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Agenda 01/13/2009 Item # 5CAgenda Item No. 5C January 13, 2009 County Government Productivity Committee Page 1 of 9 January 7, 2009 To: Board of County Commissioners Subject: Proposed Roll -back for Impact Fees During the past six months the Productivity Committee engaged in four lenghty discussions on impact fees, examined a wide variety of benchmark information and literature available and received public input. We concluded our efforts at our December 17 meeting at which time the Committee voted 8 - 3 to recommend to the Commissioners the following: a. That the current impact schedule be rolled back to levels in effect on 12/31/2007. b. That the reduced fee schedule remains in effect through December 31, 2010. Background and supporting rationale for our recommendations follow. I. Current Policy In various studies and recommendations beginning in 2006, the Productivity Committee has consistently supported the BCC policy of growth pays for growth with the goal that current residents do not pay for infrastructure costs associated with population growth. As a consequence of executing the policy, Collier impact fees are the often highest in the state and the margin above benchmark practices widened this year. Two charts below track the recent history of fee increases in Collier and select other counties. Growth In Home Impact Fees 2004 — 2008 $000 - - 2,000 sq. ft. home - - ex water and sewer $35 $30 $29 $25 Collier $24 $24 $20 $15 Lee e—$?& — — $16 i OF $10 $10 $10 /$10 r All FI $5 Average $0 2004 2005 2006 2007 2008 The above data are taken from annual surveys by impact fee consultants Duncan Associates; staff believes that the survey data are credible. All figures are for unincorporated areas and exclude the cost of water and sewers but include schools and an assumption for independent fire district assessments. Lee County ranks fifth highest in the 2008 survey for homes. The all Florida average excludes from the calculations the fifteen or so counties who have no impact fees whatsoever. Agenda Item No. 5C January 13, 2009 Growth In General Office Impact Fees 2004 - 2008 Page 2 of 9 10,000 sq. ft. - $000 - ex water & sewer $200 $180 $188 $160 $140 $147. $143 $120 Collier $100 $101 $101 Avg. 3 Highest $80 37� — t 7— — $89 $60 $40 $20 All Fl $0 Average 2004 2005 2006 2007 2008 Based on research and discussion our impressions are that the leadership position of Collier's fee structure stems from a variety of causes: a. Characteristics Specific to Collier County. Fee levels are partially driven by Collier's relatively high land prices on which our infrastructure rests. Our geography also plays a part; the broad dispersion of our future development (outfill, rather than infill) generally increases the cost of putting infrastructure in place. Our southernmost location often results in construction bids higher than statewide averages. b. Policy Mandates: Staff believes that the policy goal of self - funded growth requires that they recommend the highest fees that are legally defensible. For example, Collier road fees include both estimates for the costs for moving roadside utilities and for $213 million for two major intersection upgrades where need is projected by 2030. These utility and intersection costs account for $907,000 of the estimated $6,025,000 cost per lane mile; other county road fees don't include those two items.' Also it has been assumed that the growth pays for growth policy holds without reference to either benchmark practices or local economic conditions. c. Quality Standard: Our goal is to tolerate no failed roads and to have attractive libraries and other facilities conveniently located; residents have applauded the results. Conversely, other counties willing to live with failed roads for years and invest much less in infrastructure will have lower fees. d. Methodology Phenomena: Counties and consultants employ a range of acceptable study assumptions and fee determination methods. For example, Lee County determines road fees for only 16 commercial applications whereas Collier fee schedules itemize nearly 50 separate applications.' Collier's documentation specificity contributes to our high traffic businesses being assessed somewhat larger road fees than their Lee counterparts. (see Addendum A) While the analytical process that produces Collier's fees seems broadly consistent with policy, we developed growing concerns about the possible effects of our impact fee policies and practices amidst severe economic contraction. ' County Transportation Impact Fee Update Study, 11/13/2008 pp. 11 and F 2- F 3 Agenda Item No. 5C January 13, 2009 II. Rationale for Proposed Policy Change Page 3 of 9 Our discussions of the past six months have resulted in the following arguments in favor of a temporary reversion of fee levels. 