Road Impact Fees & Accountability

This is the second of two guest blog articles this week by Mac McIntyre. The most involved of the Smart Growth-DeKalb participants–affectionately tagged (by me) as the Internet Research Commandos–discovered McIntyre’s work last fall when we began attending city meetings and researching logistics issues. We’ve been reading his “Rants & Raves” column at DeKalb County Online ever since.

My question: Will you elaborate on your objections to the road impact fee, & tell me what you believe should happen instead?

My main objection to all impact fees is the devastating effect they have had on affordable workforce housing. The Chicago Metropolis 2020 report, coordinated by the Suburban Mayors Caucus, reports that impact fees are the single largest obstacle in the way of affordable housing.

One of the warnings issued when impact fees were being considered in northern Illinois was that they could create irresponsible spending by local governmental units. When the PHH Farnus study was done, it was determined that governmental units would “break-even” on new homes priced in the $80,000-$120,000 range. Now they claim that can’t break even on the $350,000-and-up homes that are being built at RiverMist and Heron Creek. That sounds irresponsible to me.

In relation to the road impact fee. 605 ILCS 5 of the Illinois Compiled State Statutes regulates Road Improvement Impact Fees. The DCBDA recommended that the City of DeKalb apply this law to all impact fees. This law requires a citizen oversight committee to make sure the laws have been adhered to and to make sure the impact fees are properly spent. It also requires that the unit of government requesting the impact fee provide the public with a comprehensive plan for the services the impact fees would be used for. This would give the public the opportunity to have input on the road construction plans in the community. It would allow property owners the opportunity to know and address concerns they might have if they knew the street in front of their homes might become an arterial road or a truck by-pass route, for example. If 605 ILCS 5 was applied to the school impact fee, the citizens would be provided with a comprehensive plan for how the school district was planning to address its construction needs. (Doing so might help them get a referendum passed.) These laws also spell out, in detail, how a homeowner could apply for and receive a refund of the impact fees they paid, should the governmental units misuse such funds.

According to 605 ILCS 5, no Illinois community or governmental unit, including Home Rule communities, can impose a Road Improvement Impact Fee unless they comply with this statute. DeKalb, in an effort to circumvent this law, is attempting to impose a Road Improvement Impact Fee through the form of a “voluntary” annexation agreement. If a developer wants his project approved they must voluntarily agree to waive their customers’ rights to an appeal in the event of misuse.

Here is but one example of misuse. The school district’s first attempt at a referendum failed by a 70-30 percent vote margin. That referendum called for a $70 million construction bond that would have built a new high school next to the current high school which would have been converted to a junior high school. So, the school district bought the property that AYSO soccer is played on from the City of DeKalb, who had purchased it from the cemetery. The school district used their impact fees to purchase the property without voter consent. The voters rejected their referendum so the school district RENTED the land to the Park District who is using their impact fees to pay the rent. City tax dollars were used to purchase the land from the cemetery. School impact fees were used to purchase the land from the City. Park District impact fees are being used to rent the land from the school district.

And now buyers of a new four bedroom home in DeKalb will have to pay more than $21,000 in impact fees and the City wants developers to voluntarily agree to waive their customers’ rights to make sure their money was well spent?

No solution is workable unless the government is held accountable for its spending. Impact fees or annexation agreements should be legally imposed with full disclosure provided to the public.

20 thoughts on “Road Impact Fees & Accountability”

  1. There are some who believe that local governmental units, especially those in suburban areas, attempt to use the power of housing ordinances, and that include impact fees, to attract affluence and restrict poverty. I do not think the motive for doing so is sinister but laziness instead.

    It first appears as beneficial for a community to zone in affluence. Larger lots, strict design guidelines and high impact fees result in expensive homes that pay high property taxes. That sounds good.

    People who buy those expensive homes have high incomes. And even if they are working elsewhere to earn that income they are residents and therefore when the statistics are compiled the median income of a community increases. That sounds good (for politicians).

    Home values are relative to what other homes in the neighborhood and community sell for so expensive new construction homes create a higher rate of appreciation in the existing stock of homes, so as Kris Povlsen points out, “When existing homeowners get a higher tax bill they really should just smile because that means their property values have gone up.” That sounds good.

