Local fiscal impacts of large-scale projects: Use of impact models as planning and policy analysis tools

Abstract

Rapid economic and population fluctuations, which often accompany large-scale industrial and resource development projects located in rural areas, may lead to serious fiscal problems for local jurisdictions. These problems typically arise from the unequal distribution of project-related costs and revenues, both over time and among jurisdictions. Growing awareness of these problems has stimulated a variety of responses at both state and local levels. Several states have enacted special taxes on large energy and mineral development projects, with part of the proceeds being distributed to affected local governments. Local officials, meanwhile, have become increasingly active in negotiating a variety of compensation agreements with the development entities. Such impact agreements have included grants, loans, loan guarantees, or a combination of these measures. With the increasing interest in fiscal impacts and their mitigation, a number of fiscal impact simulation models have been developed. This paper describes the use of one such model as a tool for the development of state taxation policies, as a guide for distribution of impact assistance funds, as a source of information for local governments in development and public service planning, and for the siting of large-scale projects. In addition, generalizations about the policy use of such models are presented and discussed in relation to the likely needs of policymakers.