Rev Guide Presentation

8/8/2019 Rev Guide Presentation

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A Revenue Guidefor Local Government

2nd edition

Robert L. Bland

University of North Texas


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Bland, A Revenue Guide for Local Government, Copyright ICMA 2005

Table of Contents

1. Revenue policy and the local economy

2. Revenue policy choices

3. Strategic revenue choices

4. The property tax

5. The general sales tax

6. Excise taxes

7. The income tax

8. Service charges and regulatory fees

9. Impact fees and special assessments


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Chapter 1

Revenue policy and the localeconomy


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Legal basis for local revenues

Taxing powersTaxing of income, consumption, or wealth (property)

Proprietary powersOwnership and operation of enterprises, yieldingfees-for-service

Regulatory (or police) powers

Regulation of land use Licensing of various professions or activities Inspection and certification of food

establishments


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Three tax bases

Income Personal Corporate

Consumption General sales tax Excise (or selective) taxes

Wealth (property) Estate tax Property tax


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Early warnings

Regional tax and collection rates

Regional business investment

Regional population changes

Local financial condition


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Red flags for revenue problems

Persistent budget deficits

High delinquency rates

High vacancy rates

Aging population and housing stock Repeated postponement of infrastructure

replacement

Stagnant business investment

Steadily increasing tax rates Increased conflict during budget preparation

Little open space available for new development


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Creating a more resilient local economy

Develop a strategic plan

Avoid tax favors

Diversify tax base

Increase use of service charges

Limit nuisance taxes

Promote revenue self-sufficiency


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Strategies forstrengtheningthe localeconomy


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External influences on localgovernment finance


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Trends in local government finance

1. Greater financial self-sufficiency

2. Increased intergovernmental competition fornew business

Tax competition

Tax exportation

3. Citizen distrust of government

4. Increased economic uncertainty Cyclical shifts

Sectoral shifts

Population movement


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Chapter 2

Revenue policy choices:

Principles to guide managers


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Three pillars of support

Equity

Neutrality

Effective administration


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Equity in theory

Horizontal equity

Vertical equity

Regressive distribution

Progressive distribution

Proportional distribution


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Elements of a fair revenue structure

1. Benefits-based levies

2. No tax favors to special groups

3. Ease the burden on the poorest; dontpunish the wealthiest

4. Tailor tax structure to communitys age,

income distribution, and preference forpublic services


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Relationship of political environment

to revenue structure


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Neutrality in theory

Public goods and services

(e.g., national security, land use controls)

Private goods and services(e.g., utilities, recreation, parks, public transit,education)

Merit goods(e.g., a municipal airport, a county library, arabies vaccination program)


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Neutrality in practice

Broader base, flatter tax rate

Benefits-based taxes and charges

Smaller tax rate differentials

Carefully designed business taxes


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Guidelines for business taxation

Any tax on business should be widely usedthroughout the state or region.

Statewide taxation of the less mobile components of

production imposes a uniform tax rate, thusenhancing tax neutrality.

Statewide sales taxes on business purchases arepreferable to local governments defining the tax base.

Business taxation promotes greater cooperationbetween a state government and its cities andcounties.


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Tips for would-be tax reformers (1)

Heavy use of a tax exposes its defects.

Moderate tax rates on a broader tax base arebetter than higher tax rates on a narrower taxbase.

Improving the equity and neutrality ofexisting taxes is better than introducing a

new tax.


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Tips for would-be tax reformers (2)

Incremental tax reforms are more likely tosucceed than sweeping tax reforms imposedover a short period.

Easiest reform is elimination of nuisancetaxes that have low revenue yields and highadministrative and/or compliance costs.

Excise taxes, especially sin taxes andthose borne by nonresidents, are the leastpolitically objectionable.


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Getting to neutrality: Tips for managers

1. There is no perfect tax source.

2. Local tax and revenue policies should minimizemarket distortions and maximize economic growth.

3. Special tax favors increase inequities and lessenneutrality.

4. Local policies that promote horizontal equity arepreferable to those that promote vertical equity.

5. Benefits-based levies offer the best option forpromoting horizontal equity and tax neutrality.


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Phases of effective tax administration

Notification

Collection

Enforcement


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A formal policy statement . . .

