Revenue Credits: The Methodological Frontier

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Revenue CreditsThe Methodological Frontier

• National Impact Fee Roundtable
• Arlington, VA
• October 5, 2006

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Presenters

• Clancy Mullen
• Duncan Associates, Austin, TX
• Revenue Credits Back to First Principles
• Randy Young
• Henderson Young, Redmond, WA
• Revenue Credits Three Approaches

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Overview

• Legal Framework
• Park Impact Fee Example
• The Standard Florida Approach
• Overly Complex
• May End Up Under or Over-Charging New Development
• May End Up Exempting High-End Developments
• The Global Approach
• Does not Credit Outstanding Debt
• Requires Restrictions on Use of Capital Revenue
• An Alternative Approach
• Based on Basic Principles is Worth Consideration

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Case Law

• Banberry Devt Corp. v. S. Jordan City, Utah
  Supreme Court,1981
• municipalities should consider ...
• the relative extent to which the newly developed
  properties ... have already contributed to the
  cost of existing capital facilities (by such
  means as user charges, special assessments, or
  payment from the proceeds of general taxes) ...
• the relative extent to which the newly developed
  properties ... will contribute to the cost of
  existing capital facilities in the future ...

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State Enabling Acts

• 14 of 27 State Enabling Acts Require Some
  Consideration of Revenue Credits
• SC ... In determining the proportionate share
  of the cost of system improvements to be paid,
  the governmental entity imposing the impact fee
  must consider the ...(4) extent to which the new
  development is required to contribute to the cost
  of existing system improvements in the future
  ... (7) availability of other sources of funding
  system improvements including, but not limited
  to, user charges, general tax levies,
  intergovernmental transfers, and special taxation.

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Two Basic Principles

• New Development Should not Have to Pay for a
  Higher Level of Service than Existing Development
• (2) New Development Should not Have to Pay Twice
  for the Same Level of Service

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What Deserves Credit?

• Clear Cases
• Future Debt Service for Past Improvements Counted
  in Existing Level of Service
• Funding used to Remedy Existing Deficiencies
• Optional Cases/Grey Areas
• Future Grant Funding for Specific Growth-Related
  Improvements
• Dedicated Local Funding that Must be Spent on
  Growth-Related Improvements
• Earmarked Local Funding (e.g., Gas Tax)
• Historical/Planned Expenditure Patterns
• Past Property Tax Payments by Vacant Land
  (Mandatory in 6 States HI, IL, UT, VA, WA, WV)

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Park Impact Fee Example

• Locality has Dedicated Funding Source for
  Capacity-Expanding Park Improvements
• Alternative 1 Existing LOS/No Credit
• Dedicated Funding will raise LOS for All
• Alternative 2 Future LOS/Credit
• Dedicated Funding will pay for Existing
  Deficiencies
• Bottom Line Same Impact Fee

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Park Impact Fee Example

• Existing LOS/No Credit
• Existing 85 acres/17,000 pop. 5 acres/1,000
  pop.
• Cost/ac. 100,000 fee 500/pop.
  1,500/unit
• Growth 100 units/year 150,000 1.5
  acres/year
• Future 100 acres/20,000 pop. 5 acres/1,000 pop.
• Future LOS/Credit
• 10 year sales surtax 100,000/year 1.0
  acre/year
• Future 110 acres/20,000 pop 5.5 acres/1,000
  pop.
• Deficiency 850,000/17,000 pop 50/person
  150/unit
• Fee 550/pop. 1,650/unit 150 credit
  1,500/unit

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Florida School Impact Fee Credits

• Local Capital Improvement Tax (CIT)
• 2-Mill Property Tax Earmarked for Capital
  Improvements
• Standard School Credit Methodology is Complex
• Give Full Credit or Historical/Planned to
  Capacity?
• Credit Total Property Tax or Resid. Share Only?
• Use Tax Base/Student or New Home Taxable Value?
• What Assumptions of Future Home Value
  Appreciation?
• How Many Years of Future Tax Payments to Credit?
• What Discount Factor for NPV Calculation?

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Results of Standard School Credits

• May Not Result in Lower Fees
• Fees May be Higher than Under Alternative
  Approach
• May Unnecessarily Reward High-End Developers
• Can Claim Bigger Credit and Lower Fees for
  High-Value Homes

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Alternative Approach

• Base Fees on Existing, Paid-For LOS
• Cost per Student Cost/Station x
  Stations/Student Outstanding Debt/Student
• No Property Tax Credit Needed
• No Existing Deficiencies
• Level of Service Excludes Outstanding Debt
• Any Discretionary CIT Expenditures for Capacity
  Raise LOS for all

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Example Standard Calculation
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Example Alternative Calculation
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Advantages of the Alternative

• Simple
• Clearly Based on Basic Principles
• No Need for Complex Calculations
• Progressive
• Only Relevant Factor is Student Generation
• Larger Homes Generate More Students