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

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

• Jeffrey H. Dorfman
• The University of Georgia
• May 14, 2003

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Why Manage Growth?

• Some growth will come to your city or county
  whether you want it or not.
• Some growth wont 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

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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

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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

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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

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A Healthy Watershed

• Slows and filters runoff
• Prevents erosion
• Controls flooding
• Recharges surface and ground water
• Saves on water treatment costs

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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

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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.

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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.

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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.

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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.

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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

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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.

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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.

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Some Georgia ResultsRevenueExpenditure Ratios
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Break-even Home Values
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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

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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

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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

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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.

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Making Impact Fees Work

• To make impact fees work, you need to
• Carefully plan long-range infrastructure costs
• Divide infrastructure needs into districts
• Apportion infrastructure costs among projected
  growth causing the impacts
• Design the funding mechanism (pay as you get,
  dedicated-revenue bonds, etc.)
• Examine growth-shifting impact of the program

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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.

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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.