1. Helps management and council membersagree on how government should finance itsoperations

2. Provides continuity in the procedures used tofund services

3. Saves time for executives and legislators;requires those seeking an exception toprovide justification; makes it easier to adjustindividual fees annually to comply with policy.


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Chapter 3

Strategic revenue choices:

Using tax policies for economic

and social purposes


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Factors escalating competition for

new business

Increased mobility of business

Stagnant growth, particularly inmanufacturing

Reduction in federal grants and greater

service responsibility shifted tosubnational levels


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Determinants of business location decisions

For location selection Supply and cost of labor

Proximity to suppliers and markets

Presence of agglomeration economies

For plant relocation No expansion space Need to modernize

Need to move closer to labor supply

Other factors

Average level of education in workforce Energy costs

Weather

Transportation networks


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Local taxes and business location

Research has shown that

Taxes have no bearing on location

Nontax factors do influence location decisions

Firms in manufacturing and wholesale trades are more sensitive

to property tax rates than firms in other industries

Inordinately high local tax burdens may promote the emigrationof labor

Above-average property tax burdens will ultimately forceproperty values down as businesses and households relocate tolower-tax areas.


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Tax relief for business investment:

Nontax incentives

Subsidized loans

Industrial development bonds (IDBs)

Land acquisition

Site preparation

Preemployment training

Publicly provided infrastructure


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Tax relief for business investment:

Tax incentives Tax abatement

A temporary reduction in a businesss property (or sales)tax burden.

Tax increment financing (TIF)The dedication of property tax revenue from arearedevelopment to finance development-related costs inthat area.

Tax exemption

The exclusion of certain types of transactions or objectsfrom the tax base.

Tax creditA dollar amount by which a taxpayers liability may bereduced.


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Locally financed tax incentives (1)

Research has shown that tax incentives

Are economically most easily justified inmarginal cases

Are politically most appropriate forgovernments with high and persistent rates ofunemployment

Enable governments to more equitably align the

tax burden on business, particularly for mobilesectors


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Locally financed tax incentives (2)

Research has shown that tax incentives

Aren't as necessary where agglomerationeconomies exist

Are best recovered through increasedrevenues from an income or sales tax ratherthan from the property tax

Are less beneficial to local governments ineconomically linked metropolitan areas.


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A typology of tax incentives

All incentives are intended to influence tax liability.Some do so by manipulating the tax base, others bymanipulating the tax rate, and still others by directlyaltering tax liability.

Tax base Tax rate Tax liabilityTax abatement Split tax roll Tax credit

Tax assessment freeze Tax rate freeze Tax levy freeze

Tax (freeport) exemption Tax dividend

Tax increment financing Tax rebate

Tax holiday Tax amnesty

Tax base sharing


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Pros of tax increment financing (1)

TIF can finance otherwise economicallyinfeasible projects.

City loses no tax revenue.

Property owners within the zone pay full shareof property taxes.

TIF bonds are not included in a citys generaldebt obligations.


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Pros of tax increment financing (2)

Development is financed from increasesin tax revenues generated.

Once TIF bonds are retired, the city andother affected taxing units get theadvantage of the full tax base andincreased tax revenues.

No voter approval is required.


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Cons of tax increment financing (1)

Taxpayers outside the district must pay forincreased service needs that result fromredevelopment.

There is no voter accountability.

Cities may abuse the program by Capturing taxes on development that would

have occurred anyway or using captured taxrevenue to provide basic city services

Stretching the definition ofblightto allow use ofTIF in areas that dont need publicly subsidizedassistance.


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Cons of tax increment financing (2)

TIF debt is more expensive to service.

Development plans cant be easily altered.

Other taxing units must give up part oftheir tax revenues with no voice in howthat money is spent.


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Guidelines for using tax incentives (1)

Leaders should develop a strategic planthat identifies

The communitys economic strengths,

weaknesses, opportunities, and threats Goals, measurable objectives, and

strategies for achieving them

Measurable benchmarks for assessingprogress.


