One of the silliest things about impact fees is that they are also very short sighted. Like, yeah, the impact fees might help cover the construction of new supporting infrastructure in the immediate future, but the cost to maintain and eventually rebuild that infrastructure doesn't go away. It's a recurring cost. At least property taxes do cover that aspect, too.
That being said, as you point out, impact fees and improvement taxes are based on a somewhat false picture of costs. The assumption is always that more people mean more problems, and thus new people must cover the new costs. And the attitude is that density only makes this worse.
According to studies of city financial data, however, the exact opposite is true. Higher density is correlated with lower costs per capita for both infrastructure and operations for pretty much all categories of standard municipal spending. Schools, transportation, fire service all get cheaper, both in terms of infrastructure built (schoolhouses, fire stations, roads) and staffing (staff don't have to drive as far to do their jobs, among other impacts). The same is true for police infrastructure as well, although it was found that police operations costs are pretty much the same per capita no matter the density, and even very very slightly more expensive (the assumed logic is that higher density leads to more public interactions and thus potential for police-required conflict handling, which offsets other operational efficiencies). The full study can be found here: https://www.mdpi.com/2413-8851/5/3/69
The other half of it is the assumption that by preventing more folks from moving into your town, you stop them from adding to problems like traffic. This is false, though, since those folks don't disappear, they just move farther away. And because they are now farther away than they would prefer, that means they are having to drive even more, increasing traffic more than if you just let them live in your town in the first place. And that's not even getting into the potential for folks being able to shift to walking or biking or taking transit. That's still assuming that everyone is driving. Reducing vehicle miles traveled goes a long way all by itself.
Focusing on the dual nature of property taxes - land v building - is great. People need to understand that, and that a change could incentivize building. But equating the building part of a property tax with an impact fee ignores important differences. My experience is that properly calculated impact fees facilitate building because they ensure that it is matched by adequate public facilities. There is no such direct connection to the building part of the property tax. You can, of course, argue for a different way of funding new facilities that doesn’t add directly (though just once) to builders’ costs. But what would that be? Incurring debt as in the example you give? Which is then mostly paid by the regressive building tax? Communities that charge impact fees are not ignorant of the fact that they raise the cost of development. But what’s a better alternative? An LVT that covers the regular, predictable operating costs of local government would be beneficial. But would using it to cover the irregular costs of facilities that serve particular developments make any sense?
I have worked on impact fees with local governments in several states since the ‘80s, when such fees first became popular. No one keeps statistics on things like this, but I’d say that there were a lot of arbitrary fees back then. Maybe half? But state legislatures and the courts have corrected that in the states I am familiar with. The process of calculating a fair fee isn’t that difficult in a community that has sound financial practices and invests in professional capital facilities planning. And it is vastly superior to the case by case deal making that impact fees are intended to replace. I’ve done some of that and while I am confident that the deals I helped cut were fair, the lack of transparency and the pressure on the negotiators are not desirable. Using impact fees is vastly superior.
As for the consequences of not following the law and best practices: from what I have seen, arbitrary (improperly calculated) fees are high. There may be places where that reflects a NIMBY agenda, but the cases I’ve seen are just about trying to make things easier than they really can be.
It would be ok for YIMBYs to oppose impact fees IF they had a better alternative. But l’ve never seen that. What would it be?
Meanwhile, what is your definition and criteria of a "fair fee"? What do you think of the literature and academic studies that we have linked in the above piece that point to the negative effects of impact fees?
Although they are often misused, this in theory is the sort of thing a Tax Incremental Financing (TIF) district should be for. Basically a guarantee by the city that new property taxes generated by a development are guaranteed to support new infrastructure for that development. This can be done up front by having the city put out a bond for the work and then paying it off with the TIF fund (this adds some risk exposure on their end, of course).
That being said, in my experience most TIFs are instead used to basically act as a property tax abatement for a development to make it pencil, with cities sometimes even using that same bonding authority to help finance the project itself. Which I'm much less thrilled by.
