What’s so important about a Fiscal Impact Analysis (FIA)?

New developments or annexations of land to existing municipal boundaries can provide multiple advantages to a public agency, such as:

  • Increased revenue: New development often leads to an increase in property tax revenue, sales tax, and other fees. This additional funding can help improve public services, infrastructure, and community programs.
  • Expanded service areas: By annexing new areas, municipalities can extend essential services such as water, sewer, and waste management to more residents, improving overall public health and safety.
  • Economic development: New developments can attract businesses, creating jobs and stimulating local economies. This can lead to a more diverse economic base and increased resilience against economic downturns.
  • Improved infrastructure: With new development, municipalities can invest in upgraded infrastructure, including roads, parks, and public transit. This not only benefits new residents but also enhances the quality of life for existing residents.
  • Enhanced planning and zoning control: Annexation allows municipalities to implement their planning and zoning regulations in newly added areas, leading to more cohesive and sustainable community development.
  • Strengthened community identity: Annexation can help create a more unified community identity, fostering a sense of belonging among residents and enhancing civic engagement.
  • Environmental management: New developments can offer opportunities for better environmental management practices, such as green spaces, conservation areas, and sustainable urban planning, contributing to overall environmental health.
  • Public safety improvements: Expanding municipal boundaries can enhance public safety services by allowing for better resource allocation, improved emergency response times, and increased police and fire coverage.
  • Social equity and access: Annexing underserved areas can help municipalities address social inequities by providing access to quality services, public transportation, and recreational facilities that may not have been available previously.

That being said, NBS recommends completing an FIA prior to proceeding with any new development or annexation, as it is critical to consider the fiscal impacts any additional services will have on the agency’s general fund. An FIA will allow the agency to make an informed decision regarding the collective contributions and demands that any proposed project will place upon the agency and will detail the potential funding options available to offset any negative fiscal impacts.

If there is an overall negative fiscal impact to the general fund, the agency can consider several revenue-generating options to mitigate those negative fiscal impacts, such as establishing a Special Financing District (SFD) including Assessment Districts and the popular Community Facilities District, or CFD. Through the levy and collection of a special tax, a CFD provides a sustainable revenue source to offset those negative fiscal impacts. The special tax revenue generated by a CFD can be used to fund authorized public services including, but not limited to, police, fire, library, recreation, and maintenance of parks, roads, and open space.

Note that if the CFD is approved via a landowner election, and not a registered voter election, the special tax revenue can only fund the increase in demand for pre-existing services, so long as the special tax revenue is not available for general government purposes. Specific details related to the establishment of a CFD, including the allocation of special tax revenue to mitigate operational budget shortfalls, can be obtained through a qualified Special Tax Consultant, such as NBS.

New development or annexation of land can yield increased revenues, but there are often added costs to consider. Prior to recommending or making any final decisions, be sure to incorporate the findings from an FIA in your overall decision-making process, as the decisions made now will impact the general fund for years to come. With nearly three decades of industry experience, NBS consultants can assist your agency by analyzing the potential fiscal impacts of new developments and/or annexations, making a recommendation regarding the appropriate funding mechanism and supporting your agency with the formation and ongoing annual administration of the chosen funding mechanism. We are all about helping communities fund tomorrow.

Updated article by Nick Dayhoff and Sandra Burkhart

Originally published by Stephanie Parson

For more information, please contact: Senior Consultants Nick Dayhoff at ndayhoff@nbsgov.com or Sandra Burkhart at sburkhart@nbsgov.com.