sharp_pencilby James A. Bacon

It is the best of times for local government, it is the worst of times. It is the worst in the sense that local governments across America are experiencing unrelieved fiscal stress from pension obligations, mounting infrastructure backlogs and lagging revenues. Yet it is the best in the sense that rarely have local governments enjoyed so many opportunities to bolster productivity, lower costs and improve the quality of services. Indeed, American regions potentially stand on the brink of a golden age.

Of all the new strategies available to municipalities, from applying online learning to deploying smart-city technologies, none hold as much potential as the emerging discipline of fiscal analytics. In an article published this month in The Western Planner journal, I endeavor to build upon the pioneering work of Joe Minicozzi, Peter Katz and Charles Marohn, all of whose work I have highlighted on this blog, to advance the cause. My major contribution to the discussion, I think, is to identify property tax valuations as the “bottom line” for fiscal analysis.

Government investment in infrastructure and amenities creates tangible economic value that can be measured in the form of rising real estate property assessments. That’s common sense. What’s not so intuitive is the idea that not all government investment is created equal. Politicians blather about “investing” in education, infrastructure or various pet projects. But elected officials do so without the discipline of their private-sector counterparts who measure profit, calculate Return on Investment (ROI) and steer capital to investments offering the highest ROI.

Building a highway interchange or mass-transit rail station, to pick but two incontestable examples, create economic value, as measured by the increase in property values around the public improvement. Conversely, some government investment destroys economic wealth. Charles Marohn with the Strong Towns group, makes the case that “stroads” – a multi-laned street-road hybrid designed to move large volumes of traffic – are expensive to build and maintain, drive away pedestrians and bicyclists and depress adjacent property values. It seems that people don’t like living or doing business on wide, unwalkable transportation arteries. Spending local money to undermine the tax base, he argues, amounts to fiscal hari kari.

Clearly, government investments vary greatly in the degree to which they create wealth or destroy it. As a guiding principle, local governing bodies should strive to invest in infrastructure projects that create the most wealth over time. At present, however, few municipalities possess the analytical tools to make informed and rational investment decisions. Developing such tools, I submit, is the great challenge of municipal finance.

I would start the conversation this way: Private enterprises have a very clear bottom line – profit, a concept that the accounting profession has honed over the centuries. Profit is meaningless to local governments, which are expected to do no more financially than balance their books. The closest thing to a municipal bottom line is the assessed value of real estate. Virtually everything that a local government does – building roads, designing streetscapes, running schools, grooming parks, patrolling streets, putting out fires, operating utilities – has a direct or indirect effect on the desirability of living and doing business in that community. The marketplace assigns higher property values to more desirable communities and lower property values to undesirable communities.

Just as it would be unthinkable for a corporate CEO not to know how profitable his company is, and whether profits are growing or shrinking, it should be unthinkable for government leaders not to know the total assessed value of property within their jurisdictional borders, and whether it is growing or shrinking. Just as it would be a dereliction of duty for a CEO not to know the profitability of various divisions and subsidiaries, it should be deemed equally negligent for government leaders not to know the total assessed value of the different districts and neighborhoods of their county, city or town. But those figures, if reported at all, are buried deep within lengthy documents.

A CEO does not control all the factors that affect his company’s profitability, which can vary depending upon economic conditions, the actions of competitors and the rise of new technologies. But there are many factors that he (or she) can control, and shareholders hold him accountable for those. Similarly, there are many factors that influence property values, some of which a governing body can influence and some of which it cannot. Elected officials should focus on those factors that they can control, and voters should hold them accountable.

Admittedly, the benefits of adopting rigorous fiscal analytics won’t be felt right away. Adopting a disciplined approach to allocating its investment capital won’t bail a locality out of a financial crisis. It won’t pull a Detroit or similar city back from the brink. But the erosion of competitiveness into Detroit-style insolvency is a decades-long process. Over the long run, local governments that discipline their spending, emphasize wealth creation and expand their tax base will prosper far more than those that don’t.

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12 responses to “Fiscal Analytics and the Next Municipal Revolution”

  1. If you talk to hard core libertarian types (and I know JimB reads those blogs), you will find that many insist that many things that govt now “does” could (and in their view – should) be done by the private sector.

    I posted this in another thread but will do so again here to demonstrate some innovative thinking that will dismay (I think) – BOTH Smart Growth folks AND citizens who hate tolls:

    ” Road pricing and asset publicization: A new approach to revitalizing US infrastructure”

    basically they want to lease the current untolled roads to toll companies who will then share the profits with the state who will then use that money to build more road improvements – instead of raising taxes and still not having enough money to do the job.

