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Estimating Long-Term Financial Impacts Resulting from New Development Nicholas Dragisich, Executive VP, Springsted Incorporated Anthony Schertler, Senior VP, Springsted Incorporated Handouts and presentations are available online at www.iowaleague.org.

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Estimating Long-Term Financial Impacts

Resulting from New Development

Nicholas Dragisich, Executive VP, Springsted Incorporated

Anthony Schertler, Senior VP, Springsted Incorporated

Handouts and presentations are available online at www.iowaleague.org.

Iowa League of Cities

September 24, 2015

PRESENTATION TO

Presenters: Nick Dragisich, Executive Vice PresidentTony Schertler, Senior Vice

President

3

The Vision - Proactive

• Community based planning– Has usually identified a location for something to happen– Land use is in transition and there is a barrier to

investment or an opportunity to exploit• Functionally obsolete use• Contamination• New Transportation infrastructure• Room for community growth• New value generated available for general public purpose• Unhappy with the way existing land use controls operate

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Public Resources for Private Use/Benefit

• Housing and Economic Development efforts can be summed up as direct efforts undertaken by a local government to encourage private investment

• Three flavors– Community Development (capacity building)– Housing Development (needs based vs. demands)– Economic Development (increase market value)

5

Themes for moving forward

• Qualitative Quantitative• Form Function• Uses Sources• Costs Value Added• Consensus Decisions• Accounting for time

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Public Purpose Benefits (Policy)

• Increased private investment (consequently market value) through:– Increased employment (Type of Jobs)– Added housing units (Affordable or Market Rate)– Attraction of visitors who contribute to the local economy– Increased sales volume– Addition of infrastructure such as parking or public

improvements which results in increasing market value through the above

– Elimination of negative or blighting influences effecting surrounding property (Blight Curve)

77

Public Cost (Professional & Policy)

• Existence of a financial gap (the amount of the difference between total development cost and private market/investment value)

• In absolute terms, the availability of public or philanthropic resources to fill the gap for a specific project (Developers often do not know a community’s financial capacity limits)

• In relative terms, the amount of subsidy required for a given project in contrast to amounts provided for similar projects in the past or current alternative projects (If everything is a “catalyst” what is catalyzed?)

8

Framing the approach – Policy Guidance

• How much of the vision is going to be implemented by the public and how much by the private– Important because the return on investment for public is

typically different than the return on investment for private• Prioritize public benefit outcomes then start to

apply a cost to them• Start looking for the fiscal values generated with

the vision area

Framing the approach – Two Perspectives

• Financial incentive approach– The community return on investment (ROI)– Can be qualitative as well as quantitative

• Needs or “Gap” analysis approach– The developer’s return on investment (ROI)– Need to understand what is driving the gap

• Barrier to investment is contamination cost of $500,000• But if it is because markets sales too weak…?• Still need to satisfy minimum statutory requirements

9

10

Community ROI - Quantitative

• Cost-Benefit and/or Fiscal Impact Analysis• Estimates costs and benefits to each affected

jurisdiction– Benefits include property, sales, and earnings taxes– Costs include per-resident and per-worker costs of

providing services, in addition to tax incentives• Can include direct, indirect and induced effects of

new development• How do you use this analysis? Objective

outcomes

11

Investor or Developer ROI - Quantitative

• Needs or Feasibility Analysis – “but-for”– Finding whether a proposed project would not

occur “but-for” the requested financial assistance.– Aka Gap Analysis

• Analysis illustrates project feasibility - provides a range of reasonable returns. However parties still need to negotiate the final terms of agreement

• What if an existing business threatens to leave?

Blight mitigation – Combined ROI

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What role does the community want to play to encourage development?

• Simply grant the permit and zoning allowance– Lowest risk

• Conduit issuer of tax exempt financing– Low risk (reputation)

• Reimburse the prospect as benefits are completed– Low risk

• Be the lender– Medium risk

• Be the borrower or guarantor– Higher risk

• Be the developer– Highest risk

What about other returns for City accepting more risk?

• There are no published benchmarks for what an appropriate public financial return (ROI) should be for projects that blend public purpose outcomes and financial risk with private sector investments

• Therefore expect local governments to negotiate desired outcomes such as “shared appreciation” concepts and risk mitigation strategies

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How does this relate to the economic development vision and plan?