One of the silliest things about impact fees is that they are also very short sighted. Like, yeah, the impact fees might help cover the construction of new supporting infrastructure in the immediate future, but the cost to maintain and eventually rebuild that infrastructure doesn't go away. It's a recurring cost. At least property taxes do cover that aspect, too.
That being said, as you point out, impact fees and improvement taxes are based on a somewhat false picture of costs. The assumption is always that more people mean more problems, and thus new people must cover the new costs. And the attitude is that density only makes this worse.
According to studies of city financial data, however, the exact opposite is true. Higher density is correlated with lower costs per capita for both infrastructure and operations for pretty much all categories of standard municipal spending. Schools, transportation, fire service all get cheaper, both in terms of infrastructure built (schoolhouses, fire stations, roads) and staffing (staff don't have to drive as far to do their jobs, among other impacts). The same is true for police infrastructure as well, although it was found that police operations costs are pretty much the same per capita no matter the density, and even very very slightly more expensive (the assumed logic is that higher density leads to more public interactions and thus potential for police-required conflict handling, which offsets other operational efficiencies). The full study can be found here: https://www.mdpi.com/2413-8851/5/3/69
The other half of it is the assumption that by preventing more folks from moving into your town, you stop them from adding to problems like traffic. This is false, though, since those folks don't disappear, they just move farther away. And because they are now farther away than they would prefer, that means they are having to drive even more, increasing traffic more than if you just let them live in your town in the first place. And that's not even getting into the potential for folks being able to shift to walking or biking or taking transit. That's still assuming that everyone is driving. Reducing vehicle miles traveled goes a long way all by itself.
Focusing on the dual nature of property taxes - land v building - is great. People need to understand that, and that a change could incentivize building. But equating the building part of a property tax with an impact fee ignores important differences. My experience is that properly calculated impact fees facilitate building because they ensure that it is matched by adequate public facilities. There is no such direct connection to the building part of the property tax. You can, of course, argue for a different way of funding new facilities that doesn’t add directly (though just once) to builders’ costs. But what would that be? Incurring debt as in the example you give? Which is then mostly paid by the regressive building tax? Communities that charge impact fees are not ignorant of the fact that they raise the cost of development. But what’s a better alternative? An LVT that covers the regular, predictable operating costs of local government would be beneficial. But would using it to cover the irregular costs of facilities that serve particular developments make any sense?
I have worked on impact fees with local governments in several states since the ‘80s, when such fees first became popular. No one keeps statistics on things like this, but I’d say that there were a lot of arbitrary fees back then. Maybe half? But state legislatures and the courts have corrected that in the states I am familiar with. The process of calculating a fair fee isn’t that difficult in a community that has sound financial practices and invests in professional capital facilities planning. And it is vastly superior to the case by case deal making that impact fees are intended to replace. I’ve done some of that and while I am confident that the deals I helped cut were fair, the lack of transparency and the pressure on the negotiators are not desirable. Using impact fees is vastly superior.
As for the consequences of not following the law and best practices: from what I have seen, arbitrary (improperly calculated) fees are high. There may be places where that reflects a NIMBY agenda, but the cases I’ve seen are just about trying to make things easier than they really can be.
It would be ok for YIMBYs to oppose impact fees IF they had a better alternative. But l’ve never seen that. What would it be?
We believe taxes on buildings should be abolished and taxes on land should be raised. You can find many detailed reports on this on our website:
https://landeconomics.org/home
Meanwhile, what is your definition and criteria of a "fair fee"? What do you think of the literature and academic studies that we have linked in the above piece that point to the negative effects of impact fees?
What percent of impact fees would you guess are “properly calculated” ? What are the consequences of improperly calculated impact fees?
Although they are often misused, this in theory is the sort of thing a Tax Incremental Financing (TIF) district should be for. Basically a guarantee by the city that new property taxes generated by a development are guaranteed to support new infrastructure for that development. This can be done up front by having the city put out a bond for the work and then paying it off with the TIF fund (this adds some risk exposure on their end, of course).
That being said, in my experience most TIFs are instead used to basically act as a property tax abatement for a development to make it pencil, with cities sometimes even using that same bonding authority to help finance the project itself. Which I'm much less thrilled by.