Chapter 6: Intertemporal Equity
INTRODUCTION Local jurisdictions must balance present and future needs against costs when financing infrastructure. When a fixed piece of infrastructure is funded and built by one group, and then a new group comes in and uses it without paying, there is a free-rider problem. When one group comes in and borrows money to build infrastructure, and another group is held liable, there is also a free-rider problem. The extent of the problem depends on site-specific circumstances, the nature of financing, and the placement of the tax burden. This chapter will consider these factors and evaluate suggested solutions. In the past two decades, many localities have levied impact fees to finance new and expanded infrastructure. The fees are designed to be associated with the ‘impact’ of the development on public services. The impacts include the full gamut of publicly provided services, including roads, sewers, schools, and parks. While development has generally been held responsible for constructing on-site public services, off-site facilities are often addressed by impact payments. Some communities have adopted value capture districts, to tax adjacent development for the benefits associated with new transportation infrastructure (Stopher 1993). Others have implemented stringent growth management regulations tied only weakly to financing (Levinson 1998; Pollakowski and Wachter 1990). The underlying need for taxes on development arises due to the financing mechanisms used to pay for infrastructure. Suppose a community has adopted ‘pay-as-you-go’ financing and pays outright for a road. When a residential or commercial development comes along, it does not pay the one-time...
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