Impact Fee Waivers in Salt Lake City

An Agreement on Impact Fees in Salt Lake City

The imposition of impact fees has become one of the most divisive issues that can arise between the development community and local government. Some communities say that new development should pay for the additional infrastructure needed to serve the growing population. Conversely, some developers argue that fee exactions are unconstitutional, or have a negative impact on affordable housing. They also contend that there are less onerous alternatives to the impact fee. Salt Lake City has made strategic decisions that attempt to avoid some of the pitfalls that have accompanied the adoption of impact fee ordinances in other communities, while at the same time compensating the City for new public infrastructure that is required to support new development.

NAHB Publication Expresses Concerns With Impact Fees

The National Association of Homebuilders (NAHB) has been particularly concerned about rising home costs attributable to impact fees. In its publication Impact Fee Handbook, it describes a number of concerns relating to impact fee ordinances and argues that developers can challenge these ordinances for a number of reasons. It contends that some ordinances do not establish a relationship between the additional demands placed on public services by the residents of the development and the required impact fee or dedication. This relationship, established as a rule by the Supreme Court in the Nollan v. California Coastal Commission case, is usually referred to as the “essential nexus” rule. Other challenges have resulted in findings that some ordinances do not allow for due process of law.

The NAHB lists other concerns that, while not constitutional issues, should be considered when adopting an impact fee ordinance. It argues that many fee ordinances have a disproportionate impact on the poor and do not consider credits and offsets, such as past and future property tax payments. In addition, NAHB contends that there are often problems associated with the administration of the ordinance. The fees, for example, are required too early in the development process, and there is no process for refunding the fees if improvements are not completed or if costs are lower than anticipated.

Salt Lake City Addresses Legal and Policy Issues

Salt Lake City has required developments to pay an impact fee for water and wastewater since 1985. In 1999, the City considered and enacted an ordinance that expands the fee to include other public infrastructure. According to Michael Sears, Budget & Policy Analyst with the City of Salt Lake City, the Council understood many of the issues raised by the NAHB and worked extensively with the development community to create an ordinance that provides the City with additional funding for needed infrastructure while addressing some of the development community’s concerns.

In order to ensure that the new ordinance clearly identifies the relationship between additional demand and fee, the ordinance established the Infill and Northwest Quadrant development areas. Each area has a specific fee structure for fire, police, roadways, and parks. In addition, the City has separate fees for residential, commercial, and industrial uses. The City has conducted a complete analysis of the cost of delivering services to new developments; however, in order to provide the development community with due process, Salt Lake City also allows developers to submit a fee calculation based on an independent third-party analysis.

According to Sears, one of the most important decisions the council made was reducing the impact that these fees would have on housing affordability. Working with the development community, the City decided to exempt affordable housing from paying these new fees. It offers a sliding scale exemption depending on the incomes served by the development. The ordinance provides for a 100 percent exemption of the new impact fees for rental or non-rental housing that’s occupied by families with incomes at or below 80 percent of the area median and who pay no more than 30 percent of their income for rent or mortgage payments. A slightly lower exemption is provided for housing serving 90 to 100 percent of median. While the state enabling legislation does not allow an outright exemption of impact fees for this housing, Sears said that Salt Lake City considered this action sufficiently important that it decided to allocate a certain amount of money from the general fund to pay for these fees. The City ordinance originally allowed an exemption for developments funded or subsidized by the City as well, but an amendment has subsequently removed this exemption.

Another amendment to the City ordinance has changed one additional aspect of the original ordinance. To address the issue that some ordinances do not consider credits for other taxes paid by new development, Salt Lake City’s ordinance allowed owners to claim a credit for any “net positive impact” engendered by the development. The ordinance did not specify what constitutes a positive impact, but allowed owners to claim the credit at any time between three and six years after payment of the impact fee. The ordinance was not in effect long enough for anyone to claim the credit, and Sears speculated that most companies would not have gone to the expense of trying.
In order not to place an undue burden on developers, the City determined that the best time to require the payment of the impact fee is when the City issues the building permit. Sears said that by that time, construction is almost certain and financing is in place, so funds should be available to pay the fee.

In order to ensure that any fees not spent are returned to the owner of the property, Salt Lake City also requires that all impact fees be expended within six years of receipt. Should the development not proceed or should the City fail to spend the collected fees, then the ordinance requires that the unused fee amount be refunded to the current owner of the property. The refunds include any interest earned on the impact fees.

A Work in Progress

According to Sears, the ordinance has been well received in Salt Lake City. Developers who do not qualify for the exemptions have not challenged the enactment of the ordinance and have paid the fees. In addition to the amendments that removed the credit for “net positive impact” and the exemption for City-assisted projects, some members of the Council are interested in amending the ordinance to exempt affordable housing from the water and wastewater impact fees in much the same way as they are exempt from the new fees.

