COSTS OF OPEN SPACE VS. DEVELOPED LAND USES

* Protecting open space eliminates the costs of new government services, including schools, water, trash removal, sewers, policing, and fire protection--the primary burdens on local government budgets.

* Protecting open space can improve municipal bond ratings and reduce the costs of government borrowing.

Fausold, Charles J. and Robert J. Lillieholm. 1996. "The Economic Value of Open Space: A Review and Synthesis." Lincoln Institute of Land Policy Research Paper.

*******Do not cite without permission

Burchell and Listokin summarized the four basic steps in fiscal impact analysis:

"1. estimate the population generated by growth (i.e. people, school-age children, employees, etc.);

2. translate this population into consequent public service costs;

3. project the revenues generated by growth; and

4. compare development-induced costs to revenues; if costs exceed revenues a deficit is incurred; if revenues exceed costs a surplus is realized."

"Fiscal impact analyses must be carefully evaluated, since the choices of methodology and assumptions greatly influence the findings. It has been noted, for example, that 'the results of most fiscal impact analyses conform with the policy inclinations of the governments or organizations that sponsored them'."

The greatest benefit of fiscal impact analyses "may be in prompting a reassessment of the 'conventional wisdom' about the economic consequences of development and conservation. Fiscal impact analysis will not by itself answer the question of whether a particular parcel of land should be preserved as open space or developed. However, it can help frame the discussion and lead to more informed decisions by policymakers, conservationists and the public."

Government Finance Group, Inc. September 1993. "Economic Benefits of Open Space." Public Finance Digest.

"Residential land is the most expensive for local government to support. Residential development costs the public more money than it pays in taxes and charges. Land with a low density of residents per acre such as commercial/ industrial or open space yields fiscal benefits to the local governments. This contrast can be seen quite clearly with the example of education costs within a local jurisdiction. Allocating practically all of the costs of education to residential land makes this the most costly type of land. Commercial land generates minimal education costs. While open space's education costs are higher than those of commercial/ industrial land, this type of land maintains these costs at a very moderate level due to its low population density.

A thorough analysis of the commercial/industrial land category's apparent economic advantages also reveals many of the to be illusory. For example, commercial/industrial development can attract new residents to the community to work at its businesses, but these new residents' demands for increased services appear to wipe out the initial advantages of this land type."

"The core reasoning behind this assessment of open space's economic benefits is that agricultural or undeveloped land demands fewer services and even with customary low tax rates generates more than enough to pay its way."

Chalkey, Tom. Summer 1992. "High Tops and Tree Tops." The Amicus Journal.

"City living is not yet popularly viewed as 'ecological', but city dwellers use far less energy and resources and generate far less waste than suburbanites. A denizen of the average American city lives in smaller quarters- usually in an apartment house- than the typical suburbanite, who inhabits a single-family home on a quarter-acre lot."

Thomas, Holly L. February 1991. "The Economic Benefits of Land Conservation", Technical Memo of the Dutchess County Planning Department, Dutchess County, New York.

"Land conservation is often less expensive for local governments than suburban-style development."

"The old adage that cows do not send their children to school expresses a documented fact-- that farms and other types of open land, far from being a drain on local taxes, actually subsidize local government by generating far more in property taxes than they demand in services. The opposite is true of most suburban forms of residential development. In other words, maintaining a substantial open space system is one important was of controlling the costs of government."

"A 1990 study of revenues and expenditures for various types of land uses in Red Hook, Fishkill, and Amenia, by Scenic Hudson, Inc. found that residential land required $1.11 to $1.23 in services for every dollar it contributed in revenue, while open land required only $0.17 in services in Amenia, $0.22 in Red Hook, and $0.74 in Fishkill for each one dollar contribution."

"The Scenic Hudson and Cooperative Extension studies and others have shown that commercial and industrial land uses also demand less in services than they pay in taxes. However, it is important to remember that commercial and industrial growth encourages residential growth. Working farms do not."

"Giving land conservation a high priority encourages more cost-efficient development."

"Clustering involves grouping buildings on parts of a piece of property instead of spreading them out in a way that consumes the entire parcel. ...Clusters are frequently referred to as open space subdivisions because they can be designed to keep the most important undeveloped land on a site -- such as productive farm fields or wildlife corridors-- intact."

