The Local Government Fiscal and Economic Impact Model: Cost-Benefit Analysis of New and Expanding Firms Requesting Property Tax Abatements

Abstract

The Fiscal and Economic Impact Model is a sophisticated approach to estimate local government revenues and expenditures associated with a new development such as a new firm's location or an existing firm's expansion. Conceptually, the Model is based on a comprehensive cost-benefit analysis (CBA) which evaluates the fiscal and economic consequences of a new development on a community in terms of measurable tangible costs and benefits. In particular, the Model is equipped to estimate the costs and benefits associated with the granting of a property tax abatement to a new or expanding firm. By employing a set of approximately 200 inputs, the Model differs from a simple financial accounting framework because a much broader and complete range of impacts -- both direct and indirect -- are taken into account. Also, the Model adheres to standard practice of economic analysis such as discounting for future costs and revenues.

The Fiscal and Economic Impact Model of the Institute for Public Policy and Business Research at the University of Kansas is an extension and refinement of a cost-benefit model originally developed by Dr. David Darling of Kansas State University's Extension. For a detailed description of the Institute's new concepts and technical improvements, and for a proposed further development, refer to Appendix 1.