Economic development and taxes


Does economic development result in reduced local taxes?  The short answer: no one knows.  The longer answer: studies of specific cases, as well as meta-studies of their results, indicate considerable variation in study methods, objective results, and conclusions.  The following is a collection of some of the available information.

"Impacts of Development on DuPage County [Illinois] Property Taxes"

The original study, done in 1991 and apparently revised in 1992, does not appear to be available on the web.  Hard copy of the 1992 version is available from the county for $22 (90 Kb .pdf).

The following conclusion from the above study is the one most often cited by other investigators:

The original 1991 study has been faulted on several grounds.  An analysis of the study and a proposal for a follow-up were done at the University of Illinois a year later.  Here's an abstract (no longer available at the University website).  It does not appear that the suggested follow-up study was ever done.

The Technological Reshaping of Metropolitan America, Chapter 8 discusses urban sprawl and has extensive lists of the kinds of costs that may be incurred.  It cites the DuPage study, claiming it shows that "even commercial and industrial uses eventually cost more than they produce in revenue because they attract added residential development."  Comprehensive.  Created by the Office of Technology Assessment, Congress of the United States.

"Regulation for Revenue: The Political Economy of Land Use"

This book, written in 1993 by two Harvard public policy and planning professors, researches the practice of requiring exactions: "mandated expenditures by private land developers, required as a price for their obtaining regulatory permits, in support of infrastructure and other public services." (from the preface).  Along the way, they looked at other methods of providing public infrastructure and services, including taxes.

Among their conclusions, as cited by others:

Chicago area Metropolitan Planning Council study

This 1995 study analyzed the effects of commercial and industrial growth on local property taxes in a six-county region. 

Among the key findings were:

American Farmland Trust

As its name implies, this organization advocates for the retention of farmland.  It has developed a methodology for determining the fiscal contribution of existing local land uses called COCS (Cost of Community Services).  It carefully disclaims projecting the results into the future, but does deem them useful input to planning discussions.

In summary, the method used is:

  1. Collect data on local revenues and expenditures.
  2. Group revenues and expenditures and allocate them to the community's major land use categories.
  3. Analyze the data and calculate revenue-to-expenditure ratios for each land use category.

An often-cited result of one of these studies, conducted by the Trust in Frederick County Maryland in 1997, was:

(Seldom cited is the fact that, in this same study, Commercial and Industrial property came in at $.50, demonstrating a trend that holds for the average of many COCS studies over the last 20 years: commercial development costs a community least, then open land, then (most expensive and the only category generating more cost than revenue) residential development).

Another COCS study, covering Scio Township in Washtenaw County Michigan, found that for every local dollar raised from low-density single-family housing in the township, the community spent $1.40 in services.

The state of Maryland has produced a Teacher's Resource Guide on growth issues which cites the COCS method and adds the following:

The Utah governor's office of Planning and Budget has created an online tool that calculates the fiscal impact of various land use patterns, however it uses COCS ratio data specific to areas within Utah and therefore cannot be used directly in other areas.  There is also a detailed paper on the methodology used by this tool (6 Mb .pdf), including lists of local government revenue sources and expenses.

A 1998 paper from the Mackinac Center for Public Policy on "Urban Sprawl" (629 Kb .pdf) cites the COCS results, but tempers them with a reasoned critique of the method, including a list of 5 limitations to using it to set public policy. (p.26)


"Fiscal Impact Studies as Advocacy and Story Telling" (abstract) critiques fiscal impact study methodology and suggests productive changes to it.  Viewing the full paper requires a subscription to the Journal of Planning Literature Online or SAGE access.

A bibliography of material on the fiscal impacts of development, compiled by the Smart Growth organization, lists studies specific to particular locales, as well as several meta-studies that look at the results of multiple specific studies.  Unfortunately it does not include links to the source material that is listed.

The Economic Value of Open Space: A Review and Synthesis goes beyond tax implications to look at the total economic value of undeveloped land.  Numerous studies are cited.  Within their conclusions, the authors state that "open space can be seen as a non-depreciating, non-reproducible asset with increasing benefits through time.  By contrast, poorly planned development can depreciate in value and create significant liabilities for communities.  Similarly, open space possesses the option value of conversion to developed use, while development is rarely reversible."

Last updated 6 Sep 2009.

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