A Look at Impact Fees

As I was standing in the shower this morning (March 7), and I'm thinking through an Open Space Ordinance for the city. As I get finished, it hits me that a comprehensive OSD should encompass three things: (1) Preserving sensitive areas from future growth, (2) reclaiming sensitive areas that have already been developed and (3) providing linkages between already existing OS areas (these linkages could be built or environmental in nature).

In a public setting, it's very difficult to pass comprehensive, bottom-up legislation, the foremost reason being because it's difficult to handle extreme change. The City could pass legislation tomorrow that makes all city services private affairs (meaning each citizen would need to pay for police services on their own), but they won't because that is such a marked difference from practice. It's possible to gradually phase out city services in favor of the private sector (trash collection is a good example), but again time is a factor.

For this reason, it is unlikely that all three aspects of an Open Space Ordinance could be passed simultaneously. It would be much more politically prudent to attempt to pass all three at separate times. Since development is occurring at such a rapid pace, the second option is somewhat limited in scope. If we pass an ordinance to reclaim areas that have already been built upon (such as a stream and riparian area), it's possible that in twenty years, Little Rock might have reclaimed all the environmentally sensitive areas. At that point it would turn outwards and see how development has still occurred in the last twenty years claiming environmentally sensitive areas. Little Rock must then turn around and fund the acquisition of those lands. Until the fundamental problem of encouraging responsible development occurs, the city will not make significant headway into the preservation of city-wide open spaces.

If this logic holds true, then the natural course of action is to address future growth first. Once future development has been instilled with the virtue of conservation, then the city can work to reclaim environmentally sensitive areas. At the culmination of that time period, not only will lands within the city have been addressed, but also the future growth. At that point, the city can stop funding acquisition of new lands. It's an economic decision of process.

How can the city address new developments in the city by encouraging the conservation ethic? One method is by passing ordinances that forbid building on certain types of land (steep slopes, waterways, etc.). These types of ordinances are very restrictive, however, because they eliminate the function of land. Eliminating functionality can affect property values, which makes these types of ordinances (however positive in attributes) not well received by developers and the general public.

Another method of addressing the conservation ethic is to make it economically beneficial to do so (to take a page from my pet training hand-book: "Positive Reinforcement"). A more politically expedient method of doing so is for the City Council to implement Impact Fees. Impact Fees are one-time fees assessed to new developments to pay for infrastructure improvements off-site that can benefit those in the new development as well as others. These fees must go into an account to pay for specific functions.

So, let's follow a hypothetical developer wanting to build a typical subdivision. And just to simplify things, let's assume that the land is already zoned appropriately (so that we don't have to deal with messy re-zoning requests). Normally what happens is that a developer has the land mapped out for maximum occupancy. So on twenty acres, he might build 20-25 homes. He then divides the land into 20-25 roughly equal sections. He then draws in the roads and utility lines that will serve the subdivision, and then re-adjust based upon rationality. He then submits this design to the local planning department that reviews it against the Zoning Map and Text, calculates its impact on the roads, and then approves the permit or sends it to the Planning Board for review (this doesn't normally happen; if it's a sound design and the land is zoned as such, it normally passes permitting).

At this point, depening on the place, the city or the developer pays to put in the infrastructure requirements, and then the city will pay for the maintenance of said utilities (I'm including roads as a utility in this. Sewage and water lines would be the other ones). Now, these 25 new homes are going to use their new roads, water lines, etc. but they will also be using already existing roads and water lines. Moreover, since water comes from a central location(s) they will be using up the water plant's capacity. Eventually (after enough new developments), the city will be at capacity for providing water, so the city must build a new water pumping station (or treatment plant, etc.) to provide more water for further growth.

With impact fees, a city can assess a new development a cost that the new development is imposing on the city. If a new development results in a consumption of enough water to warrant building a new water plant, then a percentage of that total cost should be assessed to the new developments.

So, over the course of ten years, let's anticipate that five new subdivisions like the one mentioned above, will be built. When all developments are fully built and house people, they will place a cumulative effect of a million gallons of water on the city (all these numbers are fictitious). Since the city is at capacity already, we can anticipate that adding a million gallons of water capacity will cost the city $100,000. To assess an appropriate cost, we could divide $100,000 by five to yield a cost of $20,000 per development. The city would then impose an Impact Fee of $20,000 per development to provide for the additional capacity that must be built.

In reality, the somewhat arbitrary numbers I threw around earlier would not be used. A study would be made of types of houses, the density of land, placement of the development, etc. While I think that Impact Fees should be imposed on all developments for all new services, as it pertains to the conservation ethic, only a Park/OS Impact Fee will be addressed here.

Since in our above scenario our developer did not take into account the contours of the land, he most likely had 25 parcels of property with various states of usefulness. Ten properties may have a creek running through their backyard. Another two may have a boggy area. Five of them may have a steep slope that prevents any useful activity. In an ideal world, those sensitive areas would be classified as Open Space and would be preserved from development. Since most developers will not, however, then the city will have to provide a park or open space area at another location. This will impose a cost upon the city, which would normally be shared by the rest of the city's population (a population that has already paid for their park services and aren't creating new demand; they are maintaining old demand). The city should turn around and impose a cost (an Impact Fee) on the development for having to provide new Park/OS services.

This method does allow a city to provide new parkland in growing sections of the city; however, it doesn't automatically protect the most sensitive of environmental areas (in my head, I automatically think of water). Furthermore, these funds are almost always demanded in the form of Active-Recreation, such as a baseball field, over flat, open parkland. There's no guarantee that these funds will be used for OS.

A city could, however, make a further provision in the Impact Fee Ordinance that developers who provide a certain percentage of land in their development as communal OS will be exempt from the Impact Fee. The developer can establish an easement with the city, where the city retains the right and the cost to preserve/maintain the land, or the developer can leave it under the control of the neighborhood property owners. Since additional costs could theoretically be assigned to different types of developable terrain, this means that additional deferral of costs could be implemented for those developers that make an effort to design the subdivisions around the natural features of the land. These Conservation Subdivisions usually have smaller lots, but the nature of the subdivision doesn't affect home size. Essentially, the property owners own smaller acreage next to a park, but don't have to pay for the park or take care of it themselves.

There are definite pros and cons to Impact Fees, but for the purposes of conservation in future subdivisions, they definitely warrant a further look (maybe next time!).