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What is a Fiscal Impact Analysis?

Updated: Aug 23, 2019

By Ashkan Jahangiri.

Cities in America are growing—fast. 100 people move to the Austin region, where Pegasus is based, every day.

As cities everywhere learn to manage growth, they often find that they need to craft new policies and make major decisions on their long-term trajectory, particularly for land use and zoning decisions. For example, a zoning map for a city of 50,000 needs to be updated when that city’s population grows to over 200,000. Erstwhile bedroom communities are becoming more lively and generating new business, and living preferences are shifting along with changing demographics.

Successful economies are those which carefully integrate community values into the economic landscape. In order to make informed decisions about public policy, local governments often need to conduct a Fiscal Impact Analysis. A fiscal impact analysis can quantify the projected tax revenue generated by different future land use visions for a city.

What is a Fiscal Impact Analysis?

A Fiscal Impact Analysis (FIA) is one tool used to inform decisions and policies for local governments. An FIA projects the expected costs and revenues generated by different potential scenarios and can be used to calculate a net impact. The net fiscal impact is the new revenue generated by a project or policy minus its associated costs. FIAs can cover a wide range of potential impacts, from the annual property tax revenue generated by a project to the number of new units that will require city services and utilities. Fiscal Impact Analyses can be used at varying scales. Pegasus has conducted FIAs for municipalities in the context of their comprehensive plans, and we have also conducted site-specific FIAs.

A key factor revealed by FIAs are the economic benefits of density. Concentrating dense development can allow cities to provide services with maximum efficiency. Furthermore, denser development generates higher sales and property tax revenues per unit of land. Higher density areas also stimulate further downstream economic impacts. It is important to put precise numbers to these impacts when deciding between competing visions for a city’s land.

Why perform a Fiscal Impact Analysis?

Cities provide services that are funded by taxes and fees. A Fiscal Impact Analysis ensures that local governments are responsibly planning for future growth that ensures future services will be funded by sufficient levels of revenue.

Furthermore, a clear understanding of the data can help resolve differences between different stakeholders. Growing pains are real, and not every citizen embraces the changes that cities experience as they grow. However, citizens appreciate responsible local governments, and responsible local governments conduct FIAs that help justify their decisions.

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