Strategies for the Mitigation of Municipal Financial Problems Associated with Energy Development: A Simulation Experiment

Alternative strategies are evaluated for financing municipal facilities in communities experiencing population influx due to an energy development such as power plant construction. The simulations, based on a system dynamics model of public service facilities, fall into two broad groups according to whether the needed revenues are sought from local or extralocal sources. Of all cases presented, only direct extralocal grants both eliminate public service shortages and keep the property tax rate down. The solution to the boom town financing problem will likely involve some combination of strategies. The system dynamics analysis can help policymakers and planners conceptualize the nature of the situation and understand the range of options. INTRODUCTION Wide public and political recognition is now given to the fact that energy developments such as power plant construction or large-scale coal and uranium mining create strains for the nearby rural communities that host the labor forces required. Much effort has gone into modeling the population growth and subsequent facilities and service needs which these communities experience »Presented at the Joint TIMS/ORSA National Meeting, New Orleans, May 2, 1979. 27 © 1980, Baywood Publishing Co., Inc. doi: 10.2190/QAAT-64E8-X5QT-Q6Y8 http://baywood.com 28 / S. C. LOPREATO, J. K. MONTS, AND E. R. BAREISS [1—4]. Another side of the coin is to evaluate the potential impacts of alternative strategies for financing the needed municipal facilities once they have been identified. In this context of generic policy evaluation, system dynamics simulation modeling can prove useful to planners and officials at the federal, state, and local levels. We report several simulations on alternative mitigation strategies and discuss some of the limitations on the use of this type of modeling in the policy and planning area. THE COMMUNITY IMPACT PHENOMENON Construction of a power plant, installation of service bases for offshore drilling, mining of coal or uranium, construction of coal gasification or oil-shale plants, and various other energy-related activities are either presently ongoing or are planned for many parts of the country. Either because the resources are not located near major population centers or because of air, water, and land requirements and regulations, these activities tend to be focused in rural or semirural areas which can physically accommodate them but which generally lack the labor force base to supply an indigenous source of construction workers. This disjunction of labor availability and demand means that, depending on the proximity of metropolitan areas to furnish commuting labor, a significant amount of in-migration will occur. The bulk of the in-migrants will be temporary; their stay will depend on the construction time for the particular project and can vary from less than two to more than ten years. The total population increase that a community can expect will depend on the size and proportion of families accompanying the workers and on secondary employment opportunities that develop to attract nonconstruction workers (see Figure 1). Various modeling efforts are underway, as we pointed out above, to project the population increase and to estimate the municipal needs this population will create. The community involved will have to provide water, waste-water, police, fire, medical, educational, and transportation services. Depending on the extent of existing underutilized capacity, municipal expenditures can increase significantly. FINANCIAL STRATEGIES The fiscal problems facing small communities undergoing rapid growth are several. First, there will probably be a lack of adequate revenue for expansion or construction of such facilities as sewage treatment plants, water supply systems, and schools. Second, lead time problems arise since prospective revenues from the new development will accrue to the community after the facility is operational — not in the preconstruction years when the community should be expanding its services to accommodate the pending population influx of workers and their families (see Figure 2). Third, the communities face fiscal FINANCING MUNICIPAL FACILITIES / 29 SOURCE: Rapid Growth from Energy Projects: Ideas for State and Local Action, U. S. Department of Housing and Urban Development, Washington, D.C., 1976. Figure 1. Added population from construction and operation of a typical 2,250-megawatt coal-fired power plant. uncertainty since there is no guarantee that contingencies will not occur that would force the industry to cancel or cut back on development plans. Fourth, "community development needs and socioeconomic problems associated with large-scale energy development are unlikely to conform to local jurisdictional boundaries." [3, p. 75] Such situations mean that tax benefits can accrue to one community while financial impacts fall to another. Fifth, shortages of private as well as public capital can occur, leading to an inadequate housing supply and a lack of expansion in retail and service businesses. Strategies for mitigation of financial problems are associated with these major categories of funding: (a) traditional debt and security devices, (b) federal/ state support programs; and (c) industry. Other relevant strategies such as tax-base sharing, creation of special districts, and public ownership are available, but these types of mitigation devices have proven thus far to be less feasible politically than the strategies discussed here. 30 / S. C. LOPREATO, J. K. MONTS, AND E. R. BAREISS