Testimony in Support of Bills to Expand List of Allowable SDCs
SMART GROWTH AND COMMERCE COMMITTEE
Public Hearing, March 12, 2001
Testimony in support of bills to expand system development charges to include schools and other capital facilities
Presented by: Eben Fodor, Community Planning Consultant, Fodor & Associates, Eugene, Oregon.
In Oregon, development impact fees are called System Development Charges or SDCs. They apply to all types of development - residential, commercial and industrial. Cities and counties are expressly authorized by the State Legislature since 1989 to collect SDCs for five categories of public facilities: Transportation system, water system, sewage system, stormwater system, and parks and recreation. Many other states authorize impact fees for schools, fire stations, police stations and other public facilities.
The cost of building the infrastructure to serve new growth can be very high. A recent study conducted by my firm for the Columbia Policy Institute found that the cost of residential development to Washington's taxpayers is almost $3 billion annually. This is equivalent to about $500 per person per year. These costs are contributing to the State's infrastructure funding crisis and may result in either higher taxes or declining public facilities and services (more congested roads and overcrowded schools).
Rationale for SDCs
Development impact fees, or system development charges (SDCs), are based on the simple approach of having growth pay more of its own way. With a system of impact fees, developers and new home buyers must pay more of the full cost of their impact on the community. Without impact fees, the existing residents of a community pay most of these costs through their property taxes.
Developers have often argued that impact fees increase the cost of housing. This is actually not the case. Impact fees have no effect on the cost of housing. Rather, they act to shift more of the cost burden from the general public to the new home buyer who receives the benefits. All the costs associated with housing remain exactly the same. What changes is who pays the costs. Thus, impact fees are a matter of economic fairness or equity.
Properly designed impact fees charge only a "proportionate share" of capital costs to the new development. In this manner, each increment of new development pays only for the increment of new or additional capacity required to serve it.
Potential Benefits of SDCs
1) Lower taxes. Impact fees reduce the burden on the general fund and bonded debt by paying for growth-related infrastructure up front. This frees up public resources that can be re-invested in the community in the form of expanded or improved services, or used to lower taxes or avoid future tax increases.
2) Promotes "concurrency." Impact fees help assure that the necessary funding for infrastructure is available concurrently with the approval of new development. The purpose of concurrency is to avoid overburdened roads and public facilities and reduce the strain on the general fund.
3) Better market price signals. The market economy operates more efficiently when pricing reflects the true costs of new development. Hidden public subsidies can send inaccurate price signals to the housing and development industry and may stimulate overproduction.
1) Allowing school districts to establish impact fees will avoid complications when the school district crosses into more than one jurisdiction or when the local jurisdiction (city or county) does not have an impact fee policy.
2) Where growth rates are slow, the costs for new facilities may be a minor concern. However, in faster-growing communities, growth-related costs can become a substantial burden to local taxpayers. Some communities will need to build a new school, fire station or library every year to accommodate growth. The cumulative expense of these costly facilities creates resentment among taxpayers who receive little benefit from the expenditures.
It's quite likely that current system of having the general taxpayer shoulder the high costs of growth has contributed to the anti-government and anti-tax sentiment seen in Oregon and other fast growing states like California. Measures 5 and 50 in Oregon and Proposition 13 in California are examples of voter backlash against taxes which provide little or no benefit to the average taxpayer. Development impact fees help to remove growth-related costs from the tax base.
3) There continues to be debate about the extent to which development should pay its own way. In the past, many local governments have believed that growth was desirable and beneficial. However, public sentiment towards growth is changing as more people become aware of the costs associated with land development and no longer view additional growth as contributing to their quality of life. Surveys show that most people now want growth to pay its own way and not be a continual burden to taxpayers.
TABLE 1 -- Categories of Public Infrastructure Required by New Development Compared with Impact Fees Authorized in Oregon
Results of 1997 Growth Management Survey by Portland Metro February 1997
"I think Metro and my local Government ought to try to slow growth down."
"Developers should pay fees for all of the cost of new development."