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Home builders say

Does new residential growth pay for itself?

New homes are usually considered a great asset to a city. That’s why annexation is so popular. But some of the fastest growing cities in the state have imposed a charge known as impact fees on developers to pay for the costs of providing infrastructure and services to new homes.

Clinton and Ridgeland are two Jackson area cities with impact fees, and the City of Ocean Springs on the Coast is currently considering adopting impact fees. Impact fees for the City of Madison were challenged by the Home Builders Association of Mississippi (HBAM). A judge found that Madison’s impact fees were not legal.

“We think impact fees are illegal in Mississippi,” said Marty Milstead, executive vice president of the HBAM. “A city can’t tax without the authority to do so. They need approval from the Mississippi Legislature for impact fees to be allowed.”

Milstead said that impact fees make new homes less affordable, and could price some people out of the market. In Ocean Springs, a $70,000 study was conducted that recommended the city impose impact fees of $4,600 to cover the cost of providing infrastructure such as water and sewer upgrades, and additional city services such as fire and police protection.

The home builders argue that the study is skewed, and that new residential growth pays for itself in the long run by adding significantly to the city’s property tax rolls, increasing revenues from sources such as city sales taxes and providing jobs.

Milstead likens the proposed impact fees in Ocean Springs to putting a large extra tax on every new car built by Nissan in Mississippi.

“Do you think that would affect Nissan’s ability to sell cars?” Milstead asks. “Nissan would do business elsewhere. Then we would just have old rundown cars in Mississippi, and no one here to build new ones. Any businessman can relate to having fees or taxes placed involuntarily on their industry. We pay enough taxes and we pay our share of fees without paying another that we feel would hurt our industry.”

Donovan Scruggs, Ocean Springs director of community development and planning, said the city’s current budget crunch can be tied directly to infrastructure expenses needed to serve new housing developments.

“If residential growth paid for itself and was financially positive, we would not be in a budget crunch,” Scruggs said. “But with increased numbers of houses you have increased demand on services, and historically the funding of revenues generated by single-family housing does not pay for the services they require from a municipality.”

Scruggs said there have been two studies done on impact fees. One 100-page study was on services for police and fire protection, administration and parks. A second study was done on infrastructure related impacts on roads, water and water.

The current proposal calls for the fees to be collected separately.

“We want to make sure we tie the fees as closely as possible to when the demand is being generated,” Scruggs said. “Water and sewer fees would be collected when the subdivision is constructed. Services more related to occupancy and homes being constructed would be collected later. For example, no one will have a need for a park until there are kids in that neighborhood.”

While developers pay for onsite water, sewer and road infrastructure, Scruggs said it is costly to pay for offsite upgrades needed, such as enlarging lift stations and raising water towers.

“Now if we have to upgrade a lift station, it is paid for by the general fund revenue paid by each taxpayer in the city,” Scruggs said. “Someone on the west side of town would have to pay for subsidizing the growth in demand caused by the development in the east part of town.”

The eastern part of town is where the greatest residential growth is being seen. Scruggs said there has been so much growth in recent years that the city has to elevate its water towers to keep pressure at adequate levels.

“That was a direct result caused by the growth,” he said.

Scruggs said that impact fees are legal if they are done properly.

“Madison’s impact fee program had problems,” Scruggs said. “Ours will not have those problems. It can be done right.”

Ocean Springs had 120 homes constructed in 2000, 90 in 2001 and is on track to have 120 homes constructed in 2002. If impact fees had been collected on the 310 homes built in three years, the city would have extra revenues of about $2.1 million.

Milstead said impact fees are just creative ways to generate new revenue for a city.

Ridgeland Mayor Gene F. McGee disagrees. Ridgeland, the fastest growing city in the Jackson metropolitan area, has had impact fees since 1980s. He said in order for the city to have orderly growth, developers need to be responsible for a certain amount of the infrastructure.

McGee said home builders in Ridgeland haven’t bucked the impact fees, and instead have been cooperative. “They understand there is a cost involved to develop these properties the right way,” McGee said. “We don’t have any problem with them agreeing to pay. They understand impact fees are for a purpose that improves their development.”

Milstead said the home builders haven’t opposed impact fees in Ridgeland and Clinton because builders have not asked to challenge the ordinance. “But the builders in Ocean Springs have a huge problem with impact fees,” he said. “If Ocean Springs does them…we think the law is on our side.”

Contact MBJ contributing writer Becky Gillette at mullein@datasync.com or (228) 872-3457.

About Becky Gillette

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