Impact Tax - Tonight

The much deferred debate over Impact Taxes is once again on the city council agenda tonight. In short, the proposed ordinance O-09-69 would temporarily drop impact taxes on so called "green path" development and reduce them by 50% for all other development.

The arguments against the moratorium generally take one or both of the following two paths:

1. Lowering impact fees would lead to a loss of tax revenue.
2. The cost of extending city services to undeveloped areas (i.e. Westside businesses and neighborhoods) should be borne by those who directly benefit from those services.

The first argument is really a non-issue. The reality is when there's no development, there's no revenue from the impact tax. Worse, there's no potential revenue generation from the taxes that would be paid if the empty lot had a commercial or residential revenue generator (development) in place.

More insidious is taking the point of view of government itself and viewing taxes as belonging to the government. Taxes and the government belong to the people not the bureaucrats and politicians that spend our hard-earned wealth. Remember, developers don't pay taxes - consumers do.

The second argument is a little harder to knock down. Not because it's in any way more substantial, but because it appeals a core value that individuals should pay their own way. If you build a home or a place for your business to operate, you should bear the brunt of the costs of the infrastructure required to develop that facility.

The problem is that developers and property owners were already paying for that infrastructure through utility expansion charges and unpredictable exactions. That's why groups like NAIOP supported the institution of impact fees. What they got was system of Impact Taxes in addition to all of the other fees and Impact Taxes were designed not to offset the cost of infrastructure extension but to achieve the infill objectives of New Urbanists.

Of course, the inequitable system of taxes known as "impact fees" only pushed those looking for their affordable piece of paradise out of the city and into surrounding communities creating more sprawl, more pollution, and less tax revenue for the City of Albuquerque. But impact fee proponents don't really care about the actual impact of their policies they simply want to control development with an iron fist - control that all of us pay for. Sounds a lot like the proposed government controlled health care scheme doesn't it?

* Main Entry: com·mu·ni·ty
* Pronunciation: \kə-ˈmyü-nə-tē\
* Function: noun
* Inflected Form(s): plural com·mu·ni·ties
* Usage: often attributive
* Etymology: Middle English comunete, from Anglo-French communité, from Latin communitat-, communitas, from communis
* Date: 14th century

1 : a unified body of individuals: as a : state, commonwealth b : the people with common interests living in a particular area; broadly : the area itself c : an interacting population of various kinds of individuals (as species) in a common location d : a group of people with a common characteristic or interest living together within a larger society e : a group linked by a common policy f : a body of persons or nations having a common history or common social, economic, and political interests g : a body of persons of common and especially professional interests scattered through a larger society

- Merriam-Webster Dictionary

You'll notice that community is a group of people with common interests living in a particular area. Those interests include things like security, fire protection, sanitation, roads, and basic infrastructure. To be a part of that community, its members agree to pay reasonable taxes to the community's governing body in order to pay for the infrastructure required to provide those services.

The idea that one part of the community should pay more for the same infrastructure provided to another part of the community is simply wrong - fiscally and morally. Moreover, it fractures the tax base. The "pay your own way" argument simply won't work as there's not a neighborhood in town that could afford to pay for its own infrastructure and maintenance.

The best kind of taxation is broad and shallow. Impact Taxes as implemented by the City of Albuquerque back in 2005 are neither. Reducing impact fees is a step in the right direction even if the reduction is less than equitable because of the "green path" provision.

In the long run, the City of Albuquerque needs to readdress its system of Impact Taxes, exactions and other fees in order to make them equitable and predictable. Fair, equitable, and low taxation leads to individual economic prosperity. Tonight, the council has an opportunity to take a step towards a stronger local economy. The question is whether or not they will have the courage to do so.

Impact Tax

The imposition of an Impact Tax began July 1, 2005. The tax was part of the Planned Growth Strategy - a scheme primarily designed to promote in-fill development on Albuquerque's Eastside rather than promote growth in the city as a whole.

