The Economics of Growth, Sprawl, Impact Fees, and Land Use Decisions Jeffrey H. Dorfman The University of Georgia May 14, 2003 Why Manage Growth? • Some growth will come to your city or county whether you want it or not. • Some growth won’t come to your city or county no matter what you do. • Then there is a middle ground you can impact – This part will decide your fate Economic Benefits of Farm and Forest Lands • These lands produce valuable products for consumers, generate jobs and tax revenues – 1/6 of all jobs and gross state product in GA • These lands attract businesses and families • These lands also provide a net surplus to local government finances Economic Benefits of Green Space • Green spaces increase property values of surrounding land • Green and open spaces can provide environmental amenities for free • If green spaces contribute to quality of life, you attract people and jobs to community Ecological (and Economic) Benefits of Managing Growth • Green spaces, particularly contiguous ones, provide exceptional benefits to wildlife • Open spaces around rivers and streams not only improve water quality, but save money on water treatment A Healthy Watershed • Slows and filters runoff • Prevents erosion • Controls flooding • Recharges surface and ground water • Saves on water treatment costs Intact Riparian Buffers • Trap sediment & nutrients in runoff • Stabilize stream banks • Protect aquatic & terrestrial habitat • Provide aesthetic benefits • Save water treatment costs • Increase property values Development by Type • Many counties and cities think that growth and development mean an increasing tax base and better financial health for the local government. • Unfortunately a growing tax base is not enough to guarantee financial health, you must get revenue to grow faster than expenditures. Development Patterns • Development patterns have an impact on the cost of service delivery: sprawl is expensive to service. • The same growth done more densely and contiguously saves both money, farmland, and provides environmental amenities. Lessons to Learn • If Central Valley, CA has the same growth for next 40 years at twice the density, they can save $72 billion of agricultural production (and save money on government service delivery). • If South Carolina gets the same projected growth over next 20 years, but at twice the density, they would save over $2 billion on infrastructure. Average Service Costs by Land Use Type • Different categories of development provide different levels of local revenue and require different levels of local government services. • To examine the impact of these differences in Georgia, we conducted six cost of community service studies. Cost of Community Service Studies • A cost of community service study analyzes the revenue collection and expenditure burden by class of development • Common categories are: – residential – commercial/industrial – farmland/forestland/open space Cost of Community Service Studies • Such studies have been conducted around the US and many results are listed on the website of the American Farmland Trust (www.farmland.org). • In general, residential development is an economic drain while commercial/ industrial and farmland/forestland/open space more than pay their own way. Revenues to Cost by Land Use • Using results compiled by AFT, the national averages are: – Residential: $0.87 – Commercial/Industrial: $3.45 – Farmland/Forestland/Open Space: $2.70 • These figures are $’s of revenue for each $1 of expenditures. Some Georgia Results Revenue:Expenditure Ratios $3.50 $3.00 $2.50 Oconee County Habersham County Appling Dooly Jones Cherokee $2.00 $1.50 $1.00 $0.50 $0.00 Resid. Comm. Farm/for. Break-even Home Values 3 kids 2 kids Jones Dooly Cherokee 1 kid County 0 200 400 600 1000 $ 800 1000 1200 Challenges to Preserving Farm and Forest Lands • Development pressure makes land more valuable to sell • Development pressure also makes farming and forestry less profitable (and enjoyable) – property taxes increase – costs increase due to extra management required when near developed areas – leapfrog development is the worst A Role for Government in the Market • Government should charge the full social cost of development (impact fees??) • Government must find a balance of commercial (& industrial) growth to pair with residential • Government should not push businesses across taxing borders Some Current Initiatives • For individuals: tax credits, tax deductions • For cities and counties: – – – – – – Growth moratoria Impact fees TDRs, PDRs Differential taxation Smart zoning Comp plans Making Impact Fees Work • Impact fees are designed to pay for capital improvements required in response to new development. • Service cost studies usually focus on operating costs, so they are not applicable to computing impact fees. • Impact fees are further complicated by “threshold” response issues. Making Impact Fees Work • To make impact fees work, you need to: 1. Carefully plan long-range infrastructure costs 2. Divide infrastructure needs into districts 3. Apportion infrastructure costs among projected growth causing the impacts 4. Design the funding mechanism (pay as you get, dedicated-revenue bonds, etc.) 5. Examine growth-shifting impact of the program Making Impact Fees Work • Growth-shifting aspect of impact fees cannot be overlooked. • Impact fees so large as to make growth avoid them can result in infrastructure impacts at the same time you suffer revenue loss. • Regional cooperation or reasonable fees are a must. Balanced Growth a Must • The real conclusion is • Local governments must ensure balanced growth, as sprawling residential growth is a certain ticket to fiscal ruin*. * Or at least big tax increases.