Tax Increment Financing for Optimal Open Space Preservation: an Economic Inquiry

Tax Increment Financing for Optimal Open Space Preservation:
An Economic Inquiry

Abstract The public has increasingly demonstrated a strong support for open space
preservation. Questions left to local policy-makers are how local governments can
finance preservation of open space in a politically desirable way, whether there exists an
optimal level of open space that can maximize the net value of developable land in a
community and that can also be financed politically desirably, and what is the effect of
the spatial configuration of preserved open space when local residents perceive open
space amenities differ spatially. Our economic model found the condition for the
existence of an optimal level of open space is not very restrictive, the increased tax
revenue generated by the capitalization of open space amenity into property value can
fully cover the cost of preserving this optimal level of open space under a weak
condition, and being evenly distributed and centrally located is very likely to characterize
the optimal spatial configuration of preserved open space in terms of net social value and
the capacity of tax increment financing.

Keywords: open space preservation, property value, tax increment, spatial configuration

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