Lawmakers in Tucson recently debated the idea of suspending development impact fees as a way to spur the local economy.
At a Tucson City Council meeting last week, Ward 2 Councilman Rodney Glassman introduced the idea that he said could inspire local residential and commercial builders to start new projects and put people to work in the waning construction trades.
Glassman said getting the building sector back to work was import because of the number of jobs at stake.
“Every home that’s built creates five new jobs,” Glassman said.
The move stands in stark contrast with the actions of Oro Valley where impact fees have been increased twice since 2007.
“One of the things you have to consider when you do have impact fees is competing against other communities,” Oro Valley Mayor Paul Loomis said.
Town leaders last September voted to increase development impact fees. The new charges total nearly $14,000 for each new home, making the town arguably the most expensive jurisdiction in Southern Arizona to build in.
The mayor cast the sole vote against the increased fees, citing the bad economy as the reason.
“By having high impact fees, Oro Valley is driving the development somewhere else,” Loomis said.
Glassman seems poised to have Tucson absorb any development Oro Valley’s fees might drive away.
“This proposal would make Tucson the jurisdiction of choice for Southern Arizona,” Glassman said in an interview last Friday.
Tucson City Council members on Feb. 10 decided to form a task force of local business leaders, construction industry officials, labor unions and community activists to come up with a local economic stimulus plan.
The group will explore numerous options to help the local economy, including the proposal to suspend development impact fees.
The plan to drop impact fees for as long as a year could make the difference for many developers unsure about starting new projects, Glassman said.
But similar proposals haven’t been discussed in Oro Valley, in part because the town’s financial model was based largely upon the fees associated with growth.
The town doesn’t have a property tax and charges few taxes directly to residents. The fees tied to development make up a sizable share of the town’s revenue.
For that reason, Loomis said he would not be in favor of waiving Oro Valley’s impact fees as Tucson’s leaders have discussed.
“The majority of one-time revenue used to come from the construction industry,” Loomis said, referencing taxes and fees associated with building.
The growth of retail outlets and diminished residential development has helped to change that.
Still, in the current fiscal year that ends June 30, impact fees and sales taxes charged to new construction are estimated to bring in more than $4.5 million, according to an analysis of budget documents.
That represents about 5 percent of the total town revenue.
Loomis said that suspending impact fees in Oro Valley would shift the burden of growth-related infrastructure needs to existing residents.
Other construction-related service fees like plan reviews and inspection charges are expected to bring in slightly more than $2 million in fiscal 2009.
Only sales taxes, which this year could bring in more than $14 million, make up a larger portion of locally generated revenue.
State and federal grants comprise the largest portion of town income, about 70 percent.
Tucson, however, has a property tax and therefore doesn’t rely as heavily on impact fees and related charges.
Glassman believes the town could waive the fees without damage to city finances.
Tucson’s proposal has even brought together two groups that rarely see eye-to-eye.
The Southern Arizona Home Builders Association, who first proposed the plan in a letter to city leaders last December, and UA Local 469 pipe fitters and plumbers union, have both endorsed the proposal.
“If SAHBA is not working, than we’re not working,” said union representative Jay Tripp at last week’s Tucson City Council meeting.
When local construction was at peak levels a few years ago, Tripp said as many as 1,500 journeymen plumbers from out of state in addition to local plumbers were working in Southern Arizona.
Now, the journeymen have all left and more than 700 local union members are out of work, Tripp said.
Though historically in favor of impact fees, Tripp said the union would go along with any plan that could help the construction trades.
“I’m here to applaud the manager and council for even considering economic development that will put people to work,” Tripp said.
Despite the intent, the move to waive impact fees in Tucson as a means to spark economic development could be an empty measure.
“The idea of stimulation by waiving development fees is not the solution,” according to Marshall Vest, an economist at the University of Arizona Eller College of Management.
Vest, who tracks the state’s economy and writes a quarterly report called “Arizona’s Economy,” said that what ails the local building sector today has little to do with the government fees and everything to do with an excess amount of homes on the market.
Southern Arizona has a 10-month supply of homes on the market right now. In stable economic times there would be about a 4-to-5 month supply, Vest said.
Until the surplus of homes draws down, government incentives to build will have little effect, Vest said.
Still, Vest doesn’t doubt the dire shape of what he calls the “growth industry” — the section of the local economy connected to commercial and residential construction.
The growth industry — including construction, real estate, material supplies, home furnishings and more — comprises at least 20 percent of the region’s economy.
But Vest doubts the capacity for a local economic stimulus plan, like the one Tucson’s leaders discussed, to do much of anything.
“There’s really nothing that state or local government can do to stimulate the economy,” Vest said.
He thinks the federal government is likely the only entity capable of making impacts on the local and national economies because of its ability to print money and spend more than it takes in.
“Given the challenges in the economy,” Vest said, “infrastructure spending makes a lot of sense right now.”
Oro Valley charges impact fees for parks, police, libraries, transportation and general government functions. In addition, there is a 4-percent tax on construction materials.
Here’s how much money the fees earned in recent years:
Tucson, however, relies mostly on a property tax and state-shared revenues to fund various capital projects and government operations.
Since 2005, the city has collected about $24 million in impact fees, including $18 million for roads, $5.8 million for parks and about $300,000 for police, fire and public safety (started in 2008). That’s represents about $6 million per year.
Sources: Local leaders