2007 Fee Indexing Pursuant to ordinance, staff recommended that the BCC adopt the 2007 fee indexing recommendations developed by our consultant Tindale- Oliver. That indexing yielded fee increases averaging 21 % for commercial applications and 15% for residential construction. The Board approved the increases but delayed the effective date until January 1, 2008. In a subsequent Productivity Committee review of indexing methodology, it became apparent that methodology alone produced the double digit fee increases during a period of significant declines in the land purchase prices and construction costs. While the 1/1/2008 indexing was legally defensible, a reversion to 2007 rates for all fees (including schools) reflects our more recent experience and timely data. Local Economic Conditions Construction has generally been regarded as a core industry in Collier County. Through March, 2008 one source estimates that about 13,000 construction jobs in Collier have been lost since the 2006 peak .2 There is growing concern that this is not a routine short term dip in activity but potentially a major and protracted collapse of demand. While a fee reduction may not have a significant immediate impact, a lower fee structure could better position the County for an eventual recovery. Therefore, it is important to provide relief (albeit modest) to this beleaguered section of our economy. At the very least, the fee rollback would send a message that Collier County recognizes the magnitude of current difficulties. Review of survey data from comparable south Florida coastal counties indicates that increases in impact fees in 2007 -2008 were quite rare (Hillsborough raised a school fee). Media accounts report that Lee, Palm Beach and Indian River counties recently rejected fee increases that were justified by consultants' studies. While there are reports of several counties considering substantive fee cuts, Charlotte was the only one that came to our attention as having done so. Media accounts of fee reduction debates reflect concerns about the effects of impact fees on local economies. Competitive Position Factors such as land values and desirable location probably are more influential than impact fees when decisions are made on commercial and residential construction. Nevertheless, a $35,000 impact fee (including all fees) for a moderate sized home in East Collier may be the equivalent of a 10% sales tax; fees for commercial construction often represent a somewhat higher percentage of construction costs. Long term it is worth considering if we should weigh the risk of losing market share to Lee or other counties whose fees are a fraction of those in effect here. If a business chooses to locate in Lee County rather than Collier we lose the initial impact fee as well as subsequent ad valorem revenue and we must still provide the roads if our residents choose to travel to those Lee County businesses. Public comment at a PC subcommittee meeting from one commercial developer cited two specific instances in which potential buyers backed away from investing here when they learned of the fee amounts required. The instances he cited took place in 2006 (fees were subsequently indexed 20% on 1/1/2008). A summary of local taxpayer comments on impact fees can be found in Addendum B. Reference to benchmark practices should not serve as a limit to our future action on fees, Collier's discriminating voters demand a higher standard for infrastructure. However, bench- mark practices could serve as a cross check on the validity of our fee levels and assumptions about the effect of fee levels on building activity. s Economic Outlook For Florida, Fishkind Associates, 7/19/2008 3 Agenda Item No. 5C January 13, 2009 Page 4 of 9 Timing As ad valorem revenues come under pressure this is an inconvenient time to reduce impact fees. However, the population growth projections and roads AUIR investment requirements that precipitated the policy increases have been halved since 2005. Growth Dimension 2005 Current BEBR Projection 2025 1,066,000 503,000 Population (permanent) AUIR Five Year Road $683 $305 Project Budget ($mill.) 2005 -09 2009 -13 The near doubling of Collier impact fees in late 2006 was a prudent response to what looked like an overwhelming task of meeting state mandates for "Class A" infrastructure (roads, water & sewer, parks). Among Class B infrastructure items there are no government buildings planned within the next seven years. Though not inconsequential, the scope of the infrastructure planning challenge has been reduced markedly. The Better Choice There are four reasons why the Productivity Committee approach is preferable to (what we understand to be) the staff recommendation for more limited fee reductions through BCC adoption of the recent transportation fee update study. a. The PC proposal reduces all fees (including schools) for all categories of commercial and home construction. Only transportation fees are affected by the staff proposal that makes no significant changes in fees for single - family homes and actually raises road fees for eight commercial or institutional structures. (Independent fire districts control their fees.) Only banks and home improvement stores would are higher under PC recommendations than under the staff proposal. b. The staff proposal would continue indexing as needed. c. A two - year freeze on fees would enable the County to avoid several hundreds of thousands of consultant impact fee studies. d. The two year freeze provides needed clarity that is crucial for the lengthy planning and approval processes developers must navigate. If impact fee relief is to beneficially affect building activity it should be offered for a minimum of two years. 