This week’s “Daily Journal” guest columnist is Jon Sanders, Policy Analyst and Research Editor for the John Locke Foundation.
Starting this month, the City of Raleigh has greatly increased impact fees on new homes, commercial and industrial properties, even day cares and churches.
Last month, the Raleigh City Council approved the steep hike in impact fees, saying that the voters desired it. Council supporters cited last October’s election, in which two challengers promising to raise the fees defeated incumbents.
That was, however, before an economic downturn and steep increases in gasoline and food prices had set in. In early May, the city’s Planning Commission voted 8-4 to urge the council against the increase, based on the shaky economy. Regardless, the council voted to approve the fee hikes, with the lone exception of Councilman Philip Isley.
The News & Observer reported on May 20 that fees on single-family homes from 2,000 to 2,999 square feet would nearly triple (from $528 to $1,386), fees on multifamily units would nearly triple (from $322 to $925 per unit), and fees for churches would nearly quadruple (from $232 to $865 per 1,000 square feet).
The ostensible idea behind “impact fees” is that growth raises costs on the community, and that’s not fair to current residents, so let the new guys pay. Essentially, impact fees represent a tacit admission by city leaders that the tax burdens they have placed on current residents are far too onerous. They know it would be very difficult for them to impose new burdens on current residents, as opposed to future ones. As illustrated by the election results, Raleigh residents were happy to encourage leaders to hit someone else with higher costs.
Being politicians, of course, the mayor and council are as loathe to restrict the growth of their own budgets and power as they are to harm their chances of re-election, so impact fees present them with an elegant compromise. They get bigger budgets and more power without overly provoking current residents, and the new guys won’t be upset by personal memories of greater freedom in Raleigh, or so goes the hope.
It also means pretending that growth is bad, that it imposes costs that the community cannot handle without burdening everyone a little more. Of course, every civic booster from time immemorial has started with the understanding that growth is good for the community, this being an intrinsic understanding on the most basic level, like that of any basketball player who starts with the understanding that points are scored by getting the ball in the basket.
In other words, to have to research the issue to prove that growth is good approaches the level of “Well DUH” research — i.e., grant-seeking academic research that “proves” things that people take for granted, such as that men prefer attractive women, distractions impede learning, and women appreciate jokes more if they are funny. The difference here is that, since it relates to statist politicians and understanding economic matters, research showing that growth is good for a community really is necessary.
So Michael Walden, the William Neal Reynolds distinguished professor of economics at N.C. State, has done exactly that. Using a greater comprehensive measure of public costs than Raleigh used — not just roads and open-space costs, but also costs concerning schools, police and fire protection, solid-waste disposal, and water and sewer services — Walden calculated the total economic impact of building 100 new single-family homes and 100 multi-family housing units in the Triangle.
Unlike the City of Raleigh, however, Walden didn’t stop at just calculating costs. Walden also looked at the other side of the economic ledger: the benefits of growth. He researched their effects on tax-revenue sources, such as property taxes, local sales taxes, utility excise taxes, inspection and permit fees, and motor vehicle taxes.
By calculating growth’s costs and benefits, even while using a deeper assessment of the costs, Walden found that the new revenues outstripped the new costs by nearly $77,000 per year for a 10-year period. Furthermore, he found that new home construction led to $64.7 million in new economic activity and almost 600 new jobs.
In other words, new construction leads to new jobs, tens of millions of dollars’ worth of new economic activity, and net higher revenues. Greatly increasing the costs of new construction would stem all that activity. Why would the City of Raleigh do that?
Find the answer to that, and chances are, you’ll find the answer to why Raleigh leaders are keeping water restrictions in place despite the lakes being full — and then wanting to raise municipal water rates because their revenues are down, since water consumption is down, being under those restrictions.