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Fiscal Impact Analysis Frequently Asked Questions

The Treasure Valley has experienced considerable growth over the last several decades and more is anticipated. Growth brings about potential revenues in property taxes and development fees, but obligates public agencies to provide infrastructure and services. COMPASS has developed a fiscal impact tool (FIT) to estimate expected revenues and costs to local governments as a result of new development to assist decision-makers in managing growth. The tool does not set policy, nor does it make decisions. Instead, it is one tool, among many, to help decision-makers manage growth and its impacts.

Frequently Asked Questions

What is fiscal impact analysis?
Fiscal impact analysis is the estimation of the net financial impact of a particular project, land use plan, fiscal policy, or demographic change on a jurisdiction’s budget. For example, when a new residential development is being considered for approval by a local government, a fiscal impact analysis would identify potential revenues and costs associated with the proposal to help determine how it would impact the community’s budget.

Fiscal impact analysis is often confused with economic impact analysis. While economic impact analysis estimates the number of different impacts to the greater economy, which generally includes an area broader than the community in question, a fiscal impact analysis estimates only the direct impacts to public agencies’ operating and capital expenditures.

What is the purpose of calculating fiscal impact? Why should it be used?
The purpose of conducting fiscal impact analyses is to help the public, stakeholders, and decision-makers better manage growth. COMPASS can use the FIT to evaluate specific development proposals, local and regional land use plans, and alternative scenarios for the future, to provide information to help decision-makers understand the fiscal impacts.

How is the FIT used and how does it feed into decision-making?
The tool has a variety of uses. One common use of the FIT is to consider how a development proposal, or a group of developments, would impact local government budgets. Another use is to examine “what-if” scenarios, such as “What if home values increase significantly?” The FIT can be used to measure the impact of a change such as this on a community’s ability to provide services or maintain tax levels.

It is important to keep in mind that while the financial impact of growth is critical to a community’s quality of life, it is only one piece of the puzzle and should be considered in tandem with other community goals.

What is the difference between “average cost” and “marginal cost” methods of conducting fiscal impact analysis? What is used in the FIT?
The average cost approach applies a flat rate cost per demand unit that is determined by comparing current overall costs to the number of people needing that product or service. The marginal cost approach looks at the variability of providing services based on the existing infrastructure or services and the need for new services and capital. The marginal cost approach results in a more detailed analysis of which costs are impacted by growth and available capacity at the operational and geographic level.

For example, a new residential development adds school children to the local school. An average cost approach would determine how much, on average, each student costs the school district and applies that flat rate based on the number of new students generated. The marginal cost approach would identify specific administration and instruction costs, and also look at whether there are enough available seats to accommodate the new students or if a new school building would be necessary (capital).

Two similar development proposals, even a short distance apart, may have very different service costs based on the service district/provider, existing infrastructure and services, and capital improvement plans. Marginal cost analysis is more sophisticated and provides time-sensitivity to the fiscal impact of proposals. Almost all services in the COMPASS FIT are based on marginal cost analysis.

A marginal cost approach is also accomplished in the FIT by including highly detailed land use types. There are up to unique 12 housing types with several value thresholds for each community. This level of detail captures more precisely the demand on services and infrastructure compared to using simple averages.

What types of services are considered in the FIT?
The COMPASS FIT includes almost all public operations, including transportation, parks and recreation, emergency services (i.e., fire, police, and emergency management), schools (K-12), and general government in the Treasure Valley. Overall, the budgets and services of 28 jurisdictions are calculated in the FIT.

Why aren’t public utilities, such as sewer and water, considered in the fiscal impact analysis? Utilities were excluded from the FIT because in the Treasure Valley they operate under enterprise funds, making them operate more like a business than a general government operation. The rates and fees for utilities are calculated at levels that offset all the operating and capital costs, as opposed to being funded out an agency’s general budget. Although these rates and fees impact residents, the new demand on utility facilities does not impact the general services of the jurisdictions included in the FIT.

What factors would change the results of the fiscal impact analysis?
The COMPASS FIT was developed based on a review of local government budgets, capital improvement plans, existing and future services, and a variety of demographic factors for each land use prototype. If any of these factors change, it will alter the FIT results. COMPASS updates the FIT frequently to reflect current budgets, demographic changes, and new infrastructure and services to keep the FIT up-to-date and accurate.

What is the break-even analysis and how should it be considered in fiscal impact analysis?
Break-even analysis indicates the year at which a public agency’s revenues would exceed the expenditures for a new proposal or scenario. This is important as there are many competing needs, and while many programs provide benefits, a community cannot typically be “in the red” for very long and still run a balanced budget.

What are the limitations of fiscal impact analyses?
While fiscal impact analysis is a critical tool, it only looks at local public-sector finances. It does not consider other potential benefits or drawbacks of a proposal or scenario. For example, a subsidized housing project may result in a negative fiscal impact; however, the societal benefits of providing affordable housing may outweigh the fiscal results.

Who benefits from fiscal impact analyses?
Fiscal impact analyses can evaluate different scenarios and proposals to inform property owners, developers, neighbors, elected officials, and the community at large of the financial implications of various choices. This tool is meant to elevate the level of discussion and provide realistic figures to help collectively solve complex issues for today and for future generations.