Impact Taxes - or Impact Fees as they are more inaccurately labeled - were sold to the public as a way of making developers pay their "fair share" of infrastructure costs associated with extending infrastructure to undeveloped areas of the city and discourage "sprall" among other things. Never mind that developers were already paying for their development's internal infrastructure. Never mind that developers were also paying for external infrastructure through a system of exactions.

"[E]xactions" — [required] that developers build roads, intersections, drainage works and other facilities off-site to support their subdivisions. The improvements eventually become city property.

-ABQ Journal (Subscription)

Developers at the time felt that the exaction system was often arbitrary and inequitable. As a result, they actually supported the idea of imposing Impact Taxes on themselves (and consumers) believing that Impact Fees would correct the arbitrary nature of exactions and make development costs more predictable.

What developers got was a system of expansion fees, arbitrary exactions, and onerous Impact Taxes designed to social-engineer development. The cost of a new home went up by $10,000 overnight. Many commercial developments were simply made too expensive to build. With the stroke of a pen and the imposition of a tax, homes - the places where people live - moved to Rio Rancho, Los Lunas, and the unincorporated areas of Bernalillo County, and commercial development - the places where jobs live - followed suit.

Tonight, citing the current economic crisis and the dramatic drop in new development in Albuquerque the City Council will readdress Impact Taxes, uh... Fees through a series of 1 year reductions (O-09-70, O-09-71, O-09-72). The idea is to reduce the Impact Taxes for roadways, drainage, and parks by at least 50% and 100% for "green path" developments. Bernalillo County has already reduced their impact fees recognizing the need for development and growth.

We have never approved of regressive taxation for the purposes of social engineering. We'd much rather see the complete abolition of the current Impact Tax scheme. But, we'll take a 50% reduction in any tax even if it's just for a year.

Understand, the kind of taxes imposed by Impact Fees punish those seeking to get better value for their dollar by making the areas where their dollar goes farther less affordable. In addition, Impact Taxes make nearby jobs less available by making the developments that house said jobs less likely to be built. In short, Impact Fees raise the price of housing, reduce the number of nearby jobs, and move needed goods and services out of the area.

More importantly, developers do not pay these taxes - consumers do. If consumers are unwilling to pay the additional amount artificially added by government, then developers stop developing. But make no mistake, developers are businessmen and women. They must make money here or they will take their developments where they can make money. Wouldn't you?

At a time of high unemployment, we need to encourage growth not impede it. Many arguing against the temporary moratorium on Impact Taxes believe that doing so is some kind of gift to developers. Nothing could be further from the truth.

Developers provide jobs, buildings for jobs, and homes for those who have jobs. When we stop developing, we stop creating new jobs. When we stop creating new jobs, we start to lose people. When we lose people, we lose tax revenue. When we lose enough tax revenue, we lose city services. Eventually, tax revenue will drop to the point where the basic city services of police, fire, sanitation, and infrastructure are threatened.

The monies collected through Impact Fees aren't collected from developers, rather they are fees collected by developers from consumers. We need lower taxes across the board not just temporary relief from Impact Fees. But even temporary relief is better than no relief at all. And who knows? Maybe we'll create a few jobs in the process.

----- Update -----
The very first question asked an important question:

"what am I missing here? someone has to pay for roads and sewers and water and ...

why not the people who create the need by sprawling instead of infilling?"

To borrow an Obamaism, let's be clear. Every development whether commercial or residential does pay for itself and more even without Impact Taxes. It has always been in the interests of municipalities to encourage growth not only within its boundaries, but to annex developable land and adjacent developed areas whenever possible.

Growing the city likewise grows the tax base. Each home, each retail center, each office complex, each factory, is like a tax revenue generator that not only pays for itself but pays for needed infrastructure projects in other parts of the city.

Traditionally, the existing tax base has paid for the relatively small additional costs not covered by the developer. That's how the Eastside grew from a small group of businesses and homes along Central Avenue to the distant boundary of the Sandia reservation.

The imposition of additional "fees" - particularly the way the City of Albuquerque imposed them - is simply another way for the city to put more money in its coffers.

