The imposition of impact fees has become one of the most divisive
issues that can arise between the development community and local
government. Some communities say that new development should pay
for the additional infrastructure needed to serve the growing population.
Conversely, some developers argue that fee exactions are unconstitutional,
or have a negative impact on affordable housing. They also contend
that there are less onerous alternatives to the impact fee. Salt
Lake City has made strategic decisions that attempt to avoid some
of the pitfalls that have accompanied the adoption of impact fee
ordinances in other communities, while at the same time compensating
the City for new public infrastructure that is required to support
new development.
NAHB Publication Expresses Concerns With Impact Fees
The National Association of Homebuilders (NAHB) has been particularly
concerned about rising home costs attributable to impact fees. In
its publication Impact Fee Handbook, it describes a number of concerns
relating to impact fee ordinances and argues that developers can
challenge these ordinances for a number of reasons. It contends
that some ordinances do not establish a relationship between the
additional demands placed on public services by the residents of
the development and the required impact fee or dedication. This
relationship, established as a rule by the Supreme Court in the
Nollan v. California Coastal Commission case, is usually referred
to as the “essential nexus” rule. Other challenges have
resulted in findings that some ordinances do not allow for due process
of law.
The NAHB lists other concerns that, while not constitutional issues,
should be considered when adopting an impact fee ordinance. It argues
that many fee ordinances have a disproportionate impact on the poor
and do not consider credits and offsets, such as past and future
property tax payments. In addition, NAHB contends that there are
often problems associated with the administration of the ordinance.
The fees, for example, are required too early in the development
process, and there is no process for refunding the fees if improvements
are not completed or if costs are lower than anticipated.
Salt Lake City Addresses Legal and Policy Issues
Salt Lake City has required developments to pay an impact fee for
water and wastewater since 1985. In 1999, the City considered and
enacted an ordinance that expands the fee to include other public
infrastructure. According to Michael Sears, Budget & Policy
Analyst with the City of Salt Lake City, the Council understood
many of the issues raised by the NAHB and worked extensively with
the development community to create an ordinance that provides the
City with additional funding for needed infrastructure while addressing
some of the development community’s concerns.
In order to ensure that the new ordinance clearly identifies the
relationship between additional demand and fee, the ordinance established
the Infill and Northwest Quadrant development areas. Each area has
a specific fee structure for fire, police, roadways, and parks.
In addition, the City has separate fees for residential, commercial,
and industrial uses. The City has conducted a complete analysis
of the cost of delivering services to new developments; however,
in order to provide the development community with due process,
Salt Lake City also allows developers to submit a fee calculation
based on an independent third-party analysis.
According to Sears, one of the most important decisions the council
made was reducing the impact that these fees would have on housing
affordability. Working with the development community, the City
decided to exempt affordable housing from paying these new fees.
It offers a sliding scale exemption depending on the incomes served
by the development. The ordinance provides for a 100 percent exemption
of the new impact fees for rental or non-rental housing that’s
occupied by families with incomes at or below 80 percent of the
area median and who pay no more than 30 percent of their income
for rent or mortgage payments. A slightly lower exemption is provided
for housing serving 90 to 100 percent of median. While the state
enabling legislation does not allow an outright exemption of impact
fees for this housing, Sears said that Salt Lake City considered
this action sufficiently important that it decided to allocate a
certain amount of money from the general fund to pay for these fees.
The City ordinance originally allowed an exemption for developments
funded or subsidized by the City as well, but an amendment has subsequently
removed this exemption.
Another amendment to the City ordinance has changed one additional
aspect of the original ordinance. To address the issue that some
ordinances do not consider credits for other taxes paid by new development,
Salt Lake City’s ordinance allowed owners to claim a credit
for any “net positive impact” engendered by the development.
The ordinance did not specify what constitutes a positive impact,
but allowed owners to claim the credit at any time between three
and six years after payment of the impact fee. The ordinance was
not in effect long enough for anyone to claim the credit, and Sears
speculated that most companies would not have gone to the expense
of trying.
In order not to place an undue burden on developers, the City determined
that the best time to require the payment of the impact fee is when
the City issues the building permit. Sears said that by that time,
construction is almost certain and financing is in place, so funds
should be available to pay the fee.
In order to ensure that any fees not spent are returned to the
owner of the property, Salt Lake City also requires that all impact
fees be expended within six years of receipt. Should the development
not proceed or should the City fail to spend the collected fees,
then the ordinance requires that the unused fee amount be refunded
to the current owner of the property. The refunds include any interest
earned on the impact fees.
A Work in Progress
According to Sears, the ordinance has been well received in Salt
Lake City. Developers who do not qualify for the exemptions have
not challenged the enactment of the ordinance and have paid the
fees. In addition to the amendments that removed the credit for
“net positive impact” and the exemption for City-assisted
projects, some members of the Council are interested in amending
the ordinance to exempt affordable housing from the water and wastewater
impact fees in much the same way as they are exempt from the new
fees.
