By Scott Smith | Guest Commentary January 21, 2017 at 5:02 pm The Douglas County School District recently adopted a resolution in favor of legislation to allow school districts to assess residential impact fees. Although charging new home buyers directly for the costs of providing capital facilities for the public school system sounds tempting, there are several significant public […]Read more
The Douglas County School District recently adopted a resolution in favor of legislation to allow school districts to assess residential impact fees.
Although charging new home buyers directly for the costs of providing capital facilities for the public school system sounds tempting, there are several significant public policy and practical problems with this approach.
In the 1995 Colorado Supreme Court case Bainbridge Homes vs. Douglas County Schools, the state supreme court determined that school districts have significant special authority under the Colorado Constitution to provide and finance school facilities (e.g., bonding) and wisely denied the use of impact fees for this purpose. That logic continues to apply today.
The direct impact on housing affordability is significant. The DougCo district estimated that if it could assess impact fees, those fees would be $20,000 or more per home. Another fee would add yet an additional layer to the existing housing affordability/attainability crisis in Colorado.
Impact fees are the most expensive approach for district constituents to finance capital improvements. When a district issues bonds, it avails itself and its constituents of certain tax exemptions. School districts can issue municipal bonds, gaining favorable interest rates because of the ability to utilize the tax-exempt bond market. For federal and state income tax purposes, district taxpayers are then allowed to deduct both the principal and interest payments as part of their itemized property tax deductions. The future constituents — those who would pay the proposed impact fees — would pay the impact fee through their home mortgage and could not deduct the principal cost, just the higher interest cost. It makes sense that capital construction with a long-term economic life should be financed through long-term debt, not on short-term fees.
In addition, impact fees are not a simple pass-though cost. National Association of Home Builders research shows that they add at least 37 percent to the fee itself to the cost of the home. Added costs include financing, sales commissions, marketing, insurance and profits. Over time, the individual economic impact on the new homeowners paying for school capital construction through impact fees is very significant, and punishing.
Douglas County’s school district has an existing bonding capacity of $1.1 billion. Current outstanding general obligation debt stands at $370 million, leaving over $700 million in unused capacity. Many other school districts without this extraordinary level of capacity, have successfully engaged their constituents and development community to approve bond issues for rehab, additions, remodeling and new school capital construction.
Under the Colorado property tax system, 55 percent of the tax base is non-residential in nature. This significant share of the tax base pays a significant portion of the cost of new schools. A school impact fee would shift this unused responsibility to the new home buyer.
There is little direct accountability for the prioritization of spending the funds generated from a proposed impact fee, whereas bond issues require strong accountability by the tax payers.
Statistics show that new home buyers add on average of less than one child per new household. How can a school district justify charging retirees or childless households for such a large impact fee just because they purchased a new home? Our tax system already recognizes public education as a societal good, but this shift unfairly burdens new home buyers regardless of whether they have students in the school system.
Builders and developers are already significant taxpayers to the school district, and developers in Douglas County and across the state currently provide land to school districts for new schools. The land provided must be fully served by streets and utilities and has significant market value.
Members of the housing industry understand the value of a strong and viable public education system and the resulting actual property value that accrues to all property owners within a well run and functioning school district, residential and non-residential alike. Developers and builders are district property owners and often resident taxpayers as well. Most school districts employ the assistance of the local builders and developers to assist in engaging the public in a rigorous and well thought through bond issuance campaign. It takes a lot of volunteer hours and hard work but in the end the entire community benefits economically from the exercise, and adequate school facilities are updated or constructed in the process. It’s a system that has worked and continues to work well across the state.
For the above considerations, while we are committed to a strong economy and education system, we firmly believe that the implementation of impact fees for school capital construction is poor public policy.
Scott Smith is the CEO of the Colorado Association of Home Builders.
Douglas County is a vast, beautiful, and rapidly growing county in the south metropolitan Denver area. Just like the rest of this wonderful state, it is a popular destination for new transplants.
With the county’s population already exceeding 300,000, many experts expect the population will fully double by 2040. As a consequence, the nearly 70,000 children we now educate in kindergarten through 12th grade will likely increase to around 140,000.
Unfortunately, the county’s school system is simply unable to handle such growth unless something changes. Indeed, many of our schools are already over-crowded, as the county has grown by 91,000 residents within the last year alone.
For instance, Sterling Ranch is a new development off of Titan Road in the northwest part of the county. That development is just starting construction, with a plan to eventually add 12,050 new homes. Our school district has estimated that to meet that kind of growth, we will need eight new neighborhood schools — five elementary, two middle, and one high school — to educate Sterling Ranch’s children. The construction costs for these schools alone will approach $400 million.
It is no exaggeration to say that the school district has no funds, whatsoever, available to cover the massive expense of this extensive construction, or for the construction of the new school buildings that will be required to support a number of other planned developments.
In fact, as one of the most poorly funded school district in the metro area, Douglas County struggles — although it nevertheless succeeds, for now — to reach its goal of providing an optimal quality education for our students.
Currently, the district must address about $225 million of deferred maintenance for its older buildings. In order to address this deferred maintenance, without a mill levy override or a bond, our per-pupil revenue must be used for these reinvestment needs, taking money out of the classroom. Once those bills are covered, there is certainly nothing left to build new schools. If we issue and execute bonds for the new schools, as we’ve done in the past, we must re-pay those bonds with interest either through the taxpayer with an approved bond election or through a certificate of participation option where the repayment of these certificates must be funded by our per-pupil revenue, diminishing our capability to provide necessary classroom funding going forward. That is hardly the stuff of good school financial governance.
So who should bear the expense of the new schools? Over the last 10 years, charter schools have stepped up to alleviate the growth stress on our district. In fact, no non-charter public school has been constructed in that time frame.
To be sure, charter schools play an important role in the district, including an increased choice in education for our parents and students. At the same time, however, public neighborhood schools must remain the backbone and flagship component of K-12 education — with our fine charter schools forming an additional choice component.
Instead, it’s time that growth pay for itself. That means that the best solution to this important dilemma is to expect that the developers of these new neighborhoods will pick up the tab of building our new schools. These costs can then be passed on to the buyers of new houses in the area. Yes, house prices will go up marginally, but the purchasers of these new homes are the ones who benefit the most from vibrant and well-funded schools within their neighborhood.
Once these schools are constructed, the school district can assume ownership with the attendant responsibility for the operation of the school and its future maintenance by wisely using the per-pupil revenues provided the district by the state and our local mill levy.
However, the district can’t move unilaterally. Colorado Revised Statute §29-20-104.5 will need to be amended. That statute provides that the developer of a neighborhood is only obligated to provide a suitable building site for the school grounds (or cash in lieu at market value), but that an “impact fee” cannot be assessed against developers without their voluntary consent.
Last month, at my urging, the directors of the Douglas County School District took the first step in changing state law. We approved a resolution asking our state legislators to modify this state statute to allow meaningful negotiation between our neighborhood real estate developers and the school district, county commissioners, and other pertinent county officials regarding this important need.
If you agree with such a change to the law, please contact your state senator and state representative. Ask that they assist statewide K-12 education quality by mandating this adjustment to state statute 29-20-104.5.
James Geddes serves as a Director on the Douglas County School District Board of Education.
Here is a link to the Denver Post article.