APFO AMENDMENT FISCAL IMPACT ANALYSIS...APFO Amendment Passed in 2018 Major change was lowering...

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APFO AMENDMENT FISCAL IMPACT ANALYSIS Preliminary Findings PRESENTATION TO THE HOWARD COUNTY COUNCIL HOWARD COUNTY, MARYLAND APRIL 8, 2019 URBAN ANALYTICS, INC.; UNIVERSITY OF BALTIMORE, JACOB FRANCE INSTITUTE; ARTEMEL & ASSOCIATES, INC.

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Page 1: APFO AMENDMENT FISCAL IMPACT ANALYSIS...APFO Amendment Passed in 2018 Major change was lowering capacity utilization rate to 105% for ES, 110% for MS, and added HS test at 115%. These

APFO AMENDMENT FISCAL IMPACT ANALYSIS

Preliminary Findings

PRESENTATION TO THE HOWARD COUNTY COUNCILHOWARD COUNTY, MARYLAND

APRIL 8, 2019

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Howard County and APFO Amendment▪BACKGROUND:▪ Legislation on APFO amendment passed in 2018 with more restrictive regulation on

new development. FY2019 Spending Affordability Advisory Committee recommended the County hire consultants to conduct a comprehensive study of this APFO amendment’s short-term and long-term fiscal impact.

▪TASK: Evaluate fiscal impact on Howard County’s operating and capital budgets

▪RESPONSE: After a competitive bidding through RFP, Howard County hired Urban Analytics and its team to calculate the potential fiscal impacts

▪ASSIGNMENT:▪ Quantify the fiscal impacts resulting from the recent amendments to APFO, which

will cause a deviation from the growth projections in the adopted General Plan.▪ Quantify fiscal impacts to the five County Planning Areas.▪ Analyze alternative long-range growth scenarios through model.▪ Conduct land use prototype analysis

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APFO Amendment Passed in 2018▪Major change was lowering capacity utilization rate to 105% for ES, 110% for MS, and added HS test at 115%. These changes, effective July 1, 2019, will result in reduced new housing units beginning around 2022 due to closed school district status.

▪Other significant changes include: ▪ exempting moderate income housing units from needing allocations

▪ a stricter roads test

▪ adjusting allocations in the Growth & Revit. and Est. Comm. areas and eliminating shared pool

▪ allowing the County Council by resolution to exempt LIHTC projects from Schools Test

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Recent Changes to APFO – Housing

▪Reduced housing unit growth impact to be felt beginning around 2022, with 6,300 fewer new units in the first 10 years.

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Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Amended APFO 1,748 1,822 2,085 2,083 547 597 484 548 1,374 1,292 956

General Plan 1,748 1,822 2,085 2,083 2,042 2,006 1,473 1,667 1,790 1,756 1,363

Difference 0 0 0 0 -1,495 -1,409 -989 -1,119 -416 -465 -408

1st 10 Years 20 Year

Year (continued) 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 Net Change Net Change

Amended APFO 911 923 845 606 575 550 448 339 316 304 13,535 19,350

General Plan 1,169 1,147 929 606 587 542 250 250 226 226 19,835 25,767

Difference -259 -225 -84 0 -13 8 198 89 90 78 -6,300 -6,418

Source : Howard County, Maryland, Department of Planning; University of Baltimore, Jacob France Institute; Agnes Artemel & Associates, Inc.; Urban Analytics, Inc.

Projected Housing Units: Pre-Amended APFO versus Post-Amended APFO

Howard County, Maryland - 2018 through 2038

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Recent Changes to APFO – Housing

Source: Howard County Department of PlanningNote: In general, developers are expected to take longer than the four moratorium years to restart development in the County

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Recent Changes to APFO – Population▪Reduced population growth impact to be felt beginning around 2022, with about 14,900 fewer people from new housing in the first 10 years

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Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Amended APFO 4,119 4,358 4,841 4,832 1,350 1,391 1,130 1,271 3,183 3,017 2,305

