#8 - More residences don’t mean extra tax revenues.

County officials and other elected leaders are often led to believe that land converted to residential use will provide local government with extra revenue due to an expanded tax base. Acres of houses clearly pay more taxes than do acres of farmland and open space. But when the cost of services such as roads, public health and safety, education and others are taken into account, the financial contribution that residences make to tax revenues is far outweighed by their increased demand on the local services and infrastructure.

A cost-revenue comparison, or Cost of Community Services study (COCS), can provide elected officials with an understanding of the amount spent in services on each type of land use and the amount that each type brings the county in revenue.

What have COCS studies around the country found? In general, they find that counties have a combination of land uses – residential, commercial, industrial, agricultural and open space. Commercial and industrial uses usually provide a positive balance; in other words, a county receives more taxes from these types of development than has to be paid out in the form of services. The same is true for farmland and open space. Residential use, which usually generates more gross revenue than the other types of use, often leaves a county with a net financial loss after the costs of roads, schools, sewers and the like are factored in. The assumption that residential development would alleviate financial constraints for cash-strapped counties does not necessarily play true. Instead, what seems to be clear from studies done across the country is that residential development that is uncontrolled, or not balanced by business growth and agricultural preservation, will either increase property taxes or lead to decreased public services.

The box below shows the relationship between each dollar of tax revenue and the amount spent providing services(a land use that shows fiscal balance would be a $1:$1 ratio; a land use in deficit will show more expenditures, i.e., $1:$2; and one in surplus would show more revenues, i.e., $1:$0.50).

It is important to understand that COCS studies provide a static “snapshot” of a county’s revenues and expenditures. They also do not distinguish between types of residential development. With these caveats in mind, this approach to understanding fiscal realities of land development can be flexibly applied in any jurisdiction.

Below are some examples of Cost of Community Service studies done in the West. These ratios are especially significant when you consider that between 1992 and1997 more than 6 million acres of agricultural land was converted to other uses nationally.

Ratios between a dollar of tax revenue and the amount spent providing services

Cost of Community Services studies provide a useful view of both the costs and benefits of different types of land use – and often show that expanding residential areas are not the answer to county fiscal problems. Instead, preserving agricultural land and open space, as well as encouraging commercial and industrial development, can provide a better balance. More is not always better; balance is important too.