For more information on Salt Lake City’s Impact fee ordinance contact, Michael Sears at 801-539-6295 or go to Salt Lake City Impact Fee Ordinance.

Zoning's Impact on Home-Based Businesses in New Jersey

New Jersey Debates Approval Process for Home Occupations

The debate over whether to revise New Jersey’s zoning enabling law to allow people to establish home occupations without local government approval continues in the state legislature and among the general public. Advocates of revising the statute argue that the outdated restrictions hinder the development of this vital sector of the economy. Proponents say that relaxing the measure will permit commercial establishments to infringe on residential areas and cause homeowners’ property values to decline.

Municipalities enact zoning ordinances to restrict the negative impact of certain types of land uses, such as industrial, or to preserve the quality of life in others, such as residential. However, most local governments also have a long history of permitting homeowners to teach piano, style hair, or make home crafts for sale elsewhere under certain conditions and with prior municipal approval. The new Internet and technology -driven economy has expanded the possibilities for home occupations to include such activities as Internet sales, writing and editing, and other small businesses that can be conducted by telephone, fax, and email.

Advocate Argues to Streamline an Outdated Process

Individuals advocating the deregulation of the home-based businesses argue that people should be allowed to start these types of businesses without government permission. Christopher Hansen, president of the Home Based Business Council, says that existing regulatory processes requiring owners to secure conditional use permits are costly and deter the creation of small start-up companies. According to Hanson, home-based businesses provide the economic foundation for millions of Americans, especially those with low and moderate incomes. He argues, however, that zoning regulations have not kept pace with the new economy because they were developed based on models that arose during the 1960s and 1970s, and were designed to protect residential neighborhoods from the negative impacts of industry. He says that because these new businesses do not create traffic, pollution, noise, or safety problems, new regulatory approaches are needed.

To regulate these businesses and protect neighborhoods, Hanson proposes that local governments adopt performance standards that apply to all home businesses. For example, the local government could place noise, visitor, and on-site parking limitations on home occupations. Hansen says that if a use complies with these standards, then it should be allowed to operate as an accessory use without government approval.

Others Say Process is Necessary to Protect Residential Areas

Opponents of revising the zoning enabling statute are concerned that businesses will infringe on homeowners’ rights. [Editor’s note: While municipalities enact zoning ordinances, state governments legislate the underlying enabling statutes.] Joe Doyle, Executive Director of the New Jersey Planning Officials, says that recent discussions about reducing the regulation of home-based occupations come very close to allowing commercial encroachment into residential areas. He says that the debate about home occupations has been clouded by people who want to include any type of commercial development as an allowable accessory use in residential areas.

Doyle defines home occupations as traditional cottage industries. He sees home based businesses as any commercial enterprise. He argues that adopting a series of standards across the board and then leaving the development process to the individual will inevitably lead to commercial encroachment. If the local government failed to anticipate a use or set a standard, then owners could establish that use without approval by the local government. He cites an example from a city in another state where the local government allowed no more than one delivery truck per home occupation. The city soon discovered that the delivery truck could be a tractor trailer-sized vehicle and take up much of the on-street parking available in the neighborhood. Furthermore, he cites some proposals that would require local governments to specifically identify businesses that could not be included as a permitted use. If a local government failed to include a use, then it would have not authority to restrict it from residential areas.

Doyle is also concerned that not having a process for approving home occupations could result in owners suddenly finding themselves faced with unanticipated commercial restrictions and charges, such as additional fire code regulations, increases in property tax assessments, and commercial telephone charges. He argues that increasing the availability of property for commercial uses will raise vacancy rates as people elect to run businesses out of their homes, rather than pay the costs associated with established commercial buildings.

Doyle strongly supports continued local government discretion when it comes to approving home occupations in residential areas. He believes that the value of protecting residential neighborhoods demands that local governments review each proposed home occupation and decide on a case-by-case basis what uses are appropriate.

However, he does not want to be misunderstood as opposing cottage industries. “Cities are not targeting cottage industries,” Doyle says. “We, at the local level, want to be able to continue to regulate them in a manner that will provide economic opportunity for some, while at the same time protecting the neighborhood.”

New Jersey Legislation Pending

Legislation to allow home occupations without local government permits has been introduced in the New Jersey legislature each year for the past several years. In the 2000-2001 session, the measure passed the Assembly but died in the Senate’s Economic Growth Committee. Revised and re-introduced this year, the Assembly’s Commerce and Economic Development Committee has yet to vote on the measure.

Rent Controls and Affordable Housing in the Boston Area

Massachusetts’ Experiment with Rent Control

In the late 1960s, the rents in Boston and other large communities in Massachusetts increased dramatically. As a result, the 1970 General Court of the Commonwealth of Massachusetts authorized cities and towns with populations over 50,000 to enact rent control. Governments in Boston, Cambridge, Lynn, Somerville, and Brookline quickly introduced restraints on rents. Within a few years, however, many of these same communities decided to reverse their actions. Officials in Lynn repealed controls in 1974 and leaders of Somerville followed suit in 1979. Boston’s City Council approved vacancy decontrol in 1974. While city officials in Brookline removed most rent controls in 1991. Cambridge maintained a strong rent control program for at least another decade.

