Drop in New Construction has Impact on Impact Fees
Sharp drop in revenues from impact fees brings into question the underlying logic used to justify the fees in the first place.
December 18, 2007 – Palm Coast, FL – Impact fees, inspection fees, administrative fees, and utility connection fees now account for about $18,665 of the cost of a new Palm Coast home, regardless of its size or value. Now school districts, cities, towns and counties are bemoaning the fact that they are facing huge impact fee revenue losses because of the drop in new construction.
Background – Impact fees grew out of the reduction in Federal and State grants to local governments and the growth of the tax revolution in the late 1970s. Originated as capital recovery fees to fund water and wastewater facilities, they quickly grew to include several non-utility facilities such as roads, schools, parks, fire and police. Currently, over half of all states have passed impact fee enabling acts, primarily in the rapidly urbanizing
Impact fees are based on the concept that “growth should pay its own way.” Naturally, current residents (voters) would rather see the newcomers pay for the cost of increased infrastructure and services. It’s better than increasing everyone’s property tax.
But there’s something wrong with the picture. If the purpose of school impact fees is to pay for construction of schools made necessary by the additional residents, why is it a problem when construction drops? If there are fewer new homes, then the requirement for new schools is lessened. The drop in impact fee revenue shouldn’t be a problem. The same holds for other governmental services. If there are fewer newcomers, we won’t need as many new roads, new parks, new fire stations, additional police, added water treatment capacity, etc.
I suspect that we might have been bamboozled. Remember when we were sold on the Lotto idea in part because the revenue would go toward education? As we can all see, the affect of the billions of dollars of lottery income is not apparent in our school systems. It seems obvious that the total spent on education has not gone up by the amount of revenue generated by the state lottery.
I’m not suggesting that the state lottery revenue is not going toward education. I’m simply wondering where all the money that used to be spent on education is going. Did someone suggest “back to the general fund?”
There are just too many inconsistencies in the impact fee system. Some jurisdictions get along without them. Those that adopt them exhibit no consistency in fee structure. How can a school impact fee be $2,000 in one county and $4,500 in another?
Consultants are often brought in to justify impact fee levels. In fact, they are more often used simply as buffers to shield elected officials who want the fees. Officials can point to the evidence provided by the unbiased consultants.
Impact fees
Toby has identified the fundamental problems with impact fees; they often defy common sense, have internal inequities, and are grossly inconsistent from place to place. These problems stem from overly complex calculations and questionable methodologies used in the studies which justify the fees. Altering a single assumption can have far reaching consequenses on the bottom line. I will attest to the fact that the government agency often tells the consultant the number they want to be able to justify in advance of the study being conducted. The old experession \”blinded by science\” comes to mind as governments have a vested interest in obfuscating justifications for the fees. An example of a \”trick\” that’s used is to count the impacts of new trips on the state or federal highway system when assessing a local government’s future financial needs. However, the locally collected transportation impact fees are seldom if ever used to help fund federal and state roadway improvement projects. Thus, the local government is charging a developer for an impact that the local government will not pay to remedy. It’s also worth noting that the courts have determined that an impact fee cannot pay for an existing backlog, but that governments have found creative ways to beat the system.
Impact fees are working
Toby,
Not to worry. Impact fees are designed to fund expansion. The CAVE people in Palm Coast, don\\\\\\’t want expansion. The exhorbanent fee structure is stopping expansion, I know because of the total reverse of builders and developers when I had to disclose to these clients these fees. We are now forced to do all of our business out of this area.
The residents of Palm Coast win. They now have complete control of their town. Along with the complete bill!
Hope they like it.
Steve Bennett