Monday, March 29, 2010

Learning from Florida about Development Impact Fees

When new development is put in place, there is a new need for infrastructure that is traditionally provided by government. This infrastructure can range from schools to roads and police to parks. In an effort to recoup some of the costs of the new infrastructure, some counties and cities have implemented what are known as development impact fees. The idea is to put some of the financial burden on the developer.

From a benefit principle point of view, this fee seems to make better sense. While it is possible non-residents will use some of the infrastructure and some of the costs are not included in a development impact fee, this system is based on trying to get the people that benefit to pay.

Because of explosive population growth and the building that has accompanied it in the last 35 years, Florida counties have led the way in using impact fees. With strong growth and incentives to build, developers were more accepting of the impact fees. However as population slows and developers are coping with an economy that is not nearly as robust for building as it was even a few years ago, localities are seeing that any additional costs put on developers may be driving them away. This has led many Florida counties such as Lake County, Brevard County, and Collier County to reduce or suspend impact fees. These moves have been varied in success and difficult to quantify due to struggling real estate markets. It has become evident that municipalities that have relied on impact fees have a hard time coming up with funding if they reduce or eliminate them as was the case for Martin County which has decided to bring impact fees back.

What does this mean then for municipalities that are looking to impact fees as a potential source of funds?

-In the current economy, development impact fees may cut too heavily into a developer’s margins and leave them unable to pursue the project or make them look to other locations with no or lower impact fees.

-Depending on their structure, they may encourage more infill development. This can be accomplished by reducing or eliminating fees in areas that already have infrastructure in place.

-Zoning plays a big part in how development occurs, not just impact fees.

-Be sure not to become too dependent on impact fees, in case circumstances necessitate reducing them.

-Other opportunities for financing infrastructure projects could be done with other forms of value capture when property value increases.

Try this to see how much you would need to pay to develop something in Collier County.

1 comment:

  1. Kevin, the Collier County Impact Fee Calculator is very interesting! Will you guys show it in the presentation?