Growth: Who should pay?

My Saturday column about impact fees – playing off economists’ views against developers’ views – drew some provocative responses. Below are a couple, one from a developer, one from a county manager.

From Don Long of Lake Wylie, S.C.: Mary, there must be something strange in the air. I’ve agreed with two of your Viewpoint columns in a row ...

I’ve been involved with development as a planning board chairman, developer and interested citizen for 35 years. I’ve seen the development community successfully lobby their way out of impact fees several times in several locations over that period.

But the fact is that impact fees are a very effective and appropriate way to help fund the public services that new development adds to the public expense roster. And with respect to their generating higher housing prices, I don’t think the evidence bears that out. Somebody, somehow, is going to have to pay for what the public wants and needs in the way of public services and facilities including schools, infrastructure maintenance, etc. We can get some of that on the way in from impact fees, or sock it all to the community in general.

An example: Fort Mill, S.C. enacted impact fees on new development a few years ago before the S.C. legislature, in its well-lobbied infinite wisdom, made it virtually impossible for municipalities to adopt impact fees in S.C. It’s obvious, since Fort Mill is the fastest-growing area in York County – which, in turn, is one of the three fastest-growing counties in S.C. – that impact fees really slowed things down and put housing prices out of sight. Yeh, right.

Impact fees have provided much-needed funds for schools and other public services while not really having any substantive impact on development or developers.

From Gaston County Manager Jan Winters: Great article on impact fees. I would like to share a couple of thoughts.

I have worked in communities with impact fees in California, Colorado and south Florida. One observation is that generally the communities with impact fees had the highest growth rates, and the communities without impact fees had the lowest. Although somewhat counterintuitive, it makes sense when you consider that without growth, you don’t need a lot of new infrastructure. More important, it shows that the cost of impact fees rarely curtail development.

Michael Stegman at UNC Chapel Hill did a study a number of years ago that found the cost of impact fees initially was paid by land owners. Seems that developers/builders can’t control labor cost or material costs, but they can negotiate harder on land prices or move further out – as they know the market sets the price and they need to control their costs. Interestingly, where large subdivisions straddle a county line, one with impact fees and one without, the cost of homes is usually the same on both sides of the line. It is the market that sets the price.

What is fair? Clearly depends upon your point of view. If you think from the perspective of a widow on a fixed income who has lived in her modest home for 40-plus years – why should her taxes race higher so newcomers to the community can buy $300,000-plus houses without paying for the demands they are placing on the system? What about existing residents who move to a new home? If builders are right, and ultimately the impact fee is reflected in the new house price, since there is some ratio between the prices of new homes and existing homes, the community resident who moves to a new home trades in his unearned increment of equity due to impact fees.

Will impact fees ever be enough to cover new residents’ costs to the community? I don’t think that’s the point. The unfairness of existing homeowners in $100,000 homes having to subsidize new growth in more expensive homes is troubling. This perceived unfairness may give rise to anti-growth movements or a go-slow approach to infrastructure.

In the final analysis, infrastructure will have a decisive impact of growth. Without adequate schools, road capacity, water and sewer capacity, our quality of life suffers and our community becomes less desirable. So it is in all our interests to pragmatically solve this problem, rather than staking out positions.

I have seen builders and developers reluctantly accept impact fees when they were guaranteed that a) they would be charged only their prorated fair share, b) the funds collected could only be used for infrastructure within a geographic area to benefit the development, and c) the funds must be spent in timely fashion or refunded.

The benefits are enormous: 1) the development system becomes more transparent and fair – no more “Why was another developer charged only $X million for road improvements, utility extensions, school sites, etc when I am being charged $Y million?” 2) Local governments have a fairly steady new income source that they can program for infrastructure improvements rather than fight annual budget battles. 3) Developers come to appreciate the predictability of the new system – and especially those who have large projects with long build-out time frames appreciate the relationship between quality of life and the continued marketability of their product. 4) As the existing residents find their taxes aren’t continually increasing to support new growth and that there is a system in place to ensure that quality of life is maintained, they become less opposed to growth.

Last caution: Impact fees can’t possibly solve all the infrastructure needs, but are an important piece in the puzzle. We still need to look at lottery funds, possibly a half-cent sales tax with a referendum for new capital projects, bonds for ongoing unmet needs that benefit that entire community, and possibly even a transfer tax. I do think that it is very, very important to earmark all funds and tie a direct benefit to those who make the payment.

Since it is in everyone’s self-interest, I think this entire discussion about impact fees should eventually lead to a collaborative process between developers/builders and local government/community activists on how to solve our common problems.