average -Cost Techniques Three of the five commonly used fiscal impact analy- sis techniques are average -cost approaches. Per capita multiplier The most popular average -cost technique is the per capita multiplier. This is obtained by taking the budget for a particular service, such as parks, and dividing by the current population in order to estimate the service cost per person. Under the per capita approach it is assumed that each service level will remain as existing and that each additional resident will generate the same level of costs to the jurisdiction as each existing resident currently gener- ates. For example, if a parks department budget were $450,000 and the population of the town were 45,000, the average cost would be $10 per capita. This figure would then be used to estimate additional costs result- ing from new development. The per capita approach is easy to use but has the disadvantage of being less accurate than some other approaches if local officials want to look beyond the broad level of overall costs and expenditures. Service standard A second average -cost approach is the service standard method. This approach estimates the future costs of development according to the average staffing and capital facility service levels for municipali- ties of similar size and geographic location as reported in data collected by the U.S. census of governments. This methodology assumes that service levels for both person- nel and capital facilities are, to a large extent, a function of a jurisdiction's total population; therefore, communi- ties of a similar size will have similar service levels (especially within a geographic region). Using the ser- vice standard approach, the local government estimates increased police personnel costs by taking the service 16