The City of Pleasantville created The Peninsula as a model subdivision. In contrast to traditional subdivisions, The Peninsula mingled condominiums, town homes, and single-family homes. The City designed the project so that many key amenities (a bank, the post office, shops, and so on) are within an easy walk from any residence. The development is located in a river's oxbow and almost constitutes a stand-alone entity. Indeed, the City believed this feature to be critical in developing a sense of neighborhood and in creating a vibrant, self-sufficient community. With all of these features, the City realized high demand for the properties, and within a few years, The Peninsula was fully occupied.

The current dilemma concerns the homeowner's association. Until The Peninsula became sustainable, the City used monies from a federal grant to maintain many of the amenities such as the pond, parks, hiking trails, shelters, and landscaping. A homeowner's association was formed to discharge these duties. The association learns that the City spent $150,000 last year on these amenities. Thus, the homeowner's association needs to find a way to raise $150,000 from the homeowners and the retail establishments.

Required:

Evaluate the following methods of raising the $150,000. Identify at least one positive feature and one negative feature associated with each allocation basis.

1. Value of property.

2. Head count, based on the number of persons living at each residence.

3. Equal division, counting each residence and store as one unit.

4. Fee-based, as far as practicable, with the remainder being allocated.

Using the insight from your answer above, discuss how the incentives of the taxing authorities might influence the choice. Please also discuss possible reactions from individual home / business owners to the proposed basis. What do you conclude about the behavioral impact embedded in the choice of an allocation basis?