General Plan 4,119 4,358 4,841 4,832 4,941 4,772 3,686 4,163 4,355 4,372 3,263

Difference 0 0 0 0 -3,591 -3,381 -2,556 -2,892 -1,172 -1,355 -958

1st 10 Years 20 Year

Year (continued) 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 Net Change Net Change

Amended APFO 2,277 2,253 2,122 1,487 1,363 1,277 1,040 783 720 687 29,492 45,806

General Plan 2,767 2,624 2,134 1,382 1,303 1,192 593 593 547 547 44,439 61,384

Difference -490 -371 -12 105 60 85 447 190 173 140 -14,947 -15,578

Source : Howard County, Maryland, Department of Planning; University of Baltimore, Jacob France Institute; Agnes Artemel & Associates, Inc.; Urban Analytics, Inc.

Projected New Unit Population: Pre-Amended APFO versus Post-Amended APFO

Howard County, Maryland - 2018 through 2038

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Recent Changes to APFO – Student Enrollment

▪Reduced student enrollment growth impact to be felt beginning around 2022, with 2,570 fewer new students in the first 10 years

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Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Amended APFO 597 648 669 661 214 192 163 185 455 439 367

General Plan 597 648 669 661 752 694 618 713 701 740 505

Difference 0 0 0 0 -538 -502 -455 -528 -246 -301 -138

1st 10 Years 20 Year

Year (continued) 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 Net Change Net Change

Amended APFO 389 377 376 251 212 191 160 118 106 99 4,223 6,869

General Plan 412 375 308 191 170 151 98 98 94 94 6,793 9,289

Difference -23 2 68 60 42 40 62 20 12 5 -2,570 -2,420

Source : Howard County, Maryland, Department of Planning; University of Baltimore, Jacob France Institute; Agnes Artemel & Associates, Inc.; Urban Analytics, Inc.

Projected Student Enrollment: Pre-Amended APFO versus Post-Amended APFO

Howard County, Maryland - 2018 through 2038

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Recent Changes to APFO - Employment

▪Under the amended APFO, there will be about 5,100 fewer new jobs in the first 10 years.

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Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Amended APFO 3,000 3,000 3,000 2,144 2,144 2,144 2,144 2,144 2,600 2,600 2,600

General Plan 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

Difference 0 0 0 -856 -856 -856 -856 -856 -400 -400 -400

1st 10 Years 20 Year

Year (continued) 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 Net Change Net Change

Amended APFO 2,600 2,600 2,249 2,249 2,249 2,249 2,249 2,164 2,164 2,164 24,919 50,455

General Plan 3,000 3,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 30,000 55,000

Difference -400 -400 249 249 249 249 249 164 164 164 -5,081 -4,545

Source : Howard County, Maryland, Department of Planning; University of Baltimore, Jacob France Institute; Agnes Artemel & Associates, Inc.; Urban Analytics, Inc.

Projected Employment: Pre-Amended APFO versus Post-Amended APFO

Howard County, Maryland - 2018 through 2038

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Fiscal Impact Analysis

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Consultant Team and Team Bios▪Urban Analytics, Inc.▪Alexandria, Virginia

▪Dean D. Bellas, Ph.D.

▪University of Baltimore, Jacob France Institute▪ Baltimore, Maryland

▪ Richard Clinch, Ph.D.

▪Artemel & Associates, Inc.▪Alexandria, Virginia

▪Agnès P. Artemel, M.U.R.P.

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Team Bios – Dr. Bellas▪President, Urban Analytics, Inc.▪ Company is in its 23rd Year of Operations & specializes in Fiscal Impact Analysis

▪Dr. Bellas is a subject matter expert in Fiscal Impact Analysis

▪Developed a fiscal impact model for his doctoral dissertation

▪Dr. Bellas has analyzed over 98,000 residential units & over 38.7 million sq. ft. of non-residential space

▪Dr. Bellas has authored or co-authored over 125 research reports on the fiscal and economic impacts of real estate development

▪He has provided consulting services in 21 states & the District of Columbia

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Team Bios – Dr. Clinch▪Executive Director, Jacob France Institute, University of Baltimore▪ Extensive experience in fiscal impact analysis, economic impact analysis,

economic development, and workforce development

▪ Prepares the annual economic forecast for the Howard County Spending Affordability Committee

