Purdue News

October 28, 1997

Purdue study finds residential development costs governments

Persons living in more expensive residential developments probably pay taxes near or above the value of the services they receive, according to the study by Larry DeBoer, Purdue University professor of agricultural economics, and master's candidate Lei Zhou.

"Tax laws are similar across Indiana, so these findings may hold true statewide," DeBoer said. He is continuing his research in other Indiana localities.

"Is this fair? That depends on your definition of what makes a tax fair, " he said.

DeBoer said there are two views on tax fairness. The benefit view sees taxes as fair when people pay enough to finance the government services they use. The ability-to-pay view sees taxes as fair when upper-income people pay more than lower-income people.

DeBoer presented his findings this evening (Tuesday, 10/28) to Focus on the Future of Unincorporated Wabash Township, a citizens group concerned about the effects of development. The study was funded by the Kinley Trust.

The study analyzed the fiscal impacts of four residential developments in the unincorporated areas of Wabash Township. They were Capilano by the Lake, a development of expensive homes; two developments of mid-priced homes, Green Meadow and Pine View; and Point West, a mobile home park.

The three housing developments have between 50 and 70 homes each. The average market value of homes in Capilano by the Lake is well over $300,000. In Green Meadow the average market value is roughly $140,000, and the average-priced home in Pine View is about $90,000. Point West has 387 lots with the average market value of each mobile home at about $18,000.

The governments studied were Tippecanoe County, Wabash Township and the Tippecanoe School Corp. Revenues analyzed included property taxes, local income taxes, motor vehicle excise taxes and state aid.

Three alternate scenarios of impact were studied for each government entity based on various assumptions about the incomes of new residents to the county and whether residents of the developments came from inside the county or moved there from another county.

The mobile home park represented the greatest difference between added revenues and added expenses for all three units of government: a shortfall of $45,000 to $120,000 per year for the county government; $1,500 to $2,500 for the township; and $21,000 to $49,000 for the school corporation.

The intermediate-residential developments also represented shortfalls for all three governments in most scenarios. At the extreme, the county spent more than it took in from the subdivision by $20,000 per year; the township by $570 per year; and the school corporation by $17,000 per year.

The development of expensive homes in most cases had a positive fiscal impact. In the case of the school corporation's budget, the added revenues exceeded the costs of educating the families' children by $40,000 to $50,000 per year. In the worst-case scenario, the subdivision cost the county government $19,000 and the township $500 per year.

"It is simply the case that residential development consumes more in government services than the revenues it generates," DeBoer said. "On the other hand, commercial and industrial developments tend to have positive fiscal impacts. So, if retailers and factories decide to locate in the same government jurisdictions as those developments, then the costs could be offset."

DeBoer is an expert on state and local government taxes and expenditures. He has published research on property taxes, local government economies of scale and state lotteries. He also has consulted with the Indiana General Assembly and State Board of Tax Commissioners on tax and finance topics.

Source: Larry DeBoer, (765) 494-4314; e-mail, deboer@agecon.purdue.edu
Writer: Beth Forbes, (765) 494-9723; beth_forbes@purdue.edu
Purdue News Service: (765) 494-2096; e-mail, purduenews@purdue.edu

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