By Steve Zurier. Faced with explosive population growth and the threat of state aid cuts due to California's multibillion-dollar budget deficit, the city of Elk Grove has added two new taxes totaling $275 to the annual tax bill of new homeowners. The new taxes, which were approved by the city council and local developers, will be used to cover the costs of police and road maintenance in new communities.

Builders around the country view the Elk Grove tax as a window into a future of added taxes and fees. Benjamin Fierro, counsel to the HBA of Massachusetts, says while local governments don't have the same power to tax in Massachusetts that cities and towns do in California, builders may see renewed efforts on the part of municipalities to impose impact fees and pass moratoriums on new building permits. And, in Connecticut, the HBA of Connecticut is vigorously opposing the doubling of the state's conveyance tax on home sales to offset the state's budget deficit.

Back in California, Vince Brennan, vice president of D.R. Horton Sacramento, says Elk Grove has no other options--short of imposing more impact fees. He says typical impact fees in a D.R. Horton community in the Sacramento area are roughly $30,000. Elk Grove uses impact fees for municipal services, such as additions to office buildings, police, and roads and sewers.

Mayor Richard Soares says the move was necessary to pay for the city's rapid growth. He notes the city has approved 350 new building permits every month for the past 18 months--a pace he says will continue for the next four to five years. He adds that the city's population will double to 150,000 by 2010.

Soares says the city opted for new taxes versus impact fees because it wanted the measure to be targeted. The tax affects only new residents, not existing homeowners.