The Effects of Different Land Uses in Missouri on Local Fiscal Conditions – Cost of Community Services Project Update – 4/12/02.

The Effects of Different Land Uses in Missouri on Local Fiscal Conditions – Cost of Community

Services

Project Update – 4/12/02

The initial question:

-- Are people with agricultural land in Missouri paying their “fair share” of property taxes?

What is “fair”?Benefit view: when people’s taxes are

sufficient to finance the public services they demand.

Ability to pay view: when people with higher-income pay more taxes than those with lower income (DeBoer & Zhou)

Purpose of the Study

1. To review strategies used by other communities in addressing the questions of land use and its associated tax rates

2. To analyze fiscal scenarios in several Missouri communities that are representative of the changing state demographics and the various types of communities

Purpose of the Study 3. To demonstrate how the ratios of cost of

services compared to tax revenues generated by real property taxes differ in various communities.

By utilizing the results of this study, rural and urban residents, as well as decision makers will obtain access to fiscal information that will aid them in land use planning and in identifying potential land uses.

Sponsoring agencies MO Department of Agriculture MO Department of Conservation MO Department of Economic

Development MO Department of Natural Resources MO Department of Transportation

COS uses fiscal impact analysis to determine how various types of land use affect local government taxation and expenditure.

COS Methodology:1. Identify land use categories

in this study, agricultural, residential, commercial. COS are examined at the county level.

2. Collect data on local revenues and expenditures

It’s important to note that this study only examines real property tax revenues.

3. Calculate percentages for allocation of revenues and expenditures

COS Methodology Expenditure calculations

Default percentages: By taking the assessed valuations, dividing by the assessment rate, we get the “market value” of each land type in each jurisdiction.

Calculate any exceptions to the default percentages based on assumptions (e.g., schools, libraries, parks and recreations, sheriff’s dept, fire dept);

Anna Kovalyova:

12, 19 and 32%

Anna Kovalyova:

12, 19 and 32%

COS Methodology

4. Then expenditures are allocated across land use based upon the percentages (either default, or pre-set)

For example, ag. value/total county market value = 20%

Therefore, ag. land is assumed to receive 20% of public services (i.e., we allocate 20% of local government expenditures to ag. land)

5. Final step is to divide expenditures by revenues to calculate the COS ratio

Interpretation of COS ratios:

If ratio = 1, the particular land use is “revenue neutral”;

If ratio >1, the particular land use does not pay for itself;

If ratio <1, the land use more than pays for itself.

Reasoning behind COS

Currently, for the purpose of real property taxation, land in MO is assessed at one of 3 different rates, depending on the type of land and its use: ag. land - at 12% of its production value,residential – at 19%, and commercial – at 32% of their market value.

In reviewing these rates, it seems that residential and commercial land would generate more revenue (relative to the base) for government services than agricultural land would.

Reasoning behind COS

Local officials are tempted to encourage growth among the residential and commercial sectors of their jurisdiction

But many times the costs of providing services in different areas are not accounted for when making these decisions.

While residential and commercial property may generate more tax revenue, in some instances, these types of property will also require more services, which can become costly.

Reasoning behind COS

Many studies indicate that residential development, by itself, does not provide the revenues that are needed to pay for services (American Farmland Trust).

COS Limitations

The method is descriptive, and not predictive. Based on average, rather than marginal costs;

Basis Measurement errors: per dollar vs. per acre calculations;

Level of aggregation: ignores key distinctions between different land uses within the same category;

Ignores capacity to develop and economies of scale/spreading fixed cost;

Ignore the indirect impact/multiplier effects; Does not acknowledge the nature of public goods; Land in itself does not demand services!

Review of other studies

American Farmland Trust Pioneered COS in 1986; Has used the COS methodology in over

70 studies. Median results are: • Residential – 1.15 • Commercial - 0.27 • Agricultural - 0.34

Review of other studies

Wisconsin Several studies performed by the

Wisconsin Land Use Research Program, University of Wisconsin.

Uses a ratio of allocated expenditures divided by revenues.

A ratio of greater than 1 indicates that the costs are greater than revenues, and less than 1 means that the revenues are greater that the costs

Review of other studies

Wisconsin results from various studies: Residential - 1.02 to 1.20 Commercial - 0.15 to 1.11 Agricultural - 0.04 to 0.93

Study Assumptions

General county government is assumed to serve all 3 types of land use;

Road & Bridge: assume that road infrastructure is enjoyed by people from other jurisdictions; Thus, use default ratios;

Houses on ag. land are assessed as residential (up to 5 acres);

Study Assumptions

Default percentages, except: School districts: Residential land receives all the

benefits from school districts; Ag. Land and Commercial Land receive NO

benefit from services such as juvenile services, parks and recs; and libraries;

County sheriff’s departments serve all land uses outside the tax jurisdictions that operate their own law enforcement agencies;

County fire departments serve all land uses outside the tax jurisdictions that operate their own fire departments.

