Policy Documents: Impact Fees and Adequate Public Facilities
I am writing this to correct some of the apparent inaccuracies
put forward at the 10/14 CC/PB study session about charging growth for its
costs. I do not claim to be an expert in the field, but I have studied it long enough
and consulted with enough supposed experts and legal types to understand most
of the basics. In addition, I have found that the experts don’t necessarily
know everything and won’t necessarily put forward the most appropriate
solutions.
The fundamental rule, both legal and equitable, is that
growth should pay to address its impacts so as to maintain existing levels of
service (LOS) for existing residents and businesses. But growth cannot be
required to improve levels of service.
LOS is measured in all sorts of ways depending on the facility
and/or service being measured. For transportation, it could be total VMT,
travel time, intersection waits, access to transit, etc. For schools, it might
be square footage per pupil, etc. For water, it could be water rights per
person, treatment capacity, etc. For libraries, it might be space and information
resources per capita. And so on. So it’s clear, these are just examples; lots
of other measures exist or have been used.
Some methods for how development may be required to pay:
Development impact fees – These are fees set to
recover costs that are already expended or that will be expended in the future to
maintain LOS. They typically cover capital costs (more on that later). They may
be “plan” based, where the fees pay for costs anticipated in a plan designed to
provide the needed new facilities. They may be “buy-in” based, where the fees
pay existing citizens back for money already expended. An example of this
latter is Boulder’s water tap fees, where new taps pay for a share of Boulder’s
existing water rights, because Boulder has no plans for buying new rights. Or
the fees could be based on a combination of “plan” and “buy-in” approaches,
where some existing and some new facilities are being paid for.
This is how cities deal with “lumpiness”, which is the
simple fact that some facilities, like reservoirs, wastewater treatment plants,
libraries, rec centers, schools, highways, etc., are very large compared to the
unit size of developments. To describe it simplistically, the impact fees are
calculated by dividing the total cost of facility by the number of units of
demand. This could be as simple as the number of housing units or commercial
square footage, or a very much more sophisticated calculation to more
accurately estimate demand. The timing of building the facilities relative to
the developments that are served might be before or after they are built, or
some before and some after. So there is no fundamental problem with the fact
that the infrastructure comes in big lumps but development occurs on a smaller
scale.
However, it makes sense to match the plans and the fees to
the total amount of expected impact from new development so that levels of
service are maintained; in other words, so that there are neither excesses nor
deficits over the long term. This issue is complicated by the fact that the
unit marginal cost of meeting new demand may go up over time, as it does with
transportation, housing, etc. This is a critical reason (and there are others)
why planning needs to include numbers as well as design, and why the City needs
people who think in this way to be involved in the dozen or so major planning
projects.
An important legal constraint on impact fees – In 2001
the Colorado Legislature passed a bill allowing counties more leeway in
charging impact fees, but also forbid using impact fees for operating costs for
both cities and counties (This has not been challenged on a home rule basis, as
far as I know, but perhaps could be.) This law was an attempt to prevent abuses,
for example, shuffling impact fees into the general budget. But it also
prevented impact fees from funding such things as transit, which is operating-cost
intensive, rather than road/intersection widening, which is capital cost
intensive. This restriction provided a reason to look at alternatives to impact
fees, like Adequate Public Facilities, for these types of transportation
programs. I discuss this approach below.
A note on consultants – When Boulder did its first
major study on impact fees in 1995 (I believe that was the year), a question I asked
was whether impact fees could be used to pay for transit, as a substitute for
road widening. (This was before the 2001 state law was passed.) Both the
technical and legal consultants said it couldn’t be done. And both these teams
were were supposed to be the best in the country. So I asked why not? After
some intensive work, they came back and said that there was no reason why not,
and there was no case law forbidding doing so. So it’s worth keeping in mind that
consultants and attorneys need to demonstrate that they know what they are
talking about, and that their first impressions are sometimes are wrong.
