The following article was published in Forest Notes, Spring 1989. Permission to reprint has been granted by the Society for the Protection of New Hampshire Forests. The Society can be contacted at 54 Portsmouth Street, Concord, New Hampshire, 03301-5400. If you would like more information, you can visit their website at www.spnhf.org.
This article presents a simple way to measure the fiscal impact of development. It may not be directly applicable to your community, as your sources of municipal income and your costs may differ. Please take this approach and modify it to fit your situation.
The Cost of Growth
Does development in your town bring in as much as it costs? Here's a way to measure.
DAVID HARRIGAN AND KATHY MORSE
In the last two decades, New Hampshire residents have seen thousands of acres of open fields, forest, and wetland, replaced by homes, shopping malls, roads and businesses. Much of this development has been "tax positive" for New Hampshire towns: It has brought more tax money to town coffers than it has cost in services.
Much residential development, however, has proven "tax negative": The new homes have caused dramatic increases in the demand for school and municipal services. The costs of those services have been met only partially by property tax revenues generated by that new construction, especially when residential development has attracted families with school-aged children.
The question of fiscal impact often arises when a town must decide whether a development is premature, but it also becomes important when the land is worthy of protection for some open space or other community purpose. Some citizens will be legitimately concerned about the expense to the town if it buys the land to preserve it. Others will select the option which is financially most beneficial to the town, regardless of other considerations.
This article provides residents and town planners with a first look at simple ways in which the costs and benefits of developing and conserving land can be measured. The calculations contained in this model are rough, designed to give you a basic grasp of the costs of growth in your town, either on a general level or for a specific development. Your conclusions, based on the preliminary study outlined here, may lead you to ask your town to buy or otherwise protect a particular parcel of land rather than allow it to be developed. Or they may lead you to initiate research on a growth management ordinance for your town. In any case, this information is only the first step. It cannot be used to show that growth is "good" or "bad"; it simply provides one way in which you can begin the process of evaluating and managing growth in your town.
Inspired by a cost of development worksheet created in 1977 by Gerry Howe of the UNH Cooperative Extension, we put together a model which is based on simple multiply-and-divide calculations of municipal costs and revenues for the average house depending on the number of local school children living there.
To determine the net cost of residential development:
Step 1 - Compare average property tax revenue per housing unit by multiplying the average home purchase price first by the assessment ratio, then by the tax rate. This automatically excludes revenue contributed by commercial and industrial development and undeveloped land.
Step 2 - Compare average automobile registration fees per housing unit by dividing the total fees collected by the number of housing units in town.
Step 3 - Add Steps 1 & 2 to get total revenue per housing unit.
Step 4 - Compute the school cost per housing unit by subtracting all non-property and non-auto tax revenues from total school expenditures, then dividing by the number of housing units in town.
Step 5 - Compute the non-school cost per housing unit by subtracting all non-property and non-auto revenues from the total non-school expenditures then dividing by the number of housing units in town. We do these costs separately from school expenses to make a point. Unlike school costs, non-school costs are not generated solely by residences. Industrial and commercial buildings require services, too. As you will see, school costs are by far the larger category, so the unavoidable imprecision in this step is less significant, although it does inflate costs somewhat.
Step 6 - Adds Steps 4 & 5 to get total cost per housing unit.
Step 7 - Compare total revenue from Step 3 to total cost from Step 6 to determine whether the average home contributes as much in municipal taxes as it requires in municipal services.
Average house prices and other figures can be obtained from a number of sources. Visit your town hall or contact the Forest Society policy department for suggestions on where to look.
You can also determine the average cost in property taxes and auto fees of educating each pupil by dividing the school costs in Step 4 by the number of students.
To determine the net cost of a specific new development:
Step A - Compute the property tax revenue by multiplying the total value of all new housing units by the assessment ratio, then by the tax rate.
Step B - Compute automobile registration fees by multiplying the number of new units by the average fee paid in town in the prior year.
Step C - Add Steps A & B to get total anticipated annual revenue from the new development.
Step D - Compute the amount of new revenue by subtracting from Step C the taxes now paid on the undeveloped land. (Remember that there may be a change of use penalty of 10% of the value of the land, if it is coming out of current use. We have not annualized that revenue for this analysis.)
Step E - Compute the school costs by determining the per pupil cost as suggested above. Multiply it by the likely number of school children per unit, based on the size of the proposed units and local experience in school enrollment from similar developments. If no local data is available, there are published regional multipliers. Then multiply the result by the number of new units.
Step F - Compute non-school costs by multiplying the number of new units by the result of Step 5 of the general model above. Remember that any impact fees paid by the developer may displace some of these capital costs. Further, even undeveloped and land theoretically costs something for municipal services (e.g., fire protection), but the amount is not significant for this analysis.
Step G - Add Steps E & F to get total cost per unit.
Step H - Compare total new cost from Step G and total new revenue from Step D to determine whether the new development will contribute as much in municipal taxes as it requires in municipal services.
There will likely be a deficit if the new units will include an average of more than one student per household. We performed substantially the same calculations just described for the towns of Danbury, Weare, and Londonderry. In each instance, this general conclusion was borne out.
If the land in question has conservation value, then the expense of the town buying the land should be compared to the deficit of development. If the negative effect on the tax rate for conservation is lower, as we have found, then even those who are persuaded only by financial savings may be won over to land protection.
Don't forget that these formulae are averages based on approximations. Some towns keep information more handy than others and some data just isn't available. However, if you dig for them, you probably will find the facts you need.
David Harrigan is policy specialist with the Forest Society. Kathy Morse was a Forest Society intern last summer through the Yankee Intern program.