Economics for the real world

Fiscal Impact Analysis

A Fiscal Impact Analysis (FIA) estimates the impact of a development, land use or policy change on the revenues and costs of the local government. The analysis answers the following questions:

  • Does the tax base associated with the specific action under consideration provide sufficient tax revenue to offset the cost of public services?
  • If so, how does the surplus (or deficit) change on an annual basis?

The analysis utilizes information about the development: size, type of development, land and building construction costs, number of employees, number of residents, etc. Using these characteristics, the analysis estimates revenues to be generated by the development, including property tax, sales tax, business license fees, lodging tax, and other sources. Costs associated with the development are also estimated and compared to the revenue to determine whether the development will result in a surplus or deficit to the local government. Costs include police, fire, roads, parks, and other applicable sources. Data utilized in these analyses is collected from interviews with local government representatives (Finance, Clerk, Police, Fire, etc.), entity budgets and audit reports, conversations with developers and EEC's understanding of and experience with local government finance.

A fiscal impact analysis may also include the feasibility and impacts of alternative financing solutions such as STAR (Sales Tax Anticipation Revenue) bonds, TIF (Tax Increments Financing) districts, SAD (Special Assessment Districts) as well as various other funding structures and public-private partnership options. These financing options may allow the local jurisdiction to provide incentives for public and/or private projects beneficial to the jurisdiction's constituents with limited impact on the jurisdiction's existing revenue flow. Projects utilizing these funding sources may have to meet various financial and economic impact criteria. Estimating the project's financial success and its impact on the local government and private sector also falls under the purview of the fiscal impact analysis.

Why an FIA

Local and state governments are charged with the responsibility of providing services to the residents and employees of their jurisdictions. Through their taxing authority, they receive revenue to pay for these services. At times, however, revenues may not be sufficient to maintain adequate or expected service levels. A Fiscal Impact Analysis presents the financial tool needed by local government decision-makers to evaluate revenues and costs associated with a specific development, prior to approval and construction, and before the actual impact occurs.

In addition, an FIA can be an important tool when comparing multiple projects proposed for the same area. The FIA can estimate revenues and costs associated with each project and allow the local government entity to choose the project that will be most financially beneficial to the entity.

Finally, an FIA is useful to estimate the impact of a policy change on the budget of a local entity. If an entity wants to raise its sales tax rate, an FIA can estimate additional sales tax revenue that will be generated for the entity. As an example of an FIA, EEC analyzed the impact of restricting housing growth within a county on the budget of that county. It is important for an entity to understand the full financial impact of any changes it may wish to implement.

Why EEC

EEC's expertise in public sector finance is founded on actual work experience in local governments complemented by years of consulting experience with states, cities, counties and special districts. We offer a wide range of financial services under the heading of Fiscal Impact Analysis, including long-range capital improvement plans, consolidation of governments or government functions, impacts of legislative changes and analyses that address maximization of revenues and minimization of costs. EEC has considerable experience in the field of alternative funding analyses, having worked on various STAR bond, TIF, SAD, and federal stimulus funded projects.