Revenue Credits: Back to First Principles Clancy Mullen National Impact Fee Roundtable October 6, 2005

Overview  The Standard Florida Approach  Overly Complex  May End Up Under or Over-Charging New Development  May End Up Exempting High-End Developments  The “Global Approach”  Does not Credit Outstanding Debt  An Alternative Approach  Based on Basic Principles is Worth Consideration

Case Law  Banberry Dev’t Corp. v. S. Jordan City, Utah 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 Acts  14 of 26 State Enabling Acts Require Some Consideration 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 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 Principles (1) New Development Should not Have to Pay for a Higher Level of Service than Existing Development (2) New Development Should not Have to Pay Twice for the Same Level of Service

What Deserves Credit?  Clear Cases  Future Debt Service for Past Improvements Counted in Existing Level of Service  Future Grant Funding for Specific Growth-Related Improvements  Dedicated Local Funding that Must be Spent on Growth-Related Improvements  Optional Case/Grey Areas  Earmarked Local Funding (e.g., Gas Tax)  Historical/Planned Expenditure Patterns  Past Property Tax Payments by Vacant Land (Mandatory in 6 States: HI, IL, UT, VA, WA, WV)

Florida School Impact Fee Credits  Local Capital Improvement Tax (CIT)  2-Mill Property Tax Earmarked for Capital Improvements  Standard School Credit Methodology is Complex:  Give Full Credit or Historical/Planned % to Capacity?  Credit Total Property Tax or Resid. Share Only?  Use Tax Base/Student or New Home Taxable Value?  What Assumptions of Future Home Value Appreciation?  How Many Years of Future Tax Payments to Credit?  What Discount Factor for NPV Calculation?

Results of Standard School Credits  May Not Result in Lower Fees  Fees May be Higher than Under Alternative Approach  May Unnecessarily Reward High-End Developers  Can Claim Bigger Credit and Lower Fees for High-Value Homes

Alternative Approach  Base Fees on Existing, Paid-For LOS  Cost per Student = Cost/Station x Stations/Student – Outstanding Debt/Student  No Property Tax Credit Needed  No Existing Deficiencies  Level of Service Excludes Outstanding Debt  Any Discretionary CIT Expenditures for Capacity Raise LOS for all

Example Standard Calculation Annual Tax Payments Per Student$1,444 % of Capital Funding for Capacity46.50% 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 Rate0.316 Single-Family Fee$4,136

Example Alternative Calculation Capital Cost per Student Station$23,565 Existing Capacity per Student0.827 % Capacity Paid For58.5% Impact Fee per Student$11,408 Student Generation Rate0.316 Single-Family Fee$3,605

Advantages of the Alternative  Simple  Clearly Based on Basic Principles  No Need for Complex Calculations  Progressive  Only Relevant Factor is Student Generation  Larger Homes Generate More Students