"The National Association of Home Builders first documented the economic benefits of clustering in 1976. In evaluating this tool for encouraging development and land conservation at minimal public cost, the association found that a sample 472-unit cluster cost 34% less to develop than a conventional grid subdivision.

These costs vary from site to site, but follow the general principle that well-designed clusters--both high density clusters in community centers and low density clusters of detached units in rural areas-- consume less land, require shorter roads and pipes, and fit in better with traditional community densities than do the suburban grids and spiderwebs that are spreading across the landscape."

"Communities with well thought-out land protection programs may improve their bond ratings."

"Bond ratings are beginning to reflect the fact that unlimited or mismanaged growth can threaten a community's fiscal health, while sound planning can help sustain it."...Howard County, Maryland , for example, "has one of the most innovative farmland preservation programs in the country. It stretches public dollars by combining installment purchases of development rights with property tax abatements."

"In May, 1990, Fitch Investors Service gave the county a AAA bond rating for the issuance of over $55 million in bonds for capitol projects because of its record and its specific plans for limiting and managing growth. In its presentation to the Fitch Investors Service, the county argued that because its programs limited the amount of land that could be developed, they limited the amount of infrastructure the county would have to provide. This meant that the county would not have to go into as much debt for infrastructure construction, and could more easily carry any other debt it incurred. In awarding the AAA rating, Fitch Investor Service agreed."

Maine Coast Heritage Trust. June 1991 "The Positive Impacts of Conservation." Technical Bulletin, no.112.

Selectman George Christopher, from Bowdoiham, Maine, "in order to assess what would be in the best financial interests of the town, analyzed a hypothetical 150-unit subdivision of $150,000 four-bedroom homes. In a community where the average cost of housing is $67,000 due to a large percentage of mobile homes, the subdivision appeared at first glance to be a revenue generator. The study accounted for additional solid waste disposal and education costs and ignored increased expenditures for fire and police protection and municipal road maintenance. It concluded that, rather than generating income, the proposed subdivision would cost the town roughly $2000 per year and cause 3.3 mil increase for each taxpayer. Bowdoinham chose to preserve a working farm and scenic open space rather than to underwrite the costs of development, which research indicated would not be met by the anticipated property tax revenues. Selectman Christopher's conclusion: 'Undeveloped land is the best tax break a town has.'"

"The extensive mall development in South Portland (Maine), championed as growth that would bring in revenue, dramatically raised the state valuation of the area, which caused the state school subsidy to drop significantly. South Portland's school expenses, $10.4 million, more than exceed the $9.5 million in revenue generated by taxing the residential sector. School costs often form the largest percentage of a municipal budget (71% of South Portland's), and the state subsidy is decreased as the land values increase. Advocates for constant expansion of a community's tax base, particularly in high-valued coastal areas, have probably ignored the effects such raised valuations have had on reducing education subsidies - and raising taxes!"

"Well-sited, well-planned and needed developments may have a positive effect on town revenues. The AFT (American Farmland Trust) studies indicate that low-density, sprawling, large-lot development costs communities an average of three times more in service costs than cluster development. The cost varies according to the extent of service provided by each town. Extending water and sewer lines accounts for much of the cost of servicing sprawl."

Senf, David. 1994. "Farmland and the Tax Bill: the Cost of Community Services in Three Minnesota Towns." American Farmland Trust.

"As case studies, Cost of Community Service Studies' (COCS) findings are most important to their host communities. However, all COCS studies performed to date by American Farmland Trust (AFT) or other researchers have found the same general pattern.

As a rule, residential development does not pay for itself. Commercial and industrial properties, and farmland (or open space) generate significantly more revenue than they demand in services on an annual basis."

"Farmland in the seven-county metropolitan area of Minneapolis and St. Paul, Minn. Has been urbanized at nearly twice the rate of population growth since 1970, resulting in the loss of more than 150,000 acres, or 235 square miles of farm and vacant land. Since 1980, growth has occurred almost exclusively in the second ring of suburbs and, to a lesser extent, on the urban fringe. Slowing the pace of urban sprawl around the Twin Cities has been hampered in part by the property tax-dependent system of local government finance. Even with a nationally lauded property tax base sharing program and one of the nation's highest levels of state aid to local government, municipalities compete for new development to increase their tax base."

