Living with Impact Fees

For many builders it seems every time they turn around they’re being hit with another fee from their local municipality. So, it should be no surprise that the subject of impact fees is a sore spot with them.
Part of the problem seems to be that in many communities multiple fees are loosely related to the permitting and inspection process, but builders are unclear as to how the collected funds are actually used, or even the justification for their assessment in the first place, relates Alan Dorn of Dorn & Co. Home Builders in Santa Fe, N.M.

Dorn mentions a fee related to the retrofit of low-flow toilets in existing buildings. “I feel the building industry is being unfairly targeted,” he says, “because we already install water-conserving fixtures in our new homes.”
Further complicating the fees issue, Dorn also suspects high impact fees may also be a strategy favored by no-growth advocates. “It takes years to get a subdivision approved in this community,” he says, and, “real estate prices are the highest in New Mexico.”

Dorn adds that no growth isn’t necessarily the sentiment of the entire community. “We do need to have organized and well-planned growth,” he says. “I don’t have a problem with impact fees; it just seems like we don’t always know what happens to them. There’s no accountability,” he adds.

A lack of transparency is one aspect of impact fees that most disturbs builders and developers. Luis Jauregui of Jauregui Architect in Austin, Texas, echoes Dorn’s frustration: “They’re very successful at camouflaging [impact fees], making them very hidden and low profile,” he says. “You’re rarely going to see the term ‘impact fee’ in a bill that a builder or developer is going to pay.”

Impact, permit and hookup fees, according to data published by the National Association of Home Builders, accounted for 4 percent of the price of an average single-family home in 2008. Builders and developers usually pay impact fees upfront. While the cost generally is passed on to the home buyer, a fee paid early on in the production process may well have associated carrying costs for the builder or developer.

An additional consequence may be an adverse effect on housing affordability for some home buyers. Were it not for the economic circumstances prompting the actions, it might be good news that some municipalities are considering moratoriums or reductions on impact fees to spur local building.

The NAHB recently issued a statement to its members on impact fee relief, stating that reducing or waiving the fees could reduce the cost of home building and create a stimulus for development. With a view toward influencing municipalities to reduce or declare a moratorium on impact fees, the association is making available to its members talking points and case studies on impact-fee relief. The NAHB also has published the Impact Fee Handbook, which delves into legal and economic implications of impact fees as well as alternatives and public affairs strategies surrounding the topic.

While builders work to keep a lid on impact fees, localities that have not previously had impact fees are aggressively pushing to adopt such fees or to add new fees to existing schedules. Communities that already charge impact fees for sewer and water infrastructure, for example, may be considering measures that would provide impact fees to help fund local school districts. It should be noted, however, that school impact fees are relatively rare, enforced in less than a dozen states.

What’s an impact fee?

What, exactly, is an impact fee? The fees go by many names: facility fees, capacity fees, mitigation fees, system development charges and capital recovery fees to name a few. Impact fees are charged only to new developments, and they are standardized as opposed to negotiated fees.