Fees in free fall

Fees in free fall

Local governments are reducing impact fees to spur development and boost the tax base.

GOVERNMENT WATCH by Jay Brady | Contributing Writer

Editor's note: This is the first part of a two-part series in which the Review explores the changing landscape of impact fees on the Gulf Coast.

Although the trends in real estate, construction and the general economy have been decidedly negative in recent times, a growing trend of lower impact fees is viewed by many as a positive development that could stimulate economic development.

With an unemployment rate for the region at 7.5% and climbing, that is the hope of elected officials up and down the Gulf Coast, builders and developers and at least one mobile home owner in DeSoto County.

Among Gulf Coast governments taking action in the past year to lower or suspend impact fees are Pasco, Manatee, Sarasota, Charlotte, Lee and DeSoto counties. Reductions are also happening in Englewood, as part of the Charlotte County cuts, as well as in North Port due to Sarasota County changes and North Port's own actions. (See accompanying chart.)

Pinellas County has relatively low impact fees to begin with. Not yet on the bandwagon to lower fees are Hillsborough and Collier counties, though just about every local government in Florida pale in comparison to Collier.

Collier has the highest non-utility fees in the state, charging $28,655 per single-family home plus another $7,000 for utilities. For a 100,000-square-foot shopping center in Collier County one could expect to pay $20,391 per 1,000 square feet, or more than $2 million for non-utility impact fees covering roads, fire, police, general government and other fee categories.

Last fall, Charlotte County lowered commercial and residential impact fees to 1998 levels. In percentage terms, drops range from 51% for multi-family units to nearly 77% for industrial uses. According to the November 2007 Charlotte County E-News, an electronic newsletter distributed by the Charlotte County Board of County Commissioners, "Both actions were taken to aid the local building industry and it is hoped that the reduction will stimulate both residential and commercial construction."

In DeSoto County, the County Commission first took action last January to suspend the fees for six months through June 30, including school impact fees subject to School Board approval. The Commission went further, and what may be a first in the wild, esoteric world of impact fees, also refunded all fees collected. Subsequently, the Commission voted June 23 to suspend all the fees until at least Dec. 31, 2008 "to aid in the present economic recovery" according to the resolutions. The School Board concurred, much to the relief of Carol Browning who had paid $14,000 in impact fees for her mobile home.

Higher fees = less revenue

Pasco County was on a course to adopt significantly higher transportation impact fees for all land-use types in 2007. It was then that local citizens and business interests convinced their County Commission to review a 2006 impact fee study conducted by Tampa consultant Tindale-Oliver and Associates and hired noted economist Hank Fishkind to "evaluate the economic effect and elasticity" of the proposed 2006 road impact fee increase.

In what is believed to be another first in impact fee analysis, Fishkind studied how the higher transportation impact fees might affect construction activity reasoning that higher fees might result in less economic activity and thus lower fee revenue to the County.

Known as elasticity analysis, Fishkind's economic study concluded that for most all commercial activity, the proposed fees would be so detrimental to economic development that the county would expect to collect less revenue than if the fees were set at lower optimum thresholds. In his January 2007 presentation to Pasco County, Fishkind informed the commissioners that the "magnitude of proposed fees will seriously compromise Pasco's competitive position for all non-residential economic development."

As shown in the chart, Pasco's fees for retail, office and industrial uses are now significantly lower than had originally been proposed by Tindale-Oliver. An important footnote to the economic study was laid out in a "whereas" clause of the Pasco County ordinance adopting the new fees. The clause pointed out that no recommendations were made regarding residential impacts because there was not enough data to draw a conclusion, not that the impacts were negligible.

Some elected officials have misconstrued this to mean, for example, that higher housing prices caused by higher impact fees do not affect housing demand. All Fishkind was saying was that there was not enough data at the time to have enough certainty to recommend an optimum level of a lower residential impact fee.

Commenting on impact fees in an Oct. 30, 2007 radio interview, Fishkind's position changed when he claimed, "it has deleterious effects on home affordability that are significant." He also added, "The fees are higher than in most any other state except California. So the fees are high and I think they are problematic to our economy because high fees cause less economic development and less economic development means less jobs and less tax base."

Broad reductions

More local jurisdictions along the Gulf Coast are also seriously considering impact fee reductions. Led by Mayor Ben Nelson, the Bonita Springs City Council discussed waiving impact fees in October. The council's thinking was that waiving or lowering the fees could result in enough of a tax increase to offset lost impact fee revenue.

In early November, Sarasota County agreed to study the issue further after voting in April to defer a major increase scheduled for this past June until June 1, 2009.

A look at newspaper articles across Florida and the U.S. posted on the impactfees.com website also show other local governments wrestling with lowering impact fees. Just this month the Lincoln, Neb. City Council voted for the second year in a row to freeze scheduled impact fee rate increases. A committee is studying the fees and looking at possible alternatives.

On Nov. 10, the Bellingham, Wash. City Council lowered transportation impact fees by nearly 10%. Wakulla County approved a one-year moratorium on the collection of impact fees on Sept. 9, and last month Washington County approved moving forward with a process to suspend impact fees for a year beginning Dec. 1. Debates to lower, waive or eliminate impact fees are also ongoing in Indian River, Polk and Marion Counties. Marion County lowered its residential impact fees 66%, or $4,000, for a 90-day period that ended Sept. 1 in an effort to boost the economy. As a result, single-family home permits rose 45% in July.

