The Economics of Growth,
Sprawl, Impact Fees, and
Land Use Decisions
Jeffrey H. Dorfman
The University of Georgia
May 14, 2003

Why Manage Growth?
• Some growth will come to your city or county whether you want it or not.
• Some growth won’t come to your city or county no matter what you do.
• Then there is a middle ground you can impact
–
This part will decide your fate

Economic Benefits of Farm and
Forest Lands
• These lands produce valuable products for consumers, generate jobs and tax revenues
– 1/6 of all jobs and gross state product in GA
• These lands attract businesses and families
• These lands also provide a net surplus to local government finances

Economic Benefits of Green Space
• Green spaces increase property values of surrounding land
• Green and open spaces can provide environmental amenities for free
• If green spaces contribute to quality of life, you attract people and jobs to community

Ecological (and Economic)
Benefits of Managing Growth
• Green spaces, particularly contiguous ones, provide exceptional benefits to wildlife
• Open spaces around rivers and streams not only improve water quality, but save money on water treatment

A Healthy Watershed
• Slows and filters runoff
• Prevents erosion
• Controls flooding
• Recharges surface and ground water
• Saves on water treatment costs

Intact Riparian Buffers
• Trap sediment & nutrients in runoff
• Stabilize stream banks
• Protect aquatic & terrestrial habitat
• Provide aesthetic benefits
• Save water treatment costs
• Increase property values

Development by Type
• Many counties and cities think that growth and development mean an increasing tax base and better financial health for the local government.
• Unfortunately a growing tax base is not enough to guarantee financial health, you must get revenue to grow faster than expenditures.

Development Patterns
• Development patterns have an impact on the cost of service delivery: sprawl is expensive to service.
• The same growth done more densely and contiguously saves both money, farmland, and provides environmental amenities.

Lessons to Learn
• If Central Valley, CA has the same growth for next 40 years at twice the density, they can save $72 billion of agricultural production (and save money on government service delivery).
• If South Carolina gets the same projected growth over next 20 years, but at twice the density, they would save over $2 billion on infrastructure.

Average Service Costs by Land Use
Type
• Different categories of development provide different levels of local revenue and require different levels of local government services.
• To examine the impact of these differences in
Georgia, we conducted six cost of community service studies .

Cost of Community Service
Studies
• A cost of community service study analyzes the revenue collection and expenditure burden by class of development
• Common categories are:
– residential
– commercial/industrial
– farmland/forestland/open space

Cost of Community Service
Studies
• Such studies have been conducted around the US and many results are listed on the website of the American Farmland Trust
( www.farmland.org
).
• In general, residential development is an economic drain while commercial/ industrial and farmland/forestland/open space more than pay their own way .

Revenues to Cost by Land Use
• Using results compiled by AFT, the national averages are:
–
Residential:
–
Commercial/Industrial:
$0.87
$3.45
– Farmland/Forestland/Open Space: $2.70
• These figures are $’s of revenue for each $1 of expenditures.

Some Georgia Results
Revenue:Expenditure Ratios
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Resid.
Comm.
Farm/for.
Oconee County
Habersham County
Appling
Dooly
Jones
Cherokee

Break-even Home Values
3 kids
2 kids
1 kid
County
0 200 400 600
1000 $
800 1000 1200
Jones
Dooly
Cherokee

Challenges to Preserving Farm and
Forest Lands
• Development pressure makes land more valuable to sell
• Development pressure also makes farming and forestry less profitable (and enjoyable)
– property taxes increase
– costs increase due to extra management required when near developed areas
– leapfrog development is the worst

A Role for Government in the
Market
• Government should charge the full social cost of development (impact fees??)
• Government must find a balance of commercial (& industrial) growth to pair with residential
• Government should not push businesses across taxing borders

Some Current Initiatives
• For individuals: tax credits, tax deductions
• For cities and counties:
– Growth moratoria
– Impact fees
– TDRs, PDRs
– Differential taxation
– Smart zoning
– Comp plans

Making Impact Fees Work
•
Impact fees are designed to pay for capital improvements required in response to new development.
• Service cost studies usually focus on operating costs, so they are not applicable to computing impact fees.
• Impact fees are further complicated by
“ threshold
” response issues.

Making Impact Fees Work
•
To make impact fees work, you need to:
1. Carefully plan long-range infrastructure costs
2. Divide infrastructure needs into districts
3. Apportion infrastructure costs among projected growth causing the impacts
4. Design the funding mechanism (pay as you get, dedicated-revenue bonds, etc.)
5. Examine growth-shifting impact of the program

Making Impact Fees Work
• Growth-shifting aspect of impact fees cannot be overlooked.
• Impact fees so large as to make growth avoid them can result in infrastructure impacts at the same time you suffer revenue loss.
• Regional cooperation or reasonable fees are a must.

Balanced Growth a Must
• The real conclusion is
•
Local governments must ensure balanced growth, as sprawling residential growth is a certain ticket to fiscal ruin*.
* Or at least big tax increases.