    Low income people cannot afford expensive homes and even if that means a community loses some of its less affluent residents, because they can’t keep up, it prevents low income people from moving in to town. That don’t sound quite as good but at least its OK.

    But larger lots, less density, requires more land (usually farm land). That increases sprawl. Studies such as the Chicagoland Metropolis 2020 report are revealing that the MAJORITY of the buyers of new construction homes are stretched beyond the 30% of their income threshold and many are on adjustable rate mortgages, some on 40 year terms. There are 730,000 of those families living in northeastern Illinois.

    When existing homeowners sell their homes at a higher price they learn that everyone else’s home has appreciated signficantly, too. They often have to look west to find a home comparable to their desires and yet priced so they can put a little of their equity in their pocket (or at least towards their credit card bills).

    TRUE STORY: I had some business to do in Galena and decided to take Route 64. We stopped in Mt. Morris (west of Rochelle), first at a gas station and the cashier was from DeKalb. We then went to a local cafe and our waitress used to live in DeKalb, too. Affordability was the reason both gave.

    One more negative aspect of zoning for affluence. Neighborhoods like Pleasant Street and Dodge Addition are being bought up by speculative investors, many from the suburbs, who rent out the homes, spend little or nothing on repairs, and watch their real estate portfolio grow by 7-12% each year. Sources to confirm this are the NOLA reports (real estate transaction reports) and the DeKalb School District ISBE Report Cards that show that MOST (by far) of their increases in new student enrollment is coming from low income families living in apartments and rental homes.

    The motivation behind impact fees may not be sinister but the effects can be devastating.

  2. Mac, if you are correct, there’s some irony here. I remember Greg Sparrow saying that he wanted to build only higher-end housing in DeKalb, & let those who need affordable housing go to Kirkland (I kid you not). Yet, he was against impact fees.

    My neighborhood–Lucerne Lane–may have been one of the last batch of affordable new (detached) homes built in DeKalb. Steve Irving built our house for under $106,000, 13 years ago (& that was a few grand higher than other homes on the street, lumber prices having taken a leap over the few years it took to build out). If current trends prevail, we will be able to sell it for twice that within 5 years. Our property taxes, however, have already doubled since we moved in. Mr. Povlsen’s statement that you referred to, upset me. I took it as flippant.

    Yet, I don’t believe that this bunch in city government consciously wants to shut out working-class people from the home market. The people I talk to are desperate to help the schools & see impact fees as necessary to these ends, that we are paying for past mistakes in allowing home building to get ahead of industrial growth. Also, I am convinced that many of the corporations coming to town do not pay their fair share (remember the talk about the Job Scam book? I started that discussion). But, the city does seem to be moving in the right direction, council working to become better negotiators when it comes to incentives, and committed to playing a part in refurbishing existing homes.

  3. Well, maybe. I was not all that impressed with the report in the Chronicle
    about the school board meeting. Sounded like the same old song and
    dance by Mr Rasmussen. If anyone deserves tax breaks.. it is the smaller
    businesses.. and not the Targets or 3Ms. At least they are actually thinking
    about the higher tech possibles. Time will tell.

  4. yinn… I hope I am contributing as much as I am receiving from this dialogue.

    Greg Sparrow I was clearly opposed to impact fees. I’m not sure Greg Sparrow II was clear on any of his positions.

    Lucerne Avenue and Pond/Fisk areas are true neighborhood revitalization success stories that exemplify the proper use of TIF and CDBG funds, as well as public/private partnerships that benefit the community. Unfortunately those funding sources have gradually been consumed by the governmental units, especially the school and park districts, who now actually budget TIF and CDBG as revenue sources. This practice has led to some incredible waste-of-money stories.

    Here’s a task for the Internet Research Commandos: Find out how much revenue is looming on the horizon for the school and park districts when the TIF districts expire and ask why this significant annual revenue source is not discussed.

