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F I S C A L I M P A C T R E P O R T

SPONSOR Silva

DATE TYPED 3/4/05

HB 805/aHJC

SHORT TITLE Local Government Use of Impact Fees

SB

ANALYST Hadwiger

APPROPRIATION

(in $000s)

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB1005, SB1017.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

No comments were received from the New Mexico Municipal Association or Association of

Counties at the time this F.I.R. was prepared.

SUMMARY

Synopsis of HJC Amendment

The House Judiciary Committee Amendment to HB805 deletes a paragraph in the original bill

that stated: “A municipality or county may not use impact fees or the authority of the Develop-

ment Fees Act as a growth management tool or as a penalty or incentive for development in any

particular area within its jurisdiction." It would replace this text with a new paragraph that

states: “A municipality or county may use impact fees for the sole purpose to offset the impact

of growth or development within its jurisdiction.”

The amendment would also indicate that the sole use of marginal or incremental cost calculations

for impact fees would not be permitted.

Synopsis of Original Bill

House Bill 805 would make three changes in statute with regard to the use of impact fees:

1.

Prohibits municipalities or counties from using impact fees as a growth management tool

House Bill 805/aHJC -- Page 2

or as a penalty or incentive for development in a particular area within its jurisdiction.

2.

Prohibits use of marginal or incremental cost calculations for impact fees and mandates,

instead, that impact fees reflect the average cost to pay for a proportionate share of the

cost of system improvements.

3.

Requires that municipalities and counties credit against impact fees improvements built

by a developer that were not listed on the municipalities’ capital improvement plan.

Significant Issues

HB805 appears to be primarily intended to overturn an impact fee ordinance adopted by the City

of Albuquerque in November 2004, although it may affect impact fee ordinances in Santa Fe,

Los Lunas and elsewhere. During the deliberations over the Albuquerque ordinance, representa-

tives of the National Association of Industrial and Office Properties (NAIOP) and Home Build-

ers Association expressed the following concerns about the impact fees:

•

The impact fees would drive development outside city boundaries.

•

Impact fees in parts of the west side of Albuquerque would be high (about $9,000 to

build a new 2,000-square-foot house) compared to the central city (about $1,500 for the

same house).

•

High impact fees on the west side could make it difficult for young families to find af-

fordable housing. Ultimately, the effect of impact fees on homeowners would be multi-

plied as they would pay the impact fees over 30 years in their mortgages.

•

The impact fees were being used for social engineering, to push development into certain

parts of the city and away from other parts.

Proponents of the Albuquerque ordinance expressed the following reasons for their support:

•

The fees would reflect the actual cost of infrastructure to support new development. The

fees would be relatively low in areas where roads and other infrastructure are in place and

higher on the less-developed fringes of the city.

•

A system using “average fees” would result in subsidy of fringe development by infill

development.

•

Impact fees are generally preferable to use of tax revenues to pay for new development,

because the beneficiaries bear a greater portion of the share of infrastructure costs.

•

The ordinance was amended to provide reductions for projects that would generate new

jobs (70 percent for industrial projects, 50 percent for office projects, etc.).

The Department of Finance and Administration provided the following comments on HB805:

Studies show that housing prices do not increase when impact fees are placed on the buyer of

raw land, because the value of infrastructure is factored into the purchase price. Impact fees

become part of the cost of doing business, incorporated into the sales prices of residential and

commercial structures. They are amortized in mortgages over decades, and any needed infra-

structure is not deferred or ultimately paid for by taxpayers.

How a community is fiscally affected is often contingent on the location and type of growth.

House Bill 805/aHJC -- Page 3

An Urban Land Institute study found that traditional towns, when compared to low intensity

development, cost one third to one half as much for services and infrastructure. Streets, utili-

ties, and schools for a suburban single family development with three dwelling units per acre

built five miles from sewage and water treatment plants in a leapfrog pattern cost $43,381 per

dwelling in 1987 dollars. Building the same development adjacent to existing development

and near central facilities reduces costs by $11,597 per dwelling unit, a 27 percent reduction.

