Cost of Community Service (COCS) studies attempt to determine whether land development pays its own way in terms of public services. The American Farmland Trust promotes COCS studies as "an inexpensive, easy-to-understand way to determine the net fiscal contribution of different land uses to local budgets." These studies are becoming more common because they are easy to use and apply; at least one has been conducted in Michigan.
COCS studies try to match services provided by local governments with the revenues generated through taxes tied to land use and land values. For example, an office building uses public services such as water, sewer, roads, and fire and police protection. These services are funded from the tax revenues and fees paid by the business.
COCS studies match land uses to tax revenues by first determining the pattern of land use in the local community. Often, this means determining how much land is devoted to a particular use, i.e., residential use, commercial use, and agricultural use. Then, the costs of providing public services are determined and allocated to each of these particular land use types based on their prevalence in the community.
The costs of the various public services are then compared to revenues generated through taxes that are a direct result of land development. For example, property taxes are included in the revenue calculation because they reflect changing land values due to development. A federal grant for a road improvement would not be figured into this revenue calculation because the grant money is not tied to property development. Similarly, user fees are not included because they are assumed to cover the marginal costs of the services and do not draw from general revenues. User fees, when set correctly, require users to "pay their way."
Despite the flaws and limitations of COCS studies (see box, below), dozens of them have been conducted across the country to determine whether various land uses "pay their way." Unfortunately, the results of these studies have often been used to justify growth controls, particularly on residential development: Most COCS studies find that areas of residential development fail to generate sufficient tax revenues to cover the costs of providing them with public services.
Recently, the American Farmland Trust reviewed the results of 40 COCS studies in 11 states. Twelve of these studies (30.0%) were performed by the American Farmland Trust and 11 (27.5%) were performed by the Southern New England Forest Consortium.
Limitations of Cost of Community Service Studies
Several problems emerge if COCS studies are used to evaluate the cost
effectiveness of different types of land development. These problems
severely limit their applicability to developing and using realistic policy
recommendations. Among the more important limitations are the following:
COCS studies are static and do not incorporate the dynamics of the
land market. They are "snapshots" of a community, and cannot be used to
infer fiscal capacity from one year to the next or over a longer period of
COCS studies ignore non-land use-based revenue sources. Since
a COCS study attempts to determine how much revenue is generated by a
specific land use, revenue sources external to land use — such as state or
federal funds — are excluded. This becomes problematic when the size of a
community may impact future revenue from public and nonpublic sources for
specific projects such as parks and recreational activities.
COCS studies are not grounded in a concept of development.
Since they are intended to provide a simple way to account for the flow of
funds to and from specific land uses, these studies ignore synergistic
elements that are natural parts of the development process. As communities
grow, certain industries and businesses may be attracted to the community
and increase future revenue flows. A growing residential community provides
a market for future businesses. As "in-fill" occurs, revenues are generated
that compensate for deficiencies in other land use categories.
COCS studies ignore alternative service delivery possibilities.
A COCS study presumes that the current system of government and mix of
services provided now will also be provided by the local government in the
future. Alternative ways to deliver services (i.e., through private
providers) or potential cost-saving management techniques (i.e., competitive
bidding) could bring costs in line with revenues and impact the fiscal
position of land uses.
COCS studies treat land uses as independent. The studies
separate land into broad categories — agricultural, residential, commercial,
industrial — and ignore land that has a mix of uses. Interdependencies of
land-uses are not factored in even though a mix of uses is necessary for
sustainable economic growth and development. In addition, COCS studies often
presume that land uses must be separate; mixed uses such as those found in
older and smaller downtown areas do not fit well into the methodology.
For every dollar raised in revenue, according to these studies, farmland requires government expenditures of just 31 cents (see Chart 9). Commercial and industrial property is even more cost-effective: 29 cents is spent on public services for every dollar raised in revenues. Residential property, however, is a net drain on local governments. Residential property requires spending $1.11 for every dollar in revenues raised.
Thus, while farm, forest and open lands generate more revenues than expenditures, COCS studies find that "residential land uses . . . are a net drain on municipal coffers: It costs local governments more to provide services to homeowners than residential landowners pay in property taxes." More importantly, from the American Farmland Trust’s perspective, "In every community studied, farmland has generated a fiscal surplus to help offset the shortfall created by residential demand for public services."