Impact fees are a fact of life for most U.S. builders. Even small communities that aren't facing growth issues look to impact fees to help alleviate budget shortfalls and help fund everything from regional parks to new roofs on old schools. But if the overall mood a year ago was that local government expected builders to foot the bill for every infrastructure need, there is evidence now that municipalities are looking for partners instead of underwriters.
"What we're seeing more and more of is an attempt to do more of a joint-venture approach between local government and developers," says James Nicholas, associate director of the Growth Management Center at the University of Florida's Holland Law Center and a leading impact fee consultant to governmental agencies. "We're starting to see some more positive approaches rather than negative 'Give me money or you don't get your permit.' Now, it's more, 'Hey, we have the same problem. How can we work together?' "
In essence, builders and local governments do have the same problem. Many communities lack the necessary services and systems--roads, schools, water, and wastewater, police and fire protection, and others often funded by impact fees--to support growth.
While many anti-growth supporters point to the influx of housing units as the reason systems are strained, a new report funded by a coalition of housing interests--the NAHB, the National Association of Realtors, the National Council of the Housing Industry, and the National Housing Endowment--emphasizes that the challenges of today have existed for more than half a century.
The current environment of expansive fees and the use of fees as a tool to control growth, notes the report, "Building for Tomorrow: Innovative Infrastructure Solutions," are the result of three converging factors:
* the demand of residents for a broader range and higher quality of public services;
* voters refusing to support raising taxes to pay for those services; and
* a sharp reduction in state and federal funding, coupled with an increase in unfunded mandates.
Lisa Spect, a land use and government practice attorney in Los Angeles, sees the logjam every day.
"I'm working with elected officials a lot and I see the pressures they're under because there's no general fund money left," she says. "There's so much animosity about raising taxes, the elected officials don't have anywhere else to go. Those infrastructure costs that used to be spread across society can't be done anymore because taxpayers have gotten spoiled," said Spect.
While she says "you can't go home again on impact fees," Spect does see some ways to save money in the long term. Her builder clients frequently pay the overtime of part-time city and county workers to process development applications.
"It's so much cheaper to pay for the person and get the project approved six months earlier," she says. "There's a lot you can do if you want to be creative and spend some money."
Some local and state builder associations continue to wage legal battles to eliminate impact fees they believe are illegal under their respective state laws and unfairly put the lion's share of a community's infrastructure needs on the backs of new home buyers. NAHB staff counsel Jon Luther notes that Arkansas, Mississippi, and Texas are legal hot spots for impact fee challenges, while Florida, Georgia, Nebraska, and Colorado also had cases in court within the past year. Most of those challenges hinge on the municipalities' authority to impose the fees.
"On a state and local level, there are [legal] cases everywhere," says Keyvan Izadi, land-use planner for the NAHB's Regulatory Affairs Advocacy Group. "It's a situation where builders are saying, 'Look, let's look at alternatives. Impact fees are not fair and they're not even dependable. You're hampering growth, but growth will pay for new infrastructure. That doesn't add up.' "
Izadi saw the shift in perspective at, of all places, the National Impact Fee Roundtable, an annual conference geared toward impact fee consultants and their clients. "The entire audience is municipalities seeking out bulletproof impact fees," he says. "They weren't so far off from our perspective. We agree we need infrastructure, particularly with schools and roads, and it really comes down to how you're going to provide that. We left somewhat hopeful; we thought there might be some common ground."
Some communities are changing their processes and pursuing alternative funding mechanisms that spread the load more evenly.
The NAHB coalition report notes that bond banks, tax increment financing, public-private partnerships, design-build projects, community-based wastewater systems, privatization, Grant Anticipation Revenue Vehicles (GARVEE) bonds, and special districts are among the innova- tive financing tools communities are now using to address infrastructure needs. The report also highlights creative solutions to tackling public projects, such as the private construction of a major highway in Boston, built in half the time it would have taken the state, and the use of tax increment financing (TIF) districts in Chicago to transform blighted portions of the city into a cultural centerpiece. The full report can be accessed at www.nahb.org.
In Washington State, one county voted to move the collection of impact fees from time of plat or permit to time of occupancy.
"While this does not remedy the problem, it certainly takes a substantial burden off of the builders," says Trent Matson, tax and housing analyst for the Building Industry Association of Washington. "In the end, the additional carrying costs normally carried by builders are no longer passed on, resulting in a savings to the new home buyer."
Nicholas cites Canton, Ga., as an example of a city that has created a program that builders can support by being involved in the discussions early on to "put together a really nice program that combines impact fees with regular funding with special districts," a model that he says is being investigated in other parts of the country.
"I do sense we're moving in that direction," he says. "I think builders are probably the most pragmatic people who ever walked. They just want to know, 'Does the damn thing work? If it does, let's go with it.' "
In Tampa, the very real threat of a fourfold increase in water and sewer impact fees led to the creation of an alternative financing system called the time payment program. The program requires the builder or developer to pay 25 percent of the fee up front, with the remaining 75 percent to be paid by the homeowner. The homeowners can either pay the fee in a lump sum at closing or pay it over a span of 20 years in a form of a lien against the property, says Kimberly Hall, government affairs director for the Tampa Bay Builders Association.
The benefit to the county is that the fees are a guaranteed source of revenue for the next 20 years, which makes them bondable, she says.
Don Whyte, president of the Southeast Region of Tampa-based Newland Communities, was involved in creating the time payment program. It's proved popular with home buyers, he says, because they're accustomed to paying fees over time. They also recognize that they probably won't be in the house for 20 years, "so why should they pay all the cost?"
Builders were so enthusiastic about the voluntary program that they signed up their lots and paid the fees earlier than they did under the traditional system, providing the county with more money sooner for building infrastructure.
"The benefit for builders is a capital cost spread out over time," Whyte says. "[The builder] doesn't have to front it. You can pass that savings on to the customer, and you have more money to do other things."
The program has worked so well, Hall says, that several other counties in Florida are trying to institute similar systems.
The latest addition to the time payment program passed the county commission by a 4-3 vote after two years of discussion and negotiation, Hall says.
"It was a narrow win, but a win nonetheless," she says. "One of the commissioners opposed to this said, 'If the citizens know what they're paying for impact fees, they're going to be upset.' The [citizens] need to know the fees being collected and demand the improvements."
Many would agree. But knowing those fees are going to their intended purpose is just as important to builders. The battles over impact fees are likely to keep lawyers busy for years to come. But for builders, the increasing willingness of municipalities to spread the burden of impact fees more equitably appears to be a less objectionable recipe for addressing the inevitable public costs of development.