Fiscal Impact Analysis-a Measurement Tool for Success
Candace Evart, President, MBA
Eugenia Larmore, Senior Analyst, MBA, CMA, AVA

Due to the high, up-front investment associated with a real estate project, Developers have a substantial economic incentive to see their plans approved by local jurisdictions. One way to increase a developer’s chance of approval is through a Fiscal Impact Analysis.

This informational, quantitative tool measures the financial impact of the development or land use change on local governments’ finances. Elected governmental officials want to know the fiscal or financial impact of developments that come before them not only to fulfill their due diligence requirements but to provide answers to questions dealing with taxes and public services that are of concern to their constituents.

Residents living in the area of the proposed development are concerned that the development will stretch law enforcement services and that the funds required to provide additional police officers won’t be available. They are concerned that their water rates will increase to pay for the additional hook-ups in the development. Overall, they are concerned that they will end up paying a higher price, whether in taxes or lower service levels, to subsidize the new development.

An FIA answers all these concerns and questions through a three-part process.

Estimate the additional revenue that a local government will receive from the development.

Estimate the costs of public services required for the residents and employees of the development.

Compare estimated revenues to estimated costs to determine if a revenue surplus or deficit exists.

Revenue deficits can be mitigated by some creative thinking. By having the FIA as a guide, the developer can pinpoint those areas of need and can offer to the governing board solutions to mitigate or eliminate deficits. In addition, using the FIA as a guide, the developer is then able to work with the local entity to negotiate on terms preferable to both parties. For example, land can be donated for schools or parks, reducing or eliminating the jurisdictions’ spending for land.

A fire truck or other heavy equipment can be donated.

A Development Agreement with the jurisdiction can be drafted that allows the developer to front the costs of infrastructure or operations to be repaid in later years when the tax revenues start flowing.

It is often said that a fiscal impact analysis, like many other projections, is more of an art than a science. It is so. A fiscal impact analysis will not estimate the exact impact of a development. However, if done properly, it will provide a government entity with a clear picture of whether a particular project will generate a revenue surplus or a deficit. When used in conjunction with analyses for economic impacts, traffic impacts, and environmental impacts, a fiscal impact analysis is an invaluable tool for developers and governments alike.

As Published in the Nevada Business Journal, March 2008.