(Originally published in the May 2008 Housing Journal)
Development Fees – Getting It Right
The April issue of the Housing Journal contained the first part of our article about development/impact fees, discussing the philosophy behind the fees, and items for which the fees could be assessed. This article is a continuation, to help the development community understand our state law and get involved in their municipality’s development fee process to facilitate “getting it right”, and taking action when the municipality is “getting it wrong”.
To refresh readers’ memories, the Development Fees Act was designed to set boundaries on the items for which developers would be charged, and purposely established a fair, equitable, uniform and site-specific mechanism for funding necessary off-site infrastructure improvements. The Act is all about establishing the process for assessing impact fees, not about preventing them altogether.
System-wide land use assumptions for water and wastewater services do not necessarily mean the entire municipality or county can be treated as one service area for application of water and wastewater impact fees. Is the impacted system truly a city wide “system”? For example neighborhood parks are not “system wide” improvements, but rather they serve a group of neighborhoods and these neighborhoods are the limit of their impacted “system”. Remember, impact fees are imposed on new development in order to generate funding for off-site capital improvements or facility expansions attributable only to the new development. City-wide service areas usually do not meet the test of being site-specific. Does that mean you can relax when the city or their consultants present the service areas estimate? Of course not!
A key part of the process for determining development/impact fees is to have the municipality or county develop a series of land use assumptions prior to assessing any impact fee. Perhaps because these land use assumptions look at the entire community, not just the new development, there is a tendency on the part of planners to forget the service area concept for the assessment of development/impact fees is limited to the impact directly attributable to the development under consideration. This is the “site-specific” component of the process. The fact that the city council declares that “this development impacts everything all over town” is not appropriate administration of this law, and in fact, if they do that, the fee is arguably not a development fee at all, but is rather a new tax which may not be allowed under other state law.
Let’s look at an example. A fire station may need an expansion to handle the demands from a new development, and this cost may be appropriately assessed in a development fee. However, the cost of upgrading that existing station so it can more efficiently handle demands from the whole community cannot all be added to the fees for a particular new development. Also, impact fees may never be used for operating costs, including operating the facilities built using impact fees.
Another example of inappropriate use of development/impact fees would be to charge a development on the west side of town for the costs to upgrade an intersection for the Wal-Mart on the east side of town simply because some of the residents of the new development are expected to shop at that east side store. Legitimate studies would have to conclude that a significant additional impact would be felt on that intersection due to the increased traffic from residents of the new development. If the intersection were in need of upgrading before the development was approved, that is not enough reason to make the new development pay the full cost of that upgrade.
System-wide land use assumptions do not mean the entire municipality or county can be treated as one service area for application of all impact fees. Remember, impact fees are imposed on new development in order to generate funding for off-site capital improvements or facility expansions attributable only to the new development. While providing uniform charges, city-wide service areas usually do not meet the test of being fair, equitable and site-specific. For instance, it is not fair or equitable to charge new developments on the west side of a town who are tying into a facility on the west side for the expansion of an east-side wastewater treatment facility to serve other new developments on the east side of town. Yet there are large municipalities in our state who are applying this type of misinterpretation to create inappropriately large service areas. If your local government’s draft doesn’t pass the “test” of fair, equitable, uniform and site-specific, you should question their application of the Act.
As stated earlier in this article, the Development Fees Act was designed to set boundaries on the items for which developers would be charged, and purposely established a fair, equitable, uniform and site-specific mechanism for funding off-site infrastructure improvements. Without participation from New Mexico Home Builders members in the process by attending every land-use assumption public meeting the process can get headed in a direction our members don’t like.
If you would like a pdf file of the Development Fees Act e-mailed to you, call Melanie Teeter at the NMHBA office at 505-344-7072, or e-mail to her at email@example.com.
You can also see an explanation of the Tax Increment Development District infrastructure financing law from the January 2008 Housing Journal online at www.nmhba.org. Coming in a future issue will be another in this infrastructure financing series, on Special Assessment Districts.