Cole County Results

Table 1 - Cole County - Cost of Service Ratio (all government)Agricultural Residential Commercial

Revenues 277,790.70 16,712,667.50 7,378,811.51Expenditures 165,293.04 23,966,922.26 432,698.09Ratio 1: 0.60 1.43 0.06

•All government – includes all services such as county offices, fire districts, library districts, school districts

Cole County Results

Table 2 - Cole County - Cost of Service Ratio (school districts)Agricultural Residential Commercial

Revenues 277,790.70 13,077,647.67 5,866,323.12Expenditures 0.00 19,160,689.72 0.00Ratio 1: 0.00 1.47 0.00

• School districts - only reviews school district expenditures and revenues

Cole County Results All government, excluding school

districts

Table 3 - Cole County - Cost of Service Ratio (excluding schools)Agricultural Residential Commercial

Revenues 61,071.77 3,635,019.83 1,512,488.39Expenditures 165,293.04 4,806,232.54 432,698.09Ratio 1: 2.71 1.32 0.29

Boone County ResultsTable 4 - Boone County - Cost of Service Ratio (all government)

Agricultural Residential CommercialRevenues 517,215.10 9,029,175.92 2,257,985.46Expenditures 393,413.97 10,384,964.65 965,683.03Ratio 1.00 : 0.76 1.15 0.43

Table 5 - Boone County - Cost of Service Ratio (school districts)Agricultural Residential Commercial

Revenues 306,448.08 3,375,684.72 641,470.90Expenditures 0.00 4,323,603.70 0.00Ratio 1.00 : 0.00 1.28 0.00

Table 6 - Boone County - Cost of Service Ratio (excluding schools)Agricultural Residential Commercial

Revenues 210,767.01 5,653,491.20 1,616,514.56Expenditures 393,413.97 6,061,360.95 965,683.03Ratio 1.00 : 1.87 1.07 0.60

Adair County ResultsTable 7 - Adair County - Cost of Service Ratio (all government)

Agricultural Residential CommercialRevenues 468,481.52 4,446,840.34 1,702,805.98Expenditures 200,395.47 6,286,432.20 131,715.12Ratio 1.00 : 0.43 1.41 0.08

Table 8 - Adair County - Cost of Service Ratio (school districts)Agricultural Residential Commercial

Revenues 377,334.71 3,586,469.33 1,376,078.45Expenditures 0.00 5,340,297.46 0.00Ratio 1.00 : 0.00 1.49 0.00

Table 9 - Adair County - Cost of Service Ratio (excluding schools) Agricultural Residential Commercial

Revenues 91,146.80 860,371.01 326,727.53Expenditures 200,395.47 946,134.75 131,715.12Ratio 1.00 : 2.20 1.10 0.40

Audrain County Results

Table 11 - Audrain County - Cost of Service Ratio (school districts)Agricultural Residential Commercial

Revenues 467,911.61 2,459,996.86 977,953.56Expenditures 0.00 3,905,862.04 0.00Ratio 1.00 : 0.00 1.59 0.00

Table 10 - Audrain County - Cost of Service Ratio (all government)Agricultural Residential Commercial

Revenues 669,393.35 3,133,280.37 1,194,752.42Expenditures 352,317.36 4,556,580.22 128,851.92Ratio 1.00 : 0.53 1.45 0.11

Table 12 - Audrain County - Cost of Service Ratio (excluding schools)Agricultural Residential Commercial

Revenues 201,481.74 673,283.51 216,798.86Expenditures 352,317.36 650,718.19 128,851.92Ratio 1.00 : 1.75 0.97 0.59

Retail Sales vs. Commercial Property

98.8% correlation between the amount of assessed value of commercial property and retail sales

For every increase of $1 in assessed value of commercial property, there is an expected increase of $4.18 in retail sales.

Retail Sales vs. Residential Property

97.8% correlation between the amount of assessed value of residential property and retail sales

For every increase of $1 in assessed value of residential property, there is an expected increase of $1.85 in retail sales.

Conclusions

Consistent with the findings from other COCS studies;

In the present tax structure and associated levy rates of Missouri communities, residential development, by itself, does not provide the revenues that are needed to pay for public services;

To evaluate the impact of alternative economic uses of land in a community, impact assessment tools should be utilized.