In Featured, Research Article

New developments or annexations of land to existing municipal boundaries can offer considerable advantages to a public agency. This can include examples such as:

  • New residential developments will yield increased housing supply
  • Commercial and industrial projects will yield business opportunity and jobs
  • Retail and tourist-oriented projects will yield an increase in visitor spending

The notion of additional tax revenues such as property, sales, and hotel occupancy taxes to support already strapped operational budgets seems, on the surface, like a persuasive factor for the approval of a proposed project. Yet, before “green lighting” any such project, a public agency should also examine the other side of the coin and consider the fiscal impacts to the services that will be provided. Prior to approving a development or annexation proposal, a public agency should make an informed decision by taking into account the collective contributions and demands that any proposed project will place upon the general operating fund.

One tool to assist in the decision-making process is the Fiscal Impact Analysis (FIA). An FIA is used to identify whether or not the proposed project will generate sufficient revenue to pay the fair share of the added fiscal burdens placed upon the general fund as a result of development. The FIA identifies the anticipated positive or negative fiscal impacts placed upon the public agency. If there is an overall negative fiscal impact to the general fund, the public agency can consider several revenue-generating options to mitigate those negative fiscal impacts.

One possibility for a public agency to consider is the establishment of a Special Financing District (SFD). A popular choice is the use of a Community Facilities District, or CFD. Through the levy and collection of a special parcel tax, a CFD provides a sustained revenue source to offset negative fiscal impacts. The special tax revenue generated from the CFD can be used to fund authorized public services that include, but are not limited to, police, fire, library, recreational, and the maintenance of parks, roads and open space. It should be noted that if the CFD is approved via a landowner special tax election, and not a registered voter election, the CFD special tax revenue can only fund the increase in demand for pre-existing services, so long as the CFD special tax revenue is not available for general government purposes. Specific details related to the establishment of a CFD, including the allocation of CFD special tax revenue to mitigate operational budget shortfalls, can be obtained through a qualified Special Tax Consultant such as NBS.

Development or annexation of land will yield increased revenues, but there are often added costs to consider. Prior to recommending or making any final decisions, be sure to incorporate the findings from an FIA in your overall decision making process, as the decisions made now will impact the general fund for years to come.

For more information, please contact: Stephanie Parson, Associate Director at sparson@nbsgov.com.

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