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

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

• -- Are people with agricultural land in Missouri
  paying their fair share of property taxes?
• What is fair?
• Benefit view when peoples 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)

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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

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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.

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Sponsoring agencies

• MO Department of Agriculture
• MO Department of Conservation
• MO Department of Economic Development
• MO Department of Natural Resources
• MO Department of Transportation

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

• COS Methodology
• Identify land use categories
• in this study, agricultural, residential,
  commercial. COS are examined at the county level.
• Collect data on local revenues and expenditures
• Its important to note that this study only
  examines real property tax revenues.
• Calculate percentages for allocation of revenues
  and expenditures

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COS Methodology
Anna Kovalyova 12, 19 and 32

• 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, sheriffs dept,
  fire dept)

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COS Methodology

• 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)
• Final step is to divide expenditures by revenues
  to calculate the COS ratio

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Interpretation of COS ratios

• If ratio 1, the particular land use is revenue
  neutral
• If ratio gt1, the particular land use does not pay
  for itself
• If ratio lt1, the land use more than pays for
  itself.

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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.
  

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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.

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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).

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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!

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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

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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

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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

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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)

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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 sheriffs 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.

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Cole County Results

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

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Cole County Results

• School districts - only reviews school
• district expenditures and revenues

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Cole County Results

• All government, excluding school districts

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Boone County Results
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Adair County Results
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Audrain County Results
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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.

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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.

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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.