HomeMy WebLinkAboutBill 324 Impact Fees Letter from Planning DirectorHarry K
Mayor
Tourtfij -of A
PLANNING DEPARTMENT
TMENT
101 Pauahj Stmet, Suite 3 & Hilo, Hawaii 9+6720 -4224
(808) 961 -8288 o FAX (808) 961 -8742
September 9, 2008
Honorable Pete Hoffmann
Chair and Presiding officer
and Members of the County Council
COUNTY COUNCIL
333 Kilauea Avenue, Second Floor
Hilo,, HI 96720
Dear Chair Hoffmann and Members of the County Council:
SUBJECT:, BILL 324 — IMPACT FEES
Christopher J. Yuen
Director
Brad Kurokaw , A LA
LD A
Deputy Director
Bill 324, to create a new Chap. 36, establishing impact fees in Havai'i County, is
currently pending before the Council. This is one of the most important legislative
decisions the County has considered in recent years. This memo tries to summarize the
pros and cons of adopting impact fees.
Basic Principles
An impact fee is a fee charged on new development to fund infrastructure and public
facility dem'ands that will be generated by that development. People moving into new
homes will use public parrs, highways, fire stations, and other facilities. Impact fees are
a one -time charge to create a fund to build new facilities to meet that demand. They are
generally imposed when a building permit is issued, although the draft bill allows them to
be unposed at final subdivision approval for residential subdivisions.
Impact fees must be assessed an d administered according to a state lave, H.R.S. sec. 46-
1 1 to 148. The law requires a needs assessment stud} that identifies the kinds of
facilities that the fee would pay for. The study also determines the maximum amount of
impact fee that can be charged for these facilities. It is based on the cost to duplicate the
current facilities that the county has, to accommodate the new development.
Haw i'i County Ls an Equal Opportunity Provider and employer.
Comm. No, q.
Ref. To:
Ref. Date $EP 10 Z4 08 Nompok
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Bill 324, to create a new Chap. 36, establishing impact fees in Havai'i County, is
currently pending before the Council. This is one of the most important legislative
decisions the County has considered in recent years. This memo tries to summarize the
pros and cons of adopting impact fees.
Basic Principles
An impact fee is a fee charged on new development to fund infrastructure and public
facility dem'ands that will be generated by that development. People moving into new
homes will use public parrs, highways, fire stations, and other facilities. Impact fees are
a one -time charge to create a fund to build new facilities to meet that demand. They are
generally imposed when a building permit is issued, although the draft bill allows them to
be unposed at final subdivision approval for residential subdivisions.
Impact fees must be assessed an d administered according to a state lave, H.R.S. sec. 46-
1 1 to 148. The law requires a needs assessment stud} that identifies the kinds of
facilities that the fee would pay for. The study also determines the maximum amount of
impact fee that can be charged for these facilities. It is based on the cost to duplicate the
current facilities that the county has, to accommodate the new development.
Haw i'i County Ls an Equal Opportunity Provider and employer.
Comm. No, q.
Ref. To:
Ref. Date $EP 10 Z4 08 Nompok
Honorable Pete Hoffnnnn
Chair and Presiding Officer
and Members of the County Council
COUNTY COUNCIL
Page 2
September 9, 2
Ha vai'i County has completed the necessary study, the "Infrastructure and Public
Facilities Needs Assessment: Impact Fee Study" September 2006, prepared for the
Planning department by Duncan Associates with Hell ert Hastert & Fee. This establishes
maximum fee levels for roads, parks, fir MS, police, solid waste and wastewater
(sever.) water was not included because the Department of Water Supply, whicb is the
only body authorized to impose impact fees for water, has a fee schedule for water
commitments.
In the draft bill, the impact fee is proposed to he % of the maximum amount
established in the study. The county could impose any percentage up to the maximum.
Sec. -12 of Bill 324 includes a table shoving these proposed fees. For example, the
fee for a single - family home would be $6,387.00 (not counting any sewer fee), and $4.97
per square foot for a retail commercial project. The fees are broken down into different
categories of public facilities. Roads and parks make up about 90% of the total impact fee
for houses. The fees for police, fire, and solid waste facilities are relatively small.