28 states have enacted development fee enabling legislation. New Mexico’s 1993 law, based

on Texas’ law, is one of the most prescriptive in the nation. Many local governments who

have considered adopting impact fees consider the law too burdensome, resulting in a hand-

ful of local governments in New Mexico – including Santa Fe City and County, Bernalillo

County, Los Lunas, Rio Rancho, Las Cruces, and now Albuquerque – taking the necessary

steps to impose impact fees.

Based on what Albuquerque plans to spend on roads, parks, police and fire protection over

the next eight years to support development on its West side, data from Albuquerque’s im-

pact fee consultants show that infrastructure costs not paid by developers on the West side

exceeds $14,000 per house. That is in addition to what the developers currently pay through

such methods as exactions, but it excludes cost of other facilities such as water and sewer

lines, which can be assessed under the Development Fees Act, as well as schools, libraries

and community centers, which cannot.

HB805 prohibits setting impact fees on a marginal cost basis, instead, it requires the use of

average cost. Albuquerque spent two years devising its impact fee schedule; as approved by

the City Council, fees for a 2000 square foot home would range from $1,332 to roughly

$8,500. City of Santa Fe’s impact fees, based on one service area rate, vary from $2,000 for a

1500 square foot home to $5,000 for a 4500 square foot home. Los Lunas’ fees range from

$3,227 per household to $36,500 for industry. Mandating the setting of impact fees on an av-

erage cost basis not only affects these three cities, it effectively mandates subsidies of

developments whose costs exceed city or county averages, which could be construed as

violating the anti donation clause.

Officials with the City of Albuquerque indicated concern that the required credit against impact

fees for any improvement, regardless of whether it is on the city’s capital improvement plan,

could result in fee credits for low-priority improvements or improvements that are of question-

able public benefit.

The HJC amendment to the bill appears to retain the intent of the original language, particularly

by specifying the “sole purpose” for which impact fees can be used. Although any language on

this topic is likely to face extensive litigation, the amended language may be subject to greater

degree of interpretation.

FISCAL IMPLICATIONS

DFA indicated that this bill might cause cities and counties to turn to the state to pay a greater

share of infrastructure costs for new developments.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to SB1017 SB1005.

House Bill 805/aHJC -- Page 4

OTHER SUBSTANTIVE ISSUES

Impact fees are payments required by local governments and paid by residential, commercial and

other developers to provide new or expanded public capital facilities required to serve that de-

velopment. The fees typically require cash payments in advance of the completion of develop-

ment, are based on a methodology and calculation derived from the cost of the facility and the

nature and size of the development, and are used to finance improvements offsite of, but to the

benefit of the development. In New Mexico statute (Section 5-8-2 NMSA 1978), impact fee is

defined as “

a charge or assessment imposed by a municipality or county on new development in

order to generate revenue for funding or recouping the costs of capital improvements or facility

expansions necessitated by and attributable to the new development.” The statute details appli-

cability of this definition.

The National Association of Industrial and Office Properties identifies the following advantages

and disadvantages of impact fees:

Potential Benefits of [impact fees] From General Public Point of View are:

•

It requires the persons who benefit from specific new developments to pay more—but not

necessarily all—of the full costs associated with those developments than if the required

infrastructure were separately financed.

•

From the viewpoint of persons who are opposed to growth, [use of impact fees] has the

advantage that it reduces the growth prospects of the localities that adopt it, as noted in

the next point.

•

From the viewpoint of owners of existing properties in a locality, [use of impact fees]has

the advantage that it raises the market prices of their properties by raising the costs of

creating new and competitive properties in the same locality. This creates a windfall gain

for those owners.

Potential Drawbacks of [impact fees] from General Public Point of View are:

•

It reduces the economic feasibility of all projects to which it is applied. It also increases

the costs of occupancy for tenants, thereby reducing the competitiveness of locations

within the communities that adopt this technique.

•

It makes it more difficult for marginal firms to occupy space, or low-and-moderate in-

come households to reside, in the communities that adopt it

•

It usually creates a regressive redistribution of wealth in the regions where it is adopted.

That is, it makes it harder for low- and moderate-income households in those regions to

enter the communities that adopt it, and raises the costs of living to renters within those

communities. At the same time, it increases the wealth of all property owners in those

communities. Since the first two groups are generally less well off economically than the

third group, this technique essentially redistributes resources from relatively less affluent

groups to a relatively more affluent one.

DH/lg:yr