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A local government should have access to atleast one broad-based nonproperty tax tocapture more revenue benefits fromeconomic growth.

Larger jurisdictions are better able to ensurea good match between taxpayers who bearthe cost of incentives and those who benefitfrom the increased economic activity.

Economically declining jurisdictions tend togive away too much when trying to attractnew business.


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Where agglomeration economies alreadyexist, tax incentives arent needed.

Tax incentives are most justified forindustrial and technology development.

In the long term, locally financed taxincentives shift the cost of services toother taxpayers, providing an incentive forthem to move to a lower-tax area.


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Examples of broad tax relief measures

Proposition 13, California, 1978

Proposition 2-1/2, Massachusetts, 1980


Taxpayer Bill of Rights (TABOR),Colorado, 1992

Act 77, Pennsylvania, 1994

Hancock Amendment, Missouri, 1996



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Noted repercussions of Proposition 13 (1)

Greater concentration of decisionmaking at state level

Significant reduction in localgovernment fiscal and politicalautonomy

Less local government accountability

Marked increases in horizontal inequitiesbetween new buyers of property andlong-term residents


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Noted repercussions of Proposition 13 (2)

Significant shift in property tax burden tohome owners and away from businessowners

Chronic housing shortages, resulting inlower profit margins for newerdevelopments

Competitive disadvantages for newercommercial businesses


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Disasters and revenue policies

Emergency management involves

Mitigation

Preparedness

Response

Recovery


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Chapter 4

The property tax


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Municipal government dependence on

the property taxRevenue as a percentage of general revenues

__________________________________________________________

Revenue source 1991-92 1996-97 2001-02__________________________________________________________

Property taxes 25.1 22.7 22.8All other taxes 22.3 23.9 24.2Service charges 18.7 20.9 20.4

Utility charges 22.1 21.4 21.5

Other non taxes 11.9 11.1 11.1

100.1 100.0 100.0

Total general revenue(in millions)a $161,293 $202,674 $255,220

_____________________________________________________aIncludes utility charges but excludes intergovernmental aid, liquor store income, and

insurance trust revenue.


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County government dependence on

the property taxRevenue as a percentage of general revenues

__________________________________________________________

Revenue source 1991-92 1996-97 2001-02__________________________________________________________

Property taxes 43.5 38.6 38.4All other taxes 15.0 17.0 17.1Service charges 25.6 29.1 29.1



100.0 100.0 99.9

Total general revenue(in millions)a $94,808 $122,161 $161,483




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Types of property

Real propertyLand

Farmland Open spaces Timberland

MineralsImprovements

Buildings (residential,commercial, industrial)

Infrastructure Underground

improvements

Personal propertyTangible

Inventory Equipment Vehicles

Jewelry Artwork Furniture

Intangible Stocks Taxable bonds/notes Insurance policies Bank deposits Patents, copyrights Trademarks Accounts receivable


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Establishing taxable value

Terms to understand

Market value

Sales price

Consideration

Appraised value

Sales comparisonmethod

Cost method

Use (or production)

value

Mass appraisal

Assessed value

Acquisition value

Equalized value


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Advantages of the property tax

Provides a stable source of revenue

Reaches nonresident property owners

Finances property-related services

Is difficult to evade

Promotes local autonomy


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The property tax cycle

AppraisalDetermines the value of property for tax purposes,using legally specified standards of valuation

AssessmentAdjusts appraised value to determine the taxablevalue of property

CollectionInvolves the preparation and distribution of taxnotices to both current and delinquent taxpayers


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Strategies for improving property

tax collection: Current taxes Use well-designed tax statements

Mail reminder notices 2-3 weeks before taxes

are due Keep taxpayer records current, especially

mailing addresses

Build taxpayer goodwill through more

convenient collection points and office hours

Apply penalties and interest rates thatdiscourage delinquent payment


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Strategies for improving property tax

collection: Delinquent taxes

Pursue delinquencies immediately and aggressively

Increase the intensity and urgency of each

successive notice of delinquency Use discretionary powers (e.g., setoff provisions)