The issue in Sarasota County is focused on trying to reduce non-residential impact fees without lowering residential fees. County commissioners and the county attorney are worried that only reducing fees for commercial development might not be legal. An advisory committee reviewing the issue did not offer much guidance when they deadlocked with a 3-3 vote.

In May 2007, the Sarasota County Commission, at the behest of Commissioner Paul Mercier, invited Fishkind to present his Pasco County study, at which time he laid out the basis for lower commercial impact fees. Nearly a year later, after receiving strong input from the hotel and tourism industry, the commission only lowered fees significantly for hotel/motel uses and made some trivial fee rate concessions for theaters.

According to County Administrator Jim Ley, the agenda item was meant to include a more comprehensive discussion of other commercial fees, but time ran out and the commission and staff seemed to forget that there was a larger scope of discussion that was intended to focus on Fishkind's analysis of other commercial uses.

On Nov. 4, at Commissioner Mercier's final meeting, he made one last motion to temporarily waive impact fees. Following discussion with the other commissioners, the original motion morphed into a motion that was approved to study the issue.

At least it's a start to the continuation of a positive trend for Gulf Coast economic development.

Next Week: The cottage industry of impact fee consultants is the Wild Wild West. Should the purveyors of regulatory fees be regulated?

BY THE NUMBERS

A BEFORE-AND-AFTER COMPARISON OF IMPACT FEES ON THE GULF COAST

Single-Family Multi-Family Retail Office Industrial

3 BR, 2,000 sq. ft. 2 BR, 1,000 sq. ft. 100,000 sq. ft. 100,000 sq. ft. 100,000 sq. ft.

Local Governments Per Unit Per Unit Per 1,000 sq. ft. Per 1,000 sq. ft. Per 1,000 sq. ft.

Charlotte - Before $7,620 $3,890 $11,476 $4,939 $4,232

- Now $2,510 $1,891 $3,203 $2,372 $979

-67.1% -51.4% -72.1% -52.0% -76.9%

Englewood - Before $7,780 $3,810 $11,280 $4,824 $4,162

-Now $2,419 $1,791 $3,100 $2,291 $943

Collier $28,655 $15,729 $20,391 $18,774 $10,305

DeSoto - Before $9,212 $2,713 $7,560 $2,800 $1,760

- Now $0 $0 $0 $0 $0

Hillsborough - No Change $4,671 $2,698 $3,374 $1,934 $1,003

Plant City $8,317 $6,368 $8,175 $4,333 $2,917

Tampa $4,374 $2,212 $3,797 $3,425 $1,359

Lee - No Change $15,503 $9,686 $16,478 $7,606 $6,452

Bonita Springs $14,062 $8,525 $11,999 $6,928 $5,914

Cape Coral $9,978 $6,373 $6,035 $2,960 $2,636

Ft. Myers $14,086 $8,627 $16,372 $7,556 $6,399

Manatee - Before (w/1.03% increase) $15,737 $8,533 $16,571 $8,158 $4,223

- Now $15,577 $8,446 $16,402 $8,075 $4,180

Pasco -Before (proposed indexed to FY 2009) $20,581 $13,545 $18,033 $17,867 $9,401

- Now $16,828 $10,804 $9,667 $4,493 $3,941

-18.2% -20.2% -46.4% -74.9% -58.1%

Pinellas $2,066 $1,420 $3,627 $2,767 $1,414

Sarasota - Before (w/planned phase-in) $14,827 $10,259 $18,861 $9,730 $6,380

- Now $12,203 $8,251 $13,493 $6,881 $4,496

North Port - Before $12,198 $7,640 $17,233 $9,010 $5,686

- Now $9,233 $5,825 $14,630 $6,958 $4,539

Notes: Charlotee County residential fees are temporarily reduced to 1998 levels for 12 months beginning January 22, 2008. Charlotee County commercial fees are temporarily reduced to 1998 levels for 12 months beginning February 12, 2008. DeSoto County suspended its fees indefinitely as of January 1, 2008 and refunded all the fees that had been collected. Lee County voted unanimously in September not to increase road fees by an average of a proposed 7%, and voted unanimously to reduce school fees by $193 for a single-family unit and $80 for a multi-family unit. Hearings are pending for final approval to reduce school fees. Fees shown do not include pending reductions.Lee County unanimously voted down a proposed 45% increase in parks fees in October 2007. Manatee County fees planned for an annual automatic inflation adjustment of 1.03% scheduled for January 1, 2008 were deferred until further action of the Board or until the next automatic annual inflation adjustment scheduled for January 12, 2009. Pasco County reduced fees for select non-residential uses based on Fishkind & Associates study of elasticity effects of fees proposed by Tindale-Oliver & Associatess. Pasco County reduced fees for residential uses based on choice of methodology option approved. Sarasota County deferred a June 16, 2008 planned phase-in of increased impact fees to June 1, 2009. North Port reduced impact fees by 50% of the 2006 increases from the recommended levels effective December 24, 2007. For the fess shown, effective December 24, 2009, they are set to revert to previous higher rates except for retail which will remain at the new lower rate.

REVIEW SUMMARY

Industry. Commercial & Residential Construction

Trend. More local governments lowering impact fees

Key. Understand that high fee rates can yield less revenue.