▪Dr. Clinch and the JFI have provided economic analysis consulting services to the Maryland counties of Baltimore, Carroll, Charles, Howard, Harford, Montgomery, and Prince George’s County, and the City of Baltimore

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Team Bios – Mrs. Artemel▪President, Artemel & Associates, Inc.▪Woman-owned firm in its 24th Year of Operations

▪Mrs. Artemel holds a master’s degree in urban and regional planning

▪ Company clients include the public and private sectors

▪ Public sector client services include neighborhood planning, public outreach, economic development strategic planning, economic & fiscal impact analysis, and implementation planning

▪ Private sector client services include all of the above & market research studies and project feasibility studies

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Fiscal Impact Model and Methodology▪Urban Analytics tested model

▪Collected County data from Howard County government sources (Howard County Public School System, police department, fire department, parks & recreation department, public works department, community services department, department of planning & zoning, and the finance & budget departments)

▪Interviewed key personnel in the above County departments

▪Recalibrate fiscal impact model to Howard County budget structure

▪Templates created to ensure additional scenarios can be run with little effort

▪Model reports findings in constant dollars which eliminates discrepancies between price inflation and income inflation.

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Modifications Specific to Howard County▪Conduct two types of analyses:

▪Marginal analysis: What is the fiscal impact of new development?

▪Prototype analysis: What is the fiscal impact of residential and non-residential land use types?

▪Fiscal impact multipliers re-calibrated and localized to Howard County based on county-specific socioeconomic data

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Fiscal Impact Findings

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Marginal Impact Methodology –Revenues

Type Category Multipliers developed as follows:

Capital Revenues School Surcharge Tax Residential - Per Housing Unit

Capital Revenues Transfer Tax Residential - Per Housing Unit

Non-residential - Per Square Foot

Capital Revenues Road Excise Tax Residential - Per Housing Unit

Non-residential - Per Square Foot

Operating Revenues Real Estate Tax Residential - Per Housing Unit

Non-residential - Per Square Foot

Operating Revenues Personal Income Tax Residential - Per Housing Unit (by Household Income)

Operating Revenues Recordation Tax Residential - Per Housing Unit

Non-residential - Per Square Foot

Operating Revenues Fire & Rescue Fund Residential - Per Housing Unit

Non-residential - Per Square Foot

Operating Revenues All Other Revenues Residential - Per Capita

Non-residential - Per Job

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Marginal Impact Methodology –Expenditures

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Type Category Multipliers developed as follows:

Capital Expenditures (PAYGO) Surcharge & Transfer Tax - Public Schools Indexed to CIP Debt Service Expenditure in that year

Capital Expenditures (PAYGO) Transfer Tax - All Other CIP Indexed to CIP Debt Service Expenditure in that year

Capital Expenditures (PAYGO) Transfer Tax - Comm. Renewal Program Indexed to Other Operating Expenditure

Operating Expenditures Debt Service - Public Schools Per seat based on school capacity

Operating Expenditures Debt Service - All Other Debt Residential - Per Capita

Non-residential - Per Job

Operating Expenditures Public Schools Per Housing Unit (by student yield rate for each school type)

Operating Expenditures All Other Expenditures Residential - Per Capita

Non-residential - Per Job

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Example: Transfer Tax Analysis

▪Methodology▪ Determine the median value for each house type (including MIHUs)

▪ Multiply sales value times 1% transfer tax rate for all new units

▪ This is a one-time revenue collected when new homes are sold (and assumed resold onceevery 15 years on average - - based on national average of homeowner resales).

▪ Tax is also collected on new apartment units (assumed 10% of new is transferred)

▪ Tax is also collected on new non-residential square feet

▪ Impact is NOT compounded as new transfer tax does not stay in the base for future years(unlike property and income taxes).

