I want our readers to understand the effects of impact fees. The good, the bad and the misunderstood.
Sandy: Hi Tom, back again and this time our conversation is going to be about impact fees.
Tom: Oh, joy. Our favorite subject.
Sandy: Sure is. I want our readers to understand the effects of impact fees. The good, the bad and the misunderstood.
Tom: Let’s start with a quick primer on what they are. These are added fees that are charged to new residential development at the time the dwelling(s) is permitted. The State of Arizona legislature regulates quite strictly what infrastructure they can be charged for.
Sandy: There are strict rules regarding what collected funds can be used for and how they are calculated.
Tom: The money collected from the new homebuyers can only be applied to infrastructure needs necessitated by growth.
Sandy: Correct. Not only must they be used for specific capital improvements, but those improvements must also have a reasonable relationship between the amount of the fee collected and the project the money is used for. It must also be demonstrated that the new development has necessitated this project.
Tom: An example might be if an existing arterial roadway needs to be widened because new development has contributed to exceeding traffic capacity. Impact fee funds can be used for that. What they can’t be used for is fixing sidewalks in an existing development.
Sandy: We could go on and on with examples, I think our readers get the point.
Tom: Agreed. Perhaps you can tell our readers what kind of dollars we are talking about.
Sandy: Basically, the impact fees currently are $11,650 per residential unit. The proposed increase will take that to $19,754 per residential unit. That is a 70% increase. Perhaps the best way to communicate the fees is by including a table.
The fees will vary depending on the water meter size and home square footage.
Tom: That table says it all. I like that is breaks out the fees into their respective parts. That is a bit of a shock to the new home real estate market. I am sure the local no-growth PAC groups perceive this as a step to curbing growth.
Sandy: I think the perception by most folks is that growth is paying for growth. That couldn’t be further from the truth.
Tom: There are those in elected positions who tout that impact fees do exactly that for political gain. It speaks to the perceptions held by their constituents.
Sandy: Another perception is that developers pay this fee. The reality is that the fees are incorporated into the cost of the home, so the homebuyer is the one paying.
Tom: So, impact fees increase the cost of new homes in Prescott corporate limits. The impact fees imposed by the City of Prescott have zero effect on development in the surrounding towns or county.
Sandy: Right. Development in areas outside of Prescott still has impact on our roads and infrastructure and there is no contribution to address those impacts.
Tom: The YCCA recently engaged a development finance advisory group to provide the Prescott City Council with the likely effects of the sharp increase. Can you share some of the basics of those findings?
Sandy: Certainly. There were three basic points. 1. The price of new homes in Prescott will increase. 2. This increase is likely to lead to fewer new homes being built. 3. The demand for existing homes in Prescott will increase and that will fuel higher prices for the resale market.
Tom: There are other effects as well. Our mayor and council have been talking about addressing “workforce” housing. That is creating an environment where folks like our first responders can afford to live in the community they serve. This will be a hindrance to that goal.
Sandy: It sure will. According to Arizona State Statutes, a municipality or county cannot waive the fees for any reason. So, the cost of any new housing will be impacted.
Tom: And so goes the law of unintended consequences. When we look at the reasoning behind impact fees, they make some sense though.
Sandy: The effect growth has on our existing public safety needs and infrastructure is real. I agree that impact fees can play a role in helping offset the cost of growth. My objection is not in the concept, but rather the effect that the sudden 70% increase will have on the marketplace.
Tom: I understand the advisory firm YCCA engages recommends a more gradual increase over three years.
Sandy: Yes. We believe that would more accurately have revenue coincide with the development of fire and police facilities. The city has not yet identified potential sites or started the design process.
Tom: That probably won’t begin in earnest until the results of the sales tax vote are in.
Sandy: That won’t be long from now. It should be said that the amount of money collected by impact fees will be a drop in the bucket compared to the money needed to get us to where we need to be with our infrastructure.
Tom: Impact fees are not supposed to pay for it all; never were, never will. They are a contributor, however. Folks need to know the difference between a political sound bite and what monetary reality is.
Sandy: What I do not understand, Tom, is, Arizona State Statutes indicate that development fees shall result in a beneficial use to the development. Let’s use Forest Trails as an example: A new home in a practically built-out development as of Jan. 1, 2025, will be required to pay the hefty impact fees. How is this benefiting the homeowner? The infrastructure is already in.
Tom: Well, the theory is that the home, while having streets, sewer and water, still is contributing to a population increase that affects fire, police, traffic on collectors and arterials, and generally utilizes services from city sources. QCBN
Sandy Griffis, Executive Director, Yavapai County Contractors Association 928-778-0040.
Tom Reilly, Architect, 928-445-8506
Sandy Griffis, Executive Director, Yavapai County Contractors Association. 928-778-0040.
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