"Working with the Land Stewardship Project, a Minnesota-based farmland and social justice organization, AFT conducted COCS studies in three outlying Twin Cities Metro Area municipalities. On average, AFT found that the ratio of dollars generated by residential development to the cost of services provided was $1 :1.04. In comparison, on average, for every farm dollar raised, only 50 cents was spent to provide services." (For every commercial/ industrial dollar raised, 39 cents was spent to provide services.)

"farmland protection may be financially beneficial, partly because of its contribution to the tax base, but also because of it holds down total property valuation. Lower property valuation leads to more state aid (in Minnesota), which reduces the share of local government costs paid for by community residents and property owners."

"by reducing the gap between residential revenues and costs, Minnesota's generous level of intergovernmental aid may be inadvertently accelerating the metro area's rate of urbanization."

Freedgood, Julia. 1992. "Does Farmland Protection Pay?: The Cost of Community Services in Three Massachusetts Towns." American Farmland Trust.

The ratios of revenues to expenditures for residential, commercial/ industrial, and farmland/ open space found in Agawam, Deerfield, and Gill, Massachusetts, are consistent with results in other Cost of Community Service studies. The average ratios were 1: 1.12 for residential land, 1: .42 for Commercial/ Industrial land, and 1: .33 for Farmland/ Open space.

"In AFT's Massachusetts studies, Farm and Open Lands in Agawam, Deerfield, and Gill required very little in the way of public services. They may not have raised much in terms of gross revenue, but neither were they a drain on town resources. This information should help towns resist the pressure to develop simply to increase their ratables, especially if they are expanding the residential base."

"Commercial and Industrial sectors were found to offset Residential deficits and certainly appear to play a key role in the towns' balance of land use. However, increasing these sectors is not a panacea either, as they may not always be pure revenue generators. For example, 'The Tax Base and The Tax Bill' (Vermont League of Cities and Towns and the Vermont Natural Resources Council, 1990.) showed that Vermont property taxes were highest in towns with the most commercial and industrial development. The study's authors suggest several possible explanations. One is that commercial and industrial developments can spur residential growth. Creating jobs, they often attract new people to town to fill them. 'It is the combination of new residents and the job-generating development itself which drives the tax bills up. Finally, as towns become more populated, voters often ask their municipal government to provide more services such as sidewalks, police, town managers, etc.'"

"COCS studies do suggest that farm and open lands deserve consideration as revenue enhancers. In this way, they call into question the assumptions of 'highest and best use.' They challenge the notion that development options are always necessary for towns to ensure economic stability, and submit that development should not be judged solely on its gross addition to the tax base. Communities must consider the net effects of their land use in the present as well as in the future."

Trust for Public Land. Background materials.

The open space conservation program of the town of Cheshire, Connecticut, has been cited by Moody's in upgrading the town's debt rating. TPL has played a key role in implementing the program.

Association of New Jersey Environmental Commissions. "Open Space is a Good Investment: The Financial Argument for Open Space Preservation.". 1996.

"Studies show that for every $1.00 collected in taxes, residential development costs between $1.04 and $1.67 in services -- and these costs continue forever, generally increasing over time. Even including the initial cost of acquisition, open space is less costly to taxpayers over both the short and the long term than development of the same parcel. The major public costs to preserve natural areas are finite, often paid by a bond or loan over 20 years.

A Burlington County Office of Land Use Planning study of Mansfield Township shows that for every $1.00 in taxes that a new residential unit generates, it requires $1.48 for services. Conversely, farmland costs $0.27 in services for every $1.00 it generates in taxes. Each new residential unit has a net negative fiscal impact of $1,866 per year while preservation of the same land through the county farmland preservation program would result in a one time cost of $3,000."

