 Costs of Community
Services
The term costs of community services (COCS), usually refers to
a growing body of literature that focuses on how various types
of land use affect local government taxation and spending. In
general, this body of literature summarizes studies that use fiscal
impact analysis to determine whether various forms of land use
contribute to or detract from local government budgets.
During the period immediately following World War II, many communities
sought to attract business, industrial, and residential growth
for a number of reasons. Among these was that economic growth
would raise the property tax base and generate increased revenues
for local infrastructure, including schools, roads, and fire/police
protection. During the 1980s, however, many skeptics began to
question whether economic development in rural areas “paid
its own way” in terms of local taxation. For example, when
farmland, open space, and woodlands are converted to residential
development, local tax revenues increase substantially because
property values increase. But the local government and the school
district are also required to provide added services to the new
residents. Does the increased revenue cover the costs of the new
services? That is the question the COCS studies set out to answer.
The COCS Ratio
It has become conventional in COCS studies to divide land use
into three categories: residential, commercial/industrial, and
farmland/open space. One of the most common procedures for analyzing
fiscal impact is to calculate a COCS ratio for each land use category
The ratio compares how many dollars worth of local government
services are demanded for each dollar collected. A ratio greater
than 1.0 suggests that for every dollar of revenue collected from
a given category of land, more than one dollar is spent.
Many of the early studies providing estimates of COCS ratios
were either sponsored or conducted by the American Farmland Trust.
But in recent years researchers from a variety of backgrounds
have undertaken such studies. Regardless of who conducted the
research, the results have been consistent. Virtually all of the
studies show that the COCS ratio is substantially above 1 for
residential land, demonstrating that residential land is a net
drain on local government budgets. The average estimate ranges
from about 1.15 to 1.50, which means that for every dollar collected
in taxes and non-tax revenue, between $1.15 and $1.50 gets returned
in the form of local government and school district services.
On the other hand, the COCS ratios for the other two land use
categories are both substantially below 1. For commercial/industrial,
the ratio usually ranges from 0.35 to 0.65, indicating that for
every dollar collected, the local government provides only about
35 to 65 cents worth of services. For agriculture and open space,
the ratios are only slightly smaller, usually ranging from 0.30
to 0.50.
According to the COCS studies, the largest single expenditure
category for communities is the public school system, accounting
for 61.4 percent of spending. Since open space and commercial
development in themselves do not place any burden on the schools,
it should not be surprising that their ratios are lower than those
for the residential category.
Several questions emerge from these results, including (1) are
these studies reliable, and (2) why do the numbers vary?
The studies appear to be reliable because of the way in which
taxes and service expenditures are calculated and imputed. The
methods used in the studies have been laid out clearly, and the
variation in the COCS ratios is relatively small. The studies
are unanimous in showing that residential land use ratios are
above 1 and that the other types of land uses are below 1. The
primary reason that the ratios vary somewhat is that not all communities
are identical. If many homes in a community are in an extremely
high price range and occupied by “empty nesters,”
for example, the COCS ratio should be expected to be relatively
low. On the other hand, low- or middle-income property occupied
by families with numerous children would produce a higher ratio.
Some communities have gone beyond simply calculating a COCS ratio
and have actually calculated the “break even” home
value for their community. Not surprisingly, these values tend
to be substantially higher than the median (average) home value.
Another Approach
Other researchers have attempted to measure the costs of growth
simply by measuring the statistical relationship between population
growth rates and per capita local government spending. Most of
these results have shown that in areas with very small growth
rates (in the range of 1 to 2 percent per year), costs do not
escalate rapidly. For communities with higher growth rates (above
3 percent per year), however, per capita spending begins to increase
very dramatically.
The findings of the various types of studies on costs of services
seem to support the conclusion that local public per capita spending
increases when farmland and open space are converted to residential
development.
Criticisms of the COCS Literature
Initially, critics of the COCS studies argued that it may be
difficult to generalize from these studies. This criticism has
lost some credibility, however, because many studies have been
conducted in a wide range of communities nationally. The results
seem to be unambiguous.
More recently, critics have developed the argument that looking
only at the fiscal impacts on local governments and school districts
is too limited in scope. They maintain that new residents do much
more than simply pay taxes and demand services. Residents work,
earn money, and spend much of it locally, thus contributing to
the economic base of the community in a substantial way that is
not captured in the COCS studies. The critics argue that future
work should include these impacts.
But if COCS studies do not include these “multiplier”
effects, it also must be said that they do not include non-economic
costs to the community, such as loss of scenic landscape, increased
traffic congestion, and other variables associated with quality
of life.
Another argument against COCS studies is that they are based
on a “cost theory of taxation” and do not consider
how growth, even with increased taxation, increases the values
of properties. The rival “benefit theory of taxation”
states that as new taxes pay for better infrastructure such as
schools and roads, property values (and thus the net worth of
property owners) increase. Such considerations have not been measured
within the context of COCS.
Implications
One of the most important implications of the COCS literature
is that proponents of farmland and open space preservation now
have an important economic argument on their side. Some proponents
of economic development have argued that a system that allows
land to go to the highest bidder provides the most efficient economic
results. The COCS findings, however, indicate that residential
development often brings costs to the community that are not fully
borne by the new residents but are instead distributed throughout
the community. Local leaders should be aware that efforts to “promote
growth” in their communities will have substantial impacts
on revenues and expenditures. They should be able to estimate
these impacts when planning for the future.
Two conclusions emerge when reflecting on the COCS issue. The
first is that residential development in any area invariably leads
to increased per capita demand for publicly provided services,
placing increased burdens on local infrastructure and public agencies.
As a result, increases in local tax rates to fund additional services
tend to follow growth. Second is that it is important for members
of any community to ask themselves the broader question, “How
do we manage growth in our community, along with all of the impacts
(both positive and negative) that it brings?”
References
American Farmland Trust. 1993. Is Farmland Protection a Community
Investment? How To Do a Cost of Community Services Study. Washington,
DC.
Bunnell, Gene. 1997. “Fiscal Impact Studies as Advocacy
and Story Telling.” Journal of Planning Literature
12:2, pp. 136-151.
Burchell, R.W., and D. Listokin. 1995. Land, Infrastructure,
Housing Costs and Fiscal Impacts Associated with Growth: The Literature
on the Impacts of Sprawl vs. Managed Growth. Cambridge, MA:
Lincoln Institute of Land Policy.
Kelsey, T.W. 1996. “The Fiscal Impacts of Alternative Land
Uses: What Do Cost of Community Services Studies Really Tell Us?”
Journal of the Community Development Society 27:1, pp.
78-89. Ladd, H. 1992. Effects of Population Growth on Local Spending
and Taxes. Cambridge, MA: Lincoln Institute of Land Policy. |
