Phony Case for Impact Fees

RALEIGH – There are many politicians and political activists in North Carolina who say that they favor impact fees to fund school construction because they want growth to pay for itself. They do not mean what they say.

A few communities already have legislative authorization to charge impact fees for this purpose. Others, such as Durham County, claim authority even though it has not been granted. But in most of the fastest-growing areas of the state – including Mecklenburg, Wake, and New Hanover – the push is for new legislation from the General Assembly to give counties a long menu of revenue “options,” most certainly including the impact fee. Expect a major lobbying effort for this goal in 2006 – as well as a proposed statewide $1 billion-plus school bond to be placed on the ballot this November alongside a similarly sized bond for water and sewer projects.

Here’s why the argument for school-construction impact fees is not advanced seriously: its logic leads not to impact fees but to other policies that would either horrify the interests in question or violate basic constitutional principles.

At first glance, the notion that impact fees help to compensate existing taxpayers for the service requirements of new development seems attractive. Why shouldn’t growth pay for itself? Actually, the answer is that it should – and does, when properly accounted for. Unfortunately for the impact-fee position, arguing that people who impose new costs on the school system should be required to pay more for the privilege makes little sense if your proposed solution is a charge on each new home.

Most buyers of new homes in, say, Wake County (and virtually every other normal housing market) are either 1) families with children who already live in Wake, and have thus paid Wake taxes for years on other properties, explicitly or implicitly; or 2) newcomers to the county without school-aged children. In other words, only a minority of the new-home buyers will increase the enrollment pressure in the public-school system.

It makes no sense whatsoever to make the Smith family of four, who have lived in Raleigh for 20 years but just relocated to a new home in Apex, pay more for public education than the Jones family, also a family of four, who just arrived from New Jersey and bought an existing home in Apex. And what if the Jones are a family of six, including four children entering the Wake County Public Schools, while the Smiths are a couple of empty-nesters whose children are in college in New England? As you can see, treating the construction and purchase of a new home as an event impacting school enrollment is a rough tool at best for accomplishing what impact-fee advocates say they want to accomplish: to connect the cost a household imposing on the system with the cost it shoulders in taxes or fees.

If one were to be serious about this principle, here are policies that make more logical sense:

• Impose a impact fee on all households with school-aged children who move to your county from some other jurisdiction, regardless of whether they buy a new or existing home, or rent.

• Impose an impact fee on each new child brought into a household, either through birth or adoption. Obviously, larger families impact school enrollment more than smaller ones.

• Impose a stiff enrollment fee when parents who seek to enroll their children in public schools cannot provide evidence of legal residence. Illegal immigrants don’t pay as much state and local tax as legal immigrants and citizens pay, so more compensation is needed to offset the cost of educating their children.

• Provide families an impact refund for each school-aged child they keep out of the public-school system — by using charter schools, private education, or homeschooling. Furthermore, any taxpayer who contributes to a scholarship fund for children other than his own attending private schools instead of the public school system would also receive an impact refund.

If you don’t favor these proposals, you don’t really believe in the impact-fee cause as publicly advocated. If the truth be told, politicians and activists favor impact fees because they think they can get away with them easier than a tax increase. Some of the cost would be borne by those evil, greedy homebuilders, in the form of lower returns (though not much in a growing, high-demand market). More of the cost would be borne by people who, by definition, are not yet in the electorate and able to protect themselves from predation.

So spare me the lecture about making growth pay for itself. I’m all for that. Impact fees are about demagoguery and trying to convince the public they can have a service and make someone else pay for it.

Hood is president of the John Locke Foundation.