Adequate Public Facilities (APF) Requirements – This
is an approach developed in Fort Collins, and possibly other places. It sets
standards, for example requiring maintenance of LOS C at residential intersections
and LOS D elsewhere. It then requires that no new development be allowed that
would force the LOS below that standard. So a proposed development would have
to pay the costs to avoid that result.
Because this type of infrastructure is “lumpy”, i.e. comes
in big chunks, other future developments may also benefit from the improvement
required of the earlier development(s). To address this inequity, the development(s)
that did the initial investment would have to be compensated by these later
beneficiaries. . With the city managing this process and adding in some financing,
this would end up looking like an impact fee. But the point is that it has a
somewhat different legal basis. Of course, if the Legislature were to fix the
2001 law, this distinction would become less relevant … but don’t hold your
breath.
The legal basis for APF is that the city can deny
development permits if “public facilities are inadequate”. The Colorado Supreme
Court supported this approach in the Boulder and Douglas counties school impact
fee case. The court said that counties were not permitted to impose school
impact fees (in fact, state law explicitly forbids such fees, a gross and
obvious sop to the developer lobby), but that counties – and cities, by
implication – could still deny development permits if school facilities did not
meet state standards.
The significance of all this is that Boulder could use APF
as the legal foundation for requiring new development to fund transit, car pool
and van pool services. But this does NOT mean that using APF would require that
we have to widen roads and intersections.
This should explain why I think that the adequate public
facilities (APF) approach is useful for Boulder. Our goal is to expand capacity
without widening roads and intersections, and to substitute alternate modes for
more SOV cars. Boulder could very easily translate some of its current
transportation measures into standards, for example no increase in VMT, no decrease
in travel time, and no increase in rush hour delays at intersections, and then
keep track of the associated metrics. The charges then collected because of the
APF requirements would go to pay for alternate modes programs that would reduce
traffic generation over a whole area, not just from the individual new
development (it would be unreasonable to expect a given development to not
generate any traffic.) The effect would be a “net zero” increase and thus maintenance
of these multiple level of service standards.
Alternate modes are not particularly lumpy (at least
relative to schools or reservoirs), so the process is quite scalable, and relatively
easy to implement on a per development basis. Combining the APF approach with a
shift to a user fees for funding ongoing expenses like road maintenance and a
free EcoPass program (if RTD ever sorts out how to equitably charge for such a
service) would provide both the incentives and disincentives necessary, and could
actually come close to solving the transportation issue, or at least keep
things from getting worse.
Zoning, like inclusionary zoning – Zoning has been
used for a long time to extract public benefits, from affordable housing to
public open space. I’m sure the city legal staff could provide all the legal
background that supports this if anyone is interested, so I won’t.
Jobs-housing linkage fees – This approach requires
new commercial and institutional development to provide support for affordable
housing. It is a fee approach and so is subject to the legal requirement that
it not ask for LOS to be improved, but can require that it be maintained. The
San Diego material I sent you earlier in the week provides some discussion of
the legal foundation for this approach. The link is below,
Because job growth creates demand for housing and also
pushes up prices, there is a pretty strong argument for using such fees to help
fund affordable housing. And given the numbers in the studies I sent you
earlier this week, this could make, and could have made, a big difference in
Boulder’s progress toward keeping some segment of our housing affordable to lower
and middle income people.
Unfortunately, this approach is completely missing from the
Comprehensive Housing Strategy, belying the name. (And of course if Boulder reduced
the jobs build-out to something saner than the current 60K to 110K more jobs…)
Development excise taxes (DET) – These are taxes, not
fees. They are just revenue raising devices, though they can be dedicated to a
single use. They are not subject to the same equitable restrictions as impact
fees, but of course are subject to the 14th Amendment equal
treatment requirements. But unlike fees, they are subject to TABOR.
Boulder first used DETs as a substitute for impact fees to
escape from some of the legal tangles that were occurring at that time, but
also because the City apparently has no legal power to impose impact fees to
fund new schools because schools are provided by the BVSD, not the City. I
cannot remember the sequence of events from back then, but given the current
prohibition on school impact fees and the reluctance of our current Legislative
majority to even touch the subject, Boulder should reinstitute its DET to the
maximum extent possible to fund the schools that will be needed with all this proposed
residential growth.
