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HomeMy WebLinkAboutCOM 0554.001 2006-2008 Page 1 of 2 Swallow, Linda From: Bob Hunter [robert.m.hunter@hawaiiantel.net] Sent: Monday, August 20, 2007 12:50 PM To: counciltestimony@co.hawaii.hi.us; Hoffmann, Pete Cc: Yagong, Dominic; Ikeda, Donald; Yoshimoto, J; Higa, Stacy; Naeole, Emily; Jacobson, Bob; Ford, Brenda; Pilago, K. Angel; cohmayor@co.hawaii.hi.us Subject: Hunter, 8/20/07 =Comment on Communication No. 554 Attachments: yuen_impact_fees_09_18_O6.pdf Councilmember K. Angel Pilago, Chair Hawaii County Council Planning Committee I appreciate being able to review the Fair Share Contributions Annual Report as of June 30, 2006. It was very interesting, but would be even more interesting if the actual amount collected was easier to determine. I warn the County Council not to count on collecting the full $87.6 million in fair share contribution assessments that have been assessed since 1970. The County's fair share system does not comply with State law or the U.S. Constitution. The problem with the County's fair share system is that it only applies to residential and hotel development. Other types of development, such as commercial development, are not required to pay their fair share. In the tactful words of Duncan Associates, the authors of the County's August 2006 Impact Fee Study (a copy of which is available on the County Planning Department web page at http_ //www.hawaii-count~.com/planning/ipfna.htm): "Based on the analysis conducted for Phase I, the County should consider replacing its fair share assessments with a true impact fee system that follows the requirements of the State impact fee enabling act. An impact fee collected from all new development would be more legally defensible, more equitable and generate significantly more revenue than the current "fau share" system. This additional revenue would translate into capital improvements that would benefit all fee payers." At any time, a court could require the County to refund the fair share assessments that have been collected to date. The County's fair share system has not been challenged in court simply because a true impact fee system would be more expensive to developers. As the Duncan Associates study pointed out (my emphasis): "If the fair shaze assessment amounts had been in the firm of impact fees collected at time of building permit, they would have generated $103 million in cash and credits since Januazy 2000, and if they had been assessed on nonresidential as well as residential development, they would have generated $170 million in less than six yeazs." As a result, because the County does not have an impact fee system in place, the development community is getting away without paying their fair share and the costs of accommodating new development is falling on the shoulders of County tax payers. cornmc S5 / Ref. Tdn~e~~ _ IoSL__ Ref. Dote 8/20/2007 Page 2 of 2 Duncan Associates drafted a Hawaii County impact fee ordinance imposing a charge on new development to pay for the construction or expansion of off-site capital improvements that are necessitated by and benefit the new development. Hawaii state law allows the counties to adopt impact fee ordinances and requires that impact fees must be spent in the benefit districts in which the new development is occurring and the impact fees are collected. In the absence of a Hawaii County impact fee ordinance: It costs Hawaii County taxpayers $21,000 to replace the capacity in our island's State and County major road system that is consumed by the traffic generated by each new single family dwelling. It costs us $4,800 for replacing capacity in only major County roads. It costs Hawaii County taxpayers $5,000,000 to replace the capacity in our island's State and County major road system that is consumed by the traffic generated by each new 140,000 square foot Wal-Mart or Costco. It costs us $1,100,000 for replacing capacity in only major County roads. You can learn more about the impact fee system Duncan Associates developed for Hawaii County by reading the attached letter I wrote to Chris Yuen last fall as a member of the Impact Fee Study Local Resource Team. When is the County going to adopt the impact fee ordinance Duncan Associates drafted? Thank you for this opportunity to testify. My name and address is: Robert M. (Bob) Hunter, Ph.D., P.E. 65-1116 Hokuula Rd. P.O. Box 2709 Kamuela, HI 96793 tel 808-885-4194 fax 808-885-4114 bob@webpatent.com www.webpatent.com 8/20/2007 ROBERT M. HUNTER 65-1116 HOKU'ULA ROAD. • P.O. Box 2709 • KAM[JELA, Hnwn~'i 96743 Pnor,E(sos)ass-a19a • PAxlsos)ass-alto E-MAiL: bob@webpatent.com September 18, 2006 Chris Yuen, Planning Director Hawaii County Planning Department 101 Pauahi Street, Suite 3 Hilo, HI 96720 Subject: Infrastructure and Public Facilities Needs Assessment: Impact Fee Study County of Hawai' i Impact Fee Ordinance Dear Chris, Thank you for this opportunity to comment on the Infrastructure and Public Facilities Needs Assessment (IPFNA): Impact Fee Study and proposed County of Hawaii Impact Fee Ordinance. I have enjoyed working with your staff, with the other members of the IPFNA Local Resource Team and with the County's consultants, Duncan Associates in association with Helber, Hastert & Fee, Planners, and Alice Moon. The County's consultants have done a wonderful job, as is their practice, in tailoring an impact fee system to the unique situation we face in Hawaii County. Under the proposed system, the County would charge impact fees to new development for the purpose of providing new or expanded public capital facilities required to serve that development. Specifically, Hawai' i County would charge developers a portion of the cost of increasing the capacity of (e.g., adding lanes to) major roads and building