Development impact fee is an unfair burden

Kevin Kelley United Properties and president, NAIOP Colorado, Denver

Kevin Kelley
United Properties and president, NAIOP Colorado, Denver

NAIOP Colorado, the commercial real estate development association, is concerned about the lack of affordable housing in Denver. Not only are we pricing ourselves out of the market for business relocation, but also we are at risk of losing our highly educated and talented younger workforce. Affordable housing is an issue that spans our entire society.

Therefore, we applaud Denver for taking this on. However, the desire to develop good public policy requires us to request further information and to make suggestions regarding how best to proceed, given that these proposed solutions will impact our city for years to come.

Kathie Barstnar Executive director, NAIOP Colorado, Denver

Kathie Barstnar
Executive director, NAIOP Colorado, Denver

It appears the city targeted the mill levy and, particularly, the impact fee, early on. We did not see any evidence that the city looked at other potential sources of revenue. Nor did we see information that the city conducted reviews, comparable analysis or nexus or feasibility studies on other funding options.

Affordable housing is a communitywide concern; therefore, we would expect that the revenue for solutions would come from a broad base, reflecting this communitywide nature.

The solution should not single out one sector, but rather draw from all who stand to benefit from affordable housing. Included should be employers, employees and others who live in the city and those who don’t live in the city but use its resources.

We encourage the city to avoid choosing funding sources that might be expedient but, instead, choose those that are appropriate. Don’t reach for a quick solution that may not get you what you need and may have detrimental, unintended consequences.

If, as we have heard, this issue relates to jobs and job creation, there is certainly a clearer connection between the need for affordable housing for employees and solutions coming from those who create the jobs, our employers. Has this source been reviewed and fully vetted? We submit that it has not.

Targeting the development community that is responsive to – but not responsible for – the demand misses the mark. Employers create the demand for employees who, in turn, create the demand for housing and for office space. Developers respond to employer requirements and demands.

Moreover, impact fees on residential construction will result in higher costs that must be assumed by the consumer. This will have the direct opposite impact the city is looking for by increasing the cost of housing and thereby increasing the affordability gap.

We understand the city’s position with respect to the mill levy since it gets at all real estate ownership interests, which certainly represent a broad spectrum of the community. And this is a consistent source of funding, not subject to development cycles.

However, the property tax share paid by commercial real estate is significantly higher based on our state’s “Gallagher” amendment. To add to this disproportionate allocation yet another layer of impact fees is unjustified and certainly amounts to an unfair piling-on.

We have seen a draft of the nexus and feasibility studies used by the city to “justify” the impact; however, those studies are still not final and, at best, miss the point of the underlying causes and effects. Not only does that make it difficult to review and understand both the methodology and the details of the results, but also it begs the question, “Why are we developing a policy on a study that isn’t even final yet?”

To approve funding without specifics as to their use, governance and measurements is irresponsible and likely will not be acceptable to the public. Moreover, the current political arena will not, and should not, allow for the “trust me” approach. More time and attention needs to be spent on this aspect of the fund before it moves forward.

We deserve to see a specifically defined purpose, a specific plan to meet that purpose, and a specific governance structure to direct and monitor the plan, and one that includes significant representation from those groups providing the direct funding.

We support the mill levy increase as a sustainable, secure source of funding. We do not support the development impact fee because of the unpredictability of the development cycle and the unfair burden that new development, including residential, would carry being subject to both the impact fee and the higher property tax. Moreover, we support the investigation of other funding sources such as the occupational privilege tax, which creates equality with our employers.

This process is not ready to move to the ordinance stage. It has only been six weeks since a group of stakeholders discussed draft results from the nexus and feasibility studies. The city’s schedule shows final adoption of a 40-page ordinance in less than three months. Certainly, an issue as important and impactful as this warrants more time for thoughtful discussion, review and analysis. Not to mention a more defined plan for how these funds would be used.

Expediency at the expense of substance can only lead to flawed public policy. We honor the city’s desire to address this critical issue and commit to be engaged to find appropriate, sustainable and effective solutions.

Featured in the August 2016 issue of Multifamily Properties Quarterly.

Edited by the Colorado Real Estate Journal staff.