Albuquerque, New Mexico
Adopts Proportional Impact Fees
An impact fee is a one-time charge on new developments, often enforced by local jurisdictions, that offsets the cost of growth. A common way of assessing impact fees is based on the type of residence, such as single-family or multifamily, creating a disproportionate fee between homes of the same category that vary in size and cost. For example, a flat impact fee of $10,000 raises the cost of a $200,000 single-family home by 5 percent, while the same fee on a $100,000 single-family home raises the cost of the unit by 10 percent. Further, the flat impact fee does not account for the impacts that these types of units have on the capital improvements being provided. As a result of this discrepancy, some jurisdictions are turning to proportional impact fees, which base the fee on the unit size, as a more equitable solution. To better understand impact fees, this article will discuss their history and check in with a community that has successfully implemented proportional impact fees to help maintain housing affordability.
History of Impact Fees
According to a newly released HUD’s Office of Policy Development and Research report, Impact Fees: Equity and Housing Affordability, approximately 26 states have adopted impact-fee enabling legislation since 1987; of these, 14 states address affordable housing in their legislation. Despite a lack of impact-fee enabling legislation in most other states, local governments throughout the nation are continuing to adopt impact fee regulations.
In the 1970s, increases in property values led to increased property taxes, and ultimately, to taxpayer resentment. Unable to keep up with the demand of a growing population and unwilling to raise constituent taxes to pay for public infrastructure, local governments established impact fees to pay for sewer and water systems, additional roads, new police stations, fire stations, schools, and public parks required by new development. The effects of impact fees on housing affordability remain controversial, but many argue that development costs rise as impact fees increase, making housing less attainable for lower- and middle-income families.
Albuquerque’s Planned Growth Strategy
In 1993, the state of New Mexico adopted the Development Fee Act authorizing all local jurisdictions to collect impact fees on new developments, thereby generating additional revenue for capital improvements. The Act stipulates that the fee is not to exceed the “proportionate share” of the cost of improvements as demanded by the new development. It also requires a designation of service areas with assigned levels of service based on projected need. The Act additionally allows fee waivers for affordable housing projects. Taking all of the requirements into consideration, the city of Albuquerque and the county of Bernalillo formed a joint venture to create the Planned Growth Strategy (PGS) and encourage a proportional assessment of impact fees.
Completed in 2001, the PGS report contains a comprehensive growth management policy analysis and program that addresses concerns for deteriorating public infrastructure and the timing and phasing of new development. The new policy adopted a capital financing program in three tiers — fully served areas, partially served areas, and unserved areas — to more accurately assess an impact fee, proportional to the need for public services and infrastructure.
Referred to as one of the top ten affordable housing strategies, by the Fannie Mea Foundation, proportional impact fees are designed to assign fees on the basis of the unit’s use or consumption of new public facilities. Consequently, they require more complex calculations than those used in computing flat-rate impact fees, but provide accuracy relative to the demand of growth. While a number of variables, such as the number of occupants, number of school-aged children, type of use, and location contribute to the design of the fee, the size of the unit is a critical factor in determining a fair and equitable impact on the capital improvements being provided. The fee also accounts for the level of service demanded from new developments on existing public facilities. By calculating costs based on actual conditions, Albuquerque’s tier-based program seeks to do just that.
In 2005, the impact fee ordinance was formally adopted and included the tier-based program that was later amended to waive impact fees for qualifying affordable housing developments. According to the program, new developments located within a fully operational area do not create additional constraints on existing infrastructure, resulting in a relatively low impact fee. However, if the development requires additional public roads and other infrastructure, impact fees will be adjusted to reflect the projected need.
Increasingly, local jurisdictions are adopting impact fee ordinances to manage the many burdens of rapid growth. However, to mitigate any negative impacts on housing affordability, the city of Albuquerque’s impact fee ordinance addresses three concerns that are common in many communities — meeting the demands of rapid growth, assigning impact fees equitably (based on the actual impact a particular type of unit has on the services provided), and supporting affordable development. Albuquerque’s new ordinance is well-positioned to serve as a model for those communities facing similar challenges.
For more information on developing proportional impact fees, please refer to HUD’s Office of Policy Development and Research report, Impact Fees: Equity and Housing Affordability. This guidebook assists practitioners in designing impact fee regulations that maintain housing affordability and preserve the level-of-service quality in communities experiencing rapid growth.
Using State Legislation
to Promote Affordable Housing in Illinois
States play a critical role in overcoming regulatory barriers to affordable housing. This article, which discusses Illinois, is the first in a series to concentrate on individual states that have implemented legislation to limit barriers to affordable housing.
Like many other states, Illinois is experiencing an affordable housing shortage that affects many of its residents. To help alleviate the affordable housing need, Illinois passed the Affordable Housing Planning and Appeal Act in 2003 and the Comprehensive Housing Planning Act in 2006. These and other laws are helping Illinois meet the demand for affordable housing.
