(Written by Jack Milarch – NMHBA EVP/CEO – Originally published in the December 2006 Housing Journal)

Development Fees in New Mexico – Often Misunderstood and Always Controversial

Local Economic Development – Ready or Not, New Mexico, Here It Comes

Do you know of any local elected officials who don’t spend valuable time and effort encouraging economic development, hoping that someday their local economy will grow? Officials are often willing to give up taxes, donate land, and help train workers for a new local enterprise. And it isn’t only public officials who are on this band wagon. Almost everybody can quickly list a number of good things happening in their town because of a blossoming local economy – more high paying jobs, more restaurant choices, more money spent locally, more resources to help make the area a better place to live, better chances of their grandchildren living nearby, etc.

More and more in New Mexico this is actually happening and it is like a dream come true. But for local public officials and even long-time residents all this good news comes with a fairly predictable set of challenges.

Let’s just get this out in the open – NOBODY likes the increased traffic congestion. Other “growth” related issues on everyone’s favorite things to hate list: overcrowded schools, too many strangers around, the new Super Center, and “sprawl”. As economic growth begins to accelerate, local government officials are heavily pressured to make the bad stuff go away. Add to that the problems of the overloaded sewer plant, the failing water system, the overwhelmed planning and zoning staff, and the contractors who are mad because they can’t get a timely building inspection. With that background, now let’s talk about Impact Fees.

Impact Fees are becoming the tool of choice for our local governments to deal with all the problems that come along after economic development efforts are successful.

“We need big bucks to deal with these problems, and why shouldn’t all those newcomers pay their fair share?”

There is no question that impact fees can quickly raise money which can be used to deal with problems of growth.

“Oh sure, the developers and builders will complain a bit, but all we have to do is tell them to pay up or no more building permits!”

You can see this has the makings of a politically acceptable and problem-solving solution, which is why impact fees discussions are on nearly every local government meeting agenda these days. What should you know about impact fees? Here are a few “rules of the road”.   Impact fees should be used only to pay for growth-related infrastructure – never to upgrade existing facilities. Impact fees should not fund ongoing maintenance costs or fix deficiencies. Impact fees must only be spent to solve the infrastructure problems created by new development. Money raised by an impact fee must never be simply dropped into a general fund but must always have a separate and special accounting to assure that all of the above has occurred in a timely manner.

Here’s a seldom discussed fact you might find it handy to know: New Mexico has a very detailed state law, written and promoted by NMHBA many years ago, describing how impact fees are to be configured and used. That law was created to ensure that impact fees are fair, predictable, uniform, and site-specific. That sounds nice and orderly, right? Here’s the reality – the law is usually ignored. Who wants to be bothered by details when the need is so great and a gusher of new money is right there for the taking?

Many of us are participating in these debates now so how should you feel about this situation?

Here are some questions to ask yourself and your fellow developers and builders:

  • If you have to pay a fee, can you recover your money via a price increase?
  • Can you be assured the money will really solve the problems of growth? (Remember, it is in your best interest to have these problems solved!)
  • What’s the “political cost” of your position?
  • What expert advice is available to your group and how much will that cost?
  • Are local officials getting good advice or are they responding to mob pressure?
  • Is the impact fee idea really a no-growth effort in disguise?
  • Is everybody who needs the new infrastructure paying their appropriate share of the cost?
  • If somebody is getting a break, are you okay with that cost shifting?
  • Does the plan for impact fees follow the state law, and if not, are you willing to take legal action against the decision makers?

If you find yourself in a local HBA leadership position during an impact fee debate you will be facing some very tough decisions.

New Mexico HBA offers excellent background information on our New Mexico law, as well as studies and general information on the subject of impact fees. NAHB, our national organization, offers many of the same services. A number of nationally recognized experts are available and it isn’t difficult to find a seminar on the subject of impact fees, including sessions at the Builders Show and other contractor gatherings. For better or worse our Local HBAs either are or will be dealing with contentious debates on impact fees, so it isn’t too soon to get comfortable with the subject.