Determining the real cost of growth and development and who should pay.

• Author: Brooks, Richard C.
• Position: Best Practices

Many communities throughout the United State have experienced unprecedented growth and development, creating a need for expanding and improving existing infrastructure and acquiring new infrastructure assets to accommodate the needs of current and future residents. When evaluating these projects, public officials need to look at the long-term impact of growth and development. Comprehensive planning requires public officials to embrace a lifecycle costing model that looks not only at the costs associated with a particular asset but also at growth and development costs broadly defined. The infrastructure costs associated with a particular development may extend beyond a given project or development, and those costs have long-term effects.

Recently, some governments have used development impact fees (DIFs) to finance infrastructure associated with a particular development. Given the limitations and barriers associated with traditional methods of financing infrastructure (e.g., general obligation bonds, special assessment bonds, intergovernmental revenues, current taxes, etc.), DIFs represent a useful alternative financing source for infrastructure associated with new development, However, the additional capital and operating costs are not typically factored into the computation of DIFs, either by law, regulation, or omission. Therefore, these costs may ultimately be borne equally by all taxpayers within the government's jurisdiction, not just the people living in the newer developments (i.e., the people who made the additional costs necessary).

TYPES OF FINANCING AND INTERPERIOD EQUITY

The long-term nature of infrastructure makes interperiod equity an important consideration. In determining who will pay for these projects, public officials need to consider who will pay. The financing method affects interperiod equity--that is, whether current taxpayers are paying for something today that will provide a benefit to future taxpayers, or if current taxpayers receiving a benefit today that future taxpayers will pay for.

Traditionally. local governments have financed infrastructure through the use of general obligation bond proceeds, special assessment bond proceeds, intergovernmental revenues, and current revenues such as property taxes. Each of these methods has limitations and barriers that can prevent their use. For example, because taxpayers do not like to pay higher taxes, the amount of intergovernmental revenues (e.g., federal and state grants) available to finance infrastructure at the local government level has decreased significantly. (1) State and local laws limit the issuance of general obligation bonds, and voters must approve them. Finally. issuing special assessment debt typically requires a special assessment petition signed by a majority of the property owners that will benefit from the proposed project. For these reasons, public officials in some communities have turned to development impact fees to finance infrastructure. A development impact fee is a one-time charge assessed on a developer to pay (in full or in part) for infrastructure necessitated by new development. Development impact fees shift the cost of expanding, upgrading, or constructing new infrastructure assets to those creating the need for the infrastructure.

When choosing a method to finance infrastructure, public officials should consider whether the method chosen promotes or maintains interperiod equity, or if it undermines or impairs interperiod equity. (2) Interperiod equity is maintained when an expenditure such as current period payroll is paid from current period tax revenues, and it is impaired when the current period...