Spatialization of revenue structures.

• Author: Pagano, Michael A.
• Position: Taxation

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City government coffers continue to feel the effects of the 2008 financial market and real estate collapse. The lag between property assessments and property tax billing means that property tax receipts could continue to decline for the next year or two, so the fiscal pinch affecting many jurisdictions will likely continue even as the economy grows and property values regain at least some of their lost value. As cities adjust their fiscal policies in response, local officials have an opportunity to redesign municipal fiscal systems.

This article presents a framework for understanding how city officials, including chief financial officers and mayors, think about the location of residential and commercial projects, either explicitly (by taking these factors into account as part of a "fiscal impact analysis") or implicitly. By its very nature, the decision to undertake development activities in one part of the city or another is rooted in a legacy of decisions made in an earlier era decisions which formed the city's social compact with its citizens, residents, and businesses.

FINANCIAL THINKING IN SPACE

Government financial officials are not typically products of urban planning schools, although their behavior and actions are as profoundly interconnected with a city's urban planning functions as those of the jurisdiction's department of planning and development. The simple explanation is that cities (and counties, for that matter) derive their general revenues not from the city as an amorphous, intangible concept, but from specific, physical points within the city's borders. Property taxes are levied on land and structures at particular spots on the map; sales tax collections are typically at a point of sale (that is, a place on the map); income taxes are collected from an individual's home address; and payroll taxes are collected at a place of employment. All of these general tax sources property, sales, and income can be understood by their specific location within the city's boundaries. The generation of tax revenue is tied intimately to space.

Tax revenue is a function of the assessed value of real estate and structures, the value of retail sales exchanges, and the wages or income of individuals at a specific place of residence. Consequently, city assessment of development opportunities (whether commercial or residential) must consider the specific location of the development with respect to its revenue-generating characteristics. Indeed, city officials understand the spatial logic of the location of developmental activities in terms of how much revenue a particular project generates for the city's coffers, as well as how much of a development's costs might be exported to neighboring jurisdictions. In a book published a decade ago, my coauthor and I referred to this strategy as the "mini-max" imperative of siting development projects and of supporting infrastructure investment: maximize tax revenue and minimize costs. (1) The mini-max incentive embedded within the context of a city's revenue structure manifests itself spatially in the city's design, land-use designations, and development patterns, or the spatialization of revenue structures.

THE FISCAL LOGIC OF DEVELOPMENT

No city is entirely dependent on a single tax source to fund all of its operations and service delivery responsibilities. Cities have diversified their revenue structures for the past century as they weaned themselves from a high or total reliance on the property tax. Since then, cities' budgets have...