Contract out collections to a law firm or collectionagency

Publish names of taxpayers and amounts owed in anewspaper

Use small-claims court for minor cases


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Public attitudes toward taxes

Percentages identifying tax as the least fair________________________________________________

Type of tax 2001 1994 1990________________________________________________

Property tax 22 28 28

Federal income tax 30 27 26

State income tax 13 7 10

State sales tax 13 14 12

Dont know 10 11 9


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Taxpayer dissatisfaction (1)

Reason forTax falls on unrealized capital gains, making it punitive forthose who are property rich but cash poor

Measures to reduce Tax liability freeze

Tax rate limits or freeze

Homestead exemption

Tax deferral program

Split tax roll


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Reason forAnxiety about appraisal

Measures to reduce

Full disclosure or truth-in-taxation Fractional assessments

Cap on increase in assessments

Classification of property values

Use-value appraisals Acquisition-based appraisals


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Reason for

Inequitable assessments and appraisals

Measures to reduce

Full-value assessments

More frequent reappraisal

Full-time appraiser

State oversight of local appraisal practices


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Steps in full disclosure

1. Determine a tax rate that will yield the sametax levy produced in the preceding year. Thisis called the effective orconstant yield rate.

2. Publish the effective rate in the newspaper.

3. Adopt a tax rate that will generate sufficientrevenues to balance the current operating

budget, and advertise or notify propertyowners of the percentage difference betweenthe final rate and the effective rate.


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IAAO appraisal standards

Intra-area coefficients of dispersion (CDs)for single-family residential property shouldbe less than 10 percent.

Intra-area CDs for all other types of propertyshould be less than 15 percent.

Where property is classified and assessedat different fractions of appraised value, the

average assessment ratio for each classshould be within 10 percent of the legallyprescribed level of assessment.


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Chapter 5

The general sales tax


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The role of the general sales tax

Once one level of local government has access to it,pressure builds to extend authority to other levels.

Over time, states tend to decouple their tax basefrom that of their local governments.

Tax rates tend to rise as expectations for servicesgrow and other revenue sources become limited.

Local governments increasingly rely on it becauseof its greater responsiveness to economic growth.

The more dependent a locality is on the tax, themore vulnerable its operating budget is tofluctuations in the business cycle.


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Variations of local control

Local Local Local

No local discretion discretion discretion Local

control over base over rates over liability administration

(15) (4) (22) (3) (7

a

)

_____________________________________________________Note: Numbers in parentheses reflect the number of states in which each

variation exists.

a Local administration is available in seven states. In Alaska, which hasno sales tax, and Louisiana, local governments must collect their ownsales tax. Most smaller local governments in the other five states opt forstate administration while the more populous cities and counties preferto enforce and collect the tax locally.


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Municipal government dependence

on the general sales taxRevenue as a percentage of general revenues

__________________________________________________________

Revenue source 1991-92 1996-97 2001-02__________________________________________________________

Property taxes 25.1 22.7 22.8

General sales tax 7.5 8.1 8.4Selective sales tax 5.1 5.3 5.5

All other taxes 9.7 10.5 10.3

Service and utility charges 40.8 42.3 41.9


100.1 100.0 100.0Total general revenue

(in millions)a $161,293 $202,674 $255,220




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the general sales taxRevenue as a percentage of general revenues

__________________________________________________________

Revenue source 1991-92 1996-97 2001-02__________________________________________________________


General sales tax 8.7 10.1 9.7Selective sales tax 2.1 2.3 2.5





(in millions)a $94,808 $122,161 $161,483




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Factors affecting the sales tax base

Inclusion of services

Internet sales

Exemptions for food

Population changes

State regulation

Tax base conformance


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Issues in designing a local sales tax

Effect on local retail sales

Effect on the property tax burden andgovernment spending

Impact on the distribution of tax burdens

Exportability

Coordination of rates

Dedication of revenues to particular services


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State concerns when granting local

governments access to a sales tax

Should voter approval be required?

How much discretion should localgovernments have in choosing a tax rate?

Should tax liability be based on point of saleor point of delivery?