State Referendum Ends Controls Statewide

In 1995, a movement succeeded in placing a referendum on the ballot to have all rent controls abolished statewide. According to Deane Dolben of The Dolben Company Inc. of Boston, Massachusetts, a group of small property owners argued that rent control depressed the value of rental housing and therefore decreased the amount of property tax that could be generated from these types of developments. The group said that the lost revenue had to come from somewhere and was usually derived from taxes paid by single-family property owners. Supporters of the referendum also said that controls created a disincentive to build. “There just was no incentive to build in an area where you could not be guaranteed that the rules would not change,” Dolben said.

Opponents of the referendum asserted that if the referendum passed, rents would increase and low-income families would be driven from housing units they could no longer afford. Nonetheless, the referendum passed by a slim statewide margin of 51 to 49 percent. According to the terms of the ballot measure, communities had two years to phase out all controls.

Diverging Views on the Impact of Deregulation

New Development

While Dolben maintains that Cambridge has experienced a renaissance of building activity, others say that deregulation has done little to spur rental development elsewhere in the region. According to Pat Canavan, Advisor to the Mayor, private apartment construction has accounted for just over 687 new units in Boston between 1998 and 2002; a figure that pales in comparison to the over 2,500 new city-assisted units provided during the same period. She said that most private multifamily new construction in Boston during that time consisted of high-end condominiums.

Dislocation

Dolben acknowledges that while rents increased in the short term and many people moved, he discounts the impact on the poor. In one of the buildings owned by his company, he said that 100 people moved out of the 260-unit complex after rent decontrol. Most people, however, moved back to their principal residence elsewhere in the state. He argues that an unintended result of these moves was an increase in the number of rental units available. Canavan agreed that there was little dislocation, but argues that City action in response to the decontrol vote kept people from being evicted. She reported that the City “worked very hard with local neighborhood and non-profit groups to identify those in need of assistance.” The City then stepped in with Section 8 vouchers for many families facing rent increases. She also praises some property owners for accepting the Section 8 subsidies that allow elderly residents to remain in their current apartments.

Increased Tax Base

Loss of tax revenue on rent-controlled apartments was one of the primary arguments used by proponents of deregulation in 1995. They argued that increased rents would result in higher values, higher assessments, and additional tax revenue to the city. However, according to Ron Rakow, Commissioner of Assessing with the City of Boston, increases in assessments do not lead to automatic increases in tax revenue. Municipal tax levies in Massachusetts are restricted by the statutory limits imposed by Proposition 2 ½. Under this law, a city’s tax levy may only grow by 2.5% each year. Increases in assessments beyond this 2.5% limit merely reduce the tax rate. In the case of the rent control repeal, the State Commissioner of Revenue did allow a one-time exception to allow the increase in property values from the initial repeal of rent control to be added on top of the Proposition 2 ½ levy restriction. Rakow, however, points out that since many rents did not change until well after the controls on rents were removed, much of the resulting increase in assessed value has not lead to additional revenue for the City.

Long-Term Rent Stability

Dolben says that, recently, rents actually have declined. Part of the reason for the decrease in rents is general economic conditions, but Dolben also credits the increase in housing supply as another reason for the decline. Canavan is not aware of any areas of the city that have experienced rent declines and says that rent increases led the Mayor’s office to seek new rent stabilization authority in October of 2002. Since then, as the economic downturn has persisted, the pace of rent escalation has slowed.

Will Controls Return?

There is little evidence that rent controls will be reinstituted in any community in Massachusetts. However, some property owners and developers remain cautious about the future of rent controls. In 2002, Boston Mayor Thomas Menino’s administration, concerned that increasing rents were about to result in significant dislocation of low-income tenants throughout the City, asked the City Council for authority to control rent increases. According to Canavan, the Mayor’s proposal would have limited rent increases to no more than ten percent annually for most rental units in the city. For units occupied by elderly, low-income, or disabled families, the limit would have been five percent. The proposal exempted owner-occupied properties with four or fewer units.

Opponents of the measure contended that the effort was only the first step in a plan to reestablish rent controls and convinced the City Council to reject the proposal. Dolben argues that just the threat of rent control continues to play a role in the Boston regional housing market. His company does not build in Boston because of this possibility. He cites the Mayor’s 2002 effort as a prime example of continued government interest in reestablishing regulated rents. According to Dolben, “There remain people who want to return to the days of rent control. It would be difficult to succeed in the effort, but not impossible.”

If you would like a free subscription to breakthrough newsletter, you can sign up here.