Impact fees can be used only for facilities that are needed to accommodate new
development—that is, they need to be capacity-enhancing projects. For example, the
county can build a new gym with impact fees, but it cannot repair the roof on an old gym.
It can add lames to an existing road with impact fees, but cannot use them to resurface an
existing road. Projects funded with the fees must also he spent in the area that generated
the impact fees, which are called "benefit districts," but the County bays some flexibility
in defining the benefit districts.
New development that is relined by its rezoning ordinance or other land use approval to
build infrastructure that meets regional needs —such as a major road or park—will he
entitled to offset the value of such improvements against the impact fee for that category.
For example, Parker Punch would offset the value of the connector road and its park land
dedications required in its rezoning ordinance, and Holuli'a would offset the value of the
Mamalahoa Bypass and some park contributions.
The impact fee would replace the `fair share" condition that has been placed on most
residential and resort rezoning in Ha vai'i County since the early 1990's. The impact fee
is much broader than fair share because it would apply to all new development, not just
projects that were rezoned. So, for example, it would apply to new bowies built on lots in
Honorable Pete Hoffmann
Chair and Presiding Officer
and Members of the County Council
COUNTY COUNCIL
Page 3
September 9, 2005
subdivisions created in the 19's and 190's. It also applies to broader range of
development than fair share, such as retail and industrial buildings, churches, and private
schools.
Impact fees are a revenue- gencrating tool. As such, they must be evaluated against other
options, such as property taxes, the fuel tax, and funding mechanisms that are specific to
a development project, like community facilities districts.
Pros
1. Impact fees will generate substantial revenues.
The amount of revenue depends upon the amount of development. Horne construction on
the island varies greatly, in cycles usually following nationwide economic trends. In
20051 the high point of the current cycle, we had building permits issued for 3,501 new
single -and multi-family units. In 2007, there were 2,168 units, and, if the pace for the first
seven months of 2008 continues, we will have only about 1,200 building permits for new
dwelling units issued this year. The long -term average for the 1980 -2007 period is about
1800/yr. roar this figure, we must deduct the homes in projects that will have offsets
due to zoning requirements, and the affordable housing grants discussed belo w. If we
assume that impact fees will be paid on 1,500 residential units per year, and that % are
single - family, at $6,387 /unit, and 20% are multi - family (this is close to the historical
average), at , unit, impact fees on new residential construction would generate
about 9 million/yr.
The amount from nonresidential development is very hard to estimate because we would
have to do an analysis of the annual square footage of different types of buildings, but it
is certainly much less than the residential. $2 million r. is a reasonable estimate, based
on building permits taken out in recent years.
f this estimate of about $11 rn 1111on yr., about 4 0 % would go to roads, about 5 % to
parrs, and police, fire, and solid waste would cumulatively be about 10%. These
percentages are approximate because of offsets and the fact that there are different fee
levels for different types of development.
Revenues s of 11 million/yr. would cover the annual interest and principal payments on a
$133 million bond at % interest and a 20 year tern. In practice, because annual impact
Honorable Pete Hoffmann
Chair and Presiding Officer
and Members of the County Council
COUNTY T Y COUNCIL
Page
September 9, 2008
fee revenues will vary greatly, we could not count on impact fees being the sole source of
funding for a bond of this magnitude, but this gives an example of the ftmding potential.
In compal *son, annual real property tax revenues for the 2008 -2009 fiscal year are
projected at $232 million. If impact fees were 11 million/yr., they would equal about
5% of real property tax revenues. Or, to put it another way, it would take a % across -
the -board increase in real property tax rates to yield this level of impact fee revenues.
This analysis assures that impact fees do not significantly reduce the level of
development. At the fee lever proposed in Bill 324, this seems a reasonable assumption.
2. Impact fees have a sound legal basis.
Questions have been raised about the legality of the "fair share" assessment system.
Although there was a study to establish the level of assessments in the early 1990'x, the
system was never enacted by a comprehensive ordinance. Although there are legal
defenses of this practice, and it bas never been directly challenged by someone liable for
fair share payments, the impact fee has a more solid legal basis.
