Palm Coast Maps Out Gentler, Kinder Impact Fees on Developers, But Questions Arise

The Palm Coast city administration this morning unveiled a plan that would lower development impact fees for most of those who pay them–assuming that residential construction begins to approximate past trends of powering the engine of local development. Impact fees are largely immaterial at the moment because there’s very little construction going on.

Impact fees are one-time levies, which run into the thousands of dollars, that builders must pay whenever they put up a home, an office or a store, to defray the cost of development on roads, parks, public safety and schools. The fees are generally passed on to property owners or renters. To spur development and recalibrate the fees in line with a slower pace of growth, the city wants to simplify the way those fees are assessed, and make it easier for developers to pay them—whether by giving them discounts when they pay up front or allowing them to pay on an installment plan of up to 24 months.

But some of the proposals provoked confusion among council members and raised questions about the way they were generated.

To simplify the way the transportation impact fee is levied (the steepest next to the school impact fee, because it helps pay for roads), the city would no longer charge those fees according to a grid that breaks down structures by very precise uses. Rather, it would bunch up various types of structures, average their impact-fee cost and levy that average on builders. The overall number looks simple, but it masks a skewing effect that left some council members uncomfortable.

For example: right now, a single-family home pays a $3,868 impact fee, but a dwelling unit in a retirement home pays $899, and a mobile home pays $1,385. The proposal calls for taking those and other residential categories and averaging out the cost, which comes out to an average $2,069 impact fee. That’s a lot less for single-family homes. But it would be a lot more for mobile homes or retirement-home units. The problem is that there are no mobile homes in Palm Coast, and comparatively few retirement-home units, when contrasted with single family homes. But there are projected to be thousands of additional single-family homes in the years ahead. The averaged fee results in a big break for residential-family developers.

In one step that would reduce the skewing effect, council members agreed to remove mobile homes from the equation. That will raise the resulting average. But the other categories remain, as does the way the average is calculated.

Still, the overall effect would yield higher fees for 29 current categories of construction types and lower fees for 19, says Jason DiLorenzo, government affairs director for the Flagler Home Builders Association. “Overall,” DiLorenzo said of the city’s proposal, “I think it’s really innovative thinking to try and solve some issues that both sides are having–the public sector and the private sector. I think overall, excluding residential, this could actually have an increase in impact fees, but with that you get a the flexibility and the certainty that comes with that higher fee—the certainty that you’re done paying for it.”

The advantage of grouping various related building categories under one heading, and one impact fee cost, enables a builder or developer to know that within that building, uses can change–from, say, a convenience store to a pharmacy or to a bank–without a new fee being levied at the time of the change.

The school impact fee was not under discussion today. Those are figured out separately. (A single-family home, for example, is assessed a $3,600 impact fee for schools. Commercial structures are levied higher fees.) The other three fees were.

Parks and fire fees would not change. A single-family home would still cost $1,264 for the parks impact fee, and $196 for the fire and rescue fee. The parks impact fee does not apply to businesses, since they don’t cause an impact on parks. The fire fee is almost 25 cents per square foot for non-residential structures: a 10,000-square-foot office building or store would pay a $2,480 fire impact fee.

Businesses that have been around for a long time—particularly those pre-dating the city’s incorporation—would be allowed to increase their “intensity of use” (which generally means expanding) without being charged an additional impact fee. That’s designed to encourage older businesses to expand or change. DiLorenzo calls that proposal a no-brainer.

What would change is the mode of payment. Developers are required to pay fees up front. The city is proposing to let them pay up front and get a discount of from 1.5 to 3 percent, depending on how soon they pay. They could also get a 12 to 24-month installment plan. Some council members were interested in limiting the plan to 12 months—and specifying language that would prevent new businesses that happen to be struggling from either trying to get out of the plan or from blaming the city somehow for their struggles.

“I hope you’re all aware of the potential downfall,” Mayor Jon Netts said. “Wonderful. When you collect your money up front, you’ve got your money. No discussion. Business owner comes in and says listen, I can’t foot that kind of money up-front, let me pay for it out of my profits once my business is running. So he takes the 24 months, his business doesn’t do as well as he expects, comes back to the city, I just can’t afford this, I just can’t make it. Now, you big bad city, you’re going to force this poor businessman who’s just hanging on by his fingernails, you’re going to extort this money from him, you’re going to cause him to fail. Understand that there is a downside to being a nice guy.” Particularly when the vast number of businesses fail in the first year for being under-capitalized.

“I’d rather be the good guy and allow it to happen than the black hat and cause it to fail,” council member Frank Meeker said.

“Well,” Netts said, “nobody wants them to fail, but the reality is you will be blamed for the failure when you insist that they continue” to make their payments. They will also argue, Netts said, that with a failing business, the impact is not the same, so the impact fee should be reduced. “Impact fees are designed to pay for impact. If you default and your business shuts down, there’s no impact. So in the greatest sense, the city is not diminished.” Netts added. But the city should ensure that the next business moving into that space should assume the cost of impacts. The administration said it would write that provision into the new ordinance.

The proposals are still just that: proposals. The administration will incorporate today’s suggestions into a new draft proposal and bring it back to the council in two weeks.