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Level of service changes. A growing number of local governments are finding it useful to focus policy discussions on the basic levels of public services that citizens want and are willing to pay for. The increasing use of impact fees and user fees also makes it important to clearly identify a level of service standard, so that appropriate fees can be ,or and collected. What is the cost of providing different levels of service? Quantifying existing levels of service and the costs of different service levels can help lead to more constructive discussions, since all parties will understand the fiscal consequences of changing the level of service. Cost and revenue changes. A fiscal analysis will allow the local government to vary any number of cost and revenue assumptions. Police cars, utility plant additions, salaries and fringe benefits are just some of the items that can be reviewed for their financial impact at various rates. In a similar fashion, revenue rates and sources can be reviewed. Using a fiscal impact analysis computer model makes changes in assumptions easy to consider. BENEFITS OF A FISCAL IMPACT ANALYSIS Fiscal impact analysis has many benefits, whether it is used for budgeting or for land -use or capital or financial planning. (See the full MIS Report for the narrative) METHODOLOGIES There are two basic approaches to fiscal evaluations: using average costs and using marginal costs. Average cost approaches are simpler and more popular — costs and revenues are calculated based on the average cost per unit of service times the demand foe that unit. Average cost approaches assume a linear relationship and do not consider excess or deficient capacity of facilities or services over time. A per capita relationship is an example of an average cost approach. Marginal cost approaches describe the unique characteristics of a jurisdiction's capital facilities. Although over the long term, average and marginal cost techniques will produce similar results, the real value of fiscal analysis is in the two- to ten-year time period. Marginal cost analysis is most useful in this time frame. Selecting a Methodology To get the most accurate information from a fiscal impact analysis, most local governments find the case study approach preferable. Although comparisons to regional and national standards can be helpful, each community is unique. It has its own levels of services, geographic service boundaries, cost and revenue factors, and available capacity of existing capital facilities. Given the potential benefits of fiscal impact analysis, it is worth the time and effort to use the case study approach. Where data is not readily available EXHIBIT 2—Impact of new growth under three alternatives. CITY Of GERMANTOWN ANNUAL SURPLUS OR oEMCIT Our TO NEW GROWTH ON $1,000's) Source: Tischler & Associates, Inc„ MUNIES Computer Output. or where it is difficult to define the service level relationship on a true marginal basis, it makes sense to use the per capita average cost approach to supplement departmental estimates. The local government may wish to refine the data using marginal cost data if and when more detailed information becomes available. CASE STUDIES This section discusses five case studies that illustrate dif- ferent applications of fiscal analysis. The first three case studies look at different land -use or growth alternatives and revenue strategies. The last two cases discuss economic de- velopment alternatives and capital improvement programs. (See the MIS Report for a full discussion) Germantown, Tennessee —Evaluation of Land -Use Alternatives Germantown (population 32,000), a suburb of Memphis, decided to review the fiscal impact of future land -use alternatives. As in any jurisdiction, one logical alternative( was the continuation of present trends: an emphasis on low -density single-family housing With enough commercial