Friday, September 5, 2008

Impact Fees, Take Two

The County Council is reviewing a new proposal that will significantly increase impact fees for new development. If adopted, the bill will significantly boost the County's ability to keep pace with new roads, schools and public safety demands created by new development.

[What is an impact fee? As I wrote previously: "An impact fee is a one-time fee levied on new development. The idea behind impact fees is simple: new development should pay for the capital improvements it requires. Our county revenue structure is barely enough to maintain our existing infrastructure; it would be impossible to also fund the new schools and road improvements required by new development without additional funding."]

Currently our impact fees are among the lowest in the state. Developers acknowledge that our fees are set so low that they recoup only a fraction of the true cost. Why does this matter? It matters because for every new shopping center or subdivision that is built, we are digging a deeper and deeper fiscal hole. Instead of making progress and reducing our roads and schools maintenance backlog, we are just making it worse.

Anne Arundel County already faces a $1.5 billion school maintenance backlog; our road maintenance backlog is similar. We literally cannot afford to continue in this way.

Impact fees vs. new taxes

If someone builds a house next door to me and connects it to public water, my new neighbor is required to pay for the connection costs, not me. That's the way it should be. Similarly, if a large new subdivision requires additional road capacity, more classroom space and an additional paramedic unit, should the developer pay for those enhancements or should existing taxpayers? In my view that's a rhetorical question, because clearly the new development should pay for the increased infrastructure it requires. In reality, though, this very question is being debated because many in the development community are strenuously opposing the proposed fee increases.

Developers argue that now is not the time to be raising fees. Many development firms are small, locally owned and operated businesses. Our economy's recessionary-like symptoms are affecting us all, and developers are no exception. But the reality is, if development fails to pay its own way, either the rest of us taxpayers make up the difference or we all experience diminished government services. Given our county's property tax revenue cap, the latter is more likely. As a result, without a large increase in impact fees we will experience more congestion on our roads, more overcrowded classrooms, and a more severely strained public safety system.

Legislative history

Earlier this year County Executive John R. Leopold introduced the first bill to increase impact fees. The Council appointed a blue-ribbon committee of citizens to review the numbers, and the Executive withdrew the bill pending the review.

Now that the committee has completed its review, the County Executive along with Councilmembers Cathy Vitale, Ed Reilly and I have introduced a new bill based largely on the committee's findings. Bill No. 71-08 will set impact fees at 80% of the actual projected cost. While I would prefer a higher percentage, 80% is still a significant increase and reflects the fact that certain parts of the county do have school and road capacity. The 80% figure also seems to be the highest rate that has a chance at getting a majority on the Council to support it.

The committee proposed a five-year phase-in of the new fees. Our bill sets forth a more aggressive timeline, fully phasing in the new fee increases on July 1, 2010. After that time, fees will increase annually to keep pace with the Construction Cost Index (CCI).


This past Tuesday the Council passed several amendments to the bill. One of the amendments deferred the bulk (60%) of the phase-in until 2010. Another waived the fee increase for any projects that had received site development or sketch plan approval by September 2nd. The third substantive amendment eliminated an ill-conceived provision that would have charged impact fees on additions to or rebuilds of existing houses.

This last amendment should do more than help out existing homeowners who want to build an addition. My hope is that it will also encourage smart growth and revitalization of older, blighted neighborhoods. By exempting rebuilds of existing houses, it may provide a financial incentive for a developer to redevelop a block of vacant houses in an existing neighborhood rather than buying up a farm and building new houses in the suburbs.

Next steps

The amended bill is scheduled for another public hearing on Monday, September 15th. If no further amendments are added, the bill can be voted on that night.