"The Township's zoning ordinance would have permitted 300 units of small, clustered housing on the 720-acre property. The average cost per household to the school district, assuming one student per home, is $5,568. The average residential property tax, excluding county taxes, is $2,172. Given these facts, Washington Township concluded:

the annual cost to the school district would be approximately $1,670,400 ($5,568 x 300 children).

the anticipated revenue would be approximately $651,600 ($2,172 x 300 homes).

the annual deficit for the school district budget would be $1,018,800 ($1,670,400- $651,600).

The net cost for the development rights of the 720 acre farm was $10.4 million. The public investment for the development rights could be offset in less than 15 years by avoiding the higher costs of the development. From then on the town would incur only the positive revenue flow from the farmland and attain the statewide and municipal goal of farmland preservation. In contrast, the cost of services for a residential development would continue forever."

"In 1994, the staff of the Pinelands Commission compared local taxes in 13 towns within the Pinelands Protection Area, where there is substantial farmland and public open space, with 13 similar towns outside the Pinelands. The results showed that living inside the Pinelands area costs the residents less. The average per capita tax increase from 1970 to 1990 was 42 percent lower in Pinelands towns than in non-Pinelands towns. In 1990 the average tax bill in the Pinelands towns was $1,928, while in the non-Pinelands towns it was $2,413. Pinelands residents pay 6.0 percent of their income on local taxes while non-Pinelands residents pay 6.9 percent."

"Comparing towns with a high percentage of commercial ratables to less commercially developed communities, the study finds that 'ratable rich' towns, contrary to expectations, have found no tax relief. The 13 municipalities that ranked highest in the addition of ratables pay 57 percent of the local taxes. Despite adding $4.2 billion in commercial and industrial ratables over 20 years, these communities did not see a reduction in their costs of running local government. Also, contrary to expectations, the tax rate for residential owners in ratable rich communities did not go down.

The courts have increasingly ruled in favor of companies that appeal for tax relief. IN addition, in five to ten years, employees move in and require services. Traffic increases so roads need to be widened and local quality of life deteriorates, leading to lowered property values. Over time, commercial real estate is depreciated while residential real estate increases in value, changing the balance of property tax assessments. Also, office buildings don't change hands as often as houses do, so their taxable value doesn't come as close to inflation. Thus, the proportion of taxes paid by commercial ratables generally declines over time."

"Many communities view that capture of non-residential ratables as an important means of stabilizing or even reducing local property tax rates. While this may be true for some communities for short periods of time, the tax implications of non-residential ratables, particularly retail, are often considerably more complex than anticipated. New retail development require(s) outlays for public services such as police, fire, courts, road maintenance and traffic control. In addition, the availability of retail services often stimulates residential development nearby, requiring additional public services."

"New York City Mayor Rudolph Guliani, in announcing a water rate increase of 1 to 2 percent that will allow the city to buy more lands in sensitive upstate watershed areas, said that the increase 'is a tiny fraction of the $8 billion that would have to be raised if increasing pollution forces New York City to build a filtration plant.' New York City Department of Environmental Protection is working to 'minimize the introduction of pathogens and pollutants' into streams and reservoirs by preserving buffers in sensitive watershed lands.

Protecting the New Jersey Highlands would provide the same kinds of benefits. Covering 750,000 acres from the Delaware River south of Phillipsburg northeast toward the Hudson River, the Highlands supplies drinking water to half the state's residents. Although we are losing up to 10,000 acres a year to suburban and commercial development, the major Highlands watersheds are relatively free of pollution. The New Jersey Conservation Foundation found in 1992 that 'the cost of constructing water treatment plants is likely to match or even exceed the cost of preserving watershed lands And the significant expense involved in operating such facilities is ongoing.'"

"A town can realize savings by directing development near existing or planed centers -- places that already (or planned to be) served with sewers, water lines, and other infrastructure. Savings results from the ability to use excess capacity in sewers and school facilities, and from needing fewer miles of roads, and water and sewer lines.

The Center for Urban Policy Research documented these savings in a 1992 study. The Center found that New Jersey could save:

$1.43 in infrastructure costs by channeling more future development near centers;

nearly 60 percent of its undeveloped land by channeling development near existing centers;

83 percent of environmentally sensitive lands and 39 percent of farmland.

Nantucket Land Council, Inc. 1989. "Balancing Today's Development &Tomorrow's Taxes."

