Capital Improvements Element

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The Cost of Growth Its Not Just the Capital
Costs 2006 ACMA Summer Conference
Presented ByL. Carson Bise II,
AICPChristopher Cullinan
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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

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Cost of Growth Studies

• Landmark study
• Real Estate Research Corporations 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 1960s and 1970s

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What Weve 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

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What Weve Learned (continued)

• The capital cost per dwelling unit varies by
• Density
• Type of dwelling unit
• Population characteristics
• Proximity to service areas
• Utility capacity utilization

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Flaws

• Focus on infrastructure costs
• Community specific studies usually only reflect
  the current growth trend
• Capital costs are typically only 15-25 of a
  jurisdictions total budget

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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

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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

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Fiscal Impact Analysis

• Growth Scenarios
• Cost of Land Use

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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

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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

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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
• Doesnt consider available capacities
• Masks timing

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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

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General Perceptions

• Residential development doesnt pay for itself
• Nonresidential development is a cash cow

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Influencing Factors

• Revenue structure
• Sources
• Distribution formulas
• Levels of service
• Infrastructure lifecycle
• Existing capacities
• Characteristics of new development
• Demographic
• Socioeconomic

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Case Examples

• Gross Receipts Tax

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Case Examples

• Income Tax by Place of Employment

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Case Examples

• Housing Characteristics

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Case Example

• Overlap of governmental entities

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Case Example

• Multiple Entities/Housing Characteristics

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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

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Anchorage, AK (continued)
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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

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Hillsborough County, FL - Case Example

• Is comprehensive plan financially feasible

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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

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Arizona Case Studies
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City of Maricopa, Arizona
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City of Maricopa, Arizona

• Incorporated in 2003.
• Approximately 20 miles south of Phoenix.
• Agricultural community rapidly transitioning to a
  full-service, suburban community.

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City of Maricopa, Arizona

• 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

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City of Maricopa, Arizona

• Development fees 2005
• Parks Recreation, Library, General Government,
  Police, Transportation
• Plan-based approach with a higher
  level-of-service for Library, General Government,
  Police

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City of Maricopa, Arizona
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City of Maricopa, Arizona

• 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.

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City of Maricopa, Arizona
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City of Maricopa, Arizona

• City dedicated construction sales tax to fund LOS
  deficiency for existing development.
• 1 construction sales tax 15 development fee
  revenue

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Town of Queen Creek, Arizona
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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

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Town of Queen Creek, Arizona

• 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).

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Town of Queen Creek, Arizona

• 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 Creeks desired
  increase in jobs-to-population ratio from .37 to
  approximately .5 (identified as a goal in the
  Towns General Plan) over time and
• Slowed growth of nonresidential development
  maintaining a .37 jobs-to-population ratio.

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Town of Queen Creek, Arizona
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Town of Queen Creek, Arizona
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Town of Queen Creek, Arizona

• 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.

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Town of Queen Creek, Arizona

• 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 developmenteven
  assuming the faster nonresidential growthis
  insufficient to cover the shortfalls brought
  about by the overall growth in the Town for all
  growth scenarios over the long term.

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Town of Queen Creek, Arizona

• 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)

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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

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Options

• Revenue enhancement and/or diversification

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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