  2. Peter Galuszka Avatar
    Peter Galuszka

    So the private sector does it better?
    Go talk to transurban
    ha ha

  3. one thing I do agree with Libertarians on and that is there is a difference when you’re doing something for profit or not.

    when you do something for profit – it tends to focus on costs and how to accomplish the same function with lower costs – and lower costs don’t necessarily mean cheaper – it might mean more money for other things that you could not afford unless you are more efficient.

    but when the govt contracts for something – it needs to be careful to make sure standards and requirements – that are quantifiable, measurable are part of the contract and that often … paradoxically.. the govt sometimes does not know how to actually write good requirements.. on the first try.

    but no… govt toll roads for decades, for generations used tollbooths and humans – and you can still see them even on the Powhite Parkway.

    it took the private sector to take on the idea of using transponders and then license plate scanning as a backup if there was no transponder.

    that got rid of tollbooths and people manning the tollbooths.. which meant that tolls could be “collected” in a lot of places where a gantry would fit but not a toll plaza…

    we’re now working on interoperability so that one transponder can be used on any toll road and the backup is your license plate.

    but the idea that tolls could supplement taxes to bring congestion relief quicker – as a continuing funding that focuses on the people who actually are encountering congestion – seems fair and more effective than this idea of trying to “prioritize” what needs to be done first.

    why not use actual traffic numbers and congestion to make that determination?

  4. and speaking of taxes and local government:

    ” Not only did they donate 37 acres in a beautiful part of Loudoun County, but Ken Falke and his wife also gave $1 million to help start the Boulder Crest Retreat for Military and Veteran Wellness, a rural haven where wounded service members can relax and recover with their families.

    Falke assumed that the retreat would be exempt from property tax, as is common with nonprofits across the county.

    Instead came the first half of a roughly $20,000 tax bill. And a question many local governments across the country are wrestling with as they try to make up money lost during the Great Recession: Should nonprofits have to pay taxes or other fees?

    so you’re gonna tax the Salvation Army, Goodwill, the Red Cross and the Food Bank?


    that seems just totally wrong-headed to me…

  5. DJRippert Avatar

    Asking a politician to justify government spending is like asking a bank robber to call into the FBI and report his whereabouts on a regular basis.

    The last thing on Earth that politicians want is visibility.

    The only way you’ll ever get this level of fiscal discipline is to have an independent entity use FOIA laws to gather enough information to create the analysis separate from government. Then, encourage the use of the analysis by opponent politicians when they run against incumbents.

    By this process you might force the politicians to have their own form of financial reporting.

    Hell, they don’t even perform ROI analysis for multi-billion dollar transportation projects.

  6. re: ROI for government.

    DJ is dead on.. mostly… but I’d point out that (for reasons I do not understand), at least some water/sewer in Va seems to be funded only from user fees and hook-up fees and not general revenues but instead general revenue bonds and most rating agencies like the operational expenses coming from monthly use fees and capital facilities coming from hookup fees – so there is some semblance of an ROI process.

    but I keep saying for transportation facilities – there is no better way to calculate ROI than tolling. that way you encapsulate the construction, operation and maintenance costs – vs – how much tolls generate.

    and as we know from a few – they actually generate a hefty ROI.

    there is, by the way a concept known as “Balanced Scorecard” for both the private sector and government.

    Finally – for typical government functions in Va, we are fortunate to not only have a public accounting function – Virginia Auditor of Public Accounts but in addition to financial reports on virtually everything the state does – including transportation, Virginia has a law requiring certain standardized revenues and expenditures to be reported by all 133 jurisdictions which then allows some serious comparisons between localities on what they spend per capita for things like schools or public safety, etc.

    I think there is available data and tools available for those who are committed to pursue them.. especially in Virginia where we have not only APA but JLARC and Commonwealth Datapoint but as DJ says – don’t expect politicians to serve it up on a silver platter.

    In the internet age – quite a bit could be accomplished by citizens even without FOIA but I don’t think VDOT’s current prioritization scheme is much more than a PR effort because.. fundamentally.. we KNOW right now that we CAN.. REDUCE congestion with TOLLS and if that is not going to be at least one aspect of their approach to justifying a new road for congestion reduction – then they’ve ruled out a fundamental metric that can and should be measured.

    “congestion” – by the way is not one value like LOS F… it’s a 24hr histogram that shows not only the max/LOS F traffic flow but how long that peak flow occurs before it slacks off – as well as what traffic flow looks like in non-peak hours. Any road that has variable peak flows – is a candidate for tolls as a congestion reduction technique.

  7. reed fawell III Avatar
    reed fawell III

    Unfortunately these metrics are only as good as the minds that uses them.

    Take for example, Arlington County. How do you factor into these metrics a one million dollar bus stop?

    Or how to you factor in a plan that turns smart growth on its head, like is now being done in Rossslyn, Va. Here the county is violating the central tenet of smart growth. Already Rosslyn is out balance with far more office than residential to qualify as an efficient smart growth community. The county now proposes to make that gross imbalance far worse.

    It proposes to increase the already too large office component by 50% while it increases the already too small residential component by 30%. This will put traffic on steroids. But, instead of at least keeping parking in balance with the new office that it unwisely imposes, the county intends to reduce parking in Rosslyn substantially. This will intentionally drive parking costs sky high for the more than 60% who now drive to work in Rosslyn.

