"Across the United States, local governments are confronting a problem
that has accumulated for decades: aging infrastructure with massive
deferred maintenance. Water lines, sewer plants, roads, schools, and
more need modernization and sometimes replacement. In theory, the costs
should be shared broadly among those who use the infrastructure. But
increasingly, jurisdictions solve these budget shortfalls by charging
“impact fees” and other development extractions from new construction.
This amounts to an unfair shifting of costs away from existing
homeowners to new ones, in a dynamic that smells of generational and
class theft.
Impact fees were first conceived as a rational planning tool. If a
new subdivision required an additional water main, traffic signal, or
elementary school, it made sense for the development creating that
growth to fund the incremental expansion on a pro-rata basis. That logic
remains sound.
But over time, government agencies have gotten carried away with
impact fees and similar policies (such as proffers and special
assessments). The whole concept has drifted beyond paying for marginal
growth-related costs, and become a piggybank for decades of
underinvestment in infrastructure that mainly serves current residents.
Tracking down data is hard, given that fees are fragmented across
various schedules, jurisdictions, and project types. But the costs to
developers and homebuilders, who pass them onto purchasers, are very
real.
One example is in San Diego and surrounding Southern California
cities. Cumulative impact fees tied there to schools, transportation,
parks, utilities, and affordable housing mandates have in some cases veered into six figures
per home before construction even begins. School impact fees alone
currently run $5.38 per square foot for residential construction within
the city’s Unified School District (which is an odd way to calculate it,
since larger homes don’t necessarily produce more school-aged children –
often it’s the opposite).
State policies contribute to this dynamic. For example, Proposition
13 limits property tax growth by tying annual assessments to a
property’s initial purchase price. This means long-time homeowners
benefit from low tax burdens and dramatic home appreciation, while
buyers inherit escalating infrastructure costs that get embedded into
the price of newly-constructed housing.
A similar controversy emerged in Loudoun County during the suburban
boom coming from Washington, D.C. The county extracted proffers from
developers in exchange for rezonings, often on a case-by-case basis that
had the feel of bribery. These proffers funded road widenings,
intersections, schools, parks, libraries, and public safety facilities,
adding an estimated $30,000-$50,000 per unit – or in many cases much
more.
For context, the median home price in Loudoun County is around
$800,000 and the property tax rate is $0.805 per $100 in assessed value.
This means that the typical homeowner there is paying around
$6,400/year in property taxes, far less than the impact fees that new
homeowners pay. It should be noted that these new homeowners, upon
moving in, are then required to also pay property taxes, rendering their
impact fees a sort of duplicative entry tax.
In Austin and the broader Central Texas region, explosive population
growth has strained water and wastewater systems. A Texas A&M study found
that the city’s development fees averaged $41,303 per housing unit for
infill development, which is 2.5x higher than the Central Texas average.
Such examples abound throughout America. I’ve found that fees are
generally highest in areas where NIMBYism is strong; and where new
development is viewed as a quality-of-life infringement rather than an
economic development benefit. Fees are also frequently used as a
redistribution tool, with wealthier districts funding poorer ones.
The common thread in any of these cases is political convenience.
Raising taxes broadly on existing residents is unpopular, as is
increasing utility bills for all users. But charging developers and
future homeowners is easy—the former is a boogeyman that garners no
public sympathy, while the latter is an “invincible” constituency that
has no organizing ability prior to moving into a locale.
The result is an unequal arrangement in which Gen Z and Millennial
households—who account for nearly half of home purchases but have far
lower net worth than older generations—are forced to shoulder
disproportionate infrastructure burdens.
A better approach would fund infrastructure through direct user fees
and broad-based revenue sources that distribute costs among everyone who
benefits from the system. Water and sewer infrastructure should be
financed primarily through utility rates tied to usage; roads through
fuel taxes, tolls, or mileage-based fees; and stormwater systems by
charging properties based on their impervious surface or other impacts.
There should also be a clearer distinction between capital improvements
that expand system capacity and routine maintenance or replacement of
existing infrastructure. The latter should be funded primarily by the
residents and businesses already served by those systems, not newcomers.
By blurring these categories and treating new development as a
convenient source of revenue, many local governments have shifted
infrastructure costs from existing users onto future residents,
increasing housing costs and creating an inequitable transfer of
financial responsibility from one group to another."
