Legislature should call the League’s bluff on impact fee lawsuit threat

By Nick Dranias
Goldwater Institute
 
The Arizona League of Cities recently threatened to file a lawsuit because the Arizona Legislature imposed a two-year moratorium on development impact fees during Governor Brewer’s special session. The League argues that the fee freeze is unconstitutional because it had nothing to do with the budget issues the special session was called to address. But the League’s challenge should fail because the fee freeze is no different than a targeted tax cut and no more out of place during the special session than a targeted tax hike.
 
Cities require developers to pay impact fees before allowing them to build large-scale developments. In theory, the fees protect residents from subsidizing new development by having developers pay for necessary public infrastructure and services, like roads and sewers. 

But too often, Arizona cities use impact fees, like Mesa’s “Cultural Impact Fees,” to force developers to pay for a spending wish list that has nothing to do with defraying the public cost of new development. In practice, impact fees are just special taxes on developers. And when developers pass them along to future homebuyers, who never had a voice in local politics, they amount to taxation without representation.

Given this reality, the fee freeze was certainly relevant to the budget issues of the special session. There is nothing arbitrary about the Legislature thinking a fee freeze, like a targeted tax cut, might improve the state’s budgetary outlook by triggering more development, more money in homebuyers’ pockets, more economic growth and consequently, more tax revenue. For this reason, the League’s threatened lawsuit shouldn’t pass judicial muster.

If a targeted tax hike would have been constitutional during last summer’s special session, so are targeted tax cuts like the impact fee freeze. Rather than submitting to threats of litigation, the Legislature should call the League’s bluff. Let the League file a lawsuit and then force it to prove impact fees for museums and visual arts centers are not taxes and that the goal is only to make development pay for itself.
 
Nick Dranias holds the Goldwater Institute Clarence J. and Katherine P. Duncan chair for constitutional government and is the director of the Institute’s Dorothy D. and Joseph A. Moller Center for Constitutional Government.


Comments

  1. Hold on to that chair, Nick.

  2. “And when developers pass them along to future homebuyers, who never had a voice in local politics, they amount to taxation without representation.”

    Huh? Can anyone make sense of this statement for me.

  3. Nick Dranias says

    Rolo, it is a very small chair. I hold it in my left hand and I hold the Hanger of Constitutional Knowledge in my right hand.
    Todd, impact fees are typically passed along by developers and paid by future homebuyers, typically folks who don’t live in the town that imposed them, who never voted for any of the local politicians, and who couldn’t have influenced the policies leading to them. They are, in essence, taxed by the city without any political representation.

  4. Sooo, according to your crazy-person logic, if I drive to another state of my own free will, then have to pay a road toll or sales tax or some other fee, that is “taxation without representation”?

    How about this instead, Mr. Free Marketeer: if that new house is too expensive, DON’T BUY IT. Your purchase is completely voluntary; therefore, impact fees that may (or may not) affect the price are NOT a tax, which is not voluntary. (For proof of that last part, ask the IRS.)

  5. Nick,
    I have to agree with David, your claim really doesn’t make sense. At the time a tax becomes law it is done so under our representative government. The fact that people who did not live in the area at the time the tax was passed are later charged is what happens in the case of all taxes.

    Of course I don’t accept the impact fee is a tax on homebuyers, but that is another argument.

  6. This is a bailout for homebuilders that do nothing but reduce the major losses they are taking. There is nothing to prove they will pass alo g any savings to homebuyers an if anything they will only further depress home prices.

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