    When TIF is used properly, for private property improvement/revitalization, it pays big dividends. Property tax receipts are frozen (to the governmental units) and the ‘overage’ is used to revitalize and therefore increase value of the property (and property taxes). It was originally meant as a direct cost-benefit relationship. Then the governmental units began tapping it, the excuse given was that if they improved government owned property then neighboring properties would increase in value. That may be true but the direct cost source property, if government owned, pays $0 in property tax and 0 times a million dollars is still 0.

    We really need to get the use of TIF funds back to private property. We need to do what was done on Lucerne and on Pond/Fisk Avenue in the Pleasant Street, Dodge Avenue and Haish Street neighborhoods. We need revitalization in the old Greek Row area.

    I don’t believe any of the council members are deliberately trying to shut working class people out. But there is ’flippancy’, as you refer to it, towards the potential consequences of their policy making. So I do not think they are moving in the right direction.

  5. That is an interesting question about the TIF funds in regard to school & park districts. The flipside of that is asking the City Council exactly what the plans are when it comes to its stated commitment to revitalization, & how it intends to pay for it.

    Hope they have more on next week’s agenda than the smoking ban thing.

    p.s. yeah, Steve Irving gets the nod for Lucerne AND Fisk! Wonder what he’s up to nowadays. Besides golf, I mean.

  6. Mac,

    If what you are saying about most of the new enrollments in the schools coming from low incom families in rental homes and apartments, then where are the people in the new home sending thier kids to school? Some may be sending them to private school, but I doubt it is all of them.

    Also, I still have not heard what I consider a valid argument against my rational that if a new home is built in any city, some money must be given up to the schools for NEW infrastructure requirements. Property taxes should only pay for sustaining the schools. Maybe some capital improvements but to expect home owners who have had their house for 10 or 20 years (fill in the blank here) pay for the addition classroms needed in the primary and secondary schools just seems wrong. Even if I am new to the area and I buy an older home, the home has already paid for the classrooms required by it. Some number of students have moved on and made room for my kids. If I buy a new home, I am putting additional load on the schools either directly, if I move in the area, or indirectly by freeing up a house for someone else to bring in their new kids.

    The impact fees have the same rational as the Water and Sewer hook up fees when a property is annexed in to the city. Adding the new chunk of land will impact the amount of infrastructure required to process the additional burden placed on the system. I ‘ve seen folks tryto squirm out of them because they don’t think they will be impacting the system as much as others, but I haven’t heard anybody say they were wrong, illegal or unfair.

    As for affordable homes for everybody, I know when I bought my first house, it was small, it had to be small I couldn’t afford a large house. It also had to be old, I couldn’t afford a new house, even if it was small. I don’t know why folks think everybody is entitled to own a NEW house. There is no shame in buying a used house. In some ways there are a lot of advantages. My current house is 80 years old. It looks eighty years old. I love it! It has real plaster walls, real oak trim and other features no common individual could even fathom having in this day. The down side is that I have to paint it every 10 years or so. The up side of that is that it doesn’t have to stay the same color all of it’s life.

    When we were looking for our house in the area, there were a lot of older and sometimes smaller homes on smaller lots at the bottom of 100K. I’m sure there were some below that. Good homes for anybody buying their first home. Are they new? No. Are they Big? Probably not. Can someone raise their family in it and be proud of owning it? Yes! At one time, they were new houses and only the folks who could afford a new home, bought them.

    2002 5282 1453
    2003 5372 1638
    2004 5473 1631
    2005 5551 1737

    TOTAL 269 285

    Joe… I am not saying that most of the enrollment growth in the DeKalb School District is from low income students, the Illinois State Board of Education and the DeKalb School District is.

    The table above is from the Illinois District Report Card. The left column is the year, middle is total enrollment in #428 and the right column is the number of low income students. The report card indicates, for example that in 2005 31.3% of the school district’s 5,551 students are low income. The ISBE defines: “Low income students come from families receiving public aid; live in institutions for neglected or delinquent children; are supported in fister hmes with public funds; or are eligible to receive free or reduced-priced lunches.”

    From 2002 to 2005 Dist 428’s enrollment grew by 269 total students. The number of low income students increased by 285 students. Since 2002 DeKalb has averaged around 350 residential building permits per year. That would suggest that empty nesters are purchasing new homes and not young familes or first time homebuyers.