It should be noted that even if the courts ultimately invalidated "fair share" assessments,
the specific improvements required by many of the rezoning ordinances, such as road
construction or the dedication of land for pans, would still be valid because they are
rationally related to the impact of those projects. In practice, rimy projects, especially
the larger ones, have not paid lair share for reads or parks because they are building roads
or dedicating parrs which qualify for an offset.
3. Impact fees provide funds for new infrastructure in areas experiencing rapid
growth.
The development of new county facilities has not matched the trends in population
growth. Since 1970, most population growth In the island has occurred In Puna (about
35% of the island's population growth), forth Kona (about % of the island's
population growth), and South Kohala (about 14% of the growth). At the same time, the
proportion of the island's population living in the South Hilo district has dropped from
3% to less than %. The overall population of the Big Island has almost tripled since
1970.
Honorable Pete Hoffmann
Chair and Presiding officer
and Members of the County Council
COUNTY COUNCIL
Page
September 9, 2
Development of county facilities has not kept up to serve the fast - growing areas of the
island. There are many reasons. For example, if the roof of an old gym leaks, and is
going to rot the floor, fixing the roof is going to be a budget priority, But a series of
decisions like this tends to reinforce investment in existing facilities that serve the older
population pattern, rather than spending money where the population has moved. Impact
fees must be spent on facilities that increase capacity, such as new parks or new roads,
and must be spent, at least generally, to benefit the regions where the fees are collected,
so this will tend to follow the growth in population.
4. Impact fees tend to make new developments pay for the new infrastructure.
Impact fees are charged to new development, which is creating the need for new parks,
roads, and other county facilities. In that respect, it may seem fairer to charge those
buying into those developments for ne w f acilities.
5. Impact fees will generate substantial funds from areas where zoning conditions
don't require developers to provide improvements.
At least 0% the new homes In the island are being built In the subdivisions created from
the 1950's to 1970's like Hawaiian paradise Park and Hawaiian Ocean View Estates. In
some years, 60-70% of nevi homes may be built on lots subdivided before 1980. In these
areas no zoning conditions require developers to provide parrs or other improvements.
Impact fees will generate major revenues which can be used to build facilities for these
areas, especially parrs. (This is the flip side of one of the "Cons" discussed below—that
individual lot owners will have to pay impact fees.)
Cons
I. Impact fees may increase costs to home buyers.
Obviously, someone pays the impact fee. It is not so obvious who ultimately bears the
cost, when a developer builds hornes, even though the developer actually pays the fees
when getting the building permits, it is not clear whether the developer bears the cost in
the end, accepting a lower profit. It is possible that the developer passes the cost on to
the home buyer, or that the developer will offer less when buying land on which to build
project. If you think of the homebuilding process as involving three main players: l
Honorable Pete Hoffmann
Chair and Presiding Officer
and Members of the County Council
COUNTY COUNCIL
Page 6
September 9, 2005
the owner of the raw land, who sells it to 2 the developer, who builds the homes, and
sells therm to 3 the home purchaser, the impact fee can conceivably be absorbed by any
of these three, or by a combination of all three.
This issue has been studied extensively on the Mainland, without a firm conclusion, and
perhaps the fairest thing that can be said is that it may depend upon market conditions.
Given the affordable housing problem on the island,, we do not want to push the cost of
housing higher, and given the scarcity of developers doing affordable housing, we would
also not want to discourage them by decreasing their profit potential.
Bill 324 contains a number of provisions designed to lessen the effect ct ors affordable
housing, in sec. 36 -10. In summary, the County would pay the impact fee for designated
affordable housing or offer loans to cover the impact fee. For legal reasons, the County
should not just "waive" the impact fee. The affordable dousing grants and loans will
require considerable administration and reordleping.
If the impact fee is ultimately passed on to the home buyer-, it then becomes part of the
purchase lance and typically is financed within the mortgage. At a 6.25% mortgage, over
30 years, a $6,387 impact fee would cost the buyer about $38/mo.
2. Individual owners of lots would have to pay impact fees.
Individuals who currently own lots and want to build hones on therm obviously will bear
the impact fee themselves. They cannot pass it on to someone else. This is clearly a large
group of local residents, even though an analysis clone with the impact fee study shoves
that only about 30% of vacant lots are entirely or partially owned by a Big Island
resident. Some lot owners may get relief from the affordable housing provisions of Bill
324, but ma y will not. Again., although the one -time charge is high, if the owner is
financing the home, the monthly amount, rolled into a mortgage, is modest.
