Tuesday, 2 February 2010

Lower Housing Impact Fees

The Sacramento Bee reports that Sacramento County is reducing impact fees to try to stimulate building and the economy. These fees spiraled out of control in the housing boom, and they need to come back down. However, it is very difficult for local governments to do this because they have become dependent on these revenues.

The Board approved suspending the annual increase in fees for all plan areas for another year in addition to the reduction for North Vineyard Station. The reduction of about $4,200 per unit from the total development fees of almost $80,000 per unit, would be in place for two years
$80,000 per unit in fees! This in a county where median household income is $57,000 and median family income is $67,000. In the rest of the country, comparable fees are under $10,000, yet somehow people in these areas enjoy local public services too.

I know there are rules that these fees can only pay the costs of new growth, etc., etc. However, when you look at the trends in local government budgets and economic data from a more macro level, it is hard not to conclude that local governments have been using impact fees to off-load costs from their general funds in addition to building nice new public facilities (many of which benefit all residents, not just people living in new developments). Has the space in the general fund been used to lower taxes, improve services, or increase compensation for local government employees?

I am not opposed to impact fees in general. If well-designed they can help guide land use, and distribute costs equitably. However, like all taxes they become more destructive as the rate increases and there is always the temptation of current residents to shift the cost of their government on future residents (or future generations). I think current impact fees are well beyond the level of diminishing returns.

There are a lot of aspects to this issue, and more posts about it in the future.

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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