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