A LONG THE U.S. 27 CORRIDOR, SOUTH of Orlando, where Polk, Osceola, Lake, and Orange Counties butt up to one another in an area known as the Four Corners, Florida is a human petri dish of in-migration. These counties account for a hefty part of Florida's 1,000 new migrants a day as all sorts of people flock there, looking to make a home or a buck on speculation. Housing inventory is in such short supply in the Four Corners area, prices are rising nearly 20 percent a year.

New people need places to live, and that's been great news for home builders. The bad news is that the Four Corners municipalities and counties not only don't have enough houses for the influx, they don't have nearly enough infrastructure, services, utilities, and school facilities. They face the same problems as many other American localities: They're cash-strapped and not sure how they're going to keep up with the current population, let alone accommodate a horde of new residents. Hence, impact fees, a little-begrudged necessary evil of new home development for more than three decades, have become a highly combustible issue, particularly as municipalities use the fees as everything from a self-defense system aimed at thwarting particular projects to a stall tactic against project approvals to a revenue generation scheme for local coffers.

On a national basis, new homes sold in 2004 generated more than $7.2 billion in impact fees. If new home sales projections hold to forecasted levels and impact fees increase at current average rates, the fees will pump more than $9.4 billion a year into local economies by 2010. Figure for price appreciation—say about 8 percent a year, and you're looking at impact fees of about $15 billion in 2010.

Illustration: William Rieser Meanwhile, when a locality like Osceola County elects officials who summarily raise the area's school impact fees by 243 percent, who's to stop them? If such impact fee increases became systemic, particularly as municipalities look to try to recoup funds the federal government cuts as it shifts into deficit reduction mode, the potential consequence in billions of dollars is hardly imaginable. In the curious logic of much of the nation's local law, even an indefensibly unfair local levy upon builders—and thus upon the unwittingly burdened home buyer—is hardly worth the lost time it costs to beat the fee down to a more reasonable level.

Big builders think the fees have risen to extortionary heights, but they've habitually traded off absorbing the fees as long as they could maintain profitable entitlement cycle times and pass along the cost in the price of the house. But in Florida's Four Corners, and other rapidly growing areas of the country, builders are changing their semi-tolerant tune. Accusations and recriminations are starting to fly, and lawyers are getting into the act. “NAHB is involved in numerous cases nationwide, involving all aspects of the impact fee issue,” says NAHB staff counsel Jon Luther. In the thickening portfolio of casework placing builders and municipal officials at loggerheads, Luther cites “lack of state enabling legislation; failure to comply with existing statutes; illegal collection/application of the fees, resulting in improper taxation; and violations of nexus and proportionality requirements, resulting in Fifth Amendment violations.”

Money Hungry Osceola County hosts Florida's fastest-growing school district, adding 19 new students every 24 hours. So, in the spring of 2004, elected county officials felt entirely justified as they hiked school impact fees some 243 percent, from $2,828 per purchase of a single-family home to $9,708, Florida's highest such fee. Not so fast, responded area builders. After years of a wince-and-bear-it mentality, the Florida Home Builders Association (FHBA) and the HBA of metropolitan Orlando lashed back. In April 2004, they filed a class-action lawsuit in circuit court against Osceola County to overturn the measure, requesting that the county restore its $2,828 school fee. The builders contend that the county's calculus in modeling the new per-family impact on schools overstates actual costs. They say that when Redmond, Wash.-based consultancy Henderson, Young & Cas developed the fee structure, it virtually discounted credits for past and future taxes and fees paid, or expected to be paid, by home buyers and also disregarded credits and other school revenue sources.

Will Osceola become a bellwether case of builders finally standing up to money-hungry elected municipal officials in defense of the ever more burdened but unsuspecting new homeowner? “The courts are going to determine the degree of responsibility that a new home buyer has to provide services for the entire community—including the existing factor. It's new territory,” says Mike Hickman, 2004 FHBA president and president of Hickman Homes. “There is no question that the Osceola case will have statewide impact.”

2004 NATIONAL AVERAGE IMPACT FEES Source: Duncan Associates Such rhetoric has appeal, especially in a market environment where the question of demand at any price level hovers on every horizon. “It's likely to set a precedent,” says Jim Duncan, president of impact fee consulting firm Duncan Associates, Austin, Texas.

As the case awaited a court date this winter, litigants gathered their data. Wayne Bertsch, FHBA director of political affairs, asserts the county completed a follow-up study last fall as builders readied their lawsuit. Rather than admitting errors in their calculations and making concessions to builders, Osceola County and its consultants surmised that they'd actually low-balled their impact projections. They recommended an additional increase of $2,000 to $3,000 for the 2005 school impact fees.

Of Florida's 67 counties, 19 currently have school impact fees. “Every day, you hear about another county that is looking at adding them,” says Bertsch. Officials in Collier County, home of posh Naples, recently decided to explore school fees, despite the fact that current fees add nearly $20,000 to the price of a new home.

Learn more about markets featured in this article: Orlando, FL.