Revenue Credits:Revenue Credits:Back to First PrinciplesBack to First Principles

Clancy MullenClancy Mullen

National Impact Fee RoundtableNational Impact Fee Roundtable

October 6, 2005October 6, 2005

OverviewOverview

The Standard Florida ApproachThe Standard Florida Approach Overly ComplexOverly Complex May End Up Under or Over-Charging New DevelopmentMay End Up Under or Over-Charging New Development May End Up Exempting High-End DevelopmentsMay End Up Exempting High-End Developments

The “Global Approach” The “Global Approach” Does not Credit Outstanding DebtDoes not Credit Outstanding Debt

An Alternative ApproachAn Alternative Approach Based on Basic Principles is Worth ConsiderationBased on Basic Principles is Worth Consideration

Case LawCase Law

Banberry Dev’t Corp. v. S. Jordan City, Utah Banberry Dev’t Corp. v. S. Jordan City, Utah Supreme Court,1981: 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 ...”

State Enabling ActsState Enabling Acts

14 of 26 State Enabling Acts Require Some 14 of 26 State Enabling Acts Require Some Consideration of Revenue CreditsConsideration of Revenue Credits TX (2001 amendment): ... (A) 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.

State Enabling ActsState Enabling Acts

WA: ... 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

Two Basic PrinciplesTwo Basic Principles

(1)(1)New Development Should not Have to Pay for a New Development Should not Have to Pay for a Higher Level of Service than Existing Higher Level of Service than Existing DevelopmentDevelopment

(2) New Development Should not Have to Pay (2) New Development Should not Have to Pay Twice for the Same Level of ServiceTwice for the Same Level of Service

What Deserves Credit?What Deserves Credit?

Clear CasesClear Cases Future Debt Service for Past Improvements Counted Future Debt Service for Past Improvements Counted

in Existing Level of Servicein Existing Level of Service Future Grant Funding for Specific Growth-Related Future Grant Funding for Specific Growth-Related

ImprovementsImprovements Dedicated Local Funding that Must be Spent on Dedicated Local Funding that Must be Spent on

Growth-Related ImprovementsGrowth-Related Improvements Optional Case/Grey AreasOptional Case/Grey Areas

Earmarked Local Funding (e.g., Gas Tax)Earmarked Local Funding (e.g., Gas Tax) Historical/Planned Expenditure PatternsHistorical/Planned Expenditure Patterns Past Property Tax Payments by Vacant Land Past Property Tax Payments by Vacant Land

(Mandatory in 6 States: HI, IL, UT, VA, WA, WV)(Mandatory in 6 States: HI, IL, UT, VA, WA, WV)

Florida School Impact Fee CreditsFlorida School Impact Fee Credits

Local Capital Improvement Tax (CIT)Local Capital Improvement Tax (CIT) 2-Mill Property Tax Earmarked for Capital Improvements2-Mill Property Tax Earmarked for Capital Improvements

Standard School Credit Methodology is Complex:Standard School Credit Methodology is Complex: Give Full Credit or Historical/Planned % to Capacity?Give Full Credit or Historical/Planned % to Capacity? Credit Total Property Tax or Resid. Share Only?Credit Total Property Tax or Resid. Share Only? Use Tax Base/Student or New Home Taxable Value?Use Tax Base/Student or New Home Taxable Value? What Assumptions of Future Home Value Appreciation?What Assumptions of Future Home Value Appreciation? How Many Years of Future Tax Payments to Credit?How Many Years of Future Tax Payments to Credit? What Discount Factor for NPV Calculation?What Discount Factor for NPV Calculation?

Results of Standard School CreditsResults of Standard School Credits

May Not Result in Lower FeesMay Not Result in Lower Fees Fees May be Higher than Under Alternative ApproachFees May be Higher than Under Alternative Approach

May Unnecessarily Reward High-End DevelopersMay Unnecessarily Reward High-End Developers Can Claim Bigger Credit and Lower Fees for High-Value Can Claim Bigger Credit and Lower Fees for High-Value

HomesHomes

Alternative ApproachAlternative Approach

Base Fees on Existing, Paid-For LOSBase Fees on Existing, Paid-For LOS Cost per Student = Cost/Station x Stations/Student – Cost per Student = Cost/Station x Stations/Student –

Outstanding Debt/StudentOutstanding Debt/Student

No Property Tax Credit NeededNo Property Tax Credit Needed No Existing DeficienciesNo Existing Deficiencies Level of Service Excludes Outstanding DebtLevel of Service Excludes Outstanding Debt Any Discretionary CIT Expenditures for Capacity Raise Any Discretionary CIT Expenditures for Capacity Raise

LOS for allLOS for all

Example Standard CalculationExample Standard Calculation

Annual Tax Payments Per Student $1,444

% of Capital Funding for Capacity 46.50%

Annual Capacity Payments per Student $671

Present Value Factor (5.24%, 20 Years) 15.61

Future Property Tax Credit per Student $10,476

Capital Cost per Student Station $23,565

Impact Fee per Student $13,089

Student Generation Rate 0.316

Single-Family Fee $4,136

Example Alternative CalculationExample Alternative Calculation

Capital Cost per Student Station $23,565

Existing Capacity per Student 0.827

% Capacity Paid For 58.5%

Impact Fee per Student $11,408

Student Generation Rate 0.316

Single-Family Fee $3,605

Advantages of the AlternativeAdvantages of the Alternative

SimpleSimple Clearly Based on Basic PrinciplesClearly Based on Basic Principles No Need for Complex CalculationsNo Need for Complex Calculations

ProgressiveProgressive Only Relevant Factor is Student GenerationOnly Relevant Factor is Student Generation Larger Homes Generate More StudentsLarger Homes Generate More Students