111. Effects of Proposed Fee Roll -Back After the roll back recommended in this memorandum, Collier fees would still be the highest in the state for most categories of buildings. For example, home fees would be 40% above the average of the highest three counties in the Duncan Associates survey and 2.6 times the average of all Florida survey participants. (See table on next page.) As mentioned earlier, the transportation impact fees for high traffic commercial establishments are somewhat higher. Addendum A shows Collier fees ranging from 19% to 323% above Lee County for banks, restaurants, doctors offices, etc. 4 Agenda Item No. 5C January 13, 2009 Page 5 of 9 3 Duncan Associates 2008 Survey of Impact Fees for unincorporated areas and excluding water and sewer. Survey methodology slightly understates the actual gap between Collier and other counties but is used for consistency. For example, staff estimates current total fees for a 10,000 s.f. general office at $252,000. Impact fees for the 2007 - 2008 fiscal year averaged $4,500,000 per month, fees for the first two months of the current fiscal year averaged slightly over $3,000,000 per month. Debt service obligations in the A.W.R. average $31 mill. per year over the next three years. A detailed estimate of the reduced revenue resulting from adoption of our recommendation has not been prepared, but an order of magnitude impact for the remainder of this fiscal year would be in the $5.0 million range .4 We recognize that any reduction in County revenues compounds the existing budget challenges which are formidable. But like a reduction of an appraised home value for ad valorem assessments, if an impact fee reduction is the right thing to do, scarcity of funds seems insufficient reason to delay correction. Earlier this year we provided a lengthy list of alternative budget and service cutbacks that might be considered should the revenue picture worsen. Our Committee members have experience managing under difficult conditions and continue to offer our counsel if needed during these extraordinary times. While the Productivity Committee vote was 8 — 3 in favor of the proposal, the minority feels strongly about their position and wanted their views communicated to the BCC. (see Addendum C) I welcome the opportunity to address the Productivity Committee recommendations through a brief presentation of some of our study findings at the January 13 meeting. Sincerely, Larry Baytos Chairman County Government Productivity Committee 4 Calculation assumes monthly fee revenues continue at $3,000,000 times nine months remaining in FY 2008 - 2009, average fee reduction of 17% per applicant. Adoption of the Transportation Dept. proposal would also reduce road fees by a considerable amount. Collier Impact Fees Florida References' Category Current Proposed 3 Highest All St. Avg. 2000 s.f. home $28.5 $24.3 $17.3 $9.3 1000 s.f. condo $15.7 $13.1 $11.4 $6.2 10,000 s.f. general office $187.7 $147.6 $90.2 $43.0 10,000 s.f. general retail $187.7 $161.7 $167.7 $67.7 10,000 s.f. Indust. $103.5 $81.5 $50.3 $24.8 3 Duncan Associates 2008 Survey of Impact Fees for unincorporated areas and excluding water and sewer. Survey methodology slightly understates the actual gap between Collier and other counties but is used for consistency. For example, staff estimates current total fees for a 10,000 s.f. general office at $252,000. Impact fees for the 2007 - 2008 fiscal year averaged $4,500,000 per month, fees for the first two months of the current fiscal year averaged slightly over $3,000,000 per month. Debt service obligations in the A.W.R. average $31 mill. per year over the next three years. A detailed estimate of the reduced revenue resulting from adoption of our recommendation has not been prepared, but an order of magnitude impact for the remainder of this fiscal year would be in the $5.0 million range .4 We recognize that any reduction in County revenues compounds the existing budget challenges which are formidable. But like a reduction of an appraised home value for ad valorem assessments, if an impact fee reduction is the right thing to do, scarcity of funds seems insufficient reason to delay correction. Earlier this year we provided a lengthy list of alternative budget and service cutbacks that might be considered should the revenue picture worsen. Our Committee members have experience managing under difficult conditions and continue to offer our counsel if needed during these extraordinary times. While the Productivity Committee vote was 8 — 3 in favor of the proposal, the minority feels strongly about their position and wanted their views communicated to the BCC. (see Addendum C) I welcome the opportunity to address the Productivity Committee recommendations through a brief presentation of some of our study findings at the January 13 meeting. Sincerely, Larry Baytos Chairman County Government Productivity Committee 4 Calculation assumes monthly fee revenues continue at $3,000,000 times nine months remaining in FY 2008 - 2009, average fee reduction of 17% per applicant. Adoption of the Transportation Dept. proposal would also reduce road fees by a considerable amount. Agenda Item No. 5C January 13, 2009 Addendum A Page 6 of 9 Transoortation Fees for High Traffic Retail Usages $000 omitted Lee Current Collier Multiple Usage Unincoro. Collier of Lee Ctv. 10,000 s.f. bank - with Drive -in $256 $1,085 4.23 - Bank - walk -in $256 $554 2.16 3,500 s.f. Fast Food Rest. $157 $599 3.81 w /drive thru 3,500 s.f. Convenience store - no gas $142 $408 2.87 - with pumps $142 $169 1.19 5,000 s.f. Sit down Rest. - high turnover $103 $361 3.5 - quality $103 $290 2.82 5,000 S.f. $121 $237 1.99 medical office Current Collier transportation fees from Tindale Oliver 2008 Study, p. F -3. Lee County fees provided by Lee County Impact Fee Administrator Duncan Associates survey reports Lee County fees are among Florida's five highest for all impact fee categories; e.g., retail, office, etc. (unincorporated areas) If the Tindale - Oliver recommendations for the transportation update study are adopted, Collier fees for commercial usages will be reduced by 19 — 33% Agenda