State and Local Reporter - 08/05/2003 (Plain Text Version)

Debora Trimpe, Chair
Flower Mound, Texas

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In this issue:
Brookings' Report on Impact Fees Is Flawed, Says NAHB
Texas Adopts Major Building Industry Reform Package
Big Picture Look at State, Local Governments' Fiscal Crises
Notice and Opportunity to Repair Legislation Recap
New IRS Web Site for Sec. 527 Groups
Legal News: Two Precedent-Setting Cases Could Reach Supreme Court
Get State, Federal Legislative Information on Enhanced NAHB Web Site
NAHB-Supported Federal Tax Bill a Plus for Builders and Small Businesses
SLGA Conference Helps Alaska Association Advance NOR Bill
Industry News
Tools Available to Promote Positive Industry Image

Brookings' Report on Impact Fees Is Flawed, Says NAHB

NAHB staff recently took a careful look at the paper and found that the study, "Paying for Prosperity: Impact Fees and Job Growth," is riddled with flaws.

Have you heard about the new Brookings Institution study on impact fees? NAHB staff recently took a careful look at the paper and found that the study, “Paying for Prosperity: Impact Fees and Job Growth,” is riddled with flaws.

The following is their analysis.

The report is authored by Arthur C. Nelson, a strong proponent of impact fees who counts municipalities across the country as his clients. Nelson's single focus on impact fees in this study is indicative of his interest in impact fee adoption around the country. Beyond this inherent bias, the report’s implication that impact fees are the only method of financing infrastructure is far from accurate.

Impact fees are one of the least efficient, least dynamic ways to finance infrastructure. Here’s why:

They are often miscalculated and illegally applied to fund infrastructure facilities that are different from the facilities for which they were collected.
They are often illegally applied to pay for maintenance of existing infrastructure.
They are an unreliable source of revenue that rises and falls with the construction cycle.
As an undependable source of revenue, communities cannot leverage impact fees by borrowing against them.
They make local jurisdictions dependent on development as a means of funding needed infrastructure.
There is a significant delay between the time the impact fees are paid and the infrastructure is developed.

The study also suggests that impact fees are a more efficient way to pay for infrastructure than general taxes because they make a direct link between those paying for and those receiving infrastructure benefits. This is a narrow view of efficiency that completely disregards the ultimate measure: the development of the infrastructure in the most cost-effective and expeditious way possible.

The study claims that impact fees treat all developers equitably. But in reality, fees are paid by home buyers. Assessed uniformly, regardless of home price, lower income home buyers are disporportionately affected by the impact fee, which further proves the study's faulty logic. Impact fees are added to the cost of a home and then compounded by interest since they are typically rolled into the homeowner’s 30-year mortgage payments. Every $1,000 increase in the cost of a home prices more than 400,000 American families out of the market.

Impact fees across the country typically range from $1,000 per home to as much as $65,000 in states such as California. Since fees are assessed per unit, all homes, regardless of size and price, pay the same fees, making them a regressive tax on new homebuyers. The net effect of impact fees on citizens is that teachers, firefighters and police officers can no longer live where they work.

Mr. Nelson and his co-authors also claim that impact fees are, at the least, not a drag on local economies and, at most, are “the grease that helps sustain job growth in the local economy.” It is ludicrous to suggest that impact fees contribute to economic prosperity. The study makes a leap by asserting causality from a simple data correlation showing that areas with fees have positive rates of job growth. In fact, fes may well be reducing the rate of job growth even though job growth is still positive. The study is based on a single state, Florida, which has experienced strong job growth and widespread imposition of impact fees. Other possible factors and correlations are not examined in the analysis. Florida’s economy has thrived in spite of impact fees, not because of them.

These are the most significant weaknesses of the paper and not a comprehensive list. While any one of these errors would be a concern, the collective influence brings into question any reliable conclusion.

For more information on the analysis, the study or impact fees, contact NAHB’s Keyvan Izadi at 800-368-5242 x8469.