Pay As You Grow
Who ought to pay for development?
August 26, 1993
Very wonky. To the considerable extent that private developers affects the public realm, from flood control to traffic to aesthetics, the public has a right to a say in their decisions and the right expect that the public not pay their incidental costs. The questions that inform debate about developer exactions—questions that have been asked across Illinois since the 1970s at least—are thus important. How much does development cost a city in the long run? Who ought to pay? How?
Subdivision ordinances are nearly invisible laws that have very visible effects on a city's physical form, and thus, indirectly, on its quality of life. Such ordinances set forth the process by which proposed projects will be reviewed by relevant planning, zoning, and building code authorities, plus the technical infrastructure requirements that new residential building projects must meet, such as the configuration and location of sidewalks and the capacity of sewer pipes and water mains.
Springfield is in the process of revising its subdivision ordinance. Sporadic negotiations have been underway since spring between Springfield area developers and city planning and zoning staffs. The new version would speed up the project approval process—a money-saving plus for developers—while modestly raising the standards for sidewalks, water pressure, and backfilling of buried pipes.
City oversight of new building costs money, of course, and for decades cities and utilities have charged developers the cost of permit processing, code inspections, and sewer and electrical hookups. Beginning in the 1970s, some municipalities in Illinois and elsewhere began assessing developers for the "indirect costs of new building projects as well. The object was to compensate local government for some of the burdens that new (mainly residential) development puts upon local services. Moving people into a community means heavier demand on local streets, sewers, parks, and schools; so does moving people within a community. The cost of serving the typical far-flung, un-dense residential project on the edge of town almost always exceeds what it earns in property taxes.
Thus "impact fees" imposed on developers as a condition of doing business. These exactions first appeared in America's booming exurbs like Naperville. That town passed a pioneer ordinance in the 1970s that required residential developers to donate to the city land for parks and schools (or cash in lieu of land). By the late 1980s municipalities across northeast Illinois were demanding that developers pay, up front, fees to mitigate the impact population growth was having on transportation systems, libraries, and so on.
In Schaumburg in 1990, such fees amounted to roughly $1 per square foot of building, as developers were not only required to pay to be hooked up to local sewer systems and water mains but were required in some cases to build them. Builders in Chicago suburbs have taken to complaining that the cost of building is 20 percent higher than it was ten years ago because of red tape, impact fees, and more demanding building codes.
Municipalities charged what the market could bear, and in a booming housing market that's a lot. (One Illinois suburb reportedly assesses a golf course impact fees of $5,000 per lot.) In 1990 a survey by a DesPlaines-based trade magazine found that impact fees in some Illinois suburbs ran to $17,000 per house. That number will strike fear in the hearts of most Springfieldians, but please note that in these towns the "average new house was then selling for $225,000 to $250,000. Fees accounted for as little as 7.5 percent of purchase price—less than a lot of these buyers shelled out for the wet bar in the rec room.
Municipalities came to rely on impact fees as a source of general revenue, a hidden tax that has no reasonable connection to the actual costs they ostensibly offset. (DuPage County funds its planning department largely through impact fees.) Even where city halls were not greedy, assessing such fees was often arbitrary, since the economics of allocating social costs of new development is not exactly a mature science. Illinois builders lobbied this spring for an infrastructure act to regularize the way impact fees are assessed, collected, and used.
If some towns demand too much of developers, the City of Springfield demands not nearly enough. The capital city shrinks from exacting fees of any kind from the exploitation of the land within its boundaries. This is true even though development has much the same impacts here that it has in Lake or DuPage county. City officials here as there are eager to see taxable properties built, because they generate short-term "profits" for city government. The problem is that most new development—almost always on the periphery of the city, at very low densities, in areas only minimally equipped with urban infrastructure—imposes long-term costs that must be paid by the larger public.
Springfield's ragged edge is accessible only by car, for example, so every new house there means more miles traveled, more pollutants pumped into the air, more cars on the road more hours of the day. Population shifts have already lead to demands for new or relocated fire stations, schools and parks that are paid for out of taxes paid by residents in old parts of town as well as new.
The city does occasionally negotiate a new traffic light or street spur out of a developer, but a regular schedule of impact fees would help capture much more of the costs of expansion from the people who are causing it. Those costs are wider than any Illinois impact fee has yet conceived. In western and southern states, regional "environmental linkage" fees have been levied to pay to protect or replace natural amenities—clean air, vistas, natural habitat—that are threatened by development. We know that development aggravates flooding downstream; a fee based on the amount of a lot that is rendered impervious by building, paid to a fund for flood amelioration, would seem reasonable.
The possibilities are limited only by the operative definition of "public good." Were I given a vote, I would cast it for a property tax surcharge on any new house built farther than half a mile from a store that sells milk and bread, the proceeds to be used for local tree-planting programs to offset the generation of greenhouse gases caused by the extravagant burning of fossil fuels. Such linkages could also be used to reduce demand for new coal-fired electricity plants, with builders of energy-inefficient structures paying a fee that would be used to fund energy efficient improvements elsewhere in the utility's market area.
And what about a fee to compensates for the aesthetic impact of development? Springfield's bigger developers are savvy and experienced men, yet among them they have produced not a single project that is handsome (as distinct from less ugly than the one next to it) or innovative in its use of land. A developer who exploits the view of public land—near parks and nature preserves for example, or stream valleys—in ways that destroy the view for everyone else could be made to pay a premium for the privilege to the relevant public authority, the proceeds being used to buy for public use unspoiled land elsewhere.
It is politically impossible, I know, to bring the price of new housing more in line with its costs. Everybody expects to get what they pay for in this world. Making people pay for what they get will never be popular. □