and equipping new fire stations, police stations, parks, residential solid waste facilities and wastewater systems to serve new development. As proposed, the system would have the following important features: • Impact fees would be progressive in that higher fees would be charged to developments that impose greater demands on County infrastructure systems. If the County desired, those who are building large houses could be charged more than those who are building smaller houses. • Qualifying first-time home buyers and owner-builders would not have to pay the impact fees until they sold their homes. This innovative feature of the proposed system addresses the local income disparities and lack of affordable housing in Hawaii County. • The consultant's impact fee study provides justification for the County's charging much higher impact fees than the proposed ordinance recommends, particularly for roads and parks. There is no question that the proposed impact fees levels meet all legal requirements. • Impact fees would fund some, but not all, of the costs of new development. The County will have to use all of the tools in its tool box to address the severe infrastructure deficit facing the County. Development of a comprehensive infrastructure financing plan that considers all potential sources of income should go hand in hand with implementation of an impact fee system. Chris Yuen, Planning Director September 18, 2006 Page two There is no denying that the calculations underlying any impact fee system are complicated. For this reason, myths and misunderstandings about the proposed Hawaii County impact fee system will have to be dispelled before such a rational and fair system of infrastructure funding can be implemented. A significant amount of public education will be needed to overcome misguided objections to impact fees, a tool that has been successfully used for decades by thousands of communities all across our Nation as one tool to address infrastmcture funding needs. Below are examples of the kinds of information that could be included in a public education program. The impact fee is a progressive technique for funding infrastructure, one that protects residents at the lower end of the income scale Under the terms of the proposed Hawaii County impact fee ordinance, the developer of a typical big box store, like a Wal-Mart or Costco, would be charged an impact fee of about $1,500,000 to pay for capacity it would consume in County public facilities. The developer of an unsewered subdivision of single family detached dwellings would be charged about $8,700 per dwelling. Qualifying first-time home buyers and owner-builders would be charged nothing. They would have to pay the fee only after the house is sold or no longer occupied as a principal residence. So, in effect, developers and speculators would pay impact fees and people who buy affordable homes to live in them would not. That is progressive, not regressive. The County could charge developers who are building large houses hi hg er impact fees than developers who are building_smallerhnuses While the current draft ordinance calls for single family dwellings to be charged a flat rate impact fee, under an alternative approach, the County could charge higher impact fees to the developers of larger houses than smaller houses. For example, an unsewered single family dwelling with 1,000 or less square feet of floor area could be charged about $8001ess than the flat rate, while an unsewered single family dwelling with 4,000 or over sq ft of floor area could be charged about $3,200 more than the flat rate. This approach is available if the impact fee is charged at the time of building permit, when the size of the dwelling is known. This would make the County impact fee system even more progressive. The developers of unsewered multi-family units would be charged about $3,300 per unit less than the single family dwelling flat rate under the proposed plan, another progressive aspect of the proposed system. Ordinary_peoule would qualify for the deferral of impact fees for affordable housing The proposed ordinance calls for the County to make an interest-free, no-time-limit loan of the impact fee amount to any first-time home buyer or owner builder who can qualify for the affordable housing deferral. The loan would have to be repaid only if the house is sold or no longer occupied as a principal residence. In order to qualify, the combined adjusted gross income of the purchasers of the home could not exceed 140 percent of median (middle) adjusted gross income for households in Hawaii County. In 2006, the cutoff would be a household income of $77,400. If two persons in the household were working, they could each make $19 per hour, working full time, 50 weeks per year, Chris Yuen, Planning Director September 18, 2006 Page three and still qualify. The other rule is that the purchase price (or estimated land value plus construction cost) cannot exceed 100 percent of the median home sales price in Hawaii County for the last 12 month period. In 2006, the cutoff would be a house price of about $440,000. Both of these thresholds can be set by the County Council. The results of the most recent census of Hawaii County by the U.S. Census Bureau revealed that about 80 percent of the households in the County eam less than 140 percent of the median household income. Using those numbers, about 80 percent of the households in the County should be able to qualify for deferral of impact fees. The proposed impact fee system could not be more progressive and even hope to achieve its goal of funding a significant portion of the cost of increasing infrastructure capacity to accommodate new development. Lack of funding is one important reason for the County's infrastructure shortfall While it is true that