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Example: Transfer Tax Analysis

▪Net Fiscal Impact:

Residential Non-Residential Total

2018-2038 2018-2038 2018-2038

20-Year Total 20-Year Total 20-Year Total

COUNTY TOTAL

With Amended APFO 143,606,859$ 32,046,502$ 175,653,361$

Without Amended APFO 194,877,286$ 34,971,620$ 229,848,906$

Foregone Revenue (51,270,427)$ (2,925,118)$ (54,195,545)$

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Example: Personal Income Tax Analysis

▪Methodology▪ Determine the median value for each house type (including MIHUs)

▪ Use affordability ratios to determine income needed for homeowners and renters

▪ Determine taxable income and multiply times 3.2% local tax rate

▪ Impact IS compounded as new income tax each year stays in the base for future years (Note:property tax and fire tax, etc. also have compounded effect for the same reason)

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Example: Personal Income Tax Analysis▪Net Fiscal Impact:

2018-2038

20-Year Total

COUNTY TOTAL

With Amended APFO 651,990,433$

Without Amended APFO 901,936,786$

Foregone Revenue (249,946,354)$

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Example: Debt Service Public Schools

School Capital Construction Cost Estimates (X $1,000) (3)

High School Costs (1)

Elementary School Costs (2)

County Bond Funded $104,022 75.0% County Bond Funded $38,270 75.0%

State Aid $34,674 25.0% State Aid $12,757 25.0%

Total $138,696 100.0% Total $51,027 100%

County Bonds $104,022 County Bonds $38,270

Capacity 1,650 Capacity 600

County Cost per Student $63.0 County Cost per Student $63.8

(1) From BOE FY2020 Approved Capital Budget for new high school #13. Assumes 25% State Aid.

(2) From BOE FY2020 Approved Capital Budget for elementary school #43. Assumes 25% State Aid.

(3) Note that there are no new middle schools currently planned. No cost estimates are availalble.

Source: Howard County Public Schools; Howard County Planning Department.

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Example: Debt Service – Public Schools▪Per Seat based on school capacity.▪ The cost to construct a new school is divided by the design capacity of each school.

For a new high school, the estimated capital costs per seat is $63,044. The debtservice to amortize the construction cost per seat is equal to $4,813.71 per studentannually over 20 years. For a new middle school and elementary school, theestimated capital cost per seat is $63,784 and the debt service per seat is equal to$4,870.21 per student annually over 20 years. This methodology assumes that newstudents should pay more than their fair share for the cost to build a new school.

▪ Net Fiscal Impact: The gross debt service contribution over 20 years without theAmended APFO is equal to $636,135,985. With the Amended APFO scenario, thegross debt service contribution is equal to $450,476,139. The net difference in debtservice is reduced by $185,659,846.

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Fiscal Impact Analysis is Complex

▪Local data are preferred over national and regional data

▪Changes in data lead to changes in output▪Non-population growth factors influence fiscal break-even values, such

as tax rates, changes in levels-of-service (LOS) provided, changes insocioeconomic variables, treatment of income tax, sales tax, meals tax,and other tax payments in different states, and changes in the nationaleconomy

▪Fiscal impact findings can help locally elected officials, senior Countypersonnel and other decision-makers to understand the public policyimplications of new growth and existing development

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Projected Multi-Year REVENUE Impact of APFO Amendment – In Constant $

Operating Budget 6-Yr Total 20-Yr Total 2021 2022 2023 2024 2025 2038

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APFO Amendment Fiscal Impact - Revenue Summary ($ in millions; $ in constant dollar as of FY2018)

FY20-FY25 FY20-FY39 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 39

OPERATING REVENUES 6-Year Total 20-Year Total

Real Property Tax (42.2)$ (503.0)$ -$ -$ (0.6)$ (7.6)$ (14.2)$ (19.9)$ (26.5)$ … (31.6)$

Personal Income Tax (20.4)$ (249.9)$ -$ -$ -$ (3.6)$ (7.0)$ (9.8)$ (13.2)$ (15.9)$

Recordation Tax (10.3)$ (27.1)$ -$ -$ (0.3)$ (3.5)$ (3.4)$ (3.2)$ (3.7)$ (0.7)$

Fire & Rescue Funds (7.3)$ (87.3)$ -$ -$ (0.1)$ (1.3)$ (2.5)$ (3.5)$ (4.6)$ (5.5)$

