Fiscal Impact Methodology

Per Capita Approach

The most widely used technique for performing fiscal impact analyses (the per capita approach) has, with few exceptions, included all line item expenditures within municipal and school district annual budgets. Ostensibly, this approach makes sense, as, if the objective is to derive a per capita budget expenditure cost, the sum total of all expenditure line items should be included when dividing by the current jurisdiction’s population, households, or students. However, this approach grossly overestimates the likely per capita/per household cost due to the inclusion of salaries, wages, and fringe benefit costs of municipal and school district personnel, as well as the inclusion of capital outlays, fund transfers, and debt service payments by municipal governments and school districts.

Theory

The underlying theory of the per capita approach is that a pro rata share of goods and services are exhausted (worn out) by each resident’s (or household’s) consumption of said goods, services, and natural resources over some period of time (whether a month, a year, or five years). For, example, a municipality has a certain number of housing units, each of which will receive notices over the course of the year from the municipality (e.g., tax notices, water and/or sewer bill notices, health department notices, etc.). These notices are mailed and, thus, consume paper, ink, and postage, in addition to the labor involved in processing said notices. Separating out labor cost, for the moment, there is a known total cost for producing these notices and, via a simple calculation, a cost per household (recognizing that regardless of the number of household members, there is, with few exceptions, only one notice sent per household). Consequently, should additional households form within that municipality, the increase in total costs associated with sending public notices should, ostensibly, be known in advance, as the additional cost is simply a function of the per household cost multiplied by the number of new households.