The Effects of Land Development on Municipal Finance

The purpose of this paper is to provide a theoretical and conceptual understanding of the fiscal effects which might be expected to result from land development within a community. The paper begins with a description of an “initial equilibrium” within a community prior to land development in order to exposit the mechanisms by which local government revenues and expenditures are determined. Understanding and predicting the effects of land development on municipal revenues and expenditures begins with an understanding of how levels of public expenditure are determined in the complex interaction between demand for public services and the production function which translates public inputs and outputs into levels of service outcome experienced by voters and residents. The paper then traces the effects of land developments through this system, discussing assumptions about service demands, service production, and the effect of socio-economic and demographic characteristics on both demand and costs. This paper identifies that the direct fiscal impacts which are measured in most fiscal impact analysis techniques are only a subset of the types of fiscal impacts that would be expected to result from land development within a community.