Counting the Costs and Benefits of Growth
Below you will find research conducted by Mr. Craig Evans, titled “Counting the Costs and Benefits of Growth: A Fiscal Impact Analysis of Growth in the City of Charlottesville and Albemarle County, Virginia“. You can read more here.
Counting the Costs and Benefits of Growth
Excerpts of Executive Summary Below
This study was undertaken to help citizens and policymakers answer an important question: can the encouragement of growth-even in a carefully targeted form-help local governments pay for essential public services, without also undermining the quality of life in Albemarle County and the City of Charlottesville?
It is widely assumed that communities have little choice in this matter, that they must expand their populations and their number of commercial enterprises in order to remain prosperous.
The study approaches this question by considering estimates of all readily measurable fiscal benefits and costs. It is designed to offer a detailed analysis of the fiscal costs and benefits connected to:
* Specific types of land use; and
* Commercial, residential, and population growth in the Albemarle County-Charlottesville City area.
The study focuses on the revenues that are determined and controlled by local government (including the state revenues that they determine or control) and the costs that are incurred by these local governments through the public services they provide. These revenues, excluding state and federal aid, are the revenue targets of proposals that encourage growth. For purposes of comparison, the study also contains a control analysis that includes revenues from all sources.
The study produced six significant findings:
1. Few land uses pay their way: they do not generate sufficient government revenues to pay for the public services they require. This is because new area residents require services that increase local government costs at a level greater than the additional local revenue they contribute. It also is because the deficits created by this growth cannot be offset by other more fiscally advantageous but far less predominant land uses.
2. Three types of land use appear to pay their way
a. Residential and commercial uses cannot be converted back into farmland. Little can be done, therefore, to expand agriculture’s revenues-over-costs advantage. To maintain its current benefits, this land use only can be most wisely targeted for preservation.
b. Even the most productive new industrial and commercial enterprises cannot recruit their workforces solely from within the unemployed and underemployed residents of Albemarle County or Charlottesville. This is because the most productive enterprises, which are the most likely to carry positive revenue-to-cost ratios, also tend to have the greatest technological complexity and skilled workforce requirements. Therefore, they must recruit a significant part of their workforce from outside of the region. This adds new residents and new per capita costs, which are great enough not only to wash out the favorable revenue/cost ratios associated with these enterprises, but also can increase the existing cost-to-revenue gap.
3. The cost-benefit ratios generated by this study do not include two prominent sources of cost,
a. Deferred infrastructure improvements and maintenance (which tend to be ignored until accumulating deficits produce obvious failures or crises); and
b. Environmental degradation (which, as previous studies by Advocates for a Sustainable Albemarle Population show, will not just increase but accelerate with additional population growth).
4. Attempts to offset the fiscal gaps caused by commercial and population growth by recruiting new residents of significant wealth and income, will not work. This study calculated the “break-even” price of a new home-the price at which a home will generate enough local revenue to offset the additional public service costs that will be incurred as a result of that new household. The break-even price of a home in Albemarle County is $668,761. This is the average price at which all future homes must be sold to avoid increasing current deficits.
The “compensating” price, on the other hand, determines the number of homes that must be sold at a specific price to generate sufficient local revenues to pay for the services currently demanded by all land uses, citizens, and commercial enterprises. This study calculated that the next 2,000 homes sold in Albemarle County must be priced at an average of $2.7 million to make up for current deficits. This represents the additional property taxes necessary to close the current annual shortfall between local revenues and local costs.
These two findings show how difficult it will be for Albemarle County to ever recruit enough wealthy new residents, with the capacity to purchase enough homes at these prices, to allow the county to build its way out of its growth-induced financial corner.
5. The county’s proffer program, as implemented, is inadequate as a means of filling the gap between the true costs of new development and its local revenue generating potential. Current proffers are a legally defensible set of calculations that help offset the costs of new development. This study shows that the proffers do not count all the costs of new development, understate others and overstate anticipated revenues.
6. Future population increases will generate even less favorable ratios of revenues to public service costs than those reported in this study. This will happen because increased population density eventually necessitates increasingly complex public service structures, which carry rising per capita costs. This study concludes that even without accounting for this complexity, and due only to the rising share of residential public service costs in the overall land use mix, the fiscal deficits connected to local revenues and local costs only will worsen with additional population growth. At a hypothetical population of 200,000, for example, the prevailing 2008-2009 ratio of public service costs to revenues generated for all land uses in Albemarle County would rise by approximately 16 percent, from a cost of $1.24 per revenue dollar to a cost of $1.45.
This study concludes that population growth pays for its fiscal costs only in the most carefully controlled and unrealistically isolated scenarios.
These findings are consistent with every previous analysis that has attempted to quantify the fiscal costs and benefits of particular land uses in this region and other Virginia localities.1