Item No. 5C January 13, 2009 Page 7 of 9 Addendum B Public Input on Impact Fees Normally the Productivity Committee labors in obscurity. But for our December 3 meeting of an Impact Fee subcommittee there were public attendees representing the Naples area Chamber of Commerce, Economic Development Council, and local developers. Some key points are summarized here not as an endorsement of the views expressed but solely to convey the information. A. One Collier commercial developer said that he lost two sales in 2006 due to buyer's negative reaction to impact fees. In one case a 3600 sq. ft. fast food restaurant would incur $460,000 in fees. The prospective buyer said they could construct the building for less than the fees. In another case a prominent company wanting to build a 32,000 sq. ft. diagnostic imaging center backed out when they learned the impact fees would be nearly $1 mill. (Fees were indexed at 20 +% since this developer's 2006 experience.) Collier puts itself at risk if it becomes a location of last resort for building, not a first choice. B. Two speakers concerned with local economic development noted the need to diversify our economy by attracting companies with skilled, good paying jobs. Lower impact fees could improve our chances of landing such companies. However, PC members noted that our location probably rules out many manufacturing companies because of transportation costs and a $2.0 million impact fee deferral program already available for industry has been seldom utilized. C. One local builder perceives that Collier County government is negative toward growth as evidenced by the highest impact fees coupled with a complex and cumbersome development approval process that can take years to navigate. This policy negativity will hurt us due to changing economic conditions. Our traditional reliance on growth from retiring snowbirds will be undercut by the nationwide crash in home values and stock portfolios that is unprecedented in the modern era. The development community has been reluctant to challenge the BCC because of a concern it could hurt developers as they go through the approval processes for current or future projects. However, he cautioned that there could be a modern local "Boston Tea Party" to protest impact fees and force fees down to more reasonable levels. Agenda Item No. 5C January 13, 2009 Page 8 of 9 Addendum C Productivity Committee Minority Opinion on Impact Fees The BCC policy has been "growth should pay for growth" and the BCC has generally approved the highest impact fees that are legally defensible. This policy includes updating fees when justified by a new indexing report or when full update studies are completed. Rationale for continuing the current policy includes: A. Impact fees are used to pay debt service obligations for growth - related capital projects. Other revenue sources are temporarily being used to meet existing obligations on previous construction since current impact fee revenues are minimal. It would be irresponsible to adopt policy changes that will reduce impact fees and exacerbate revenue deficiencies. B. The declines in residential and commercial construction were driven by cyclical market forces, speculation, and a collapse of financial mortgage markets. Impact fees did not cause this slowdown and reduction of impact fees will not correct it. Ultimately a drop in property prices, availability of financing and increased demand (baby boomers) will have a much greater effect in stimulating new construction when an economic recovery restores some of the previously lost personal net worth. C. There was a willingness to consider alternative sources of revenue to reduce the dependency on impact fees. However, a discussion of revenue generation options (such as increased ad valorem millage rates, increased sales tax, imposition of new real estate transfer fees or a new franchise tax) yielded alternatives that had already been rejected by public referenda or would place the burden of future growth costs squarely on current taxpayers and homeowners who have already paid their fair share of growth related costs. D. There is a large surplus of homes on the market, raising the question of whether new construction can compete with existing bargain basement - priced homes. Reducing impact fees would have the effect of exacerbating the supply- demand imbalance. E. Collier impact fees have always been high. The level of impact fees did not restrict the building boom when the economy was strong and demand was high. When these conditions return impact fees should be collected at that level that will support the need for new infrastructure. F. Impact fee studies and indexing provide a fully defensible methodology to assess the costs of new infrastructure required due to growth and apply those costs to new construction. Using multiple years of data moderates fluctuations and is slow to increase or decrease impact fees. If a faster reaction to market conditions is desired, our impact fee consultant can offer options. The above statement represents the views of three Committee members. W Page 1 of I Agenda Item No. 5C January 13, 2009 Page 9 of 9 COLLIER COUNTY BOARD OF COUNTY COMMISSIONERS Item Number: 5C Item Summary: Presentation of Productivity Committees Impact Fee recommendations by Mr. Larry Bayles. Meeting Date: 1 /13/2009 9:00:00 AM Approved By James V. Mudd County Manager Date Board of County County Manager's Office 11612009 12:52 PM Commissioners file://C:AAgendaTest \Export\ 121- January% 2013,% 202009 \05. %20PRESENTATION S \5C \5C... 1/7/2009