Regulatory
Impact: Quality of Life versus Economic Development, Developers and
Employers:
“Do Your Impact Fee Homework!”
By Bruce
Beal, Esq.
We have commonly assumed that regulation of development results in
increasing the quality of life. The
facts begin to contradict this where regulation becomes extreme.
The Counties of Los Angeles, Orange and San Diego bear perhaps
the largest incremental regulatory burden upon development imposed by
various federal, state, and local regulations. Example in point: Santa
Monica will require treatment of storm water runoff from every parcel.
This tri-county area also comprises three of the four most
expensive housing counties in the nation.
Before you complain that expensive homes are merely the result of
everyone wanting to live in this beautiful climate, the increasing
political costs of development in this region are a major driving force
in expensive housing. Increasing
California and local regulation have pushed the development fees past
$100,000 per dwelling in one part of Orange County.
These costs are passed along to the purchasers of such
residences.
Impact fees also have other pernicious and costly effects.
They are not just taxes on new residents, but also impact current
residents who are buying a new home, renters trying to buy their first
new home, young families moving up to larger new homes, and seniors
looking to purchase smaller new homes. The increased purchase price of a
new home down the street from you will raise the appraised value of your
home and raise property taxes for your now fewer future purchasers.
The impact on employers is also significant. As housing costs rise, they directly reduce the availability
of affordable housing for employees, especially in the lower income
ranges, as the development fees are usually assessed per residential
unit. For example a $50,000
development fee might not be a significant percentage (1%) for a
$5,000,000 home, but it would be huge percentage (10%) of the value of a
$500,000 home. High development fees drive away affordable housing, which
drives away potential employees, which drives away employers, which in
turn reduces economic growth in the region.
Fluor Corporation’s recent decision to move its world corporate
headquarters from Orange County, California to Texas should be a wake up
call for California, particularly Southern California.
Fluor Corporation is one of the world's largest publicly owned
engineering and construction services organizations. Fluor is a $10 billion, Fortune 500 company, has 30,000
employees worldwide, and is the only U.S.-based company to be ranked on
Fortune magazine's “World's Most Admired Companies” list in the
“Engineering, Construction” category.
Although Fluor has been careful to put a positive business spin on its
relocation (as it still will have a presence in Southern California)
increasing state and local regulatory burdens, including the impact upon
the housing costs of its executives, managers and staff, most likely
weighed heavily in Fluor’s decision to relocate.
Regulatory impacts of planning on local economies are increasingly
recognized by academics and planning professionals. While more planning potentially improves the
quality of development, the reality is that it drives up costs, slows
down investment, and inhibits the natural evolution and development of
land, according to Dr. Samuel
R. Staley of the Reason Public Policy Institute.
Drawing upon these factors, sophisticated developers and employers
should research regulatory impact fees as a major factor in siting their
future developments and employment facilities.
They should determine and avoid localities that use impact
fees either as a method of growth control or to finance unrelated
operations or current deficiencies.
Infrastructure, such as roads and fire
facilities, benefits the community as a whole.
These should be paid for by the community, not by a very small
and new portion of the community.
Some developers and employers believe they have the
political clout to overcome these barriers.
However, "It's a divide-and-conquer issue," says developer and builder
Jeff Prostor, who pays impact fees of $20,000 to $50,000 in Orange
County. "If you try to fight a fee on your own, the city will not
provide you services. They will sit on your permits."
Developers and employers must also make themselves
aware of the future trends of regulatory impacts in a locality, before
they fall in love with a property there.
Just because it is more attractive today does not mean it will be
so tomorrow. Case in point:
San Diego County. A plan to
levy fees against developers in the unincorporated areas of the county
to help pay to build and maintain roads affected by their projects is
being considered by the Board of Supervisors.
The fees under the county's proposal would exceed $30 a square foot
for commercial retail projects in parts of North County.
Supervisor Ron Roberts, an architect, has stated in this regard,
"I am extremely concerned because I think this has the potential of
literally stopping most if not all industrial and commercial building in
the county." While
perhaps an extreme statement, would you risk your development or
corporate facilities in face of such a permit fee prospect?
Developers and employers: Do your homework!
Know the amount of, and reasons for, your present and future
regulatory fee burden before mentally committing to a location.
Shop around. Place
your investments in localities that balance economic growth with
reasonable regulation. That is a win-win situation for you, your buyers and
employees, and your community.
Caveat:
The purpose of this article is to provide information, rather than
advice or opinion. It is accurate to the best of my knowledge as of the
date of the article. I have no duty to update this article. The
information, examples and suggestions presented in this article have
been developed from sources believed to be reliable. This article should
not be viewed as a substitute for the guidance and recommendations of a
retained professional and should not be construed as legal or other
professional advice. In addition, I do not endorse any actions addressed
herein, unless they are produced or created by me. I recommend
consultation with me or other competent legal counsel and/or other
professional advisors before applying this material to any particular
factual situations.