For more information on Salt Lake City’s Impact fee ordinance
contact, Michael Sears at 801-539-6295 or go to Salt
Lake City Impact Fee Ordinance.
Zoning's Impact on Home-Based Businesses
in New Jersey
New Jersey Debates Approval Process for Home Occupations
The debate over whether to revise New Jersey’s zoning enabling
law to allow people to establish home occupations without local
government approval continues in the state legislature and among
the general public. Advocates of revising the statute argue that
the outdated restrictions hinder the development of this vital sector
of the economy. Proponents say that relaxing the measure will permit
commercial establishments to infringe on residential areas and cause
homeowners’ property values to decline.
Municipalities enact zoning ordinances to restrict the negative
impact of certain types of land uses, such as industrial, or to
preserve the quality of life in others, such as residential. However,
most local governments also have a long history of permitting homeowners
to teach piano, style hair, or make home crafts for sale elsewhere
under certain conditions and with prior municipal approval. The
new Internet and technology -driven economy has expanded the possibilities
for home occupations to include such activities as Internet sales,
writing and editing, and other small businesses that can be conducted
by telephone, fax, and email.
Advocate Argues to Streamline an Outdated Process
Individuals advocating the deregulation of the home-based businesses
argue that people should be allowed to start these types of businesses
without government permission. Christopher Hansen, president of
the Home Based Business Council, says that existing regulatory processes
requiring owners to secure conditional use permits are costly and
deter the creation of small start-up companies. According to Hanson,
home-based businesses provide the economic foundation for millions
of Americans, especially those with low and moderate incomes. He
argues, however, that zoning regulations have not kept pace with
the new economy because they were developed based on models that
arose during the 1960s and 1970s, and were designed to protect residential
neighborhoods from the negative impacts of industry. He says that
because these new businesses do not create traffic, pollution, noise,
or safety problems, new regulatory approaches are needed.
To regulate these businesses and protect neighborhoods, Hanson
proposes that local governments adopt performance standards that
apply to all home businesses. For example, the local government
could place noise, visitor, and on-site parking limitations on home
occupations. Hansen says that if a use complies with these standards,
then it should be allowed to operate as an accessory use without
government approval.
Others Say Process is Necessary to Protect Residential Areas
Opponents of revising the zoning enabling statute are concerned
that businesses will infringe on homeowners’ rights. [Editor’s
note: While municipalities enact zoning ordinances, state governments
legislate the underlying enabling statutes.] Joe Doyle, Executive
Director of the New Jersey Planning Officials, says that recent
discussions about reducing the regulation of home-based occupations
come very close to allowing commercial encroachment into residential
areas. He says that the debate about home occupations has been clouded
by people who want to include any type of commercial development
as an allowable accessory use in residential areas.
Doyle defines home occupations as traditional cottage industries.
He sees home based businesses as any commercial enterprise. He argues
that adopting a series of standards across the board and then leaving
the development process to the individual will inevitably lead to
commercial encroachment. If the local government failed to anticipate
a use or set a standard, then owners could establish that use without
approval by the local government. He cites an example from a city
in another state where the local government allowed no more than
one delivery truck per home occupation. The city soon discovered
that the delivery truck could be a tractor trailer-sized vehicle
and take up much of the on-street parking available in the neighborhood.
Furthermore, he cites some proposals that would require local governments
to specifically identify businesses that could not be included as
a permitted use. If a local government failed to include a use,
then it would have not authority to restrict it from residential
areas.
Doyle is also concerned that not having a process for approving
home occupations could result in owners suddenly finding themselves
faced with unanticipated commercial restrictions and charges, such
as additional fire code regulations, increases in property tax assessments,
and commercial telephone charges. He argues that increasing the
availability of property for commercial uses will raise vacancy
rates as people elect to run businesses out of their homes, rather
than pay the costs associated with established commercial buildings.
Doyle strongly supports continued local government discretion when
it comes to approving home occupations in residential areas. He
believes that the value of protecting residential neighborhoods
demands that local governments review each proposed home occupation
and decide on a case-by-case basis what uses are appropriate.
However, he does not want to be misunderstood as opposing cottage
industries. “Cities are not targeting cottage industries,”
Doyle says. “We, at the local level, want to be able to continue
to regulate them in a manner that will provide economic opportunity
for some, while at the same time protecting the neighborhood.”
New Jersey Legislation Pending
Legislation to allow home occupations without local government
permits has been introduced in the New Jersey legislature each year
for the past several years. In the 2000-2001 session, the measure
passed the Assembly but died in the Senate’s Economic Growth
Committee. Revised and re-introduced this year, the Assembly’s
Commerce and Economic Development Committee has yet to vote on the
measure.
Rent Controls and Affordable Housing
in the Boston Area
Massachusetts’ Experiment with Rent Control
In the late 1960s, the rents in Boston and other large communities
in Massachusetts increased dramatically. As a result, the 1970 General
Court of the Commonwealth of Massachusetts authorized cities and
towns with populations over 50,000 to enact rent control. Governments
in Boston, Cambridge, Lynn, Somerville, and Brookline quickly introduced
restraints on rents. Within a few years, however, many of these
same communities decided to reverse their actions. Officials in
Lynn repealed controls in 1974 and leaders of Somerville followed
suit in 1979. Boston’s City Council approved vacancy decontrol
in 1974. While city officials in Brookline removed most rent controls
in 1991. Cambridge maintained a strong rent control program for
at least another decade.
