Impact Fees – The Hidden Tax on Housing
January 17, 2007 - Impact fees, inspection fees, administrative fees, and utility connection fees account for approximately $17,000 of the cost of a new Palm Coast home. What is their effect on housing costs?
By: Toby Tobin
January 17, 2007 - Impact fees, inspection fees, administrative fees, and utility connection fees account for about $17,000 of the cost of a new Palm Coast home, regardless of its size or value. In other words, about 10% of a $170,000 home is comprised of fees while fees account for only 2% of an $850.000 home.
Impact fees grew out of the reduction in Federal and State grants to local governments and the growth of the tax revolution in the late 1970s. Originated as capital recovery fees to fund water and wastewater facilities, they quickly grew to include several non-utility facilities such as roads, schools, parks, fire and police. Currently, over half of all states have passed impact fee enabling acts, primarily in the rapidly urbanizing Sunbelt and Rocky Mountain West.
Impact fees are based on the concept that “growth should pay its own way.” Naturally, current residents would rather see the newcomers pay for the cost of increased infrastructure and services. It’s better than increasing everyone’s property tax. The fees vary from city to city. Here are the fees for a typical new home in Palm Coast, Flagler County, FL.
Palm Coast Impact Fees
| Transprotation impact fee |
$3,631.83 |
| Storm water permit fee |
$80.00 |
| School Board impact fee |
$3,600.00 |
| Fire and Rescue impact fee |
$173.47 |
| Park System impact fee |
$1,120.91 |
| Radon fee |
$19.74 |
| Administration fee |
$20.00 |
| Early power inspection |
$40.00 |
| Building code admin fund |
$19.74 |
| Water and sewer connection fee |
$6,100.00 |
| Irrigation meter instalation |
$325.00 |
| * Plumbing fee |
$210.00 |
| * Plan check fee |
$120.00 |
| * Permit fee |
$1,170.00 |
| * Mechanical fee |
$210.00 |
| * Electrical fee |
$210.00 |
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| Total fees |
$17,050.69 |
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| * Variable fee based partly on job value of $300,000 |
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As you can see, the numbers are not small. While impact fees help satisfy the need for increased public funding to support area growth and generally place the burden on those creating the need for additional funding, they do not come without consequences, both good and bad, both intended and unintended.
If it walks like a duck - Though it is called a fee, it is a lawful taking of funds by a governmental entity. Thus it is a tax. As such, its existence should be very public. The City does a good job of publishing the information to residents because the residents are the ones who benefit (and vote). However the ones who pay the tax are mostly people from someplace else. They have not seen the local news publications regarding the fees. Their building contract does not say “sale price includes over $17,000 in taxes.” The builders simply pay these fees and include them in the contract price for the house.
Taxes on taxes – Since impact fees are buried in the cost of the house, they are included in the sale price, increasing related closing costs, and all future real estate taxes. In other words, new home buyers will pay perpetually higher taxes because their assessment is inflated by taxes (fees) already paid.
Regressive tax – Since nearly all the fees are fixed, they represent a regressive tax. In Palm Coast, about 10% of a $170,000 home is comprised of fees while fees account for only about 2% of an $850.000 home. The burden falls heaviest on the most affordable homes, reducing the availability of workforce housing. Our quality of life in Palm Coast is diminished because we do not have enough affordable workforce housing. First responders, teachers, service industry employees, and construction workers have a hard time finding affordable housing in Flagler County. Most have to commute from adjacent counties, reducing the size, and possibly the quality, of the job applicant pool.
Attracting industry - Enterprise Flagler promotes economic development in Flagler County. They tell me that one of the biggest deterrents to prospective major employers locating in Flagler is the lack of an existing labor pool, and the associated lack of workforce housing. When industry doesn’t come, we all pay higher real estate taxes. Given the tradeoff, it makes more sense to give some fee credits for workforce housing combined with a sliding scale of fees based on value. In the end, the entire community would benefit.
A rising tide lifts all boats – In a growing area, the cost of new construction drives real estate values, including existing home sales prices, which, in turn, drive assessments. The “save our homes amendment” shields homesteaded owners from major assessment increases. But those who buy an existing home are, in effect, paying more for their purchase by the amount of the imputed fees (fees included in the price of a comparable new home). The recipient of this benefit is the seller. Not surprisingly, that person is also a voter.
Impact fees do raise the price of all housing in an area. So it would seem that areas without impact fees might be less expensive. However, its really a zero sum game. The cost of infracture improvements and expanded services have to be paid somehow, whether with fees or other tax methods. Impact fees may be the lessor of alternative evils, but lets try to make them less transparent to those who pay them. And lets try to find a way to make sure that they don't impact the availablity of workforce housing.
By: Toby Tobin
