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Impact Analyses Help Determine Annexation Feasibility

When growth occurs in a community, annexation of those growing parts of town can be an attractive prospect for municipal councils, since annexation grows the tax base and allows the municipality to expand its services. 

Every time a city annexes a property, however, officials must consider the best interests of the city. The long-term benefits will often outweigh the short-term costs, but establishing new services can create a financial burden that new revenues, taxes and fees cannot offset. Especially in residential areas, cities can find that the new revenue will not cover the new costs, and so cities forgoing a proposed annexation is not a completely unusual outcome.  

A formalized policy for evaluating annexation proposals can help the council make an informed decision. The Municipal Association’s Annexation Handbook lists out many considerations that cities should account for in a feasibility study.

Understanding existing and needed governmental services 

This includes identifying the provider of each service and its contractual obligations, as well as the level of additional services needed. The analysis should identify the services to either be assumed by the municipality, or provided for the first time, and the timetable on which the city will provide these services. 

Understanding efficiency or feasibility issues in the area to be annexed

This includes identifying efficient service areas and areas that cannot be served in a cost-effective way. 

Consider the case of the City of Charleston, where hazards ranging from flooding to sea level rise can impact both development and services. As such, the city will typically not annex properties in flood zones, and will make annexation decisions informed by its Future Land Use Comprehensive Plan, which accounts for anticipated changes to the coastline. The city’s Planning, Preservation and Sustainability Department compiles a report for all annexation requests, including 100% petition annexations, which is made available to the public and relevant elected and appointed officials before consideration by city council and the planning commission. 

The City of Columbia maintains an Urban Service Area Plan, which indicates areas outside the city that could reasonably be provided with city services. The plan is part of the community facilities element of Columbia’s comprehensive plan, intended to be updated every five years. For pending annexations, Columbia also sends notices to relevant city and county staff. The notice asks department heads to provide comments and recommendations on the potential annexation impacts, which are compiled for the city council as it makes a decision. 

Understanding revenue needs

This includes estimated revenues from taxes, fees and service charges, and also the impact and permitting fees of any development to take place. 

The analysis should project the level of taxes and fees required to support services. For example, the Town of Summerville’s fiscal impact analysis for annexations considers the projected number of new residents as well as the estimated cost of service delivery in various categories ranging from public safety to roads, drainage and recreation. For new residential developments, it uses a formula with an expected number of residents for each single-family home, townhouse or apartment, and then calculates the expected costs based on the costs indicated in the town’s annual audits. 

Understanding property owner costs

This addresses the tax and fee costs to the property owner before and after the annexation. Many property owners assume that annexation will raise their taxes, but entering a city can involve the elimination of certain fees that property owners in unincorporated areas pay, so the true cost impact cannot be assumed. Municipalities including Columbia and Mount Pleasant offer online annexation cost calculators to help property owners understand the issues involved. The City of Charleston creates a tax comparison for potential annexations to outline the changes property owners could experience.