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Aug 25, 2017

Albuquerque Development Impact Fees May Be National Standard

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ALBUQUERQUE DEVELOPMENT IMPACT FEES MAY BE NATIONAL STANDARD

This summer the Newark City Council in New Jersey voted unanimously in favor of raising already in-place impact development fees for home, office, and commercial construction.

Across the continent, in Chico, California, members of that city’s council decided for the first time in a decade to implement the same kind of fees, with one city official saying it was all a matter of fairness: if a new subdivision needs streets, sidewalks, and sewer systems, the cost should be not borne by the city alone.

How and when development impact fees can be used for needed infrastructure projects is a question that has long challenged public policy analysts and city officials.

But some scholars think Albuquerque, beginning in 2005, may have found a roadmap for other cities to follow.

“Having developers putting money into one kitty makes a lot of sense,” says Arthur Nelson, a professor of real estate at the University of Arizona and one of the analysts who has studied the Albuquerque program.

The fund, says Nelson, has helped to pay for ever-increasing infrastructure needs associated with new development citywide, while promoting investment in urban core.

“I did not know this 12 or 14 years ago when I started to work on the issue of impact fees,” says George Burge, “but many developers actually prefer systems where the development impact fees are in place.”

The reason, explains Burge, a professor of economics at the University of Oklahoma, and also one of the co-authors of the Albuquerque study, is the certainty.

“Developers prefer that to uncertainty,” says Burge. “They like knowing the rules of the game and understanding early on what will be required of them.”

The Albuquerque approach was originally structured so as to charge little or no impact fees in the central part of the city where public infrastructure was already in place.

But it gave the city the freedom to impose higher impact fees in parts of the city requiring new infrastructure.

The idea, says Nelson, was to reduce urban sprawl.

“And from what we’ve seen, the Albuquerque approach has worked,” says Nelson, adding that “more new development increased in the central areas than would have happened otherwise, and that’s because the costs were lower due to the infrastructure already existing there.”

But this does not mean that the system has not been without critics.

Detractors have called Albuquerque’s development fees everything from an example of overly-intrusive government meddling in the private market to an impediment to growth.

“I don’t think it was all roses,” remarks John Garcia, the executive vice-president of the Home Builders Association of Central New Mexico.

“There is always a danger with things like this of pricing out the market,” he says. “And you combine that with the recession and it meant that not much of anything was getting built.”

Lynne Anderson agrees: “What happened initially was that because the fees were so outrageous, you didn’t get hardly any development. In one part of town, a fast food project would be paying $500 to build, while in another part of town it would be paying $3,000.”

“Well,” continues Anderson, the president of the Commercial Real Estate Development Association of New Mexico, “guess who didn’t get the fast food?”

The history of the city’s development impact fee program showed an upward sliding fee schedule for the first three years, then an imposed moratorium during the depth of the recession in 2009.

A revised impact fee ordinance with refunds and credits and fees ranging from hundreds of dollars to thousands of dollars, depending up on the structure being built and its location, was enacted in 2012.

“The second time around, the city and industry had learned a little bit more about how to look at this kind of thing rationally and take into account what the benefits of growth were, as well as the cost of growth,” says Anderson.

“There is no doubt that the city needs to build that infrastructure,” says Garcia. “And there is no doubt that the industry supports some kind of a plan for building that infrastructure.”

“But at the end of the day, the whole thing really works best if there is a steady market,” he adds. “If you don’t have that, nothing is going to happen.”

Even though an increasing number of cities across the country are contemplating Albuquerque-like fee structures, Burge thinks caution should be a byword.

“I would not recommend any community taking any formal steps unless they have done all the due diligence needed,” he says.

“Cities need to share the information they have with their communities about the costs of the infrastructure burden.”

But because any development impact fee, adds Burge, could end up being challenged in court, “any city that doesn’t do its due diligence and doesn’t explain carefully the reasons why such fees are needed could quickly find themselves on shaky ground.”

 

By Garry Boulard

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