Should the state collect and enforce the tax?


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Chapter 6

Excise taxes


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Common types of excise taxes

Benefits-based taxes Gross receipts taxes on utilities Hotel/motel occupancy

Motor fuels

Sumptuary (sin) taxes Alcohol / mixed drink Tobacco Gasoline and diesel fuel

Privilege taxes

Occupation privilege Admission Restaurant meal Deed transfer (real estate) Bank franchise


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Trends reflecting revenue potential

Large urban cities and resort communities make thegreatest use of excise taxes.

Use of locally levied excise taxes varies widelyamong states.

Gross receipts taxes on utilities are the largestsource of excise tax revenue for municipalities.

Dependence on excise tax revenue has grownamong cities and counties.

The greater the use of excise taxes with broaderbases, the heavier the dependence on excise taxrevenue.


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on excise taxesPercentage of Number of statestotal excise tax where municipalities

Type of excise tax revenue, 2001-02 levy tax, 2002_____________________________________________________

Public utilities 61.6 40

Hotel/motel occupancy 15.0 37Restaurant 4.0 14

Motor fuels 2.2 9

Alcoholic beverages 1.7 8

Tobacco products 0.9 19

Other excise 14.6

Total excise revenue

(in millions) $13, 964.83__________________________________________________________


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excise taxes Percentage of Number of statestotal excise tax where counties

Type of excise tax revenue, 2001-02 levy tax, 2002____________________________________________________

Hotel/motel occupancy 20.0 38

Public utilities 28.5 27Motor fuels 19.0 12

Alcoholic beverages 3.0 13

Tobacco products 1.7 8

Restaurant 3.0 14

Other excise 25.0

Total excise revenue

(in millions) $4, 034.67____________________________________________________


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Hotel/motel occupancy taxes:

Issues of concern Effects on local business

Convention and tourism industries Price inelasticity

Effects on local government budgets Promotion of tourist-related services Income elasticity

Administering the tax

Frequency of remittance Enforcement powers Auditing authority


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Motor fuels taxes: Issues of concern

Effects on sales

Potential border-city/county effects Gasoline consumption Distribution of tax burden

Coordination of tax rates

Regional/countywide imposition

Pro rata revenue allocation

Administering the tax Uniform adoption and rates State collection


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Sumptuary, privilege, and other

non-benefits-based taxes

Significant border-city/county effects

High administrative costs

Low revenue yield


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Significant legislation

Tax Reform Act of 1986 State and local sales taxes no longer deductible

from federal returns

State and local income and property taxes stilldeductible

American Jobs Creation Act of 2004

Restored deduction for state and local sales taxes,but only if income liability isnot deducted


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on income taxesRevenue as a percentage of general revenues

__________________________________________________________

Revenue source 1991-92 1996-97 2001-02__________________________________________________________


General and selective sales tax 12.6 13.4 13.9Income taxes 6.3 6.8 5.9All other taxes 3.4 3.7 4.4




(in millions)a $161,293 $202,674 $255,220_________________________________________________________aIncludes utility charges but excludes intergovernmental aid, liquor store income, and



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income taxesRevenue as a percentage of general revenues

__________________________________________________________

Revenue source 1991-92 1996-97 2001-02__________________________________________________________


Income taxes 1.6 1.8 2.0All other taxes 13.4 15.2 15.1

Service charges 25.6 29.1 29.1




(in millions)a $94,808 $122,161 $161,483_________________________________________________________aIncludes utility charges but excludes intergovernmental aid, liquor store income, and



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Tax rate x tax base = revenue yield


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Types of income

Personala Business ________________ ___________________Earned Unearned Proprietaryb CorporateWages Interest Net profits Net income

Salaries Dividends Gross income

Tips Capital gains

Commissions Rent

Royalties

Inheritancec

Giftsc

a The sum of earned and unearned sources.b Unincorporated businesses and professions.c Normally taxed separately and not included in income tax base.


