Development Impact Fees: Understanding the Current Law

Presented by Andrew J. McGuire, Esq.

Gust Rosenfeld PLC

Alternate Title: Impact Fee Legislation: The Gift That Keeps On Giving

Recent History – Testing the Waters  2005 – HB 2066 (Striker)  Added annual reporting  Added penalty for not reporting

Recent History – Going for a Home Run  2006 – HB 2381 (Striker)  Massive attack on DIFs   Sweeping changes “to prevent cities from doing stupid things like adopting plans for lakes they have no money to build.” Defined list of public services

HB 2381 continued      Linked CIP to DIFs  CIP approved long before DIF study  Amended easily only for Developer request Linked DIFs to specific improvements Required identity of other non-DIF funds Refunds to PAYOR Direct offsets for sales taxes, HURF, etc.

HB 2381 continued     Introduced indexing (one good thing) Look-back would have invalidated all DIF studies – De facto building moratorium Refund discrepancies within 2 years VETOED by Governor

Recent History – Let’s “Play Nice”

 2007 – SB 1423  Collaborative cities/HBACA effort to respond to Governor’s veto  Major changes for “transparency” and “workability” as required in veto letter

SB 1423 Continued – Transparency  “Transparency”  New accounting requirement  Ensures that impact fees collected for one type of service (e.g. roads) are not spent on another type of service (e.g. parks)  New planning requirements  Requires adoption/amendment of IIP prior to assessment of a new/modified fee

SB 1423 Continued - Transparency  “IIP” broadly defined to fit within existing procedures:  One or more written plans that identify the public service that is proposed for a fee  Can be a capital improvements plan  IIP must:  Estimate public services required by new dev  Forecast cost and time to finance and build

SB 1423 Continued - Transparency  IIP released to public 60 days in advance of hearing  Public hearing on IIP at least 30 days in advance of adoption  Public hearing may address both the IIP and the development fee report concurrently  IIP may be amended w/o hearing to allow shuffling w/n category (only 14-day notice of amendment required)

SB 1423 Continued – Transparency  New reporting requirements  DIF Reports must:  Identify methodology used to calculate fees  Explain relationship between fees to be assessed and needs identified in IIP  Identify any index for automatic adjustment and timing of adjustments

SB 1423 Continued - Workability  “Workability”  Clarification of DIF Uses  Can be used to offset costs of infrastructure, improvements, real property, engineering and architecture, financing, and other capital costs  Also for appurtenances, equipment, vehicles, furnishings, and other items associated with public services

SB 1423 Continued - Workability  Clarification of DIF Credits  Available only for items in the IIP AND for which a DIF was assessed  Changes to Time Frames  Public hearing 30 days prior to adoption (previously 15 days)  Effective 75 days after adoption (prev. 90)  14 days notice prior to IIP amendment without hearing (new)

SB 1423 Continued - Workability  Deferred Fees  (optional) Allows deferred fee payments in a development agreement  Paid no later than 15 days after C of O  Only applies to residential units  Requires security (bond, LOC, etc.)  (mandatory) Establishes 2-year statute of limitations for development fee collections

SB 1423 Continued - Workability  Fee Indexing  Automatic adjustment of development fees on an annual basis, without a public hearing  30 days notice required for automatic adjustments  Adjustment mechanism must:  Be based on nationally recognized index  Be disclosed in the development fee report

Recent History – Swinging for the Fences, Again  2008 – SB 1406  Full laundry list re-emerged  Credits for private, on-site amenities  Grandfathering of fees:     Various dates: date of application; date contract signed; date of subdivision approval  Various periods: forever, 10 years, 5 years, 2 years Definition of necessary public services (exclusive lists; brick and mortar only) Level of service identified for all uses Linking IIP more closely to DIF study

