System development charge or development impact fees?

[Jerry Scott]

Are the studies showing impact fees being passed on to buyers detailed enough to differentiate between a causal versus a casual correlation? In other words, would a supplier succeed in a price increase regardless of the development impact fee? If the supplier would, then the price increase would be due to previously unmeasured increased demand or decreased supply, not the impact fee, and the price would have eventually been increased regardless of the impact fee. If a statistically significant number of suppliers didn't succeed in a price increase immediately before the establishing of an SDC, said establishment should have an impact on growth, which a local city manager claims is not the case.

[Pedro]

I tend to agree with the writings of Dr. Arthur Nelson of Georgia Tech. There are many factors which impact community growth and economic development.

I think it is fair to say that company location, expansion or relocation decisions are as concerned about access to markets, a skilled labor force and adequate infrastructure (including, naturally, a supply of buildable land) as they are about the cost of development - perhaps more so.

Dr. Nelson makes the point, and I think in my experience correctly, that the development community likes the predictability of impact fees in cost calculations, better than the vagaries of individual infrastructure negotiations which can be unpredictable and costly. Can it not also be said that impact fees help communities expand its infrastructure thereby increasing the supply of buildable land?

These dynamics influence supply and demand in the market place and developers consider this when purchasing land. In a mature impact fee jurisdiction impact fee costs are known by all parties and included in negotiations from the original purchase of the land to the final product sale. This is probably as it should be. This can also be the case in areas adopting impact fees so long as enough lead time is given for the market place to adapt. This can mean an extended effective date, and stepped increases over time before reaching full cost. In areas of inelastic demand with little competition, costs in general can be passed forward. But this is an aspect of the market place that goes beyond impact fees themselves. In elastic demand circumstances with greater competition, more of the fee is likely internalized back toward the original land purchase or in reductions in product features or originally intended quality level.

This is a complex and sensitive topic but I do believe that growing communities without other own source infrastructure revenue options have a useful tool in in properly crafted and implemented impact fee systems that come about through a participatory community process.