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Steps in establishing tax liability

Step 1: Define gross income

Step 2: Deduct adjustments

Result: Adjusted gross income (AGI)

Step 3: Deduct personal exemptions

Step 4: Deduct standard (or itemized) deductions

Result: Taxable income

Step 5: Multiply taxable income by appropriate tax rate

Step 6: Deduct tax credits


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Income tax bases used

Narrowest Broadest________________________________________________

Earned only Earned and Personal and Earned, Personal,proprietary proprietary proprietary, proprietary,

and corporate and corporate

Alabama Ohio Indiana Philadelphia MichiganPennsylvania Maryland Ohio New York City


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Issues in designing a local income tax

Effects on the local economy

Effects on local government budgets

Commuters

Local government discretion in adoptionand administration


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Strategies for taxing commuters

Tax credited to Commuters taxed Tax credited jurisdiction of at a lower rate to jurisdictionemployment than residents of residence

Kentucky Michigan Indiana

Kansas City, Mo. Philadelphia New York City

St. Louis, Mo. Yonkers, N.Y. Pennsylvania


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Benefits of state administration

Taxpayer compliance costs reduced

Collection costs lowered

A more uniform level of enforcement

Only one audit necessary


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Government goods and services

Public goods and services

(e.g., national security, land use controls)

Private goods and services

(e.g., utilities, recreation, parks, public transit,education)

Merit goods

(e.g., a municipal airport, a county library, arabies vaccination program)


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Benefits-based levies

SpecialBenefit assessments User taxes charges

Benefits-based leviescommonly used bylocal governments

Development Utility servicefees License and charges

permit fees


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Advantages of service charges and fees

Reduce wasteful consumption

Reflect extent of citizen demand for service

Are equitable

Improve productivity by ensuring thatbudget choices are based on relationship ofservice levels to demand

Can influence private behavior towardsocially desirable ends


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on user charges Service and utility charges as apercentage of general revenues

________________________________________________________

Revenue source 1991-92 1996-97 2001-02________________________________________________________




Utility charges 22.1 21.4 21.9Other non taxes 11.9 11.1 11.1

100.1 100.0 100.0

Total general revenue

(in millions)a $161,293 $202,674 $255,220_______________________________________________________aIncludes utility charges but excludes intergovernmental aid, liquor store income,

and insurance trust revenue.


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user charges Service and utility charges as apercentage of general revenues

________________________________________________________

Revenue source 1991-92 1996-97 2001-02________________________________________________________




Utility charges 1.8 2.2 2.1Other non taxes 14.1 13.1 13.2

100.1 100.0 100.0

Total general revenue

(in millions)a $94,808 $122,161 $161,483_______________________________________________________aIncludes utility charges but excludes intergovernmental aid, liquor store income,

and insurance trust revenue.


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Areas in which some services arefinanced by charges and fees

Recreation and leisure activities

Utility services

Public works Police protection

Planning and economic development

Sanitation and animal control Health

Transportation


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Areas in which some activities areregulated by local government

Animal registration

Amusement and recreation

Building construction

Food service

Businesses and occupations

Health care facilities and services

Planning, zoning, and development


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Recommendations for charging feesfor use of public rights-of-way

Modify state law to say that localgovernments are legally and economicallyjustified in requiring compensation

Periodically reappraise fair market value ofeasements

Explore feasibility of constructing andmaintaining own fiber-optic networks andleasing capacity to private interests


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Issues in adoption of service charges

Which services can be sold?

Which services shouldbe sold?

Is it more equitable to charge users or levy a tax?

Do surrounding jurisdictions levy a charge forthe service?

How do citizens feel about higher local taxes?

How will the charge affect service use?


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Barriers to increased use of servicecharges

Absence of precedence

Service user opposition

Piecemeal adoption of charges and fees

Antiquated state statutes

Service staff resistance

Regressivity


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Stages in the review of service charges

1. List services

2. Codify charges and fees by function

3. Review charges and fees annually

4. Recommend adjustments where appropriate

5. Conduct cost-of-services study

6. Introduce incentives


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Approaches to pricing services

Full-cost and return-on-investmentpricing

Partial-cost pricing

Competitive pricing

Marginal-cost pricing


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Justifications for partial-cost pricing

for merit services Some benefits accrue to the whole

community.

