The Little House That Could

Contentiousness over impact fees is an increasing fact of life for builders. And in a larger sense, the entire home building industry is grappling with a perception problem. The basis is a widely held assumption among people outside the development community that new homes are a net drain on road funds, school funds, sewer funds and most other types of public infrastructure funds.

"I have seen opponents to new growth and development stand up in meetings and say that new growth does not pay its own way," says Colorado-based economist and consultant Dave Bamberger, who for 20 years has studied the cost-of-growth issue from inside and outside government. "When you turn around and ask them to show you the data, they quiet down. Most of the opposition does not have it."

Many builders report that anti-growth advocacy groups have seized on the issue of infrastructure cost as a means to oppose all residential development. This often leads to a quid-pro-quo situation in which consultants are hired by one side to do a fiscal impact report to offset a previous report put forth by the other side - blunting the effectiveness of all data presented to decision-makers. The sheer volume of competing studies on the fiscal impact of residential development has only added to the sense of confusion on the issue.

The national reality of rising impact fees and land exactions is further complicated by two facts, says Barry Ruten- berg, a Gainesville, Fla., builder long active in industry policy issues. First, most local developers and home builders associations are mostly on their own when it comes to making the case against growth-related fees. No two municipalities or jurisdictions collect taxes and fees the same way, and using out-of-town numbers from a previous study does not help.

Second, many indirect fiscal benefits of residential development are hard to quantify and are therefore left out of any analysis that often leads to impact fees. These fiscal benefits include taxes paid on land and lots during the construction period before closing, when relatively few public costs are incurred, and the induced fiscal benefit of sales taxes that arise from the addition of new "rooftops" when they attract new retail and commercial establishments.

On the revenue or benefit-of-housing side of the issue, economists in the NAHB’s Housing Policy department have made considerable headway. Five years ago, they unveiled the most comprehensive method yet devised for capturing all the direct and indirect benefits of home building on a specific local area. It considers everything from population growth statistics and consumer spending trends to sales taxes netted on the purchase of building materials. Since then, department economists have used this methodology to prepare 40 to 50 county-specific studies annually.

While these reports are widely accepted as conclusive by all parties, they ignore the other side of the equation - public costs. A method to provide this cost-side analysis is in the works, says David Crowe, the NAHB’s vice president for housing policy. In the meantime, a new report out of Florida offers a glimpse of the balanced, objective type of analysis that will anchor this debate during the coming years.

Paying Its Way

Just outside Gainesville, Fla., an unassuming, 2,077-square-foot, single-story home is more than it appears to be. In terms of its size, its price, the expected income of its owner and the costs it took to bring it (and the ground it sits on) to a point at which a family could move in, the home is ordinary in every way. And that is the beauty of it.

This three-bedroom home is a composite of the average new home sold this year in Alachua County. And according to a new research analysis commissioned by the Gainesville Builders Association and Professional Builder, this prototypical home more than pays its share of public infrastructure costs.

Specifically, the study finds that the incremental cost of providing roads, schools and utility infrastructure to support the home are more than offset by revenue it contributes to various public funds, for a $3,114 net surplus to local government. The study applies a new, more comprehensive analytical approach to both the cost and revenue sides of residential growth, say its authors, University of Florida economists James Dewey and David Denslow. They concluded that their model of "everyhome" in Alachua County is a model citizen of sorts.

The primary difference between Dewey and Denslow’s analysis and hundreds of other project-specific fiscal impact studies conducted by planners and consultants is that it not only embraces the costs and benefits of home building, it also considers all sectors of growth in Alachua County. Commercial and industrial sectors are thrown into the mix with residential. Then, working backward to arrive at a per-household bottom line, the study achieves what many developers would consider the Holy Grail - a balanced, perhaps irrefutable answer to the cost-of-growth issue.

"It is impossible to think about continual growth in nonresidential uses without accompanying growth in residential uses," Dewey says, "or to think about continuing growth in only high-revenue-yielding types of residential uses. For instance, if only affluent persons moved into a city and no new stores or office complexes were built, the new residents would have no one to provide them with consumer goods, nowhere to buy them and nowhere to work."

Dewey and Denslow’s approach has won the support of at least one critical observer, Stuart Meck, a vice president of the American Planning Association.

"Parts of this report are really ingenious," says Meck. "They have taken this question and looked at it from the standpoint of induced impact on other uses, and that is the right approach to take. And though most places don’t have the horsepower to perform this rigorous kind of analysis, it is impressive."

Capturing a Countywide Snapshot

Traditionally, when planners and developers hash out agreements at the beginning of the entitlement process, they do so with a project-specific fiscal impact analysis in front of them. For more than 20 years, local planners around the country have prepared these analyses relying in large part on a methodology set forth in the authoritative source on the subject, A Fiscal Impact Handbook, published in 1979. The basic approach recommended in the book is to consider each component of public infrastructure, from police and fire to roads and schools, separately and to add arithmetically the number of new children, cars, etc. as a basis from which to extrapolate current and future needs. From there, the budget for new infrastructure and service needed is prepared. For large master-planned communities, the result often calls for new schools, fire stations, police substations and sewer treatment facilities as well as arterial roads and highway interchanges.

Such an approach helps local officials feel secure that they are maintaining accepted standards of safety and service to the community at large. But it often results in overkill, Dewey argues, with the levels of public service and infrastructure proposed exceeding those experienced before the arrival of the new development. A more global, statistical approach to the overall question of whether each new home incrementally adds its fair share, he says, is a truer way to get at the heart of the issue. So earlier this year, when Rutenberg and other members of the Gainesville BA considered how best to convince officials in Alachua County that potential impact fees on residential growth are unwarranted, Dewey was ready to test his approach.

Instead of going to each jurisdiction within the county and scouring individual balance sheets and budgets, Dewey and Denslow worked backward. They performed regression calculations that applied detailed local tax roll information against general economic statistics about the county regularly put out by the federal government as well as state and local agencies. The benefit of this approach is that objective numbers on the costs and benefits of growth can be used as a level starting point. Their numbers never get down to the level of each separate capital and operating fund, but the resulting view provides greater understanding of the overall question. "It is a view from 30,000 feet," Meck says.

The analysis concludes that $25,113 per household is the total cost of providing all incremental levels of infrastructure and ongoing maintenance the infrastructure will require during its useful life. The per-house receipts to the state of Florida and all Alachua County jurisdictions amount to $28,227 per household, leaving the net benefit of $3,114.

Doing the Numbers
That the federal bureaucracy keeps data on just about every aspect of private and public life in America is well- known. It should come as no surprise, then, that the little-known Bureau of Economic Analysis keeps estimates on the total value of public infrastructure and that they can be driven down to a county-by-county basis. These figures include all major capital stock, from sewer plants and fire stations to roads, bridges and schools - big-ticket items usually paid for by issuing bonds. The BEA data also include estimated capital stock figures for all other infrastructure that keeps local government running - "down to the lawn mowers" run by maintenance staff, Dewey says. These items are paid for from general funds without the assistance of bonds.

Alachua County has $10,464 of state and local infrastructure on a per-person basis. With an average household size of 2.29 residents, total infrastructure per household equals $23,979. The final cost-of-growth per household is derived by adjusting for a split between existing infrastructure, its associated bond interest payments and the sum of new growth-related infrastructure plus service costs.

The revenue side of the equation has more parameters, including county-specific data points: