Houses don’t pay their way

By October 29, 2010

EDITOR: Short term gain equals long term burden. The city of Placerville depends on developer fees for the revenue stream to keep our town running. Just look around and you’ll see how well that’s working. The city requires “x” amount of dollars to manage and maintain city services: road repair, water and sewer infrastructure, police and fire protection, parks maintenance and recreation programs — all things we, as citizens, expect in exchange for our tax dollars.

Here’s the problem: we have to keep developing to keep the money coming in, and new housing developments require city services forever. This creates a net drain on limited resources. I’m not an economist, but this looks to me like a problem.

Let’s consider a hypothetical scenario. Mr. Developer decides to build half a dozen new homes on property he owns. He asks the city for exemptions or waivers to help his project “pencil out,” such as a zoning change, modifications to the minimum parcel size, lot width, setbacks, street widths, etc. The city imposes certain conditions and restrictions on Mr. Developer, such as installing sewer and water lines to a certain location, paying Traffic Impact Mitigation (TIM) fees that go into a special fund to help pay for road improvements, etc.

The City and Mr. Developer come to an agreement, the Planning Commission approves the project, the City Council gives its blessing, and they’re off and building.

In this scenario we’ll leave out all the ugly possibilities such as the developer going bankrupt, or a downturn in the economy that affects housing prices, or the city not having the funds to complete the infrastructure improvements the developer has paid into (which generally are to mitigate the negative effects of more traffic and more drain on city resources.) Mr. Developer eventually completes his project, sells his houses, takes his money and moves on.

Let’s look at the cost of these new houses and see who is really footing the bill. Mr. Developer wants to “help” buyers to be able to afford his homes and the city wants to benefit from the property taxes on these improved and reassessed lots.

There’s a new program the city is considering to help developers with the high fees and permit charges that will allow these costs to be paid into a fund over time, so the developer doesn’t have to pay these costs up front. The developer fees which are normally included in the cost of a new home can be separated out of the cost so the home price is lower and more attractive to the potential buyer and to the lender. These costs can be, instead, part of a special assessment or homeowner’s association fee that arepaid by the new homeowner directly to the city.

This sounds like a win-win situation for all involved; however, there is really only one winner — Mr. Developer. The lender will look at the assessment fees as part of the package when deciding whether or not to loan on a property, so this doesn’t help the potential homeowner. Assessment or association fees are not tax deductible as is mortgage interest, so this doesn’t help the potential homeowner either.

The city has in effect already collected the developer fees and spent the money, so there is no additional revenue stream to the city. Property taxes will still be paid to the county and the city will receive its share, but the amount the city receives will never cover the long-term cost of road, water and sewer infrastructure maintenance, police and fire protection, schools, libraries, parks, etc. It may not become apparent for a decade or two, but this new housing development has become a long-term drain on limited city resources.

How do we fix this problem? The city requires revenue to meet its obligations. Property tax revenue isn’t likely to increase appreciably, especially for those properties included in the new redevelopment area. Not to mention, redevelopment dollars will be in the form of debt, by floating a bond, and the state is likely to help itself to a portion of that money during times of recession. Don’t forget also, that redevelopment is supposed to help with the water/sewer debt obligation to the state, and is supposed to reduce the amount of ratepayers’ monthly bills. We will be, in effect, paying off debt with more debt — what a concept. I’m getting off track; so back to developer revenue and the city.

Sales tax revenue is the big gun. We want tourists, especially tourists who stay long and spend much. We want people to come and enjoy our unique town and to experience our Gold Rush heritage. We want them to visit Apple Hill, our local attractions and wineries, produce stands and historical downtown Hangtown. We want them to eat, drink and spend; then we want them to go home. We don’t want to be responsible for providing services the City can’t afford.

Promoting and supporting our local economy by encouraging small businesses, cottage industry, movie filming and specialty retail establishments to locate here will do far more to support our local economy than building more housing developments. By offering a variety of goods and services we will encourage residents and tourists alike to buy locally.



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