The local government wants to stimulatedemand for the service.

Enforcement of the charge at full cost wouldresult in widespread evasion.

The service is used primarily by low-incomehouseholds.


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A cost-of-services study . . .

Provides rationale for the price to becharged

Helps determine whether to contract out

or use in-house personnel

Identifies cost of providing the service

Direct costs: Expenses that would be eliminated if

the service were discontinued

Indirect costs: Cost of support (or staff) services

provided by one department to other departments


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Types of costs

Direct Indirect

Personnel: Administrative:

Wages General government

Benefits Departmental

Other: Other:

Equipment Operating

Supplies CapitalContract services


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Strategies for improving collection:

Current accounts Use well-designed tax statements

Keep accounts current, especially mailingaddresses; develop a consolidated database

Provide for Web-based payments, automaticbank draft options; allow credit or debit cardpayments

Apply penalties and interest charges that

discourage delinquency

If cost-effective, contract out collections


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Strategies for improving collection:

Delinquent accounts Establish legal authority

Establish liability for utility charges

Specify steps for collection and increase theintensity of each

Use discretionary powers (e.g., setoffprovisions, attornment of rent, liens on property)

Require a deposit

Contract out collections to a private law firm

Develop an amnesty program


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Provisions of a revenue policy

statement Integration with budget process

Schedule for cost-of-services study

Levels of subsidy

Collection


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Chapter 9

Impact fees and specialassessments


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Impact fee

A charge to developers for the cost of

off-site capital improvements needed

to serve a new development.


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Stages in adoption of an impact fee

1. Prepare land use plan

2. Define service areas and determine capitalneeds in each

3. Develop capital improvements plan and

prepare budget

4. Determine capital improvements needed toserve new residents

5. Adopt impact fee by ordinance or order

6. Establish accounting guidelines for recordinguse of revenue from fee


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Issues in design of an impact fee

Types of improvements to be financed(scope)

Basis for each propertys liability (structure)

Rates charged to different classes ofproperty (stratification)


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Issues in collection of an impact fee

Determination of when to collect fee

Two-year phase-in

Accounting procedures to documentthat fees were used to finance projectsdirectly benefiting those paying thefee


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Objections to impact fees

Effect on housing prices

Unfairness to new residents (doublepayment problem)

Windfall to current residents


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Required conditions for capitalization

Home buyers will comparison shop

Substitute housing is readily availablenearby

Impact fees arent levied by all

governments within the region or atthe same rates

Impact fees: Constitutional tests of


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Impact fees: Constitutional tests ofvalidity

Fees must be specifically and uniquelyattributable to the new development (IllinoisSupreme Court, 1961)

A reasonable relationship must exist betweenthe development where the fee is assessed andthe beneficiaries of the service (CaliforniaSupreme Court, 1971)

A rational nexus must exist between the newdevelopment and the facilities financed with thefee (Wisconsin Supreme Court, 1966)

Guidelines for a legally acceptable


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Guidelines for a legally acceptablefee ordinance (1)

Secure competent legal expertise early

Document improvements (and cost)

needed to serve new growth

Ensure that the fee doesnt generate

more revenue than the cost of neededimprovements

Guidelines for a legally acceptable


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Guidelines for a legally acceptablefee ordinance (2)

Refer to the state statute authorizingthe levy

Document that the fee hasnt beenused to renovate existing facilities

Specify types of development subjectto the fee and whether redevelopmentor tax-exempt property is included


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Special assessment

A levy on property owners for the

increased property value created by

the installation of nearby publicimprovements

Stages in adoption of special


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Stages in adoption of special

assessments1. Initiate project

2. Complete a feasibility study

3. Hold public hearing on the projects feasibility

4. Authorize project

5. Prepare and mail assessments

6. Hold public hearing on assessment roll

7. Issue assessment certificates

Components of enabling legislation


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Components of enabling legislationfor special assessments

Level of local government with authority tolevy the assessment

General procedures for adoption

Types of improvements eligible for financing

Basis for allocating costs

Option for installment payments

Maximum interest rate on payments

Documents

Rev Guide Presentation