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Impact fees: Cumbersome state law hinders worthwhile revenue source
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Whenever property tax reform is discussed, the issue of impact fees is raised. An impact fee is a charge to developers -- a charge passed through to the buyer of a new home or building -- to fund the additional capital costs necessary to maintain service demand created by new development. These capital costs can include fire stations, fire engines, police stations and public school buildings.
Thus, with an impact fee, at least some of the capital costs of individuals moving to the community are paid up front, which benefits existing taxpayers and will benefit the new taxpayer when newcomers arrive in the future.
At least 26 states, including South Carolina, allow local jurisdictions to impose an impact fee on new development. Many of these jurisdictions have discovered the benefits of impact fees. New homeowners essentially buy their way into a desirable community. This allows growing communities to maintain a constant level of services both for the new residents and existing ones. Additionally, large communities are better able to maintain the capital investment necessary to deliver services to their residents.
Finally, and probably most important, the property tax burden on all citizens is lessened because of the presence of an impact fee. Unfortunately, in South Carolina, most residents are unable to enjoy the benefits of an impact fee.
The authority counties and municipalities have to impose impact fees is contained in the Development Impact Fee Act. The impact fee statutes place cumbersome and expensive requirements on local governments, which make it virtually impossible to implement.
Before an impact fee ordinance may be adopted, a governmental entity must have adopted a comprehensive plan or a capital improvements plan. Additionally, the entity must prepare a report that estimates the effect of recovering capital costs through impact fees on the availability of affordable housing within the political jurisdiction of the governmental entity. Preparation of such a report is not only time consuming but requires the hiring of experts to prepare.
Prior to adoption of an impact fee, the governing body must enact a resolution directing the local planning commission to conduct a study and recommend an impact fee ordinance. Upon receipt of this resolution, the local planning commission has to prepare and adopt its recommendation in the same manner used in the development of recommendations for a comprehensive plan. The ordinance imposing the impact fee must be approved by a positive majority.
Local school districts are precluded from implementing school impact fees on new development. Additionally, school facilities are not included in the definition of "public facilities" for which an impact fee may be used. The result is that existing residents bear 100 percent of the tax burden of building schools for new residents.
Opponents have argued that impact fees increase housing costs and drive buyers out of the market. New homeowners want and expect quality services and should be willing to pay at least some of the capital costs of maintaining these services. Besides, a savvy homeowner would rather pay a known cost upfront rather than the unknown cost as additional growth creates an even greater demand for services.
The purpose of impact fees is to allow people who generate the need for new services to pay for them. Existing homeowners and businesses have paid for the infrastructure they demand.
Opponents of impact fees often like to raise the specter of a lack of "nexus," implying that impact fees (especially those levied for school facilities) are an unconstitutional taking. This is a clearly fallacious argument and misinterprets the U.S. Supreme Court's position on impact fees.
The Supreme Court adopted the "rough proportionality" test for Fifth Amendment takings claims. The fee merely must relate "both in nature and extent to the impact of the proposed development." New residential development would obviously relate to an increase in local services, including school facilities, and easily meet any constitutional test. How else would 25 other states have impact fees, many for more than 15 years?
Impact fees are a practical way of dealing with the increased demand for services created by development. Over time, the federal government devolved certain powers to state and local governments that require the construction of public infrastructure. State and federal mandates such as erosion control, wastewater treatment and storm-water drainage raised the price of such infrastructure.
Existing homeowners and businesses, however, are understandably reluctant to continually pay the infrastructure needs caused by people moving into their communities. The solution is local government use of impact fees.
The General Assembly should slash the statutory Gordian Knot, which prevents local government from utilizing this important and generally popular revenue source.
Tim Winslow is senior staff attorney for the South Carolina Association of Counties.
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