Study: All growth but “smart growth” pays for itself

Published July 1, 2001

In fast-growing regions, “smart-growth” advocates often use people’s fears that existing residents are forced to subsidize newcomers in order to build support for restricted growth policies.

A recent report by an Oregon consulting firm addresses that fear, concluding that, at least in some situations, growth pays for itself. But smart growth—that is, high-density housing—does not.

“Fiscal Impact Analysis Related to City Growth and Annexations” was written by ECONorthwest, an Oregon economic consulting firm, for the city of Salem. While the report cautions its findings are based on circumstances specific to Salem, as well as specific assumptions about future growth, the report’s general conclusions are:

  • Growth pays for itself. “The city’s fiscal position in General Fund would be slightly stronger under the growth scenario than under the no-growth scenario” (page vi).
  • The report predicts some shortfalls, but the shortfalls will be at least as great without growth as with it. “Billing rates for water, sewer, and storm water services are lower under the growth scenario” (page vii).
  • Some shortfalls are due to poorly priced services. “Under the no-growth scenario, we estimate deficits of similar magnitudes. This suggests that the most critical issue facing the Public Works Department is not the rate of city growth but rather the Department’s method of finance” (page vii).
  • All land uses pay for themselves except multifamily housing. “Single-family, commercial/office, and industrial uses contribute more in General Fund revenues than they generate in service costs” (page ix).

This last conclusion, which has grave implications for smart growth, makes a lot of sense. Taxes generated by multi-family housing tend to be much less, per capita, than the taxes generated by single-family housing. Yet multi-family housing can pose high costs on schools and other municipal facilities.

The report warns it would be inappropriate for the “city to shun multifamily housing to foster its budget.” But it makes even less sense to subsidize multifamily housing through property tax breaks, development fee waivers, or other subsidies, as many Oregon cities are doing in a misguided effort to promote smart growth.

Randal O’Toole is senior economist with the Thoreau Institute. He can be reached by email at rot@tiorg. Or visit the group’s Web site at

For more information . . .

Copies of the ECONorthwest report, “Fiscal Impact Analysis Related to City Growth and Annexations,” can be obtained from the City of Salem Community Development Department, 555 Liberty Street SE #305, Salem, Oregon 97301-3503. Thanks to Rodney R. Stubbs for bringing this report to my attention.