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Analyzing the Benefits and Costsof Economic Development Projects 11 2 6 that occur in later years using a net present value calculation.21 This is necessary because future revenue streams will be worth less in five or ten years than those received today due to the time value of money.22 Paying attention to the timing of revenues and costs over the life of a project can pinpoint where numbers might need to be adjusted to express in real terms the value of the public benefits and outlays expected in later years. Public officials should consider the net present value of cash flows when determining the "payback period" {years it will take to recoup project expenditures) for incentives and other public investments. Fiscal Impact Models and Software Applications There are a few prepackaged models and web-based applications available to use in conducting a fiscal impact analysis of an economic development project. These models and applications help reduce the guesswork associated with estimating the local government costs and benefits that result from growth by providing a template for the data needed and confirmation of the assump- tions behind the estimates. Two available fiscal impact packages designed for use on economic development projects are discussed below FedFIT The Federal Reserve Fiscal Impact Tool (FedFIT) is a set of spreadsheets that produces esti- mates of how a development project will affect local government revenues and costs. FedFIT is essentially acomputer-based calculator that guides users through the steps and assumptions required to quantify the fiscal impacts of new development. The tool's creator candidly acknowl- edges its limitations to the extent that "[i]t does not purport to allow analysis with a high level of precision, but seeks to give only a rough picture:'zs To estimate local government revenues with FedFIT, users must input information about (1) the development project, such as new employment, average salary, the market value of real and personal property and (2) the jurisdiction, such as sales and property tax rates. The model's default for deriving cost estimates is to apply historical average expenditures per capita by service function to expected population changes (number of new residents). Users can opt to override the default approach and enter more precise information about the costs related to the new development. The model also includes a number of default assumptions about retail leakage out of the area, in-migration, school-aged children per new family, and the like, which the user can modify. The application includes historical data on retail sales, number of business firms or establishments, labor force and employment, population, and income, which can be used as contexts for interpreting results. FedFIT is available free of charge via a-mail or CD. Visit www.federalreserve.gov/forms/fiscalimpactrequest.cfm. 21. Michael J. Mucha, An Introduction to Fiscal Impact Analysis for Development Projects," (white paper, Government Finance Officers Association, 2007), www.gfoa.org/downloads/ FinanicalImpactAnalysis.pdf. 22. The time value of money refers to the preference for receiving money now rather than later.lVloney in hand today is more valuable than the same amount received in the future because it can be invested and earn interest. 23. Dan Gorin, "The Federal Reserve Fiscal Impact Tool,' Research Review 12, no. 2 (2005): 66. Also avail- able at www.icsc.org/srch/rsrch/researchquarterly/current/rr2005122/Federal Reserve Fiscal Impact.pdf. © 2010 School of Government. The University of North Carolina at Chapel Hill