the State and County have not been able to build many new roads in Hawaii County lately, it is also true that more road capacity is needed than there is money available to build it. Take the State Waimea Bypass and the Kawaihae Rd Bypass, for example. The estimated cost of those two roads alone is $270 million, more than a quarter of a billion dollars. Construction of those two roads would consume all of the Federal and State highway grant money coming to the entire island for five years in a row. During that period, there would be no money for the Ane Keohokalole Hwy (Kona Mid-Level Rd), Queen Kaahumanu Hwy widening, Palani Bypass Hwy, Kealakehe Parkway Extension, Keanalelu (Waena Dr), Kealakaa St, University Dr, Hina Lani Dr Widening, Shore Dr, Kahului-Keauhou Parkway (Alii Hwy), Lako St Extension, Saddle Rd Replacement, Saddle Rd Extension, Paniolo Rd Extension, Puna Mid-Level Rd, Mamalahoa Hwy-Kawaihae Rd Connector Project, etc. The 1998 Hawaii Long Range Land Transportation Plan concluded that over $1.3 billion (in 1998 dollars) would have to be invested in County and State roads in the next 15 years. Nationally, highway and street construction is about 50 percent more expensive now and is increasing rapidly due to the rising price of oil. So, the price tag for the roads we need is at least $2 billion. At the current rate of Federal grant funding (80% of the average of $60 million expended per year under the State Transportation Improvement Program or STIP), it would take 33 years to construct the needed major roads. If half the STIP-funded projects are maintenance and safety project (as is the case now), it would take 66 years to build the roads we need. Are we "whistling past the graveyard" of our declining quality of life, or not? As you have stated many times, current funding sources (without impact fees) will support the construction of only three or four major road projects in Hawaii County during the next 15 years. The widening of Kuakini Hwy is one of those projects. Which other 2 or 3 major road projects does the public believe will be needed in the next 15 years? Chris Yuen, Planning Director September 18, 2006 Page four The Count has the money to Qay the impact fees for affordable housine With no effective impact fee system in place, every time the County permits a big box store to be built, it obligates the County taxpayers to construct $5,000,000 in new State and County road capacity that is being used up by traffic that is generated by the new store. That cost is over and above expected revenue from the gas tax and Federal and State grants. Where does that money come from? From County taxpayers, of course. Directly from property owners and indirectly from the rent that renters pay their landlords. If an impact fee system were in place and the current system of corporate welfare were stopped, there would be plenty of money for the County to pay impact fees for those who would qualify for the affordable housing deferral. The County cannot fund all our infrastructure needs simply by selling general obligation bonds Under State law, Hawai' i County has a debt limit of 15 percent of the assessed valuation of all of the real property in the county, or about $2.2 billion. The most recent annual report indicated that the County has an outstanding debt of about $0.2 billion. It currently expends about $19 million per year servicing that debt, which is about 7 percent of its total revenues of $265 million and about 15 percent of its real property tax revenues of $131 million. At the current repayment rate, debt service on another $2 billion in debt would cost another $190 million per year, which could be paid by increasing cun•ent real property tax rates by 145 percent (by 2.45 times). How much more debt service do we want to take on? How would the taxpayers like it if their real property tax bills doubled? How about tripled? Why not use impact fees for the costs they can legally cover? Impact fees can be used to pay for capital improvements outright and to pay debt service on general obligation bonds that fund increases in infrastructure capacity, thereby avoiding an increase (or allowing a reduction) in real property tax rates. At present, Hawaii County charge impact fees, but only for water The Hawaii County Water Department, asemi-autonomous agency of the County government, charges a "water facilities fee" of $1,190 for the first dwelling unit (or water demand equivalent) and $5,500 for each additional dwelling unit to be connected to the County water system. The water facilities fee is effectively an impact fee. It is charged to all new users of the County water system. Also, since the early 1900's, Hawaii County has imposed "fair share contributions" on applicants for new residential and hotel development. The charge is about $10,000 per single family dwelling unit, about $6,400 per multi-family unit and about $11,000 per hotel unit. The fees are imposed as a condition of zoning and are collected at the time of final subdivision or final plan approval (not also at the time a building permit is issued, which is the loophole in the system). Because most of the land subject to these contributions has not been subdivided, only about $19 million has been collected over the last ten years. Moreover, no fair share contributions are collected from the developers of retail/commercial developments, offices (the offices where lobbyists work and Chris Yuen, Planning Director September 18, 2006 Page five other offices), industrial developments, warehouse developments, etc. Not collecting contributions from the developers of these other types of development is unfair to the developers who do have to pay, rendering the constitutionality of this program questionable. Note that the "fair share contributions" are higher than