Affordable Housing Planning and Appeal Act
The Illinois General Assembly created the Affordable Housing Planning and Appeal Act (Public Act 93-0595) to bolster local government support for affordable developments. This legislation, which became effective on January 1, 2004, strongly encourages localities to meet their affordable housing need; Section 30 of the Act provides developers with recourse to contest a denial by their local planning board.
As of January 1, 2006, a developer whose application is denied or approved with unrealistic conditions can, within 45 days, appeal the local planning board’s decision to the State Housing Appeals Board. The legislation also includes some exceptions. A local jurisdiction is exempt from the appeal process if the locality has adopted, implemented, and met its affordable housing goal, as defined in its affordable housing plan.
Comprehensive Housing Plan Act
The Comprehensive Housing Plan Act (Public Act 94-965) was signed into law on June 30, 2006, taking effect immediately. The Act made the state comprehensive plan, which began as an Executive Order by Illinois Governor Rod Blagojebick in 2003, permanent. It also creates and preserves affordable housing throughout the state by supporting interagency cooperation, streamlining resources, and requiring that the state develop an annual comprehensive housing plan.
Each plan must include the following:
Funding sources under state control that can be used to develop, rehabilitate, and subsidize affordable housing;
Goals for quantity and types of housing units to be constructed;
Specific actions needed for agency coordination;
Steps the state can use to promote the preservation, rehabilitation, and development of affordable housing; and
Identify actions that counties and other local jurisdictions can take to preserve and promote affordable housing in their community.
Other Affordable Housing Legislation
The Rental Housing Support Program — Illinois Public Act 94-118 — was created, in part, because there were few incentives for developers of permanent, affordable housing units. It was signed into law in July 2005 and is funded with a $10 real estate document recording fee that is expected to yield $30 million annually. The funds will be distributed to local municipalities through the Illinois Housing Development Authority. The program gives grants to landlords who make market-rate rental units affordable to households earning less than 30 percent of the area median income (AMI); at least 50 percent of the units must be set aside for renters earning no more than 15 percent of the AMI.
Illinois Public Act 94-0966 created the Business Location Efficiency Incentive Act, which provides financial assistance, in the form of a tax credit or extension, if the company seeking the assistance is proposing to relocate, or expand the company, within the proximity of affordable workforce housing or affordable and accessible mass transit. The Act was signed into law in 2006, and became effective January 1, 2007.
Illinois also has a State Housing Act, which allows for the creation of agencies and organizations designed to develop and preserve affordable housing.
The Redevelopment Project Rehousing and Capital Improvements Act helps financially assist and transfer low-income households whose homes have been, or need to be, redeveloped because they’re located in blighted areas. In addition, to assess the success of each annual comprehensive housing plan, the Illinois Housing Development Authority produces progress reports, which are then submitted to the governor and General Assembly.
Illinois plays a critical role in promoting affordable housing and limiting regulatory barriers to such development. Through its Affordable Housing Planning and Appeals Acts, the Comprehensive Housing Planning Act, and other housing regulations, the state is trying to meet its affordable housing need. A summary of the Affordable Housing Planning and Appeal Act and the Rental Housing Support Program, as well as more recent amendments, can be found in the Regulatory Barriers Clearinghouse Database — just use the “locations” option to search for records in Illinois.
Update: Vermont Supports Smart Growth and Affordable Housing
The state of Vermont was described in the March 2003 edition of Breakthroughs as a state that promotes managed growth in tandem with the development of affordable housing. Today, the state continues to address affordable housing issues by adopting new policies that strengthen their previous efforts. This article updates Vermont’s strategies for eliminating barriers to affordable housing and provides information on new polices that encourage smart growth.
Vermont’s Growth Programs
Housing prices in Vermont have risen sharply in recent years. In 2006, the median price of a single-family home in Vermont was $197,000. According to Between a Rock and a Hard Place: Housing and Wages in Vermont, this represents an 8 percent increase from the previous year and a 97 percent increase since 1996, effectively keeping affordable housing out of reach for many Vermonters.
To address the balance of growth, maintain land conservation, and promote affordable housing, Vermont enacted the Downtowns, Village Centers, and Growth Centers Bill (Senate Bill 142) in July 2006. This legislation, also known as the Growth Centers Program, is a comprehensive program that uses financial and regulatory incentives to encourage plans for compact, mixed-use growth centers. The bill is integrated with many existing programs to designate growth centers in downtown areas, village centers, and new town centers. The Growth Centers Program also expands and streamlines the historic preservation, façade improvement, and code improvement tax credit programs, which help owners of buildings located in designated downtowns and village centers to upgrade their properties. With the addition in the Growth Centers Program, local governments are given the authority to enact Tax Increment Financing Districts (TIFs) to pay for infrastructure improvements. The program also recognizes that the state requires a diversity of housing types and sizes to accommodate different income levels, and is easing the approval process for affordable housing units by raising the threshold of units that can be developed without having to undergo an environmental review.
While Vermont has been implementing policies that bring the state closer to its goals of managed growth and a sufficient supply of affordable housing, it still must work to meet its housing need. With the help of its new Growth Centers Program and downtown tax credits, the state is one step closer to achieving its goals.
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