Some environmental improvements increase property values and, thereby, also increase property taxes. It's possible that jurisdictions...
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Some environmental improvements increase property values and, thereby, also increase property taxes. It's possible that jurisdictions can fund environmental improvements with the increased property tax revenues. Suppose that a community knows that cleaning up an old landfill will cost $800,000 today in clean up expenses, and $100,000 each year, starting next year and being paid in perpetuity, on annual maintenance. The community's economist has projected that on average property values will be increased by $500 starting next year and that this increase in value will be retained forever. There are 300 homes in the community. Suppose the community could collect 90% of the increase in property value as property tax. Assume that the discount rate is 10%. All values have been deflated (there is no inflation). A. Given the amount of tax revenue it can collect, relative to the cost of the improvements, could the community afford to take on the project of cleaning up the old landfill (assume that there are no other costs or benefits associated with the landfill or the landfill project)? Make sure to describe how you have reached your decision (what values have you used, what decision rule have you used?). Note that this is not technically a benefit cost analysis as you are only evaluating the tax revenues collected against the program costs and not all benefits and costs. (10 marks) B. In practice what would the difficulties be in setting up such a program to fund environmental improvements? (5 marks) Some environmental improvements increase property values and, thereby, also increase property taxes. It's possible that jurisdictions can fund environmental improvements with the increased property tax revenues. Suppose that a community knows that cleaning up an old landfill will cost $800,000 today in clean up expenses, and $100,000 each year, starting next year and being paid in perpetuity, on annual maintenance. The community's economist has projected that on average property values will be increased by $500 starting next year and that this increase in value will be retained forever. There are 300 homes in the community. Suppose the community could collect 90% of the increase in property value as property tax. Assume that the discount rate is 10%. All values have been deflated (there is no inflation). A. Given the amount of tax revenue it can collect, relative to the cost of the improvements, could the community afford to take on the project of cleaning up the old landfill (assume that there are no other costs or benefits associated with the landfill or the landfill project)? Make sure to describe how you have reached your decision (what values have you used, what decision rule have you used?). Note that this is not technically a benefit cost analysis as you are only evaluating the tax revenues collected against the program costs and not all benefits and costs. (10 marks) B. In practice what would the difficulties be in setting up such a program to fund environmental improvements? (5 marks)
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Given 1 cleaning up an old landfill will cost 800000 today and 100000 for each year 2 property value ... View the full answer
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Financial Accounting Information For Decisions
ISBN: 978-0324672701
6th Edition
Authors: Robert w Ingram, Thomas L Albright
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