September 11, 2007

RALEIGH – N.C. counties ignore the economic benefits of growth when they pursue Adequate Public Facilities Ordinances. That’s a key finding in a new John Locke Foundation Spotlight report.

Click here to view and here to listen to Dr. Michael Sanera discussing this Spotlight report.

“Governments that pursue these APFOs never acknowledge the positive impacts of new residents in new homes,” said report co-author Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “They use one-sided analysis of growth that treats new residents as a burden to be borne, rather than as contributors to the community.”

An APFO requires a homebuilder to pay a special fee for each new home to raise money for new public infrastructure, including roads, parks, and utilities. Sanera and co-author Haley Wynn, a JLF research intern, explain that APFOs allow some counties to avoid state limits on charging growth-related impact fees. “Not all counties have state authority to charge those fees,” Sanera said. “So local governments use vague names such as ‘voluntary mitigation payment’ or ‘advancement of capacity’ to charge homebuilders.”

A recent trend involves charging fees specifically for public school buildings and infrastructure, Sanera said. “Six counties used APFOs to mandate that homebuilders pay ‘voluntary’ public-school construction fees,” he said. “These range from $1,500 per lot to nearly $15,000 per lot. Building permits are issued to builders only after they pay the ‘voluntary’ fee. Of course, the fee is as voluntary as the ‘voluntary’ payment of protection money to the Mafia in New York City.”

The homebuyer ends up paying much of the bill, Sanera said. “APFOs place an unfair burden on homebuilders and homebuyers because the fees can significantly increase home prices.”

Supporters say the fees help public services keep pace with population growth. But studies used to justify the “voluntary” fees are “fatally flawed,” Sanera said. “Rather than perform a comprehensive, cost/benefit economic analysis, counties focus solely on the fiscal burden caused by new residents buying new homes,” he said. “For example, the studies for school-related APFOs all completely ignore the benefits of additional tax revenues generated by new residents in new homes.”

Several counties have hired the same Maryland consulting firm to conduct their APFO studies, Sanera said. That firm always omits estimates of increased property and sales tax revenue tied to new homes, along with the economic growth linked to new residents, he said.

“A clear problem with these studies is the omission of data about tax changes linked to converting tax-deferred farmland into homes generating property taxes,” he said. “The conversion generates an immediate infusion of revenues into the county coffers, along with higher property tax revenues in the future.”

Counties could benefit by looking at a study that includes both costs and benefits of new residents in North Carolina, Sanera said. “If they looked at N.C. State University economist Michael Walden’s comprehensive study, they would see growth-related revenues outweighing growth-related costs.”

Local governments should pursue a more balanced approach when considering APFOs, Sanera said. “It is unfair to force developers and new residents to pay ‘voluntary’ fees without first considering growth-related public revenues as well as public service costs,” he said. “City and county residents deserve a comprehensive and economically sound approach to APFOs.”

Dr. Michael Sanera and Haley Wynn’s Spotlight report, “APFOs Research Fatally Flawed: One-sided analysis is used to determine ‘voluntary mitigation’ fees,” is available at the JLF web site. For more information, please contact Sanera at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].