The impact of impact fees

New Mexico Business Journal, August, 1995 by Jo Ann Hamlin

On July 1, 1995, a new "impact fee" for funding Albuquerque's infrastructure was assessed against builders in Bernalillo County. The fee increased the costs of land development and will be passed on as higher sales prices to new home buyers, renters of new multifamily residences and owners of new commercial businesses.

Revenues from the fees are used to develop off-site improvements - roads, parks, fire and police services, water, sewer, drainage and open spaces - that are beneficial to both new and current residents.

Builders have always paid a fee - a user fee - for infrastructure improvements. "The current user fee that a builder of single-family residences pays totals about $2,525," explains Jim Folkman, executive vice president of the Home Builder's Association of Central New Mexico. "If the new impact fee doubles this amount to $5,050, the increase would prevent approximately 2,780 families from qualifying for a home."

"The increase would mean a $130,000 median-priced home in the Albuquerque area would cost $132,525. This increase would cause the Albuquerque housing market to rise from the 14th least-affordable housing market in the country to the 11th least-afford-able."

Dale Dekker, a local architect and planner, believes there is nothing wrong with impact fees as a way to fund growth-related infrastructure improvements. But, he says, "The fees must be reasonable and fair." His concern stems from the nationwide government trend to increase impact fees yearly, which will be paid only by new home buyers, renters and commercial businesses.

Dekker, who served as the Chairman of the City/County Capital Improvements Advisory Committee (CIAC) that worked with the city and county to implement the Development Fees Act, is also concerned that the fee is a way for the local government to control city growth. "If cities don't grow, they die. And if they die, the job and housing markets die with them," says Dekker.

Another concern is urban sprawl. "What will our market bear in terms of additional costs to housing without totally reshaping the region?" he asks. "If Albuquerque housing becomes too costly for average home buyers, they will move to outlying communities such as Rio Rancho and Los Lunas where housing is less expensive. Those communities will derive the benefits from increased property taxes."

Urban sprawl adds to the deterioration of the quality of life in Albuquerque. The majority of people living in these outlying communities will drive to Albuquerque to work and increased traffic will cause congestion, pollution and additional wear and tear on our city's streets and roads. Demands for city services to maintain the quality of life will continue, yet the tax base to support these services will go to the communities where the commuters live.

Albuquerque isn't the only city where builders have been, or will be, hit by impact fees. In neighboring Rio Rancho, where home building is a way of life, Tom Conway of Charter Homes is hoping the fee will be less than Albuquerque's. "If the fee is $8,000 or more per lot," he said, "it will slow sales of homes in the $140,000 to $200,000 price range."

He questions whether builders will ever be able to determine if the fees will, in fact, be used for infrastructure improvements. That's also a concern in Santa Fe, where builders worry about fairness, too. The entire community benefits from fees, says Santa Fe builder Mike Chapman, so it's not fair for the new homeowner to bear the burden of all the costs of moving into the community. That sentiment is also shared in Las Cruces. "People who can afford the fee won't blink an eye," says Carol Hoyle, executive vice president of the Las Cruces Home Builders Assn., "but it may create a problem for others."

A recent study of the Development Impact Fee by the City of Albuquerque and Bernalillo County projects that by the year 2002, there will be an increase of 39,105 jobs in the city and a population increase by nearly 1.5 times the number of jobs. These numbers could decrease if higher costs of housing and land development make Albuquerque less attractive to new industry. Fewer people would relocate to the city and the loss would adversely affect the building industry.

New home buyers, renters of new multifamily housing and expanding or new industry will bear the brunt of the impact fee. In some instances, they could be paying for revenues used to make improvements in other areas of town.

Jo Ann Hamlin writes frequently about real estate and related issues.