Revenue Credits: Back to First Principles

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Revenue CreditsBack to First Principles

• Clancy Mullen
• National Impact Fee Roundtable
• October 6, 2005

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Overview

• 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
• 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 26 State Enabling Acts Require Some
  Consideration of Revenue Credits
• TX (2001 amendment) ... (A) a credit for the
  portion of ad valorem tax and utility service
  revenues generated by new service units during
  the program period that is used for the payment
  of improvements, including the payment of debt,
  that are included in the capital improvements
  plan or (B) in the alternative, a credit equal
  to 50 percent of the total projected cost of
  implementing the capital improvements plan.

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State Enabling Acts

• WA ... cannot rely solely on impact fees ...
  shall incorporate ... (b) An adjustment to the
  cost of the public facilities for past or future
  payments made or reasonably anticipated to be
  made by new development to pay for particular
  system improvements in the form of user fees,
  debt service payments, taxes, or other payments
  earmarked for or proratable to the particular
  system improvement (c) The availability of other
  means of funding public facility improvements

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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
• Future Grant Funding for Specific Growth-Related
  Improvements
• Dedicated Local Funding that Must be Spent on
  Growth-Related Improvements
• Optional Case/Grey Areas
• 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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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