"...the building boom of the 1980's has become a serious enough problem to threaten the island's economy as well as its fragile environment."

A study commissioned by the Nantucket Land Council and conducted by the economic research firm of RKG associates showed that "the building boom ... caused the town's operating budget to explode, going up more than 26 percent a year. As a result, property taxes more than doubled between 1982 and 1988. Yet, town revenues could not keep up with the expenditure growth, because the average cost of servicing a new dwelling unit ($2,925) exceeds the taxes paid by that additional unit ($2,656). Simply stated, new dwellings do not carry their own weight on the tax rolls."

Brabrec, Elizabeth. 1992. "On the Value of Open Spaces." Scenic America: Technical Information Series, v. 1 (2).

"In its study of Loudoun County, Virginia, the American Farmland Trust found that net public costs were approximately three times higher ($2,200 per dwelling) where the density was one unit per five acres, than where the density was 4.5 units per acre ($700 per dwelling)."

"A recent review and evaluation of the literature conducted by the Urban Land Institute concluded that 'development spread out at low densities increases costs of public facilities.' (Frank, 1989) The book suggests that houses built in such sprawl may cost from 40 to 400 percent more to service than comparable homes in more compactly designed subdivisions."

Ad Hoc Associates. 1995. "The Effects of Development and Land Conservation on Property Taxes in Connecticut Towns"

"the tax bills are generally highest in towns that are most developed and the lowest in towns that are most rural.

The tax bill on the median-value house is, on average, higher in towns that have larger tax bases; more residents; more employment; more retail sales; more commercial, industrial and utility taxable property value; are more densely populated; and have a low percentage of their land in undeveloped forest."

"growth and development will not generally lower property tax bills."

"In reality, the permanent protection of a parcel is more likely to redirect growth than preclude development. Over the long term, the amount of development a given town is likely to see will probably not be changed by the conservation of a single parcel. Instead, the conservation of certain key parcels may influence the location and pattern of development. This may make providing municipal services more efficient and cheaper; it may help the town meet its other goals; and it may make other property in town more valuable, resulting in increased tax revenues."

Brown, Lauren. January 28, 1996. "It May Be Cheaper to Just Let Land Alone." New York Times: Connecticut Weekly.

"Robert Gregg, president of the Woodbridge (Connecticut) Land Trust, said that even factoring in childless households still leaves the town with a negative balance from residential development, particularly from the kind of construction that is popular now in the area: four-bedroom, $350,000 houses. In a detailed study that compared future education costs to the cost of purchase through bonding, Mr. Gregg concluded that 'the town cannot afford not to buy land.'"

"Residents of Bethany, the town next to Woodbridge, had a cost analysis done on a 292-acre tract of land that was offered to the town for purchase last fall. Planning and zoning commission approval had been obtained for 83 houses and the price was $3 million. Melissa Spear and other members of a land preservation group found that after 10 years, the new houses would generate a tax increase to the average Bethany household from $35 to $189 depending on the number of children.

They also calculated the net present value of town expenses that would result from the approved development over the next 20 years and found it to range from $2 million to $6 million , thereby making the $3 million dollar purchase price (of the undeveloped tract of land) look more fiscally logical."

(The offer went to referendum and failed by 79 votes.)

Miller, Stephen. May 11, 1992. "The Economic Benefits of Open Space." Islesboro Islands Trust, Islesboro, Maine.

"Municipalities have been issued better bonding rates because of a commitment to open space preservation. Once lost to development, open space is impossible or difficult to retrieve and the long-term costs can be immense. It can be described as a 'non-depreciating, non-reproducible asset with increasing benefits over time.' (John Krutilla) Open space conveys value because of the potential for future land use choices. Option retention is difficult to quantify precisely but is, none-the-less, another measurable open space amenity.

"open space produces a tax revenue surplus that subsidizes other land uses" and "open space contributes public environmental benefits of substantial, measurable value that more than compensate for preferential tax costs."

"A mixture of land uses is essential to maintenance of social welfare and quality of life. The significance of the open space role in the full municipal economic picture argues for continuance of tax incentive programs and policies. It also argues for economic planning wherever land use proposals threaten existing open space values."

Page last updated 04/03/2000