Some case law – There are a number of legal cases on impact
fees that might be useful to know about:
The Nollan v California Coastal Commission and Dolan v City
of Tigard cases were about individual exactions, not legislatively-enacted
fees. These cases created the “rational nexus” and “rough proportionality”
tests.
In contrast, in Colorado the Krupp v Breckenridge case
allowed legislatively-enacted impact fees to be calculated based on classes,
not individual impacts, which makes the setting of fees a simpler process. The
Broom v Fort Collins case (the frontage fee case) set the standard at “reasonably
related”, arguably much weaker than “rough proportionality”, and so again makes
the fee setting process simpler.
Boulder’s status re all this – Utilities are in
pretty good shape, general fund departments not so good, and schools are poor.
I’ve already discussed Housing and Transportation above. Here is the situation
with these other areas, as I see it:
Water tap fees are basically in good shape, but could be
improved by setting water rates so that usage above what was paid for by the
tap fee is charged for based on the cost of “renting” the additional fraction
of a tap, and with a similar credit for consumption below the amount paid for in
the tap fee (in addition, of course, to operating costs). This is all easy to
do, and would provide an even stronger incentive to conserve than the current
rate structure.
The fundamental problem for general fund departments like
Parks and Recreation, Library, Police and Fire, etc. is that the recent
consultant’s advice was significantly too conservative. I met with him, along
with some city staff. To the best of my recollection and somewhat oversimplifying,
he said that because, for the most part, the general fund departments had no
plans, the City could not charge for future needs. When I asked why we couldn’t
use the “buy-in” approach to at least collect fees based on existing
investments for libraries, parks and rec centers as we do with water rights,
reservoirs, and treatment plants, he said the City couldn’t because these other
departments weren't utilities. When I asked for the case law that supported his
view, I got nothing. My conclusion is that the City should create the plans to
maintain LOS for all city departments (including looking at, for example, the
interactions of increased traffic congestion and fire and emergency services
response time), and then charge appropriately, using both plan and buy-in
approaches together. And in the meantime, use a full buy-in approach, as I
cannot see any legal reason not to.
Who pays and who profits – It’s important to point
out that the price the buyer or renter pays for new development, whether
residential or commercial/industrial is not related to the impact fees that the
developer paid. Because the real estate market is mostly composed of existing
structures, these buildings set the market price. So if additional fees,
requirements, etc. are imposed, and the developer has already bought the
property, then these are costs that come out of the development profits. But
very quickly the price of property for development or redevelopment drops to
account for this.
So today, the lack of adequate impact fees or other devices to
address the costs of development can easily end up just providing excess profit
to the original property owners and speculators. And, on the other side, the
cost of providing the facilities and services and/or the impact from deterioration
of the current level of service falls on the existing residents and businesses.
A note – I once did a calculation on this subject.
According to a CDOT statewide study done in around 2007, the cost to provide
the necessary capacity to maintain optimum LOS on highways and roads was around
$20,000 for each new person. (So it’s clear, I did the analysis using CDOT’s
data. It’s pretty easy division. I know the number sounds crazy, but I was very
careful and used the best data that CDOT provided, which of course was based on
adding lane miles, not transit, and it was their high-end analysis.)
Then I added in the cost of new schools per housing unit (according
to a BVSD study that I participated in), which is now around $9k per attached
unit and roughly 1.5X that for a detached unit, if I remember correctly.
If these costs were deducted from the price that annexed
undeveloped land in the eastern part of Boulder County could then demand, the
result was right around the price of un-annexed farmland. This is of course not
definitive, but it does indicate how much profit comes from development passing
off the costs of addressing its impacts onto the general public. Again, I’m not
claiming that CDOT’s numbers are correct, as there are better and cheaper ways
to gain capacity besides adding more lanes, but the point is made.
* * * * *