1. Estimating Long-Term Financial Impacts Resulting from New Development Nicholas Dragisich, Executive VP, Springsted Incorporated Anthony Schertler, Senior VP, Springsted Incorporated Handouts and presentations are available online at www.iowaleague.org.

2. Iowa League of Cities September 24, 2015 PRESENTATION TO Presenters:Nick Dragisich, Executive Vice President Tony Schertler, Senior Vice President

3. The Vision - Proactive Community based planning –Has usually identified a location for something to happen –Land use is in transition and there is a barrier to investment or an opportunity to exploit Functionally obsolete use Contamination New Transportation infrastructure Room for community growth New value generated available for general public purpose Unhappy with the way existing land use controls operate 2

4. 33 Public Resources for Private Use/Benefit Housing and Economic Development efforts can be summed up as direct efforts undertaken by a local government to encourage private investment Three flavors –Community Development (capacity building) –Housing Development (needs based vs. demands) – Economic Development (increase market value)

5. Themes for moving forward Qualitative  Quantitative Form  Function Uses  Sources Costs  Value Added Consensus  Decisions Accounting for time 4

6. 55 Public Purpose Benefits (Policy) Increased private investment (consequently market value) through: –Increased employment (Type of Jobs) –Added housing units (Affordable or Market Rate) –Attraction of visitors who contribute to the local economy –Increased sales volume –Addition of infrastructure such as parking or public improvements which results in increasing market value through the above –Elimination of negative or blighting influences effecting surrounding property (Blight Curve)

7. 6 6 Public Cost (Professional & Policy) Existence of a financial gap (the amount of the difference between total development cost and private market/investment value) In absolute terms, the availability of public or philanthropic resources to fill the gap for a specific project (Developers often do not know a community’s financial capacity limits) In relative terms, the amount of subsidy required for a given project in contrast to amounts provided for similar projects in the past or current alternative projects (If everything is a “catalyst” what is catalyzed?)

8. Framing the approach – Policy Guidance How much of the vision is going to be implemented by the public and how much by the private –Important because the return on investment for public is typically different than the return on investment for private Prioritize public benefit outcomes then start to apply a cost to them Start looking for the fiscal values generated with the vision area 7

9. Framing the approach – Two Perspectives Financial incentive approach –The community return on investment (ROI) –Can be qualitative as well as quantitative Needs or “Gap” analysis approach –The developer’s return on investment (ROI) –Need to understand what is driving the gap Barrier to investment is contamination cost of $500,000 But if it is because markets sales too weak…? Still need to satisfy minimum statutory requirements 8

10. 9 Community ROI - Quantitative Cost-Benefit and/or Fiscal Impact Analysis Estimates costs and benefits to each affected jurisdiction –Benefits include property, sales, and earnings taxes –Costs include per-resident and per-worker costs of providing services, in addition to tax incentives Can include direct, indirect and induced effects of new development How do you use this analysis? Objective outcomes

11. 10 Investor or Developer ROI - Quantitative Needs or Feasibility Analysis – “but-for” –Finding whether a proposed project would not occur “but-for” the requested financial assistance. –Aka Gap Analysis Analysis illustrates project feasibility - provides a range of reasonable returns. However parties still need to negotiate the final terms of agreement What if an existing business threatens to leave?

12. Blight mitigation – Combined ROI 11

13. 13 What role does the community want to play to encourage development? Simply grant the permit and zoning allowance –Lowest risk Conduit issuer of tax exempt financing –Low risk (reputation) Reimburse the prospect as benefits are completed –Low risk Be the lender –Medium risk Be the borrower or guarantor –Higher risk Be the developer –Highest risk

14. What about other returns for City accepting more risk? There are no published benchmarks for what an appropriate public financial return (ROI) should be for projects that blend public purpose outcomes and financial risk with private sector investments Therefore expect local governments to negotiate desired outcomes such as “shared appreciation” concepts and risk mitigation strategies 13

15. 14 How does this relate to the economic development vision and plan? Determine up front that a complete development plan with detailed sources and uses is necessary. Every piece of information needs a responsible party providing it and those that are estimates should be noted. Before making a resource commitment, the best available information should be provided in a manner that is consistent and comparable. The level of detail required will be a function of the level of risk that a community is willing to undertake.