All Other Revenues (3.8)$ (43.7)$ -$ -$ (0.1)$ (0.7)$ (1.3)$ (1.8)$ (2.3)$ (2.8)$

SUBTOTAL OPERATING REVENUES (84.0)$ (911.0)$ -$ -$ (1.0)$ (16.6)$ (28.3)$ (38.1)$ (50.2)$ (56.4)$

CAPITAL REVENUES -$ -$

School Surcharge Tax (14.2)$ (23.8)$ -$ -$ -$ (5.2)$ (4.8)$ (4.2)$ (4.8)$ 0.0$

Transfer Tax (20.6)$ (54.2)$ -$ -$ (0.5)$ (6.9)$ (6.8)$ (6.3)$ (7.5)$ (1.3)$

Road Excise Tax (16.5)$ (27.2)$ -$ -$ (0.4)$ (5.9)$ (5.5)$ (4.8)$ (5.5)$ 0.1$

SUBTOTAL CIP REVENUES (51.4)$ (105.2)$ -$ -$ (0.9)$ (18.0)$ (17.1)$ (15.4)$ (17.7)$ (1.2)$

TOTAL REVENUES (135.5)$ (1,016.2)$ -$ -$ (1.9)$ (34.6)$ (45.4)$ (53.5)$ (68.0)$ (57.6)$

• APFO amendment is projected to result in foregone revenues of $136 million in six years and $1.02 billion in 20 years.

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Projected Multi-Year EXPENDITURE Impact of APFO Amendment – In Constant $

Operating Budget 6-Yr Total 20-Yr Total 2021 2022 2023 2024 2025 2038

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APFO Amendment Fiscal Impact - Expenditure Summary ($ in millions; $ in constant dollar as of FY2018)

FY20-FY25 FY20-FY39 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 39

OPERATING EXPENDITURES 6-Year Total 20-Year Total

Debt Service - Public Schools (14.9)$ (185.7)$ -$ -$ -$ (2.6)$ (5.1)$ (7.3)$ (9.8)$ … (11.8)$

Debt Service - All Other Debt (3.7)$ (41.3)$ -$ -$ (0.1)$ (0.7)$ (1.2)$ (1.7)$ (2.1)$ (2.6)$

Public Schools (28.5)$ (353.9)$ -$ -$ -$ (5.0)$ (9.6)$ (13.9)$ (18.8)$ (22.4)$

All Other Expenditures (21.4)$ (240.0)$ -$ -$ (0.6)$ (4.0)$ (7.1)$ (9.7)$ (12.4)$ (15.0)$

SUBTOTAL OPERATING EXPENDITURES (68.5)$ (820.8)$ -$ -$ (0.8)$ (12.2)$ (23.0)$ (32.4)$ (43.2)$ (51.8)$

CAPITAL (PAYGO) EXPENDITURES -$ -$

Surcharge & Transfer Tax PAYGO - Public Schools (0.5)$ (6.3)$ -$ -$ -$ (0.1)$ (0.2)$ (0.2)$ (0.3)$ (0.4)$

Transfer Tax PAYGO - All Other CIP (0.2)$ (2.4)$ -$ -$ (0.0)$ (0.0)$ (0.1)$ (0.1)$ (0.1)$ (0.2)$

Transfer Tax PAYGO - Comm. Renewal Program (0.2)$ (1.7)$ -$ -$ (0.0)$ (0.0)$ (0.1)$ (0.1)$ (0.1)$ (0.1)$

SUBTOTAL CIP (PAYGO) EXPENDITURES (0.9)$ (10.5)$ -$ -$ (0.0)$ (0.2)$ (0.3)$ (0.4)$ (0.5)$ (0.7)$

TOTAL EXPENDITURES (69.4)$ (831.3)$ -$ -$ (0.8)$ (12.4)$ (23.3)$ (32.9)$ (43.7)$ (52.4)$

• APFO amendment is projected to result in cost savings of $69 million in six years and $831 million in 20 years.

