The Many Benefits of Special District Financing
With development once again underway, the age-old pressure points in the development approval process have also returned. As communities look at how to finance new infrastructure, it is all too easy for them to bump impact fees on new homes back up to pre-recession levels, for roads, schools, water, sewer, and so on.
Yet relying on impact fees during the sustained construction boom that preceded the recession did not help build our way out of the infrastructure challenge. Impact fees are an imperfect tool for financing infrastructure, because you can’t spend them until they accumulate, they rise and fall with the pace of construction, and they unfairly burden new development to solve a broader community need. They are often based on flawed assumptions about the level and costs of growth, and are also frequently poorly managed and improperly spent on other budget needs.
There are alternative municipal finance solutions that better meet the needs of both the private and the public sector, and more importantly homeowners. So NAHB’s Land Development Committee recently hired a CPA to write a report on the best alternatives to impact fees: special district financing.
Special districts are more reliable as well as more equitable revenue sources. They draw on a broader base of residents, rather than just new homebuyers, and are levied as straightforward annual assessments instead of being rolled into a mortgage, with interest, as impact fees are typically implemented. Since special districts by their very nature are specific, bounded geographical areas, there is a clearer and more transparent connection between the assessed fee and the community benefits that are bought and provided with them. They can be used more easily with other financing tools, allowing infrastructure to be built sooner—in advance of or concurrently with development. Overall they offer the opportunity for much more of a positive collaboration between the public and private sectors.
This report, “An Overview of Special Purpose Taxing Districts,” is available online at http://www.nahb.org/~/media/Sites/NAHB/LMA/FileUploads/242770-NAHB_SpecialDistrictsReport_v5_20150112070812.ashx
and in hard copy from NAHB’s Land Use and Design Department. NAHB has extensive additional resources on infrastructure financing at www.nahb.org/infrastructurefinance.