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February 2012 You Asked. We Answered.At the Inquiry Answer Service, we answer, on average, more than 300 questions for our subscribers each month. We consult a variety of sources to create a custom research packet — which may include APA publications, sample ordinances and plans, articles and literature from partner organizations, and the most current information available online — for each question. Each month, we choose one question to feature here, so you can see what your peers around the country are asking and how we answered. When your organization subscribes to PAS, you and your colleagues will also have access to previous editions. You Asked.How do communities calculate the fiscal impacts of annexation? We are preparing to annex an area into our city boundary. The area to be annexed already has some development, and I am seeking research/articles on the costs associated with annexation and providing services to annexed properties. We Answered.Many communities use a cost/benefit (or fiscal impact) analysis to determine the economic feasibility of annexation. In these analyses, jurisdictions try to estimate the costs of extending services as well as the projected tax revenue that would be generated by annexation. Costs include capital as well as operating expenses apportioned to the annexed land uses, and revenue includes property taxes and, in the case of nonresidential development, income and sales taxes. Typically communities measure tax yields against service costs using a common unit of land area (e.g., per acre). Speaking broadly, the outcome of this fiscal impact analysis depends both on the type and location of development anticipated in the annexation area. As you would expect, some growth pays for itself in terms of tax revenue versus cost of services while other growth does not. Consequently, the literature discussing the costs of development has focused on trying to describe types and locations of development that do or do not pay their way. The most often investigated premise is whether or not low-density development on the urban fringe (i.e., sprawl) costs more than higher density infill development (i.e., smart growth). Perhaps the most influential study in this line of inquiry is the Real Estate Research Corporation's 1974 report titled theCosts of Sprawl, which isolated density and location as key variables in the cost of development. Subsequent studies have refined, expanded, or challenged the ideas presented in the report. Now, more than 35 years later, there is substantial evidence for the basic premise that the location and density of development affects the net costs of providing public infrastructure and services. Below, I've assembled a collection of links to fiscal impact analysis (FIA) and its use in the context of annexation. These resources include information on the use of FIA to evaluate annexation proposals, several guidebooks on FIA methods, links to sample annexation FIA studies to provide examples of how FIA is used in this context, and supplemental resources discussing the costs of sprawl vs. smart growth. Resource List
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