• Determine up front that a complete development plan with detailed sources and uses is necessary. Every piece of information needs a responsible party providing it and those that are estimates should be noted.

• Before making a resource commitment, the best available information should be provided in a manner that is consistent and comparable.

• The level of detail required will be a function of the level of risk that a community is willing to undertake.

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Fiscal Impact and Economic Benefits Analysis

• Fiscal Impact Analysis– Tool for estimating long-term financial outcomes likely to

result from new development• New developments have potential to generate additional

revenues• Also result in additional expenditures to provide both

governmental services and infrastructure to support the development

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Fiscal Impact and Economic Benefits Analysis

• Revenues– Property taxes– Other taxes– Charges for services– Permits and licenses– Other sources of revenue

18

Fiscal Impact and Economic Benefits Analysis

• Expenditures– Costs are incurred to provide services to land developed

for residential and employment uses• Residential land uses include single-family and multi-family

homes• Employment land uses include commercial, industrial, and other

land uses where employment occurs

19

Fiscal Impact and Economic Benefits Analysis

• Allocation of the benefits and costs resulting from development– Based on source and/or use– Demographic, geographic, economic, and financial data

including:• Data related to population, workers, households, school

enrollment, and median income• Number, type and market value of different land parcels• Number of occupied housing units

20

Fiscal Impact and Economic Benefits Analysis

• Revenues and expenditures that can clearly be identified with a particular source or use are allocated to that source or use– Expenditures for parks and recreation would be allocated

only to residential uses– Expenditures for fire inspections of businesses would be

allocated only to employment land uses

21

Fiscal Impact and Economic Benefits Analysis

• Revenues and expenditures whose source or use cannot clearly be identified with either residential or employment land uses would be allocated based on:– Population, employees, households, school enrollment,

median income, and other available demographic data– The number, type, and market value of land parcels in the

local government

22

Fiscal Impact and Economic Benefits Analysis

• Revenues and expenditures whose source or use cannot clearly be identified with either residential or employment land uses would be allocated based on: (continued)– Average assessed value of a single-family residence– Property tax rates– Revenues and expenditures from Comprehensive Annual

Financial Report– Regional economic multiplier

23

Fiscal Impact and Economic Benefits Analysis

• Demographic Data– Census bureau– State demographer– Local government

Demographic DataPopulation 18,681 Housing units 7,667 School enrollment 2,792 Median family income 73,245$ Assessed value average residential property 218,860$ Employees working in County 4,087

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Fiscal Impact and Economic Benefits Analysis

• Economic Data– United States Bureau of Labor (consumer purchases

based on income levels)– State Department of Revenue (taxable sales data)

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Fiscal Impact and Economic Benefits Analysis

• Financial Data

Revenues Allocated

General Fund 33,825,573$ Airport Fund 174,271$ Human Services Fund 566,694$ Meals Tax Fund 511,541$ Capital Projects Fund 211,631$ School Construction Fund 1,222$ School Operating Fund 24,455,783$ School Cafeteria Fund 867,272$

Total Revenues Allocated 60,613,987$

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Fiscal Impact and Economic Benefits Analysis

• Financial Data

Expenditures Allocated

General Fund 24,326,321$ Airport Fund 191,432$ Human Services Fund 1,108,388$ Debt Service Fund 3,369,345$ Capital Projects Fund 2,758,629$ School Construction Fund 713,309$ School Operating Fund 24,289,783$ School Cafeteria Fund 788,939$

Total Expenditures Allocated 57,546,146$

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Fiscal Impact and Economic Benefits Analysis

• Geographic Data– County property records and data– Local government zoning information

Land UseNumber of

ParcelsPercent by

Number ValuePercent by

Value

Average By Number and

By ValueResidential 15,600 95.12% 3,414,185,722$ 80.14% 87.63%Commercial/Industrial 765 4.67% 810,513,519$ 19.02% 11.84%Other 35 0.21% 35,682,900$ 0.84% 0.53%

Totals 16,400 100.00% 4,260,382,141$ 100.00% 100.00%

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Fiscal Impact and Economic Benefits Analysis

Revenues Per ResidentPer

Employee

General Fund1 704.16$ 310.37$ Airport Fund 8.17$ 5.05$ Human Services Fund 30.34$ -$ Meals Tax Fund 24.00$ 14.83$ County Projects 9.93$ 6.13$ School Construction Fund 0.07$ -$ School Operating Fund 1,309.13$ -$ School Cafeteria Fund 46.43$ -$

Total Revenues 2,132.20$ 336.38$ Notes: 1. Does not include property taxes, sales taxes or B.P.O.L.