SB 1406 Continued  Resulting bill included   Loose tie-in for fee to be used for benefit of same area in which it is assessed Seemingly unnecessary clarifying language regarding credits   Clarifying language regarding determination of offsets in fee calculation; “forecast” replaces “consider” “Other sources of revenue” from property owner, but no list

SB 1406 Continued  IIP Contents clarified  Comparison of existing service levels   Forecast revenue sources along with estimated time to complete (already in statute) The Big Dog – Grandfathering  No new fees or increases for 24 months from “final approval”  Indexing still applied; not grandfathered

SB 1406 Continued    DIF Ordinance must be modified to:   Set forth process for “certification” to be issued Final approval defined  Establish 24-month grandfathering provision Site plan approval for multi-family and commercial, unless no site plan, then plat  Final plat for single-family residential  Does NOT include renewals or modifications; can’t restart the clock VETOED – fortunate timing

2009 Sessions – Strange Days Indeed  HB 2259  Told veto was unlikely    Required benefit areas + DIFs collected and spent in same Clarified credits “Consider” to “forecast” (significant b/c of Goodyear result) + include calculation of other revenues w/r/t DIFs

HB 2259 Continued    24-month grandfathering provision  Same as in 2008 bill HELD IN COW as legislature adjourns Sine Die Another bullet dodged? Not in the least, as along comes . . . .

2009 Sessions Continued – The Nuclear Option  HB 2008  Don’t be fooled by the Constitution, apparently a budget bill can alter DIFs  Included all of the provisions of HB 2259  Benefit areas  Still allows single zone  Likely to spawn many IIP amendments

HB 2008 Continued  “Forecasting” other revenues  Still only applicable to extent such revenues are used for capital in IIP  Unfortunately, lose some benefit of HBACA v. Goodyear decision  Comparison of existing LOS v. new LOS  Developers really do believe they are forced to upgrade other neighborhoods

HB 2008 Continued  Forecast sources of revenue to fund IIP  Developers convinced that some projects in IIP (and for which DIFs are charged) will never be built (i.e. Town Lake)  Grandfathering  Increases inapplicable for 24 months after “final approval” – not extended by renewal  Written schedule upon request

HB 2008 Continued  Moratoria – 6/2009 – 6/2011 for:  Building Codes; federal funding exception  Increases to new construction TPT  Development fees  Not impose new fees   Not increase existing Currently law; challenge pending

2010 Session – What was old is new again  Moratorium not enough for HBACA  HB 2249 (Rep. Biggs)  Refunds required if facility is not built within 7 years after first DIF collected  Exempts water/sewer  Ignores developer delays  Contains no direction as to how “facility” is determined

HB 2249 Continued  Introduced as refund to payor; amended to current property owner  Dangerous first step toward tying fees to specific projects  Lacks any direction as to how property owner would determine if project built  Fails to account for changes to IIP allowed by statute (i.e. developer request)  Sailed through committee

2010 Session Continued  HB 2259 (Rep. Biggs)  Seemingly redundant language regarding proportionate share  LOS limited to existing; if upgraded along with new development, cost of upgrade apportioned to the city’s costs  Funds from existing residents must be paid prior to DIF funds used

HB 2259 Continued  Detail in IIP required for sources of funds to pay City share of infrastructure  Assigned to one committee; sailed through; ready for caucus

2010 Session Continued  HB 2397 (various sponsors)  Essentially repeals all of the changes over the past five years  Repeals moratorium on DIF increases and building codes  Triple assigned in committee (the kiss of death)

So where are we now?

  Apply only indexed increases in fees until 2011 (unless moratorium extended) DIF studies already underway/anticipated  Complete studies to avoid waste of taxpayer funds; delayed effective date  New studies should be timed for end of moratorium

QUESTIONS?

Andrew J. McGuire Gust Rosenfeld PLC 201 East Washington Street, Suite 800 Phoenix, Arizona 85004 (602) 257-7664 direct dial 602) 340-1538 facsimile [email protected]

www.gustlaw.com