A push for local governments to defer the collection of impact fees gained steam in California last week when elected officials in Orange County, Calif., agreed to postpone collecting fees for housing construction projects until those projects are finished. The county, which wants to provide temporary relief to the ailing housing industry, will defer collections for a year and then revisit the issue in light of existing business conditions.
Orange County’s decision came only weeks after the city council of Anaheim, Calif., voted unanimously to delay impact fee collections as part of a stimulus package that includes green-building and affordable-housing incentives. The deferrals in Anaheim will extend to 2010. In the city of Orange, Calif., the fee collection deferrals are now permanent, according to Kristine Thalman, chief executive of the BIA of Southern California–Orange County chapter. The city of Victorville, Calif., went one step farther when it voted to freeze impact fees for parks and facilities for six months, which would reduce fees per house that had been $11,327 by 62 percent to $4,937, according to that city’s Daily Press.
“Deferred payments will put money back in the pockets of builders and developers and could help keep people employed,” she told BUILDER in an interview yesterday. The county’s decision has also given her leverage when approaching other cities about doing the same thing; she said that in the past few days she had visited with officials in several cities, including Huntington Beach, Irvine, and Santa Ana. “Jurisdictions like to see who goes first before they act themselves,” she said.
Impact fees, which are assessed on new homeowners to help pay for a neighborhood’s infrastructure and services, have long been the bane of builders and developers and have become a political hot potato in some markets. Three of the four candidates running for seats on the city council of Kingman, Ariz., have made their opposition to impact fees part a campaign issue, according to the Kingman Daily Miner. The Fort Worth Business Press reported yesterday on that city approving a $2,000 transportation fee on every single-family residential unit.
A bill that would have mandated fee collection deferrals throughout California ran into a buzzsaw of opposition from the League of Cities and other interest groups. “The political climate, particularly in northern California, just wouldn’t accept that,” says Bob Rivinius, the state BIA’s executive director. So his group is supporting a bill, expected to emerge from the state legislature next month, that would require local governments to meet with local building groups “to see if something can’t be worked out” on impact fees, Rivinius says.
Orange County generates 80 percent of its general funds from property taxes, “so when we’re that dependent on what happens to real estate, anything we can do to help is worth it,” says John Moorlach, chairman of the county’s board of supervisors. Moorlach points that many of the condo and high-rise projects in his county (which has 3 million people in just 800 square miles) have been struggling during the downturn in buyer demand and the credit crunch. While he concedes that the fee deferments would probably have “minimal impact” on moving projects along, he says that he “saw this as more of partnership, where we’re saying to [builders] that we are willing to modify some things during tough times.”
Some cities have been postponing their impact fees collections since the 1990s. “But what’s new is the skill that we’re getting fees deferred up and down the state,” says Borre Winckel, executive director of Southern California’s BIA chapter in Riverside County, which last summer agreed to defer all impact fees until a project is completed. Riverside had always deferred some fees, but it had also been adding fees for things like transportation and parks that weren’t deferred, Winckel explains.
Riverside County’s decision affects unincorporated land where about 40 percent of the county’s annual permits are issued. In the mid 2000s, the county issued up to 34,000 permits a year. In 2007, that permit number fell to 15,000; in the first quarter of 2008, only 1,000 permits were issued. Winckel says that the fee-postponement, in Riverside and elsewhere, “is designed to move projects forward.” The builder doesn’t have to borrow money to pay the fees upfront, and the saving in interest-rate costs can be used for construction and maintaining employment.
Neither Thalman, Winckel, nor Rivinius sees any evidence that postponing collections is delaying the placement of infrastructure. And Winckel says that one problem, where certificates of ownership to homebuyers were delayed when builders were late on paying fees, has been resolved by statute.
Winckel estimates that builders and developers in western Riverside County pay, on average, $65,000 per house in impact fees. At least about one-fifth of that $12,500, though, is assessed by school districts that, which are collecting more than $4 per square foot. Winckel says the districts are his group's next target for deferrals. "The big mistake we've made in the past has been to bargain with the [school] facilities' builders, who complain that they wouldn't get paid for 6 to 8 months." But he argues that with school enrollment dropping, the fees being assessed by school districts, and when they are collected, should be adjusted.
John Caulfield is a senior editor at BUILDER magazine.