The Morning Report
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Wednesday, April 25, 2007 | Environmentalists and home builders aren’t accustomed to sitting on the same side of a contentious issue. Nor are Realtors and builders used to staring each other down.
But the players align in that unusual way in a current debate in Sacramento.
In recent years, some builders have begun to spread out developer-impact fees throughout generations, tacking on a perpetual fee on new homes — to be paid in the future by every new buyer of the home. The impact fees, which had been typically paid in one installment at the time of a home’s construction, go to cover such things as schools, parks and sidewalks.
But Realtors say the spreading out of those fees is adding additional costs for homebuyers, and a bill in the state Senate would bar the emerging practice.
Builders, environmentalists and housing advocates are the motley crew against the bill. The state’s Realtors association sponsors it.
In California, Proposition 13 has severely restricted one means — property tax increases — of paying for long-term community costs and such things as open space and affordable housing. As such, governments mandate that builders pay certain “impact” fees on every unit they build. The state’s homebuilders say they’re forced to pass on those costs to the people who buy the homes. So some builders have developed the fees in question as a way to spread out the burden currently shouldered by the first buyers of a new home.
As long as the requirements are met, environmental groups say it’s of little consequence when the money comes. But that’s not fair to future homebuyers, the Realtors say.
Alex Creel, chief lobbyist for the California Association of Realtors, said the new system works well — for builders and environmentalists. “The environmentalists are looking for ways to fund their stuff, and if the builders can accommodate their concerns on the backs of future homebuyers — it’s a good way to go,” he said.
To enact the fees, an agreement is attached to the title of home. It states that whenever it is sold for a stated period or in perpetuity, the future buyer will pay a percentage, so far between 0.05 percent and 1.75 percent, of the purchase price. For a median-priced $491,000 home in San Diego, the high end of that range would be $8,592.
Builders call it a “reconveyance fee.” Opponents call it a “private transfer tax,” and say the lack of oversight on how the fees are collected and spent negates their potential benefit.
The state legislative director for the Sierra Club California, Bill Allayaud, said the fees ensure certain environmental protections will continue for decades to come, he said, as opposed to lump-sum impact fees.
“This is an unusually strong coalition,” Allayaud said. “Strange bedfellows are made when the issue demands it. This one wasn’t a tough call for us. This is a really important mechanism for the Sierra Club.”
The clash divides the building industry from the Realtors, the latter lobbing accusations of developer greed and the former telling them to mind their own business.
“Realtors have suggested that builders are lining their pockets with these fees, that builders have used this mechanism to get profits off of subsequent sales,” Dellinger said. “They’re interfering in how we do our business, but we think it would be inappropriate for us to interfere with their business.”
Opponents of the fees say that they are a sort of perpetual hush money, a way to muffle environmentalists’ objections to new housing developments. And they say the fees leave the door open for thousands of dollars to be tacked on to the price of homes, a debilitating blow to a portion of would-be homebuyers.
But the fee’s supporters say the benefits are enjoyed by entire communities, and residents should pay for them over time. Builders who’ve made promises, like pledges of new infrastructure or preserved wetlands, in order to get projects approved use the fees as a way to fulfill them.
Sometimes the fees fund affordable housing projects, so some housing advocacy groups also oppose the bill. Those programs should definitely be partially funded by the companies who profit from building homes, said Julie Snyder, policy director for Housing California. But she said the organization doesn’t have a preference for the projects being funded up-front or over time.
A hearing on the bill was postponed to May 8. Creel said his sense from the committee was that its members wouldn’t prohibit the fees completely but would like to regulate their implementation, by perhaps including a cap on fee collection rather than charging them in perpetuity, or increasing disclosure for the people buying such homes.
Darla Guenzler, executive director of the California Council on Land Trusts, said her organization opposes the bill in its current form, but might change position if an amendment stipulated the fees had to be better disclosed to homebuyers.
In response to some of the backlash surrounding the fees, builders have sponsored their own bill in the state Assembly that would bring more regulation, Dellinger said.
“We’ve specified more clearly that [homebuyers] have to see how much the fee is, or how it’s calculated, what nonprofit, and for what purpose,” she said. “It’s our attempt to answer some of that noise that has been made.”
While the phenomenon has yet to show up in San Diego County, local building industry advocates say banning the fees in the state would remove a potential tool prematurely.
“It’s one tool we’d not like to see erased or sponged,” said Paul Tryon, CEO of the county’s Building Industry Association. “I see the burdens growing all the time.”
With increased regulations for environmental concerns and with what Tryon considered a general municipal inability to pay for some basic community upkeep, these fees could be the way of the future.
But Creel said a lot of regulation would have to be added before the fees could be very effective.
“It’s sort of the wild west out there when it comes to these things,” Creel said. “Maybe there needs to be a marshal in town.”