Where Do Your Impact Fees Really Go?

Filed in Land Development, Legal by on November 1, 2016 1 Comment

gavelmoneyhouseJust because impact fees have been around since the 1970s doesn’t mean they should be any municipality’s go-to solution for financing public projects.

This is especially true in the growing number of places where impact fees are being miscalculated and misused.

A prime example involves an ongoing dispute between the city of Bozeman, Mont., and the Southwest Montana Building Industry Association (SWMBIA), which brought to light—for the second time within the last 15 years—significant misappropriation of funds from impact fees.

“We started noticing that among the city’s projects using impact fee revenues, several were projects involving preexisting deficiencies in infrastructure, not new infrastructure. To us, that just didn’t make sense,” said Eugen Graf, an active SWMBIA member and owner of E.G Construction.

Frustration grew among Graf and his fellow members of the SWMBIA, to the point that this past January they decided to commission an audit of the city. The Development Planning and Financing Group, Inc. (DPFG Inc.) conducted the audit to closely examine the previous five-year span and determine where exactly the impact fee money was going, and if it was being used appropriately.

The recently completed audit discovered an estimated misappropriation of $7.2 million. The largest components of the total amount include:

  • $4.1 million to fund a water treatment plant instead of the construction of a water distribution system
  • $2.2 million to fund a water reclamation facility instead of the construction of sewer collection lines
  • $935,000 to fund the construction of a fire station in an effort to correct an existing deficiency

City officials have reportedly denied any wrongdoing, though their correspondence with the SWMBIA to this point has been slow. A meeting between the two groups to discuss next steps is expected to take place sometime soon.

“This will surely be a long, drawn-out process, but we feel good knowing that we did our due diligence,” Graf said. “We want the citizens—the rate payers of the city—to be charged only what’s appropriate. Taking a closer look at these impact fees is yet another step builders and HBAs can take to help address the broader issue of housing affordability.”

Despite the rapid growth in the Bozeman market, affordability remains a key issue for many builders and area residents. Current city impact fees for a 2,400-square-foot home on a quarter-acre lot tack on an extra $10,000.

In response to similar concerns across the industry regarding the accuracy, efficiency and use of impact fees, NAHB recently worked with DPFG Inc. to prepare a comprehensive update to the Impact Fee Handbook. This free resource guide includes new examples of common mistakes municipalities frequently make while calculating and imposing impact fees.

Other notable additions include:

  • NAHB’s most recent economic benefits model for estimating the financial impacts of construction and showing whether impact fees are even merited
  • Updated state statutes from Arizona, Montana and Texas highlighting how municipalities can be held more accountable for how they use impact fees
  • References to NAHB’s extensive resources members can use to educate local officials about alternatives that are more efficient and equitable funding strategies than impact fees
  • Recent case studies detailing other instances of misused impact fees and how local associations effectively found solutions

The updated Impact Fee Handbook is available in the “Infrastructure Finance and Development Fees” section of NAHB’s Land Use 101 resource library.

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