Arguments Against Impact Fees Are Fallacious

The issue of impact fees is again before City Council and the citizens of El Paso as well as the ratepayers of the water utility. Please mark March 4th on your calendars. That is the day that City Council will decide about increasing the impact fees. This post is just the first in what will be several on this subject.

I begin by sharing with you an email that I received from Charlie Wakeem on the subject. Most of you know Charlie as the recent past chairman of the Open Space Advisory Board. However, Charlie has served the City as a member of many other committees including the Capital Improvement Advisory Committee (CIAC) which advises the CPC (City Plan Commission) and City Council on issues such as impact fees.

Before sending me the email, Charlie told me that the impact fee issue has nothing to do with economic growth or sprawl. It has everything to do with basic fairness. If you use something, you pay for it. If you don't use something, you don't. I'll be exploring that theme in the next few posts on impact fees. Today, here is the opener from Mr. Wakeem:


Hi Guys,

On March 4 as many citizens as possible should go to City Council (CC) and speak in support of a major issue: Impact Fees.  This is important for all of El Paso because the developers are not only trying to stop justified increases of those fees but they are also arguing for the roll back of those fees, the sale of city owned land held by the PSB and the end of Smart Growth and SmartCode. In short, they want more destructive sprawl.  

Before I continue, I suggest you watch the video stream of the February 18th CC meeting starting from 39:20 into the video.  This is the link: http://home.elpasotexas.gov/video.php.  With the exception of Lisa Turner, no one else spoke on behalf of the rate payers. 

I've been on the city's Capital Improvement Advisory Committee (CIAC) from the start, which was set up by City Council six years ago and makes recommendations to the CPC and CC.  I was term limited at the end of 2013, but I still follow them.  At the beginning CC appointed 5 developers and 4 non-developers to CIAC.  I was the last original non-developer.  There are now 7 developers and 2 non-developers on the committee.  The 2 non-developers are relatively new and are still learning.  Originally, the Impact Fees approved in 2009 were 75% of approximately $2,000 per new home built, or about $1,500. The developers persuaded CC to make the rate payers pay the other 25%. Due to needed new capital improvements, mainly to the Bustamante Water Treatment Plant, which serves the East and NE service areas, the impact fee would double if approved.  The NW service area would have no significant increase.

So much for the background.  At the January, 2013 CIAC meeting, the vote was unanimous not to recommend the increase.  Later, the CPC voted 6-0-1 to recommend the increase (which I repeat is justified).  Ray Adauto (who I might add has also been term limited but is currently serving as CIAC chair) is the Executive Director of the El Paso Association of Builders. He spoke on behalf of the developers at CC this past Tuesday - Feb. 18.  Greater El Paso Chamber of Commerce Director Richard Dayoub did the same.

Here are the arguments they made and my rebuttals [in bold red]:

1.  Impact Fees raise the prices of homes and more people will be priced out of the market.

Answer:  This is a bad arguement.  Impact fees are part of the cost of doing business.  If a buyer can't afford an additional $3,000 or $16.00 per month for a home [loan amortized at 5% over 30 years], they have no business buying one.  They are getting the benefit of the Water/Waste Water CIPs (Capital Improvement Projects), not the current rate payers.

2.  Impact Fees encourage sprawl.  Developers don't have to develop in the city, setting up bedroom communities.  They can go outside the city and not pay the impact fees and the home buyers will still use city services.

Answer:  This true, but the home buyers outside of the city pay higher water utility rates than city residents. Socorro is an example.  Horizon City has its own MUDD.  Nevertheless, what do the developers care what they're customer's utility bills are?  They already made their money without  having to pay the fees outside of the city.

3. Another source of income in lieu of impact fees is the city's sale of its land held by the PSB to developers. It will generate income from the sale of the land and will generate more income with the new home buyers on that land paying property taxes.  Developers aren't buying the land, because the city has placed too many restrictions on its development, such as Smart Growth and SmartCode.

Answer:  WOW!!  Speak of sprawl!!  There are several parts to this answer. First, City Development Director Matthew McElroy, told me that the City owned PSB land is only 2% of the total land acreage.  The PSB generates little income from land sales and would not be useful in defraying CIP costs.  

Second, the land won't be sold for many years, since growth won't occur in those areas for a long time.  Declaring the land inexpedient now would bring pennies on the dollar.  Also, most of the PSB land is being held for its water storage and recharge, and not for its commercial use. That was the original intent of setting up the PSB in the 1950s.  

Third, it's a proven fact that no matter how many new homes are built, the property taxes from them never pay for all of the city services and infrastructure needed.  That's why our property taxes NEVER go down. 

Fourth and finally, the city has worked for years to improve the quality of development through Smart Growth.  It's a major part of the Comprehensive Plan that was fully vetted 2 years ago.  If the developers don't want to buy city land with Smart Code, they don't have to.

4.  The water utilities replaces old infrastructure in the city, such as replacing pipes on Country Club Road.  There are no impact fees imposed on that. Yet the home buyers in new growth areas are billed for those improvements.

Answer: Water and Waste Water CIPs are built to last at least 50 years. Some have lasted for nearly a century.  Old infrastructure wearing out is normal and should be a cost shared by everyone.

That's all for now.

Charlie