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Explain this to me: How do impact fees work, and who foots the bill?

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The Idaho Press

Impact fees are a regular topic of public discussion in the rapidly growing Treasure Valley, but some residents misunderstand what the fees actually entail. And while most residents may never see a bill for impact fees, that doesn’t mean they are unaffected by them.

Municipalities, such as cities, counties and highway districts, charge developers impact fees for each new home and commercial building. This revenue helps cover the cost of expanding services to meet the needs of the growing population — such as road widening, new police and fire stations and new parks.

Impact fees are used in areas where “population growth is outstripping the capacity for the local jurisdictions to provide the infrastructure that’s needed,” said Bill Rauer, executive officer of the Building Contractors Association of Southwestern Idaho, a trade group that represents residential construction contractors.

[Explain This to Me: How 2016 legislation shifted property tax burden from commercial land to homeowners]

Boise’s variable system

In Boise, the city charges developers anywhere from $380 to $3,380 per dwelling unit of new residential construction, depending on the size of the home or apartment, and depending on where in the city the development is located. A typical residential impact fee bill has three to four different charges, for police, fire, parks and sometimes regional parks, such as Ann Morrison or Julia Davis, which are meant to serve the whole city. Commercial developers also pay impact fees for police and fire.

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In its 2016 Capital Improvement Plan and Impact Fee Study, the city of Boise identified 44 parks capital projects that could be built using impact fee funds between 2016 and 2025.

Eric Bilimoria, budget manager for the City of Boise, said the most misunderstood aspect of impact fees is that they are one-time fees for capital improvements, they do not cover ongoing operating costs.

“We can collect them for a one-time cost associated with capital development,” he said. “We cannot collect impact fees for ongoing maintenance or operating needs associated with a development.”

That means impact fees might fund the construction of a new park, but they don’t pay for ongoing costs to keep the park open.

“It’s almost like seed startup money, and then you have to fund the ongoing operations and maintenance of it through other ways,” said Jennifer Tomlinson, Boise’s parks superintendent. “Other ways” usually means property taxes.

Can’t be used for education

In Idaho, unlike in many other states, impact fees can’t go toward school or library expansions.

While there have been efforts to add schools to the list in Idaho  including several pushes from the West Ada School District, the largest school district in Idaho in one of the country’s fastest-growing areas  it remains to be seen whether that will happen.

Different municipalities collect fees for different services. Boise doesn’t charge impact fees for roads, but the Ada County Highway District does. The City of Nampa does collect impact fees for roads.

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Nampa uses its impact fees for infrastructure needs for police, fire and parks, as well. Building Director Patrick Sullivan said cities typically review their plan for impact fees every five years, but due to substantial growth in Nampa, city officials have revised their plan three times in the last eight years.

Nampa’s rate increases

The city of Nampa increased its impact fee rates last year, raising rates for developers between 99% to 855%. Nampa’s impact fee collection more than doubled as a result, going from $3.7 million in 2019 to $8.2 million in 2020, according to Nampa’s Finance Director Doug Racine.

The largest portion of the city’s impact fee revenue typically goes to roads, but Sullivan said Nampa is also saving impact fees for some larger projects, such as a new fire station. Sullivan said a new fire station is projected to cost between $6-8 million, and the city hopes to save enough impact fees to cover all of the infrastructure costs within three years.

Bilimoria, Boise’s budget director, said collecting impact fees is a “very important component of the city’s ability to support growth.” Boise’s impact fees are slated to bring in more than $2.4 million this budget year.

“Absent the ability to collect impact fees, the existing community members would be responsible for supporting growth-related costs as new people move into the city or as growth occurs,” he said.

Bottom line: who pays?

So, who is responsible for those growth-related costs? While it may be the developers at first, the buck doesn’t stop with them, according to Rauer. The cost of impact fees inevitably will be passed down to the buyer of a new home.

“Who ultimately foots the bill is all of us who live here,” Rauer said. “Any cost incurred in designing and constructing that product is part of the cost of goods sold and ultimately impacts the price of the home. The initial onus is on the developer and then on the builder, but ultimately it ends up on the homebuyer. It’s not a very fun thing to say, but it is the truth. There’s no such thing as a free lunch.”

Rauer said developers and home builders are not opposed to impact fees as long as it’s clearly defined where the money will go, which is part of the reason impact fee accounts are regularly audited. They also make developers more choosy about where they build because impact fees could be higher in remote areas where there is little existing infrastructure.

“The advantage of an impact fee is that it extends that infrastructure … faster than than the county or the city having to go back and create a tax, raise taxes or whatever,” Rauer said. “It’s a regulation, but it allows the demand to dictate where the growth is going to happen.”

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