State Referendum Ends Controls Statewide
In 1995, a movement succeeded in placing a referendum on the ballot
to have all rent controls abolished statewide. According to Deane
Dolben of The Dolben Company Inc. of Boston, Massachusetts, a group
of small property owners argued that rent control depressed the
value of rental housing and therefore decreased the amount of property
tax that could be generated from these types of developments. The
group said that the lost revenue had to come from somewhere and
was usually derived from taxes paid by single-family property owners.
Supporters of the referendum also said that controls created a disincentive
to build. “There just was no incentive to build in an area
where you could not be guaranteed that the rules would not change,”
Dolben said.
Opponents of the referendum asserted that if the referendum passed,
rents would increase and low-income families would be driven from
housing units they could no longer afford. Nonetheless, the referendum
passed by a slim statewide margin of 51 to 49 percent. According
to the terms of the ballot measure, communities had two years to
phase out all controls.
Diverging Views on the Impact of Deregulation
New Development
While Dolben maintains that Cambridge has experienced a renaissance
of building activity, others say that deregulation has done little
to spur rental development elsewhere in the region. According to
Pat Canavan, Advisor to the Mayor, private apartment construction
has accounted for just over 687 new units in Boston between 1998
and 2002; a figure that pales in comparison to the over 2,500 new
city-assisted units provided during the same period. She said that
most private multifamily new construction in Boston during that
time consisted of high-end condominiums.
Dislocation
Dolben acknowledges that while rents increased in the short term
and many people moved, he discounts the impact on the poor. In one
of the buildings owned by his company, he said that 100 people moved
out of the 260-unit complex after rent decontrol. Most people, however,
moved back to their principal residence elsewhere in the state.
He argues that an unintended result of these moves was an increase
in the number of rental units available. Canavan agreed that there
was little dislocation, but argues that City action in response
to the decontrol vote kept people from being evicted. She reported
that the City “worked very hard with local neighborhood and
non-profit groups to identify those in need of assistance.”
The City then stepped in with Section 8 vouchers for many families
facing rent increases. She also praises some property owners for
accepting the Section 8 subsidies that allow elderly residents to
remain in their current apartments.
Increased Tax Base
Loss of tax revenue on rent-controlled apartments was one of the
primary arguments used by proponents of deregulation in 1995. They
argued that increased rents would result in higher values, higher
assessments, and additional tax revenue to the city. However, according
to Ron Rakow, Commissioner of Assessing with the City of Boston,
increases in assessments do not lead to automatic increases in tax
revenue. Municipal tax levies in Massachusetts are restricted by
the statutory limits imposed by Proposition 2 ½. Under this
law, a city’s tax levy may only grow by 2.5% each year. Increases
in assessments beyond this 2.5% limit merely reduce the tax rate.
In the case of the rent control repeal, the State Commissioner of
Revenue did allow a one-time exception to allow the increase in
property values from the initial repeal of rent control to be added
on top of the Proposition 2 ½ levy restriction. Rakow, however,
points out that since many rents did not change until well after
the controls on rents were removed, much of the resulting increase
in assessed value has not lead to additional revenue for the City.
Long-Term Rent Stability
Dolben says that, recently, rents actually have declined. Part
of the reason for the decrease in rents is general economic conditions,
but Dolben also credits the increase in housing supply as another
reason for the decline. Canavan is not aware of any areas of the
city that have experienced rent declines and says that rent increases
led the Mayor’s office to seek new rent stabilization authority
in October of 2002. Since then, as the economic downturn has persisted,
the pace of rent escalation has slowed.
Will Controls Return?
There is little evidence that rent controls will be reinstituted
in any community in Massachusetts. However, some property owners
and developers remain cautious about the future of rent controls.
In 2002, Boston Mayor Thomas Menino’s administration, concerned
that increasing rents were about to result in significant dislocation
of low-income tenants throughout the City, asked the City Council
for authority to control rent increases. According to Canavan, the
Mayor’s proposal would have limited rent increases to no more
than ten percent annually for most rental units in the city. For
units occupied by elderly, low-income, or disabled families, the
limit would have been five percent. The proposal exempted owner-occupied
properties with four or fewer units.
Opponents of the measure contended that the effort was only the
first step in a plan to reestablish rent controls and convinced
the City Council to reject the proposal. Dolben argues that just
the threat of rent control continues to play a role in the Boston
regional housing market. His company does not build in Boston because
of this possibility. He cites the Mayor’s 2002 effort as a
prime example of continued government interest in reestablishing
regulated rents. According to Dolben, “There remain people
who want to return to the days of rent control. It would be difficult
to succeed in the effort, but not impossible.”
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