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



Effect of the Location of Open Space

We first focus on one of the most common forms of open space, circular open
space such as a community park. The context is set up by two practical questions
frequently raised: 1) What is the optimal size of community park? and 2) Where should
the community park be located to have maximal social value? These two questions,
although raised separately, are related to each other. We will simulate 1) how the net
value of community land varies with the size of open space, 2) how the size of open
space affects the capacity of property tax increment to finance public investment in this
open space, and 3) how the location of open space affects the above relationships.

Figure 3 presents three scenarios with differently located community park for
simulation. Panel A describes the idea of providing a central park in the community with
coordinate origin (0,0) at the park center. Panel B and C change the location of the
community park to the right with park center at (1000,0) and to the upper community
with park center at (0,2000) relative to community center, respectively. Figure 4
summarizes how the net value of community land and property tax increment vary with
respect to the size of open space for different spatial location. As we can see, in all
spatial locations, there exists a globally optimal amount of open space that can be
financed by tax increment within a 5-year period. Specifically, panel A shows the net
social value of a center-located circular open space increases until the size of open space
reaches 500 acres, and decreases when the area of open space is beyond 500 acres.
Property tax increment also illustrates the same tendency. Interestingly, the peak-value
size of open space is not the maximum amount that can be financed solely by increased
tax revenue, which is around 1250 acres when the increased tax revenue drops to zero

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