the proposed impact fees. Developers pav impact fees, not home buvers Based on independent research in many communities the following is true: "In the short-term, impact fees may cause a slight increase in housing costs if the local real estate market allows the builder to shift the cost forward to the buyer. However, in the long-teen, it is more than likely that the cost will be shifted backwards to landowners in the form of lower prices that may be bid for undeveloped land." That makes sense when you consider that a developer is producing a product at as high a price as the market will bear. The developer cannot "tack on" an impact fee to the highest price his buyers will pay. Over time, impact fees are actually "paid" by land owners who accept a lower price for their land, because they cannot charge more than the market will bear for their "product" (raw land) either. The perfect time to implement an impact fee system is when house prices are softening. The perfect time is now! In a recent situation in another state in which some impact fees had to be refunded (due to the lack of clear authority in State law allowing counties to enact impact fee ordinances), the court had to decide who should get the refund checks. Here is what Wendell Bullard, Head, Durham Citizens for Responsible Government said: "Everyone had to contribute to that $2,000 in some shape, form or fashion. I would agree that the [home] buyer would have some entitlement to at least part of that impact fee." Here is what Hank Fordham, attorney for the developerlbuilders said: "Not so. Builders who would tack an extra $2,000 onto the price of their homes would put themselves at a competitive disadvantage. The idea that they can pass through the costs is false. It defies the fundamental laws of economics." Raleigh News & Observer, 14 July 2006. When short-sighted opponents of impact fees are attempting to prevent an impact fee ordinance from being adopted, they argue that the homebuyer pays the fee. When they are arguing about who should receive a refund, they argue that the developers paid the fee. A similar situation occuned recently in another community (again, in the absence of State enabling legislation) and the same arguments were made by the developers when a partial refund was ordered. Hawaii State law allows impact fees, so such cases will not occur here, but they do make it clear who really pays impact fees. Impact fees will not solve all our infrastructure shortfall problems An impact fee program cannot produce enough income to solve all our infrastructure problems. Under the law, impact fees cannot be used to improve the County-wide level of service of our public facilities systems. New development cannot be required to support a higher average level of service Chris Yuen, Planning Director September 17, 2006 Page six than existing taxpayers are enjoying. Nor can impact fees be used for maintenance of public facilities. The proposed impact fee system could potentially produce about $46 million annually, which is not a lot of money in an expensive place to build infrastructure, like Hawaii. For example, at proposed impact fee levels, on average, each yeaz, road impact fees could fund construction of about two miles of two-lane road (or 10 miles if the fees were used as the local match for a Federa180 percent highway grant); park impact fees could fund about five boat ramps, or two 25 acre regional pazks with two baseball fields, a pavilion and a testroom; fire/emergency medical service impact fees could fund about one fire station with two fire engines and one tanker; and police impact fees could fund about one police substation. Solid waste impact fees could fund about one transfer station every two yeazs; and wastewater impact fees could about fund one wastewater treatment plant every three yeazs to replace lazge cesspools. The pronosed impact fees are ri¢orously support by the consultant's findines Cazeful review by independent, outside, knowledgeable, local people has revealed that the proposed impact fees meet the two criteria for legality: (1) there is a rational relationship between the fees and the impacts of development and (2) the amount of the fees in roughly proportional to the cost of providing infrastructure to accommodate the new development. In fact, the fees are "conservative" in that their levels aze not anywhere neaz as high as they could be, particularly for roads and pazks. For example, the proposed road impact fees do not call for new development to pay for the local cost of the capacity that development will consume in the State major road system. Thus, while it costs Hawaii County taxpayers over $21,000 to replace the capacity in our island's State and County major road system that is consumed by the traffic generated by each new single family dwelling, the proposed impact fee amount will recover only about $4,800, an amount that would pay for replacing capacity in only major County roads. Similarly, it costs Hawaii County taxpayers about $5,000,000 to replace the capacity in our island's State and County major road system that is consumed by the traffic generated by each new 140,000 square foot Wal-Mart or Costco. Under the proposed system, only about $1,100,000 would be chazged to a Wal-Mart or Costco for replacing capacity in just major County roads. By not chazging for capacity consumed in State major roads, both types of development are given a proportionally equal reduction in impact fees. If we give ordinary housing developers a break, Wal-Mart and Costco shazeholders get a break, too. Thanks again for this opportunity to comment. If I can help in any way in implementation of an impact fee system for the County of Hawaii, please let me know. Yours very tarty, Robert M. (Bob) Hunter, Ph.D. Licensed Professional Engineer