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Fiscal Impact and Economic Benefits Analysis

Expenditures Per ResidentPer

EmployeeGeneral Fund 1,202.70$ 422.70$ Airport Fund 8.98$ 5.55$ Human Services Fund 59.33$ -$ Debt Service Fund 175.73$ 20.28$ County Projects -$ -$ School Construction Fund -$ -$ School Operating Fund 1,300.24$ -$ School Cafeteria Fund 42.23$ -$

Total Expenditures 2,789.21$ 448.53$

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Fiscal Impact and Economic Benefits Analysis

Revenues Resident EmployeeCounty Funds Excluding Schools 776.65$ 336.38$ School Funds 1,355.55$ -$ Property Tax 624.09$ 1,447.70$ Sales tax 35.05$ 73.91$ B.P.O.L. 9.01$ 76.60$

Total Revenues 2,800.36$ 1,934.59$

Expenditures 2,789.21$ 448.53$ Revenues Over (Under) Expenditures 11.15$ 1,486.06$

Fiscal Impact and Economic Benefits Analysis

• Existing Capital Assets– Allocated to residents and employees based on their

applicability and original cost– Assets that benefit both residents and employees typically

allocated proportionately based on the number of residents and the number of employees

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Fiscal Impact and Economic Benefits Analysis

• Capital Assets (continued)– General Fund assets that benefited only residents, such

as park and recreation and assets in the schools and social services, were allocated only to residents

– Airport assets were allocated 35% to residents and 65% to employees based on data from the Aviation Administration related to hours flown by private aircraft

– Water and wastewater assets were not allocated because a connection fee is used to recover the cost of these assets

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Fiscal Impact and Economic Benefits Analysis

Asset Residents Employees Per Resident Per EmployeeAirport 1,732,592$ 3,217,670$ 92.75$ 787.29$ Schools 86,336,113$ -$ 4,621.60$ -$ E911 152,320$ 33,324$ 8.15$ 8.15$ General 28,177,148$ 5,669,083$ 1,508.33$ 1,387.10$ Road Improvements 328,883$ 71,952$ 17.61$ 17.61$ Social Services 85,376$ -$ 4.57$ -$

Total 116,812,431$ 8,992,030$ 6,253.01$ 2,200.15$

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Fiscal Impact and Economic Benefits Analysis

Revenues Resident EmployeeCounty Funds Excluding Schools 776.65$ 336.38$ School Funds 1,355.55$ -$ Property Tax 624.09$ 1,447.70$ Sales tax 35.05$ 73.91$ B.P.O.L. 9.01$ 76.60$

Total Revenues 2,800.36$ 1,934.59$

Expenditures 2,789.21$ 448.53$ Revenues Over (Under) Expenditures 11.15$ 1,486.06$

Capital Assets 6,253.01$ 2,200.15$ First Year Net (6,241.86)$ (714.09)$

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Fiscal Impact and Economic Benefits Analysis

• Understanding Assumptions– Median family income typically less than average, or

mean, family income• Median family income is the point where half the families by

number have lower income and half the families by number have greater income

– Analysis uses average number of residents/housing unit • Housing units with lesser residents/unit would most likely result

in more positive fiscal impacts while those with more residents/unit would result in less positive or greater negative impacts

36

Fiscal Impact and Economic Benefits Analysis

• Understanding Assumptions– Analysis used an average cost methodology– Calculates the cost of providing services based on current

population, number of employees working in County and the number and value of assessed real property

– These costs were assumed to represent the costs of providing services and capital assets to new residents and new employees

37

Fiscal Impact and Economic Benefits Analysis

• Understanding Assumptions– Typically assumed there are neither excess nor deficient

capacities in existing assets or services• Excess capacity would result in a lesser cost per resident and

per employee• Deficient capacity would result in a greater cost

– Cost of providing services is determined based on most recent financial data and existing capital assets• Need to update cost in the future to reflect the changes in

revenues, expenditures and assets

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Fiscal Impact and Economic Benefits Analysis

• Questions?