    Making matters worse, the County intends to shut down much of the traffic that passes through Rosslyn. This will make it far harder for people to get from DC across the Potomac to places beyond Rosslyn. It also makes it far harder for people living in the outer Virginia suburbs to pass through Rossyln into DC.

    This intentional Arlington County decisions will diverts Key bridge traffic to other bridges, jamming up rivers crossings in the DC region. Namely all the bridges crossing the river from the beltway south of Alexandria Va. into Maryland to beltway north at the American Legion Bridge between Virginia and Md. And every bridge in between.

    This Arlington County plan is grossly unfair to the entire region and highly inefficient, given the geography and location of Rosslyn. It is grossly and unilaterally interfering with the region’s entire Interstate Road System.

    So why is Arlington County abandoning Smart Growth. And why is it doing so in such a foolish and harmful way? For bicycles apparently. So how much of the taxpayer’s money is Arlington going to spend to improve bicicle use that over the past 40 years has gained a 1% of the market because it does not work for people traveling into Rosslyn and never will. This waste will make the Million Dollar Bus Stop look like a Year End Bargain.

    Secondly, apparently Arlington no longer thinks paved roads are primarily for four wheel vehicles. So it twists smart growth theories into Fool’s Play. This matches the absurdity that Arlington now wants to prevent others who cross Key bridge to go anywhere beyond Rosslyn, and thus divert such traffic onto the few other already overloaded bridges crossing the Potomac.

    So how do the planners in Arlington County now figure out the extent of the harm they are doing to their own citizens, and everyone else in the region. Do these new metrics have the capacity to tote up the damages?

  8. reed fawell III Avatar
    reed fawell III

    On a related question, whatever happened to Arlington County’s full investigation into what happened and why regarding the county’s plan to build 22 bus stops for $22.86 million? Whatever happened to the report to about what happened and how it was to be fixed to be issued by the “late fall of this year”? Has it been done? Has it been released to the public? What are the solutions promised by the late fall of 2013?

    What is going on in Arlington County?

    For some detail on those earlier promises see below:

    “On April 4, 2013, Arlington County issued a press release stating:

    “Arlington County … and Washington Metropolitan Area Transit Authority (WMATA) … have agreed to review the design, construction and associated costs of the recently completed … Super Stop transit station. WMATA managed the construction as a reimbursable project for Arlington County, who designed the project. “We will have a full, independent review of the process and the costs associated with the project. The review also will help us pinpoint ways that Arlington could cut costs moving forward,” Donnellan said. “We will make those findings available to the public … while we engage bus riders and look for efficiencies that will reduce the costs of building future stops.” See
    On June 24, 2013, the investigation changed. WMATA dropped out of the “investigation. And Arlington County announced that it would:

    “launch a comprehensive review of the performance, cost, design and construction of the … Super Stop prototype starting this week. The goal of the review, first announced on April 4th, is to facilitate the construction of the remaining planned stops faster, at lower cost and with improved functionality where necessary. The assessment takes on a three-pronged approach with distinct processes that include: Financial and performance assessment, Community consultation process aimed at the users of the stop, and Design review. The financial and performance review and design review will use independent, third-parties to ensure unbiased reporting and focus.

    The findings from the overall assessment will be used to determine how to proceed on future Super Stops. The review and outreach process is slated for completion in late fall 2013. The County Manager, after consulting with Arlington County Board Members and WMATA … will announce her decision later this year. See

    The “investigation” arises out of Arlington County’s 2012 approval for spending $20.86 million to build 22 super bus stops which began from decisions announced in a July 7, 2007 Arlington County Press Release ..”

    For more Details see:

    For more details see also:

    Again, has Arlington County never yet answered these questions? If not, then why not?

    How can there be any level of confidence in the wisdom and competence of land use and transportation decisions being made by Arlington County today until public officials come clean on these grossly unwise decisions and their incompetent execution by Arlington County in the very recent past?

  9. Government is addicted to spending. Different people and different political factions support different spending goals, but there are damn few elected officials who truly want to restrict the growth of spending, especially spending on their favorites or within their district.

    Virginia elected officials, from both parties, see a growth in commercial and industrial real estate as a panacea. They note correctly commercial real estate demands less in government services than it raises in real estate taxes. So they all ignore virtually everything that they preach to bring in more commercial tax revenue to fund spending increases than generally exceed the growth in residents’ income. “We’re bringing in all this commercial growth to keep your real estate taxes down.” Yet, residential real estate taxes keep growing and growing.

    What elected officials ignore is that all development puts a strain on infrastructure and pushes up the need for more revenue, higher taxes and pushes down the quality of life. Tysons proves my case. We have a billion dollar building coming on line. And, over time, many more very expensive buildings. But don’t kid yourself, Tysons will not result in lower taxes. It will result in more traffic, more overused public facilities, and more need for government revenue. This is not Alaskan or North Dakota oil. It’s not the end of WWI or WWII. It’s more like the armistice signed in Korea.

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