16. 15 Fiscal Impact and Economic Benefits Analysis Fiscal Impact Analysis –Tool for estimating long-term financial outcomes likely to result from new development New developments have potential to generate additional revenues Also result in additional expenditures to provide both governmental services and infrastructure to support the development

17. 16 Fiscal Impact and Economic Benefits Analysis Revenues –Property taxes –Other taxes –Charges for services –Permits and licenses –Other sources of revenue

18. 17 Fiscal Impact and Economic Benefits Analysis Expenditures –Costs are incurred to provide services to land developed for residential and employment uses Residential land uses include single-family and multi-family homes Employment land uses include commercial, industrial, and other land uses where employment occurs

19. 18 Fiscal Impact and Economic Benefits Analysis Allocation of the benefits and costs resulting from development –Based on source and/or use –Demographic, geographic, economic, and financial data including: Data related to population, workers, households, school enrollment, and median income Number, type and market value of different land parcels Number of occupied housing units

20. 19 Fiscal Impact and Economic Benefits Analysis Revenues and expenditures that can clearly be identified with a particular source or use are allocated to that source or use –Expenditures for parks and recreation would be allocated only to residential uses –Expenditures for fire inspections of businesses would be allocated only to employment land uses

21. 20 Fiscal Impact and Economic Benefits Analysis Revenues and expenditures whose source or use cannot clearly be identified with either residential or employment land uses would be allocated based on: –Population, employees, households, school enrollment, median income, and other available demographic data –The number, type, and market value of land parcels in the local government

22. 21 Fiscal Impact and Economic Benefits Analysis Revenues and expenditures whose source or use cannot clearly be identified with either residential or employment land uses would be allocated based on: (continued) –Average assessed value of a single-family residence –Property tax rates –Revenues and expenditures from Comprehensive Annual Financial Report –Regional economic multiplier

23. 22 Fiscal Impact and Economic Benefits Analysis Demographic Data –Census bureau –State demographer –Local government

24. 23 Fiscal Impact and Economic Benefits Analysis Economic Data –United States Bureau of Labor (consumer purchases based on income levels) –State Department of Revenue (taxable sales data)

25. 24 Fiscal Impact and Economic Benefits Analysis Financial Data

26. 25 Fiscal Impact and Economic Benefits Analysis Financial Data

27. 26 Fiscal Impact and Economic Benefits Analysis Geographic Data –County property records and data –Local government zoning information

28. 27 Fiscal Impact and Economic Benefits Analysis

29. 28 Fiscal Impact and Economic Benefits Analysis

30. 29 Fiscal Impact and Economic Benefits Analysis

31. Existing Capital Assets –Allocated to residents and employees based on their applicability and original cost –Assets that benefit both residents and employees typically allocated proportionately based on the number of residents and the number of employees 30

32. Fiscal Impact and Economic Benefits Analysis Capital Assets (continued) –General Fund assets that benefited only residents, such as park and recreation and assets in the schools and social services, were allocated only to residents –Airport assets were allocated 35% to residents and 65% to employees based on data from the Aviation Administration related to hours flown by private aircraft –Water and wastewater assets were not allocated because a connection fee is used to recover the cost of these assets 31

33. 32 Fiscal Impact and Economic Benefits Analysis

34. 33 Fiscal Impact and Economic Benefits Analysis

35. 34 Fiscal Impact and Economic Benefits Analysis Understanding Assumptions –Median family income typically less than average, or mean, family income Median family income is the point where half the families by number have lower income and half the families by number have greater income –Analysis uses average number of residents/housing unit Housing units with lesser residents/unit would most likely result in more positive fiscal impacts while those with more residents/unit would result in less positive or greater negative impacts

36. 35 Fiscal Impact and Economic Benefits Analysis Understanding Assumptions –Analysis used an average cost methodology –Calculates the cost of providing services based on current population, number of employees working in County and the number and value of assessed real property –These costs were assumed to represent the costs of providing services and capital assets to new residents and new employees

37. 36 Fiscal Impact and Economic Benefits Analysis Understanding Assumptions –Typically assumed there are neither excess nor deficient capacities in existing assets or services Excess capacity would result in a lesser cost per resident and per employee Deficient capacity would result in a greater cost –Cost of providing services is determined based on most recent financial data and existing capital assets Need to update cost in the future to reflect the changes in revenues, expenditures and assets

38. 37 Fiscal Impact and Economic Benefits Analysis Questions?