Impact Fees vs. Development
More Cities Offer Incentives to Spur Development
By:Rachel Z. Azoff
An increasing number of cities are reducing or suspending impact fees; implementing tax rollbacks; and offering additional incentives in a desperate attempt to stimulate development activity.
The rollback of impact fees—which municipalities often require developers to pay in order to cover the costs of expanded infrastructure and public services—is the most common tool used by cities to spur development. Cities are open to the idea because they have little to lose: Few new building permits means they aren’t receiving much money from developers in the first place.
“This summer, there has been a lot of activity, notably in Georgia, Florida, and California,” says Thais Austin, infrastructure and public finance specialist for the Washington, D.C.-based National Association of Home Builders. “Once one community starts cutting impact fees, it’s easier to make the case. After one city has done it and the world hasn’t fallen apart, the level of comfort increases.”
Most recently, at the end of July, Loveland, Colo.’s city council voted to roll back the city’s capital expansion fees for developers of multifamily housing and duplexes by about 25 percent.
Certain expansion fees were not reduced, while nine others were lowered by 61 percent. The net effect is to reduce the fees on a multifamily unit from about $23,000 to about $17,000, according to the city council.
But Ed McMahon, a senior resident fellow at the Washington, D.C.-based Urban Land Institute, doesn’t think reduced impact fees will translate into increased development activity. “I don’t think these rollbacks will produce much new development. The reason development is not taking place has little, if anything, to do with development impact fees,” McMahon says. “It has to do with the marketplace; it has to do with the lack of financing.”
Five cities that have implemented impact fee rollbacks so far this year.
Fremont, Calif. Lowered impact fees by 75% in an effort to attract more residential construction and business to the area
Bradenton, Fla. Approved the suspension of impact fees for one year; impact fee collections for parks have declined by 75% since the housing downturn began in 2007
Naperville, Ill. Approved a one-year moratorium on road impact fees in response to an initiative by the Naperville Development Partnership, which is working to recruit commercial businesses in the city
Bonita Springs, Fla. Approved a rollback for road impact fees along the main commercial area of the city; businesses that can access the rollback must occupy at least 1,000 square feet of space
Cabot, Ark. Unanimously approved the elimination of impact fees as a method to stimulate the home building industry; alternative financing mechanisms are being considered for the construction of the new fire station
Source: National Association of Home Builders
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