Development Impact Fees: Understanding the Current Law

1. Development Impact Fees:Understanding the Current Law Presented by Andrew J. McGuire, Esq. Gust Rosenfeld PLC

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

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

4. 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

5. 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.

6. 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

7. 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

8. 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

9. 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

10. 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)

11. 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

12. 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

13. 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)

14. 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

15. 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

16. 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

17. 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

18. 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

19. SB 1406 Continued • DIF Ordinance must be modified to: • Establish 24-month grandfathering provision • Set forth process for “certification” to be issued • Final approval defined • 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

20. 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

21. 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 . . . .

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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)

31. 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

32. 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 amcguire@gustlaw.com www.gustlaw.com