    The new construction homes are just simply not adding as many students to the district as is being claimed. The special census, requested and paid for by the City of DeKalb, empirically proves this. The City requested the special census so it could receive funds for population added since the 2000 census. It had a vested interest in having the US Census Bureau count the people in the new subdivisions. In the 1100 new homes surveyed by the Census Bureau there were 540 children. This is far less than the 945 students the school district projected there would be.

    The exaggeration of 405 students multiplied by the $8,050 per student operating expense amounts to a $3.2 million over statement of annual operating expenses and a $7 million dollar overstatement of school capital costs.

    No one I know of believes impact fees are illegal. The DCBDA does believe that the methods the City of DeKalb has used to determine their impact fees are structurally, and legally, flawed.

    The size of a new home is regulated by lot size and city ordinances for set backs, etc. The builders would gladly build smaller homes on smaller lots if the City would allow them to.

    I agree with you that for many if not most people an older home is best for a first time home buyer. But we must also accept that times have changed since Ozzie and Harriet. Many Harriets are raising children on their own nowadays. They simply cannot afford to purchase a fixer upper.

    It is not JUST the first time home buyer who needs a lower priced home. That need is based on income.

    You said, “Even if I am new to the area and I buy an older home, the home has already paid for the classrooms required by it. Some number of students have moved on and made room for my kids.”

    Are you saying that students who graduate or move on from school only make room for new students who move in to older homes? This confuses me. Could you explain?

    You also said, “Property taxes should only pay for sustaining the schools. Maybe some capital improvements…”

    I believe the average new construction home owner in DeKalb is paying somewhere in the neighborhood of $7,000 per year in property taxes. The average DeKalb existing homeowner is paying just below $4,000. While I believe the number for either is too high I suggest that regardless of the source of revenue we do not allow irresponsible spending.

  8. Mac & Joe,

    Your back-and-forth has really gotten me to thinking about an even bigger picture here. Impact fees are new to us. They are new-er in general. Why did we grow up without needing them but now they seem necessary?

    Although I am now–thanks both to my recent participation in local issues & to Mac–convinced that we need to have more people involved in the watchdog role as concerns spending by all local taxing bodies, I’m not sure that even 100% accountability would solve all of our money problems, especially when it comes to our schools.

    I think impact fees are a response to system-wide changes &/or failures at all levels. Locally, we have built homes too fast, we have at times given away too much to industry, and we might also be top-heavy administration-wise in the school system. At the state level, we have government that’s supposed to fund schools at the 50% level but are not even meeting 40%, and too much reliance on property tax instead of restructuring the state income tax to meet needs (yes, I’m talking about something a bit more progressive). Nationally, we are going through a shift from a manufacturing base to a more service- and information-oriented one that currently–but we hope not permanently–has eroded both wages and tax base.

    Putting together current fiscal realities with concerns about accountability, my questions would be: could we do without impact fees in this picture? If so, how?

  9. Yinn asked: “Why did we grow up without needing [impact fees] but now they seem necessary?”

    Hmmm… Looking back, maybe if Shabbona and his people would have charged impact fees, his descendants wouldn’t be trying to put a casino on Lake Shabbona! :-)

    The serious answer is government salaries. When we were growing up the private sector jobs paid better than those in the government. According to NIU, median incomes in the private sector dropped by more than 6% since 1999. Rank and file government salaries have risen at least 3% each year and some administration salaries have risen 73% since 1999. Its taking almost every tax dollar received just to meet salary and pension expenses.

    You asked: “Putting together current fiscal realities with concerns about accountability, my questions would be: could we do without impact fees in this picture? If so, how?”

    No. Joe is right that expanding a communities boundaries adds costs and those costs, but only those costs (IMHO) should be paid by the new construction that creates them. I do think that a real estate transfer tax would be more fair and more dependable than impact fees but only if it replaces impact fees. Sycamore is putting a real estate transfer tax referendum on the Spring ballot but I am not in favor of it because those who live outside of the Sycamore corporate limits (yet still send their children to Sycamore schools) will be exempt and its an add on tax instead of replacement revenue. A countywide real estate transfer tax would be the only viable alternative to impact fees.

