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 Sunbelt and Rocky Mountain West.

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. Flagler County recently hired Tindale-Oliver & Associates, from the Orlando area, to recommend revised transportation impact fees. Tindale-Oliver recommended that the county increase the transportation impact fee on hotels from the current $837.38 to $5,154, a 515.5 percent increase. A convenience store would pay $122,710 per thousand square feet of space, up from the current $11,144.29. That’s a 1,001 percent increase. Fortunately, Flagler’s Growth Management Administration decided to shelve the Tindale-Oliver study.

Highlands County was not so fortunate. Their board voted to pay $193,295 to Tindale-Oliver & Associates for the coming year. The firm, which devised the impact fee schedule, will continue to work with the engineering and planning departments to determine future strategies for funding transportation departments. Looks like a rat hole to me. How unbiased can a consultant be if they have the possibility of ongoing work dangling in front of them?