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Projected Multi-Year Overall NET Impact of APFO Amendment – In Constant $

Operating Budget 6-Yr Total 20-Yr Total 2021 2022 2023 2024 2025 2038

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Summary of Findings & Implications for Public Policy• New development in Howard County “pays for itself” and generates net surplus to the County• Amended APFO results in a net loss to Howard County compared to the General Plan scenario; in other words, bring

less net gains to the County• Land use decisions by policy makers have consequential short and long term economic and fiscal implications to the

County

APFO Amendment Fiscal Impact - Overall Summary ($ in millions; $ in constant dollar as of FY2018)

FY20-FY25 FY20-FY39 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 39

6-Year Total 20-Year Total 2019 2020 2021 2022 2023 2024 2025 2038

TOTAL REVENUES (135.5)$ (1,016.2)$ -$ -$ (1.9)$ (34.6)$ (45.4)$ (53.5)$ (68.0)$ … (57.6)$

TOTAL EXPENDITURES (69.4)$ (831.3)$ -$ -$ (0.8)$ (12.4)$ (23.3)$ (32.9)$ (43.7)$ (52.4)$

TOTAL NET FISCAL SURPLUS (DEFICIT) (66.1)$ (185.0)$ -$ -$ (1.2)$ (22.2)$ (22.1)$ (20.6)$ (24.3)$ (5.2)$

• APFO amendment is projected to result in net fiscal loss of $66 million in six years and $185 million in 20 years, as projected foregone revenues exceed projected expenditure savings

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Experiences in Other Communities▪New housing units tend to fiscally subsidize existing housing units

▪Size of new houses are larger than existing housing which leads to higher assessed values

▪Construction costs are higher and the quality of construction materials are better which leads to higher assessed values

▪Land is more expensive to acquire and develop which leads to higher assessed values

▪Household incomes are higher to qualify for mortgages to purchase more expensive homes which results in higher personal income taxes and other revenues such as sales taxes, personal property taxes, etc.

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County Budget Status & Implications (Operating Budget)

▪Operating Budget ▪ Annual funding increases primarily spent on supporting existing services currently ▪ Example 1. HCPSS: Budget growth primarily support:▪ salaries growth of existing employees▪ benefits growth of existing employees▪ operating cost (supplies, maintenance, etc.)▪ various needs (special education, mental health, etc.)▪ enrollment growth-related needsEnrollment growth-related cost represents only a portion of HCPSS expenditure growth; and of the enrollment growth, 60% are from existing houses according to HCPSS.

▪ Example 2. Police: funding growth almost entirely used to support existing services (sworn positions grew by 0.1% per year)

▪ Implication: a slowdown in revenue growth resulting from APFO amendment will impact the ability to support existing services & employees

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County Budget Status & Implications (CIP)

▪Capital Budget▪ Multiple designated CIP funding are heavily reliant on, or directly related to new development

(school surcharge – 100%; road excise tax – 100%; transfer taxes designated to school, fire, Recreation and Parks, etc. – about 25%).

◦ Funding capacity largely exhausted by existing debt (Example:FY2005-2010 authorized $89M school surcharge bond; FY2007-2008 authorized $68M road excise bond). With forgone CIP revenues of $105 million (constant dollar) in 20 years due to APFO amendment, several designated CIP funding would be insufficient to cover even existing debt before supporting any new capital project. For example, the capacity left in school surcharge tosupport new CIP in next 20 years (in constant dollar):($23M).

▪ Implication: The depletion / reduction of designated CIP funding will ▪ Impact the ability to pay off existing debt ▪ Impact the ability to fund annual capital projects for existing facilities/population (systemic

renovation, school technology, renovation/repair/replacement, maintenance, roads, parks and recreation facilities etc.)

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Next Steps▪Conduct fiscal analysis for the five Howard County Planning Areas

▪Conduct the Prototype Analysis (fiscal impacts by land use type)

▪Conduct analysis including existing population, housing, and employment

▪Prepare report with detailed methodology and assumptions

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Consultant TeamDean D. Bellas, Ph.D.Urban Analytics, Inc.Alexandria, Virginia

Agnès ArtemelArtemel & Associates, Inc.

Alexandria, Virginia

Richard P. Clinch, Ph.D.The Jacob France Institute

University of BaltimoreBaltimore, Maryland

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