    That being said there must be accountability on the creation, amount and use of impact fees. They’re supposed to provide an annual audit of impact fees. They refuse to. Impact fees should be based on real numbers and not the hocus pocus formulas currently used. They should also put a plan in front of the public that allows citizen input and concerns to be addressed instead of committing the City to projects, based on impact fees, without public hearing.

  10. Holy cow, is there such a thing as death by taxes??

    Charm, I went to the NEA site & the first article is about teachers’ salaries not keeping pace with inflation. Generally, I’d want to be looking at administrators’ salaries instead because those are the ones that often seem out of proportion to the entry level spots. Also, there’s that weird thing that happens when school districts consolidate smaller schools into larger schools to “save money.” The weird part is that they rarely actually save money. Often the opposite is true. I believe it’s because, as the groups get larger, administrators become very specialized so there ends up being more of them, plus someone considered a specialist commands a higher salary.

    This happens in my field–adult developmental disabilities (DD) services–too. There’s been a trend over the past 35 years MOL to take people with DD out of institutional settings and into community settings “even though” everyone “knew” it would cost more. Cheaper by the dozen, right? Wrong. To keep someone in an institutional setting (my numbers may be slightly out-of-date, but you’ll still get the idea) costs between $110,000-$120,000 annually because you have a permanent, full-time team of specialists: psychiatrist, staff nurse, nutritionist, behavior specialist, case manager, etc. In a group home setting of, say, 15 or fewer people, it costs maybe $45-65,000 per person per year for services because there, you don’t generally have a psychiatrist, nutritionist, or nurse as full-time staff but rather they are consultants used for a couple hours per month. Very small group homes (4-6 people) and adult foster care are even more cost-effective ($15,000 to $30,000 per person, per year in Illinois) partly because of greater access to community resources but also because the staff/caregivers are generalists who receive training in a wide range of topics (this is where I come in, BTW).

    Then there’s the contract thing. If you look at the county nursing home, they tried to save money a few years ago by hiring an administrator who would work at the home 3 days per month. Then the state got on their case because they require an administrator on the premises 40 hours a week (which is actually pretty standard in Illinois for these types of jobs, so somebody really screwed up). So the county then promoted the person who should have gotten the administrator’s job in the first place. Does that mean the 3-day-per-week guy is gone? No, of course not.

  11. I’ll concede to Mac. I have no good argument. Though we should maybe start thinking of owners of houses as streams, whey buy, live then move on and someone new then buys them.

    If new homes pay higher taxes, it is because the are considered worth more in absolute cost. This make sense in a way. But only partially. I guess there are more variables involved than I’m willing to try and figure for.

    As for this list, I get the impression it will soon be turning its focus more on the schools and discussing the issues with them more than the issues facing the city.

    Yinn, Waah to the teachers. I just heard a report out that NOBODY’s income has kept up with inflation! Except maybe the CEO and other hight officers of the corporate world and some in the Gov’t.

  12. LOL for your waah! But that is right, wages have been eroding since, what, about the mid-70s. Last month was an article in the Trib that Illinois workers are making on average $6,000 less per year than only 10 years ago, the only exceptions Chicago & one city downstate, I forget which.

    You are right again, I think, when you say we will turn our focus to the schools, & probably should since concern for their welfare is inherent in every single “yes” to new industry, not to mention their gobbling more than half of what we pay in property taxes.

  13. Anytime there is a conversation about personal income & taxes it has to include the effects of the loss manufacturing jobs and outsourcing. How has the breakdown of jobs, manufacturing vs the service industry, changed over the years in Dekalb County–especially the shift to the lower end of the latter.

    The primary reason for the loss of manufacturing investment in the US (and consequently the income and taxes that they generate) is not due to impact fees and taxes, but the wage differential between Asia (notably China) and the US. I’m guessing that cutting taxes in half would not even solve that problem.

    We all want the benefits of low prices for everything that we buy and flock to stores like Walmart, but at the same time we are unwilling to give up any of the public services that we have.

    We need to figure out how to outsource all the government jobs and services to Asia and beyond so that we can take advantage of the wage rate differential for the public sector–just like manufacturing has done.

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