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Case Study: A Fiscal Impact Analysis of Darrow Pond
The town of East Lyme is evaluating a proposed development called Darrow Pond, an Active Adult Community for residents 55 years and older. The proposed development anticipates 600 residential units constructed over a 7-year period including 120 townhouses, 225 condominium units, 185 single family units and 70 unique buildings. Most of the land within the proposed development, 221 acres, is set aside for open space including common greens, a pond, gardens, wetlands and woodlands.
In addition, in July 2005 the possibility of a Special Tax District was created in East Lyme through Public Act No. 05-289. This tax district, if created, would issue bonds in order to finance the construction of the infrastructure for this development. The costs and revenues associated with various growth and cash flow scenarios of this development will also be considered.
In 2006 the town requested that CERC conduct a fiscal impact analysis to fully understand the long-term costs and revenues attributed to the proposed development.
Fiscal Impact Analysis Overview
A fiscal impact analysis is designed to assess one-time and ongoing municipal costs and revenues attributed to a proposed development. Nearly all municipal developments generate revenues such as fees associated with construction permits, utility connection fees if the municipality is providing these services, and property tax revenues. There are also costs associated with developments including replacing and maintaining the municipal infrastructure including roads, traffic and street lights, and water and storm water distribution systems. In addition, there may be increases in the demand for municipal services such as library, police, fire and public works.
A typical study period is 20 or 30 years so that the proposed development is analyzed for its long-term potential. Since 20-year bonds are being utilized in this proposed development, the study period was 30 years, thereby analyzing the fiscal impact while the bonds are paid off as well as after they are retired.
The costs and revenues were calculated on a net present value basis, which is today’s value of an amount to be paid or received in the future. This analysis looked only at the direct, current, public costs and revenues associated with the Darrow Pond proposal.
For this analysis an online, fiscal impact tool was utilized to calculate the capital, maintenance, replacement and operating costs of the municipal infrastructure and services, and the future revenues. This tool, InfraCycle, facilitated the comparison of costs and revenues to determine if revenues will support costs, and analyses may be updated if rates and costs change.
Following data compilation and verification provided by the town and developer, CERC conducted an in-depth and comprehensive analysis using its fiscal impact model. Model output was used to prepare the final assessment of the net fiscal impact of the proposal.
First, the proposed development (including the special tax district, $10 million gift to the town and a seven-year build-out) was analyzed regarding its fiscal impact on the town of East Lyme. Variations of the proposed development scenario were also calculated including:
- Proposed development without special tax district
- Proposed development without $10 million gift to the town
- 50% build-out of proposed development with special tax district and $10 million gift to the town
- Residential development of 200 single-family units with a 12-year build-out
A report that outlines all of the costs and revenues for the Darrow Pond development scenarios based on data supplied by the town and the developer was completed.
After the report was issued in September 2006, CERC staff was invited to present the findings at an informational meeting in the town in October. Each of the five development scenarios was described in terms of its fiscal impact on the town. The task now left to the town is to determine which Darrow Pond scenario generates the desired cash flow for the municipality and the developer.