The Economics of Growth, Sprawl, Impact Fees, and Land Use Decisions Jeffrey H.

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
• Saves on water treatment costs
Intact Riparian Buffers
• Trap sediment & nutrients in
• Stabilize stream banks
• Protect aquatic & terrestrial
• 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
• Unfortunately a growing tax base is not
enough to guarantee financial health, you
must get revenue to grow faster than
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
Average Service Costs by Land Use
• 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
• A cost of community service study analyzes the
revenue collection and expenditure burden by class of
• Common categories are:
– residential
– commercial/industrial
– farmland/forestland/open space
Cost of Community Service
• Such studies have been conducted around
the US and many results are listed on the
website of the American Farmland Trust
• 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:
– Commercial/Industrial:
– Farmland/Forestland/Open Space: $2.70
• These figures are $’s of revenue for each $1 of
Some Georgia Results
Revenue:Expenditure Ratios
Oconee County
Habersham County
Break-even Home Values
3 kids
2 kids
1 kid
1000 $
Challenges to Preserving Farm and
Forest Lands
• Development pressure makes land more valuable to
• 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
• 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
Differential taxation
Smart zoning
Comp plans
Making Impact Fees Work
• Impact fees are designed to pay for capital
improvements required in response to new
• 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
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.

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