Impact Fees – The Hidden Tax on Housing – Updated

Impact fees, inspection fees, administrative fees, and utility connection fees account for about $18,665 of the cost of a new Palm Coast home, regardless of its size or value.

October 9, 2007 – Palm Coast, Florida – In January, I wrote a commentary on the hidden tax of impact fees. Ten months and two fee increases later, I thought it needed an update. The article remains essentially the same, only the numbers are bigger.
 
Impact fees, inspection fees, administrative fees, and utility connection fees account for about $18,665 of the cost of a new Palm Coast home, regardless of its size or value. In other words, about 10% of a $186,650 home is comprised of fees while fees account for only about 2% of a $900.000 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. The home was recently permitted. It has 2099 sf under air. The value of the project is $214,000 (does not include the value of the lot).
 

Palm Coast Impact and Permit Fees – Typical Residential Construction

Impact Fees:  
   Park System

$1,196.11

   Fire and Rescue

185.11

   Educational Facilities

3,600.00

   Transprotation

3,846.11

   Water & Sewer

7,770.00

   Irrigation Meter

325.00

   Irrigation Deposit

60.00

Application & Administration Fees:  
   *Plan Review

$85.60

   *Building Permit Fee

834.60

   *Electric Permit Fee

128.40

   *Plumbing Permit Fee

158.40

   *HVAC Permit Fee

158.40

   Administration Fee

20.00

   ARC Review Fee

125.00

   Code Administration Fund

12.64

   Inspection & Reinspections (typical)

160.00

Total Fees

$18,665.37

 
 * Fees depend on value of construcion
 
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 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 $18,665 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 $186,650 home is comprised of fees while fees account for only about 2% of a $900.000 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 property 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.

4 replies
  1. GENE HOLLAND
    GENE HOLLAND says:

    LEFT WINGERS

    TOBY…I LOVE YOU, BUT I’LL BET YOU ARE A STRONG HILLARY FAN. YOU ARE A REAL ESTATE BROKER AND PERHAPS YOU VIEW THE SITUATION FROM THAT POINT OF VIEW. I SEE THINGS MUCH DIFFETRENTLY THAN YOU DO.
    EVER SINCE INCORPORATION, LEADERS WHO HAVE BEEN IN CHARGE OF OUR CITY HAVE BEEN MOST DEVELOPER FRIENDLY. THE CITY HAS CONTINUALLY BENT OVER FOR THE DEVELOPER. AND THEY HAVE LAUGHED ALL THE WAY TO THE BANK.
    THIS IS OF COURSE GOOD FOR THE DEVELOPER AND MOST CERTAINLY FOR THE REAL EXTATE BROKERS AS WELL.
    ALL THE \” LET THE DEVELOPER HAVE WHAT HE WANTS \” ATTITUDE HAS CREATED AN UNPRECEDENTED GROWTH, NECESSITATING ALL THE SERVICES THAT YOU SO APTLY ENUMERATE IN YOUR ARTICLE.
    WHY PREY TELL SHOULD OLD TIME RESIDENTS SHARE THE ADDITIONAL COSTS THAT ALL THESE NEW RESIDENTS CREATE? IS IT FAIR TO MAKE PEOPLE LIVING ON A FIXED INCOME DIG INTO THEIR POCKETS TO SUBSIDIZE THE COST OF SERVICES THAT ARE PROVIDED TO ALL THE NEW RESIDENTS?
    IN MY OPINION, THEY CREATED THE EXPENSE SO THEY SHOULD PAY FOR IT.IN ORDER TO SLOW CONSTRUCTION DOWN A BIT,I HAVE ALWAYS FAVORED A BUILDING MORATORIUM. AS FAR AS I CAN SEE, A HIGH IMPACT FEE WILL SERVE THE SAME PURPOSE. LETS JUST \”BACK UP THE TRUCK\” A BIT AND LET EVERYTHING SETTLE DOWN.
    I AM IN FAVOR OF RAISING THE IMPACT FEE BY AT LEAST FIFTY PERCENT.
    YOU WANT TO LIVE IN A WONDERFUL COMMUNITY THEN YOU MUST BE PREPARED TO PAY THE PRICE. WHERE I COME FROM, THERE IS NO FREE LUNCH.

  2. folkie
    folkie says:

    Right on the money!

    Widening the tax base is just one of Palm Coast’s many pressing challenges.

    In a State or community that’s infamous for low wages you would think that affordable housing for a labor force would be a high priority on any community’s agenda.

    Our city can allocate all kinds of resources to economic growth and development. We can join the competition with a plethora of large and small communities NATION WIDE who are aggressively attempting to attract new business development utilizing TIF’s and many other creative grants and incentives, after all they want to improve their tax base just like we do.
    But! alas as pointed out in Don’s article Palm Coast is severely disadvantaged by the lack of available labor. We may have an ideal location with rail and I-95 access and proximity to the Ocean, but sadly despite all our advantages our lack of a labor pool is a major factor. Large employers build their facilities and contribute their significant tax dollars elsewhere.

  3. rockslide
    rockslide says:

    Well Done! Insightful and Well Documented!

    Unfortunately Toby, you are \”right on the money\” with this article. The future financial situations of the City of Palm Coast and Flagler County (i.e. the taxpaying residents of this community) are WHOLLY DEPENDENT upon finding a more successful method of balancing the residential AND commercial/industrial ad valorem tax base. The budget \”problems\” that we’re hearing about today are nothing compared to the problems WE WILL experience in years to come UNLESS AND UNTIL both the city and county DRAMATICALLY CUT EXPENSES AND SERVICES AND/OR DRAMATICALLY INCREASE RESIDENTIAL TAXES based upon today’s heavily-lopsided residential loading of the tax base. The ONLY RATIONAL course of action is for our community is to AGGRESSIVELY COMPETE FOR JOBS in the economic development arena to expand the commercial/industrial tax base.

    With the area’s currently generally \”overpriced\” land (compared to neighboring counties and cities) and limited infrastructure ‘aggressive competition’ is probably going to require a ‘military-type’ coordinated command and resource deployment effort representing Flagler County as a whole to make up for lost time and establish immediate traction. This concept is not on the radar screen of our current elected officials who can’t even understand the the ESSENTIAL NEED for this ongoing effort as evidenced by their recent attempts to slash meager existing economic development budgets.

    There are plenty of quality locations for new businesses to come to in our area which will NOT negatively impact our quality of life and which WILL improve our ability as residents to continue to afford to live here into the future. Increasing \”hidden taxes\” as you accurately describe them is working to steepen (worsen) our ongoing 2+ year economic decline. Isn’t it time to take some drastic action to reverse this decline to the short and long-term benefit of our community? And, if apathy doesn’t prevail, who will LEAD and direct this initiative WITH the support of elected officials? This is perhaps the most important issue facing our community today. Until these questions are addressed, is it time for our governments to take some aggressive action NOW – perhaps as an emergency measure to significantly reduce, rebate or eliminate these \”impact fees\” for 3, 6 or 12 months to get the economic engine running again?

  4. Herb Whitaker
    Herb Whitaker says:

    Impact Fees

    I need to weigh-in in a small way on this subject. At the Business Issues meeting of last Fri. 10/12, it was told that a developer intent on building at a location in Town Center had recently
    aligned all of his finances to begin construction. When applying for his construction permit he was presented with the bad news. His IMPACT FEES would exceed $1,000,000. Yes that is seven digits. He was not prepared for this Giant step and his financing did not include this $1M item. It remains to be seen what his next step now will be.

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