Charging developers for new schools would hurt home buyers

 

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. 

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Charging developers for new schools would hurt home buyers

 

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