The tax boon that is growth

In the never-ending debate over the cost of growth along the Gulf Coast — and whether it pays for itself or is a net drain on resources — there has always been a 600-pound gorilla jumping up and down on the coffee table, trying to be noticed: Long-term taxes paid by newcomers to our fair shores.

The laments typically go like this: More newcomers mean we have to build more roads, more schools, more fire stations, etc. “They” cost us a fortune and need to pay their own way. Hence we have impact fees to cover their “impact,” but many still think newcomers are a net cost to existing residents.

That is only half of the equation. By focusing exclusively on the costs associated with new housing in a community, there has been a destructively lopsided debate on the value of that housing.

“We tend to focus on the costs of housing, and not on the benefits of housing,” says Elliot Eisenberg, senior economist for the National Association of Home Builders in Washington, D.C.

This has always been a false, or at least incomplete, premise. But now we have some numbers to bolster the fallacy of ignoring the gorilla.

Using a formula adopted by many universities — including the University of Florida — and other institutions, Eisenberg demonstrates concretely what many of us intuitively thought: Growth does pay its own way. In fact, growth pays for far more than its own way.

Eisenberg was brought to Naples by the Collier Building Industry Association and the Greater Naples Chamber of Commerce to conduct the study on the Naples housing market. So while neither Eisenberg nor the event could be considered objective, the numbers are the numbers, and they apply in a general sense to every county on the Gulf Coast.

They tell a compelling story that, instead of blaming the construction industry for woes, we should be thanking the industry for creating a lot more than just construction jobs, and generating a tax base that is a net profit to local governments.

Here's how it works.

Eisenberg broke the economic impact study into three parts: the construction phase, the ripple effect and the occupancy phase — the last one of which is often ignored completely. The benefits of those three phases are combined and compared against the costs of the new house and people during the same time frames. The costs include everything from education, fire and police to sewer, water and roads to parks, libraries and health care.

For the 565 single-family homes and 283 multifamily units built in Collier County in 2008, the construction phase created 2,538 jobs — 1,754 in construction, the rest in spin-offs — plus generated $31 million in taxes, which includes the highest impact fees in the state, and $149 million in local income.

During the ripple effect phase, which includes the spending of that income and the profits from businesses on goods and services locally, another 1,531 jobs were created, plus $6.6 million in local taxes and $82 million in local income.

And then come the numbers that are so often left out. In what Eisenberg calls the occupancy phase, where people have moved in and are living and working in the community, another 556 permanent jobs are created, plus $5 million in local taxes and $28 million in local income. Every year.

“The people living in houses buy services — child care, food, cars, dental, banking,” Eisenberg says. And they keep paying taxes. That is kind of a “duh” statement of the obvious, but not so obvious that it has been part of the growth discussion.

So take these short-term and long-term numbers over 15 years, and the cumulative take for local governments is $115 million. But here is the real kicker: The total cost over 15 years of those new houses and their residents to the governments in terms of the slew of public services is $55 million.

All taxes flowing into government coffers as a result of new-home construction and people moving in is almost twice those housing and people costs to the local government in services.

That is what the private sector calls a profit, a rather handsome profit.

“These results show that homebuilding is more than paying its own way and should put to rest the notion that existing homeowners are subsidizing new-home construction,” Eisenberg says. In fact, it appears just the opposite.
Newcomers may be subsidizing the old-timers. That's got to go down hard for the railing anti-growth crowd.

So, emphatically, new construction pays for itself. Eisenberg says the only real question is how long does the payoff take? In Collier County, with its soaring impact fees, the pay-off is shockingly in 12 months. That is a rate of return that would make Bernie Madoff blush.

“I contend that housing pays for itself in one year,” Eisenberg says. “Then it runs a surplus after that.”

In fact, newcomers pay for the equivalent of a whole new set of schools, fire stations, roadways and so on 28 years out — without any impact fees — based on the excess of their taxes over their costs in services to local government. And the life of a house is clearly much longer than that.

It starts to become pretty evident that new-home construction is a tax boon to local governments — quite the opposite of what has been so frequently reported. Reducing it means reducing services or increasing taxes.

What is not so clear is what the heck happens to all the extra money flowing into government coffers every year by people who are costing less than they are shelling out.

It is clearly redistributed in some fashion, something voters may want to remember next time local governments cry poor.

But regardless, let the true discussion on the value of new-home construction begin.

Rod Thomson is executive editor of the Gulf Coast Business Review and can be reached at [email protected].

THE TAX BOON TO LOCAL GOVERNMENT OF NEW DEVELOPMENT

Combined results for 565 single-family homes and 283 multifamily homes in Collier County. The table shows how new housing construction in Collier County last year pays for itself in one year and runs a surplus to local government coffers each year thereafter.
Current Operating Capital Outstanding Interest Net
Year Expenses Revenue Surpluses Investment Debt on Debt Revenue
1 1,615,500 40,157,288 38,541,788 7,377,000 0 324,649 30,840,138
2 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
3 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
4 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
5 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
6 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
7 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
8 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
9 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
10 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
11 3,231,000 5,346,769 2,115,769 199,000 0 0 2,115,769
12 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
13 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
14 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
15 3,231,000 5,346,769 2,115,769 0 0 0 2,115,769
Source: Elliot Eisenberg, senior economist for the National Association of Home Builders