But like many such tax schemes, Impact Taxes didn't achieve their objective. Surrounding communities benefited from our onerous tax policy because developers simply move their developments to their more profitable environments. Those communities now benefit from their small initial investment through the taxes paid by these businesses and residents who now reside in their communities.

Impact "Fees" are another example of governmental short-term thinking that create negative consequences in the long run. Couple bad policy with an economic downturn and you've a formula for drastic drops in revenue collected by the city.

It is absolutely in the city's best interests to pass a moratorium on Impact Fees - even considering the silly green enhancement. More importantly, it's in all of our best interests for the city to encourage growth and economic activity.

City Slum Lords

We've all heard of affordable housing and by and large we all want affordable housing. October 2nd voters here in Albuquerque will get the chance to vote for a General Obligation Bond whose stated purpose is to provide affordable housing to those who can't afford their own home.

"Shall the City of Albuquerque issue $10,100,000 of its general obligation bonds in support of the Workforce Housing Act to provide resources towards the construction and rehabilitation of high quality, permanently affordable housing for low to moderate working families, including affordable senior rental?"

Wow! Sounds great doesn't it? We're going to use our tax dollars to help working families afford their own homes; and more importantly these patches of paradise will be "permanently" affordable. The Albuquerque Journal Editorial Board (not surprisingly) came out in favor of this G.O. Bond just yesterday.

"This bond represents the first of three installments over the next six years into a Workforce Housing Trust fund. Every dollar from the city's trust would leverage $4 in private money, focusing those resources on Metropolitan Redevelopment Areas and properties along transit corridors.

Some programs are more beneficial for the first buyer, who later sells the property at market prices. This program maintains affordability by limiting the amount of equity that accrues to owners and keeping the sales price below the market level for subsequent buyers."

- Albuquerque Journal (Subscription)

The tricky part is the last part, that says "this program maintains affordability by limiting the amount of equity that accrues to owners and keeping the sales price below the market level for subsequent buyers." The ordinance creating this affordable housing "opportunity" is O-06-8 and was passed just a little over a year ago. The Ordinance explains it this way:

"In a neighborhood with increasing housing prices the goal is to preserve a mixed income environment and avoid the dislocation of low income residents by creating a reserve of permanent workforce housing protected from price increases and danger of converting to market rate housing, allowing renters to own their housing, and otherwise financially insulating low income residents from financial burdens of gentrification while accruing its benefits."

What that means is that the city will use our tax dollars to help "low to moderate" income families buy homes that are "protected" from the market, making them "permanently" affordable. In other words, these "owners" will be paying a mortgage on a property that they don't truly own because they won't be getting the equity that is naturally created through time and the free market increase in property value. In short, their financial position will be only slightly better than renters because most of the equity they receive would be the equity that they put directly into the property through their payments.

The result of this type of affordable housing program is predictable; run down properties that have little or no value due to the cap on equity imposed by the affordable housing ordinance. Why would an "owner" invest any of their own money in a property where their investment can't grow? It would be better to rent a house or apartment where the property owner at least has some financial motivation and legal obligation to keep the property in good repair.

Another requirement of this legislation is that "affordable" housing must be included in new developments. Look, impact fees have already added $10,000 to houses being built on the West Side; $10,000 that contrary to assertions by socialist politicians is not paid by the developer but added to the price of the home.

Only government logic can justify raising the price of homes by $10,000 and then complain about the price of homes and the need for affordable housing. Like impact fees, the cost of the "affordable" units will be paid for by the other home owners in the development raising the cost of homes and pushing homeowners out of Albuquerque; and yes, that means more sprawl.

In 20 years, you'll be able to spot the "affordable" eye sores in every development where this short sighted socialist scheme is in effect and the neighborhood slum lord will be the City of Albuquerque. What do you bet that the Almighty Mayor's Safe City Strike Force won't answer your calls when you're complaining about one of their properties?

No matter how you slice it, these ordinances create a series of hidden taxes and fees that are borne by the rest of us. The system is deceitful and dishonest and right now the only way to put an end to it is to make sure the program is not funded.