Pilot Point, Texas
Evaluating the fiscal impact of proposed development
Project objective
Demonstrate how a new small lot (higher density) development improves the city’s fiscal health and helps keep tax rates down.
1.
FROM APPRAISED VALUE TO REVENUE PER ACRE
The first step we always start with is to explain the difference between appraised value and revenue per acre. Here is what the difference looks like for Pilot Point:
Revenue per acre
When we map appraised value, bigger lots tend to have a higher value while smaller lots have a lower value. When we take the property tax levy revenue for a property and divide it by the area of the parcel, we get the actual amount of revenue the city collects per acre of land. This map shows the revenue per acre for each parcel in Pilot Point.
Fiscal productivity of different development patterns
Certain lot and development patterns routinely produce more revenue per acre than others. The 3D view of Pilot Point’s map shows the wide variation of revenue per acre for different parcels in the city (the higher the bar, the higher the rev/acre).
2.
FACTORING IN COSTS
Then, we factor in the city’s budgeted costs along with projected service costs and unfunded infrastructure liabilities to get a clearer picture of their long-term fiscal situation.
Revenue minus current budget
When cities budget, they set costs to match the revenue they expect to come in that year. When we allocate the costs down to the parcel level though, we can see which parcels are revenue positive, and which ones cost more to serve than they generate in revenue. We present this information two ways: a net revenue map that shows the net (revenue minus costs) for the parcels, and an ROI (return on investment) map, which shows the amount the city gets back in revenue for each dollar it spends on services. This map shows the net revenue per acre for levy revenue and budgeted costs for Pilot Point.
Unfunded liabilities →
Pilot Point’s future street replacement costs were approximately $52M. Unlike older cities that are behind on maintenance, Pilot Point has the opportunity to proactively plan for these replacement costs in future years. For our modeling, we spread these costs out over 20 years. When we distributed the $2.6M annual funding gap across the parcels to show the projected cost (or what we sometimes call the “true cost”) to serve development, some parcels and patterns continued to operate at a gain even with the additional costs. These are reflected in green on the map. Note how many of the parcels that were green in the previous map turn red.
This process and these two maps together were used to help city leaders think about how the development they build today impacts the future fiscal health of the city.
Here’s what this looks like with each step layered on top of one another:
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3.
ANALYSIS
Once the modeling is done, we can explore how different development patterns perform and use this data to inform land use, zoning, infrastructure and investment decisions.
Revenue/acre by lot size and structural value (residential and commercial)
When Verdunity was brought in, council was debating if, where and how they should support multifamily and small lot (more dense) development. Charts like those shown here help us communicate why revenue per acre is a more useful metric for cities to think about, and how this number changes for different lot and structural value combinations. For both residential and commercial properties, we see the same trend: value per acre is highest for the smallest properties (left of chart), and trends down as the property size goes up.
This information was used to communicate the value of more dense, small scale development, especially in the context of maximizing the return on taxpayer investment. The bigger the lot, the lower this return is.
Performance by land use code and zoning districts
Data from the models was also reviewed to assess how different land use and zoning districts perform with the current budget and with projected/unfunded service costs and infrastructure liabilities. In this chart, we showed how different land uses performed. Lot sizes are shown across the bottom of the chart (residential first, then commercial). The blue bars represents the ROI for the current budget, and the orange bars reflect the ROI when future street replacement costs are considered.
4.
APPLICATION
Once we have a baseline of how current development patterns are performing and what the city’s funding gap is, we can explore potential scenarios and solutions to see how they impact the city’s fiscal health.
Evaluating the fiscal impact of a proposed development project
We are also able to evaluate the fiscal performance of proposed development projects. We can evaluate a project independently as well as in the broader context of how it impacts the city’s overall fiscal position. In Pilot Point, we modeled the impact several planned developments would have for a variety of revenue and cost scenarios.
5.
KEY OUTCOMES
Exploring the math, maps and money helps communities make more informed decisions and build transparency and trust with residents and developers.
To close the city’s funding gap and increase taxpayer ROI, we encouraged the city to consider more small lot development that has the potential to generate much more revenue per acre, and to amend development policies to encourage more of the high ROI patterns and less of the patterns that are losing money for the city and its taxpayers.
At the time our analysis was completed, the city was considering several proposed developments with smaller lots. Our analysis was used to support the Planning Commission’s decision to approve one of the smaller lot developments.
The City is currently considering maintaining the model annually and performing fiscal impact analysis on more proposed development in order to evaluate impacts on the city’s long-term fiscal health.
“The critical takeaway from our work is that a city can help close its funding gap through adjusting its development pattern, potentially without raising taxes. Our objective is to provide information and new perspective so that city leaders can align their development and service model with what citizens are willing and able to pay for - now and in the future.”
Client contact information
Alan Guard, City Manager
AGuard@cityofpilotpoint.org