3. Impact fees may have a bigger negative effect on lower cost lousing than raising
similar amount from property taxes.
Assuming that impact fees are ultimately carried by the home purchaser (see the
discussion above), they have a bigger effect, proportionally, on lower priced housing
because they are flat fees. Legally, the impact fee can be varied slightly based on the size
Honorable Fete Hoffmann
Chair and Presiding Officer
and Members of the County Council
COUNTY COUNCIL
Page
September 9, 2008
of the house, but the difference is small: only about % more for a 4,000 square foot
house vs. a 1,000 square foot house. For simplicity's sake, Bill 324 did not vary the fees
by house size.
In contrast, property taxes are proportionate to value. For example, the property tax bill
for a home with a taxable value of $100,000, after applying all exemptions, in the
homeowners' class, is $555/yr., whereas for a borne with a taxable value of $1,000,000,
after exemptions, the property tax bill is $5,550/yr. A 5% across -the -board increase in
property tax rates to generate the equivalent of an impact fee) would cost the owner of
the S 100,000 ,00 home 2 7.' yr., while the owner o f the 1, 000, 000 borne would pair an
additional 27.yr.
In this sense, impact fees can be considered regressive compared to property taxes, again,
if the hnnebuyer bears the cost of the impact fee.
4. The County will have to budget operating funds for the new facilities, especially
parks.
If the Count} builds new parks with impact fees, it also has to budget funds to operate the
parks from other revenue sources. By law, impact fees cannot be used for operating
expenses or salaries. The operating and maintenance costs for roads are relatively to
compared to the capital costs, and the impact fee will not generate enough funds to
greatly increase county investment in police, fire, or solid waste facilities.
5. Impact fees involve considerable administrative costs.
Naturally, these fees have to be collected and put in the proper accounts. The interface
with the fair share system creates some administrative issues (the prior fair share payment
has to be offset against any impact fee.) The affordable housing grants and loans will
also require much record - keeping and administration to determine eligibility. The impact
fee program will need additional staff in Planning, Finance, DPW-Building Division, and
the f f ice of Housing and Community Development.
6. The proposed impact fees are less than the "fair hare" assessments.
The current "fair share'' assessment is about $11,500 for a single - family dwelling.
Honorable Pete Hoffmann
Chair and Presiding Officer
and Members of the County Council
COUNTY COUNCIL
Page 8
September 9, 2008
Because Bill 324 sets the impact fee at 0% of the maximum, it is only $6,387, so some
developments which have "fair share" conditions will pay less if Bill 324 is adopted than
under their current requirements. This is not the case, however, for those developments
that are building roads and dedicating park land in excess of the "fair share ", because
they would offset the fair share in any case.
7. The County may not have road projects planned to benefit some areas.
Impact fees for roads should be spent on major collector or arterial roads that are used by
a lame number of people, not on roads with a strictly local function. In Puna and Ka'u,
the major roads used by most residents are state highways. The impact fee law allows the
counties to give their impact fees to the state for highway projects, but we have little
control over the timing and implementation of state projects. In Puna, the county is
considering a Puna Makai Alternate Route "PMA " as a county project, but this is in
the planning stages. In Ka'u, about % of the new homes have been built in the
Hawaiian Ocean View Estates area, and there are no County road projects planned in
Ka'u which really serve HOVE.
More Information
More relevant information is contained in "Infrastructure and Public Facilities Needs
Assessment: Impact Pee Study" September 2006, prepared for the Planning Department
by Duncan Associates in association with Helbert Hastert & Fee. This study and other
related information on impact fees are posted on the Planning Department website-
www.co.hawaii.hi.us/planning/lpfna. Also, the Duncan Associates website,
f mpactF es.corn, is a great source of information about impact fees.
Sincer ,
CHRISTOPHER . YUEN
Planning Director
CJY:pa
Wpwin60/Chris 0 — Hoffmann —Bill 324 - Impact Fee Summary