Longitudinal Effects of Impact Fees and Special Assessments on the Level of Capital Spending, Taxes, and Long-Term Debt in American Cities

Abstract

This article examines whether the use of impact fees and special assessments affect the level of capital spending and two major own source revenues of local capital spending (taxes and long-term debt) by analyzing a panel of 695 American cities with populations over 20,000 during the time period of 1980—2000. Since impact fees and special assessments are heavily used in a growing community and because it covers less than half the costs of new development, the findings demonstrate that the private financing of public infrastructure (impact fees and special assessments) increases the level of local capital spending. It also leads to an increase in the level of long-term debt use. Although it provides partial tax relief, it is not a strong substitute for taxes. Thus, impact fees and special assessments are not a substitute for local capital spending. It is rather a supplemental revenue source to fund local capital infrastructure.

The problem of the fiscal common-pool: is there an overlap effect on state and local debt?

“…With respect to another fiscal variable, special assessment as a form of alternative capital financing is positively and significantly associated with measures of debt for all local governments or debt for state governments only. These results at the state level of analysis are consistent with the findings made by Jung et al (2009) that special assessment and impact fees have a stimulating effect on the levels of debt issuance for the US cities.…”

“…The US COG stopped distinguishing between general obligation and nonguaranteed debt in 2005. This is unfortunate, as the purposes of these kinds of debt are different and thus the mechanisms driving them are distinct (Jung et al, 2009;Sharp, 1986).…”

“…Trautman (1995) finds that states with more decentralized management have higher levels of outstanding debt than centralized states, supporting the assumption that less central oversight, especially for public authorities, is associated with increased levels of borrowing. Jung, Roh, and Kang's (2009) research shows that special assessment, which is an alternative method of financing capital expenditures, has a stimulating (positive) effect on debt.…”

“…Furthermore, most studies explain debt for state governments (Bunch, 1991;Clingermayer and Wood, 1995;Ellis and Schansberg, 1999;Faulk and Killian, 2017;Greer and Dension, 2016;Martell and Smith, 2004;Trautman, 1995;Shi et al, 2018), but few studies explore state and local debt taken together and include models that explain state and local governments separately (Bahl and Duncombe, 1993;Wassmer and Fisher, 2011;Shi, et al, 2018). Several empirical studies explain debt for a sample of municipal or county governments or metropolitan regions (Martell, 2007;Jimenez, 2015;Jung et al, 2009;Sharp, 1986). A problem with using the county or city boundaries as the level of aggregation is that it only examines a portion of the local public market and it assumes that local residents can only make choices among jurisdictions within the county or city.…”

Introduction to the Special Issue on Value Capture for Transportation Finance

“…Different ways to measure the value gains give rise to a range of different value capture policies, which may be categorized in two groups Iacono et al (2009). Aiming to capture increased property values due to infrastructure improvements, the rst group can include land value taxation (discussed in two papers in this issue), special assessment nancing (Zhao and Larson 2011), tax increment nancing (Zhao et al 2010), transportation utility fees (also discussed herein); aiming to capture the value of enhanced development rights, the second group can include negotiated exactions (Altshuler et al 1993;Been 2010), development impact fees (Jung et al 2009;Mullen 2008), joint development (discussed in this volume), and air rights development (King et al 2008).…”