Land Use Economics: Redwood City Fiscal Impact Analysis of Land Uses & Evaluating Community Benefits Proposals

Background & Purpose

Land use decisions are one of the most important functions in local government, with wide-ranging and long-term implications. In making such decisions, the City Council must consider current and future community needs and multiple policy objectives, including the Council’s three main priorities of housing, transportation and children & youth, as well as land use patterns that support economic vitality, environmental sustainability, and public health and safety. As the City develops its first Equity Plan this year with the support of the City Council's Equity and Social Justice Sub-Committee, the City Council may also consider how land use decisions support equitable outcomes. In recent years, the City Council has sought to understand how land use decisions affect the City's financial sustainability, in particular, how such decisions affect City revenue and City operating costs.

The City entered into an agreement with Economic and Planning Systems (EPS) in July 2020 to conduct a Citywide fiscal analysis of different land use types. The analysis provides a high-level comparison of the fiscal implications generated by new development, broken down by land use type, on the City's General Fund. On March 22, 2021, the City Council held a Study Session that served to provide an overview of the analysis conducted, as well as the baseline assumptions that were used to determine the net fiscal impact for each land use type. Following the Study Session, EPS prepared a technical memo, linked below, that details out this analysis and provides some additional case studies.

On October 25, 2021 a second study session was held regarding the evaluation of Community Benefit proposals. The purposes of the second study session was to: (1) to give an overview of the methods the City currently uses to obtain community benefits in conjunction with certain development proposals; (2) to explain how projects can be evaluated, when appropriate, to assess the ability of a private development project to feasibly provide community benefits; and (3) to provide a high-level overview of potential strategies that could be available to incentivize delivery of community benefits for future planning efforts. The City retained a financial consulting team, Strategic Economics, who assisted staff with this study session.

Use & Applicability

Fiscal Impact Analysis of Land Uses

The high-level analysis and its findings are intended to be a 'snapshot' of the impacts of these land uses on the City's budget and to help identify the costs and revenues associated, generally, which each land use type. Actual fiscal impacts can depend on a variety of factors including market and business cycle conditions, changes in local, state or federal funding and other economic and demographic trends. 

Decision-makers can use this analysis as a reference to better understand the fiscal implications of land use types to support overall analysis when considering mostly future General Plan, Zoning Ordinance and Precise Plan land use changes. The case studies that are included in the technical memo are provided to give a general idea of the impact of these land use types.

This analysis is not an economic analysis that would look more broadly at the impact of land development on the local economy. It is also not a fiscal impact analysis of a specific project and it does not reflect market conditions such as land availability or private interest in certain types of development. This analysis considers how development of certain land use types impact the City's operating costs and revenues. Lastly, it is one lens for evaluating land use decisions. It is not intended to be a sole factor when considering future land use decisions, which should consider other City policy objectives and priorities (including housing, transportation, and children and youth and the foundational priority of equity). Additionally, decision-makers must be able to make all applicable discretionary land use findings, such as Architectural Permit findings, in order to support a recommendation of a project.

Evaluating Community Benefits Proposals

A community benefit generally can be described as an amenity provided to the larger Redwood City community. For example, a project such as below market rate housing can be a community benefit. However, for the purposes of this discussion, the focus is on the type of community benefit where amenities are offered in exchange for a specific incentive or bonus, or the amenity is voluntarily offered by a developer who is requesting a discretionary City action such as a General Plan or Zoning Code Amendment. In these instances, the developer proposes a community benefit that goes above and beyond baseline City requirements and meets a clearly identified community need.

The nature of a community benefit can vary greatly depending on the needs of the community but often includes parks, open space, childcare facilities, community amenity space, public infrastructure or affordable housing. Typically, projects that meet the City’s General Plan and zoning requirements entirely will not propose community benefits. Rather, community benefits are voluntarily offered when the project requires a change in local land use policies. In some instances, a local government may offer incentives to developers in exchange for community benefits. These incentives can include additional private development capacity (including floor area ratio or units per acre), bonus building height, or other zoning standards.

For development projects requesting incentives, bonuses, or a discretionary action (such as a General Plan Amendment or Zoning Code amendment), the financial feasibility of a development project can play a key role in determining the amount or type of community benefits to be provided. In order to attract private investment, developments must meet a minimum threshold of financial return for a developer. That threshold is typically determined by total development cost and perceived risk versus projected revenues. Risk can include a variety of factors from certainty of development costs to perceived likelihood of obtaining entitlements (e.g. project meets General Plan and Zoning requirements) and overall timeline for project delivery. These factors all contribute to the total development costs and development value. If the development value is deemed higher than the development cost, the project is feasible. However, if the development cost is greater than, or very close to the development value, that project may be deemed infeasible.

When considering community benefits offered, the City’s objective is to determine the difference between the value of a zoning-conforming project (which typically does not result in discretionary community benefits) and the value of a project which requires a discretionary planning review (which may propose a discretionary community benefit). The difference in value generated in the two different development scenarios helps the City understand the financial value of community benefits which the project could potentially support.

More information on the Study Session held with the City Council can be found in the staff report and the presentation linked below.

Technical Memo

Redwood City Fiscal Analysis of Land Uses Technical Memo

Helpful Links & Documents

City Council Study Session: March 22, 2021 (Fiscal Impacts of Various Land Uses)

Slide Presentation on Fiscal Impact Analysis of Various Land Uses

City Council Study Session: October 25, 2021 (Evaluating Community Benefit Proposals)

Slide Presentation on Community Benefits Study Session

Contact Us

Ryan Kuchenig
Senior Planner
(650) 780-7239
rkuchenig@redwoodcity.org