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Analyzing the Fiscal Impact of Development DEFINING FISCAL IMPACT ANALYSIS A fiscal impact analysis projects the net cash flow to the public sector (the local government and, in many cases, the school district) resulting from new development — residential, commercial, industrial, or other. It is similar to the cash flow analysis a developer conducts in order to project costs and revenues likely to result from a proposed development for two to ten years in the future. A fiscal impact analysis projects the net cash flow to the public sector The dynamics of fiscal impact are shown in Exhibit 1. In evaluating the costs associated with providing the acceptable levels of service, the local government should consider existing unused capacities of public services and programs, especially of capital facilities. The new development, or new demand, will be expressed in terms of changes in population, employment, or land use projected to result from the scenarios being evaluated. Since a fiscal analysis will indicate whether and when a jurisdiction could face deficit budgets, the local government is able to weigh land -use policy decisions, acceptable levels of service, plans for capital investments, and long-term borrowing needs. In addition, a projected fiscal deficit can prompt local officials to evaluate current and future revenue sources. Even if a fiscal evaluation indicates a surplus, the local government may wish to change its use of revenue sources to fund infrastructure replacement or higher levels of service. The goal ... is to forecast all relevant operating expenses, capital costs, and revenues Fiscal impact analysis identifies the increases in annual and cumulative expenses for all services that will result from new development. This includes annual operating expenses (including new staff needed per year) and capital expenses associated with constructing or expanding facilities. The fiscal impact statement can also summarize the jurisdiction's bonded debt; its bonding capacity as a percentage of the increase in the tax base; the increase in the tax base; and the fiscal surplus or deficit when general revenues are applied against the net of all special revenues and expenses associated with the development. Paul S. Tischler, president of Tischler & Associates, Inc., authored this report. Tischler and Associates, Inc., is a Bethesda, Maryland consulting firm specializing in fiscal impact and related economic analysis, capital programming, and revenue strategies, The firm developed and uses a PC -based fiscal impact software package either as MUNIES or FISCALS. Mr. Tischler has a B.A. in economics and an M.B.A. in real estate and urban development. He lectures and writes on fiscal impact analysis and related topics. EXHIBIT 1 — The dynamics of fiscal Impact. Changes in Land Use Service Levels KDemographics Costs/Revenues etc. 77. c 0 Changes in Changes in Public Service Revenue 0 m Demands Sources a c m E c - m` 0 Cho hges in Changes in a Expenditures Revenues 0 J FISCAL S IMPACT Source: Tischler & Associates, Inc. APPLICATIONS FOR FISCAL IMPACT ANALYSIS Fiscal impact analysis is helpful in short- and long-range land -use policy planning and finance planning. Its applica- tions for decision making are discussed below. Planning Issues A fiscal impact evaluation can be used as an effective plan- ning toot. Many local governments view the planning process as monitoring and enforcing land -use decisions and regulations, and pay too little attention to long-range planning issues, including whether future growth will be affordable. The six applications below indicate how fiscal analysis can be an effective policy tool for long-range planning. Land -use policies. Should a jurisdiction encourage higher density land use or allow an overlay district in a certain