Building and maintaining solid infrastructure in the town of Gilbert.

• Author: Kavanagh, Shayne
• Position: Best Practices

This article is adapted from the upcoming GFOA publication, Informed Decision Making through Forecasting: A Practitioner's Guide to Government Revenue Analysis, by Shayne Kavanagh.

The media often uses words like "crisis" and "crumbling" to describe the state of local infrastructure in the United States, and not without reason--one out of every nine bridges in the United States is considered deficient, and nearly a third of major roads are in poor condition. (1) The worst examples, like collapsed bridges and sink holes, make national news and even claim lives. In other instances, infrastructure failures create large, unplanned expenditures, disrupt the local economy, and reduce citizens' trust in government.

Preserving the investment the community has made in its capital assets is a concern for all local governments. The infrastructure challenge faced by the Town of Gilbert, Arizona, stemmed from a history of explosive growth. From 1980 to 2010, its population grew by a little more than 3,500 percent; and the town has continued to grow rapidly since 2010. It has, for instance, routinely issued more building permits each year than the City of Phoenix, Arizona, which has a population of more than 1.5 million people.

Approximately 25 percent of Gilbert's infrastructure was built between 1990 and 1999, and a approximately 50 percent was built between 2000 and 2009. A municipality that has grown at a slower pace would have a smaller portion of its infrastructure reaching the stage where significant maintenance and replacement outlays are required, but Gilbert faced the prospect of a glut of repair and replacement bills coming due at once--without the new revenues that accompanied the initial growth, such as impact fees, to pay for it. And because Gilbert was still growing, the town also had to determine how new growth would pay for itself and how existing infrastructure could support itself, without one subsidizing the other.

CREATING A STRATEGY

A cross-departmental team comprising representatives from the town manager's office, the Office of Management and Budget, and the information technology, parks and recreation, and public works departments led the analysis and development of a long-term infrastructure strategy. Revenue forecasting became an important part of the team's work for two reasons.

First, much of Gilbert's infrastructure was funded by revenues from impact fees--one-time charges paid by new developments to cover the town's costs for creating the capacity for new police and fire protection, parks and recreation, traffic signals, and utility systems needed to serve the new residents and businesses. As Gilbert reaches full development (projected for 2030 to 2040), far less of this revenue will be available. At the same time, however, Gilbert's sales tax revenues have increased and are expected to increase into the future because of the economic activity created by new residents and business. Hence, the forecasts and financial strategy needed to incorporate the changing composition of the Gilbert's revenue portfolio and its implications for infrastructure financing.

Second, the citizens of Gilbert have consistently demonstrated a desire to keep taxes low, while balancing the provision of high-quality services. As a result of the state tax structure, Gilbert and many other Arizona communities rely heavily on local sales tax revenues. The volume of transactions subject to sales tax in Gilbert has been sufficient to maintain a low rate--1.5 percent--and the town has not yet demonstrated a need for a primary property tax. In fact, Gilbert is one of the few larger U.S. cities that doesn't have a general purpose property tax: The organization's staff allocation is also...