City eyes revenue increases via excise taxes, impact fee hikes

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The city is struggling with how to solve financing and building new roads and facilities and funding public services when it’s squeezed between taxation limitations, population growth and maintaining existing facilities built decades ago.
New impact fees and possible excise taxes are on the table, mostly directed to new development. But recent research confirms that new development more than pays for itself and that too much new-development taxation could hurt housing affordability and would contribute to more urban sprawl.
City planners presented an analysis of possible new development fees and taxes during a Feb. 19 City Council work session. If the city imposed an additional 50-cents to $1 per square foot excise tax it could raise $3.1 million to $6.4 million annually. The tax also could raise single-family-home prices by $1,000 to $2,000 and hike business space costs.
The new fees would fall under Tabor tax-revenue limitations, which would require voter approval to exempt fee revenues from the tax-collection ceiling based on inflation and population growth.
New impact fees would be more complicated because they are legally restricted to pay only for facilities, not operating costs. That means that even with increased impact fees on new development, the city wouldn’t gain more money for public services. Additionally, the fees must pay for actual development impacts and not desired infrastructure levels.
Impact fees also run into fairness problems since many new developments have paid fees and other exactions as part of annexation agreements, and new fees in some areas could represent double taxation.
Developers also contend that in some projects the value of extra facilities, such as roads and property dedications, exceed potential fee revenues and should result in credits or reimbursements.
Ironically, recent Florida research indicates new development more than pays for itself without such fees and taxes.
Research economist James Dewey and University of Florida economics professor David Denslow studied whether conventional development pays its share of public costs in Alachua County, Fla., a rapid-growth area.
Their conclusion is that it does. New development actually pays $3,114 per house more than its share of roads and other county infrastructure costs.
The researchers calculated new and existing residents’ repayment of bond issues used to finance infrastructure development, plus property taxes paid on vacant “model” homes and sales taxes on new-construction building materials. Dewey and Denslow also calculated new-home building and permit fees and property taxes paid while a home was under development but prior to occupancy.
Recurring tax payments after home occupancy also were figured. In Alachua County, the researchers discovered typical single-family homes built in 2000 will pay approximately 216 percent more property taxes than homes built in 1976.
Impact fees might be reasonable to address social costs, such as pollution or congestion at natural recreational locations, the researchers said. However, “charging new residents development taxes and fees that are substantially in excess of the associated costs of providing public infrastructure and services would entail negative economic consequences.”
Two consequences mentioned are misallocation of scarce resources and unduly delayed development that could contribute to general economic slowdowns.
The Florida findings parallel research done in Colorado Springs by David Bamberger, David Bamberger & Associates president, and Mark Dotzour, Texas A&M University Real Estate Center’s research director and chief economist.
The fiscal impact study found new city roads and other infrastructure needed to support new growth are paid by landowners, not the city. The city pays for park improvements and fire and police stations, usually on land dedicated by landowners.
The 1999 study also revealed only six percent of the city’s capital improvements budget in the previous five years was spent to support new growth. Additionally, new homes generate $1,000 to $7,000 in city sales taxes collected on new-home building materials, according to studies of eight subdivisions throughout the city.
At the same time, the city’s capital improvement costs for new homes are significantly less than the sales taxes collected on building materials to build the homes. Capital improvement costs ranged from $202 in Broadmoor to $487 in the city’s north-end Charleston Place.
New homes also contribute more annual tax revenues to the city than the average existing home’s approximately $450 a year, according to the study. Crestline Heights homes generated about $613 in taxes, while Broadmoor Resort Community homes contributed about $2,029 per year.
“We came up with the conclusion, at least for single family homes, that new homes are more than paying their share and are making positive impacts in city general-fund contributions,” Bamberger said, indicating the 1999 study applies equally well to today.
The study reflects annexation agreements over the past 20 years that were negotiated to shift new-development costs to landowners, Bamberger said.
Briargate particularly has contributed well beyond local needs, especially in streets, arterial road construction and the Interstate 25 interchange, Bamberger said.
An analysis by La Plata Investment, Briargate developers, reports the developer has created 56 percent more road capacity in major road arterials and neighborhood streets than residents now use and the trend is expected to continue.
La Plata reported it has built nearly 21 miles of arterials or 130.4 “lane miles” of major and minor arterial streets, and is building more. Briargate has already paid the equivalent of $36 million more for streets and roads than city impact fees proposed in 2000, according to Scott Smith, La Plata Investments chief operating officer.
New homes are an easy target to blame for growth, but developers say new homes are only meeting consumer demand and don’t cause growth.
While many residents believe new residents solely cause growth, census studies reveal that existing population birth rates, greater human longevity and fewer deaths per thousand people cause half of growth.
In a 1999 Colorado Springs study, Smith said there were only 2,500 deaths compared to 8,000 births, resulting in a natural increase of 5,500 people. With an estimated 2.6 people per household that translates into 2,115 new homes, he said.
Traffic congestion that people experience is more due to social changes, he said. National studies indicate people are using cars more during non-working hours and, with greater affluence, more families have multiple cars. Additionally, corporate downsizing has created more specialists and consultants who operate independent businesses using public facilities.
Smith said just taxing new homes won’t solve the city’s capital improvement and public services crisis. And increasing housing and business costs in the city only means creating incentives for people to live outside the city, contributing to ongoing urban sprawl.
Impact fees and excise taxes assess only a small proportion of the total community that uses all the roads and services, Smith said, indicating resolving these community issues requires broader funding approaches.