Tide Seems to Turn on Impact Fees
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During the home building boom, city after city levied impact fees on builders to pay for streets, sewers, schools, and sundry other items. Now, in a sign of the times, several major jurisdictions have suspended or deleted impact fees to stimulate development.
The city of Albuquerque last night lifted its impact fees on green projects and reduced them by 50 percent on other projects for the next year. Proposed by the mayor, and vetted with key council members, the move could save about $7,000 per house, according to local builders.
In one of the boldest moves to date, the City Council in Plano, Texas, last month decided to delete all mention of impact fees in its building code. Impact fees in this former high-growth Dallas suburb weren't that big, typically between $1,000 and $2,000 per house, depending on how much water they would use. But they could add up to big bucks on large projects.
Earlier this year, commissioners in Manatee County (the Tampa, Florida area) put a moratorium on school-related impact fees, and cut half of all transportation-related impact fees for two years. The reductions equaled an average of $10,000 savings on a three-bedroom home.
In each case, city officials decided the overriding issue was the loss of gross tax revenue from home building activity. When homes aren't built, cities forfeit tons of other tax revenue--from the companies that sell furnishings into these homes, from builders and subcontractors who can't pay their employees, from property taxes that aren't generated.
By deleting or reducing impact fees, these cities also hope to stimulate their local home building industry. The federal government did its part, enacting an $8,000 tax credit for first-time buyers. If you couple that with some local relief, they reasoned, it might be enough stimulus to get builders building again.
These votes are always controversial, of course. Detractors can point to case studies in which municipalities reduced impact fees but didn't see a bump in new home development. Proponents, though, argue that in most cases these markets were in a downward slide that made it difficult to pencil development deals anyway. They say that every little bit helps.
While these moves by major cities have garnered considerable attention, it's tough to generalize that the nation as a whole is moving away from impact fees. Local newspapers are still full of stories about local jurisdictions seizing on impact fees to pay for fire stations, public parks, and sundry other infrastructure improvements.
In many major cities, though, the tide of public opinion has turned. Impact fees don't make any sense when there's no development to begin with--all they do is create an even bigger, if not fatal, hurdle for projects to jump. When no homes are built, impact fees don't raise any money for public infrastructure.