Before this post even gets started let me say that we are unequivocally opposed to impact fees in the city of Seattle. There are two reasons for this. The first is that by their nature impact fees just add cost to housing and currently all housing development in the city already pay extraordinary amounts towards public benefits. Every time new housing gets built surrounding infrastructure improves, by mandate, and other fees and taxes collected are used for wider public benefit. I’ve written about this before and there is a significant cost and hassle absorbed by new construction to improve local infrastructure. The second is that the City of Seattle has demonstrated a profound inability to make good policy, choosing simple, sledgehammer solutions that appease mobs of angry enfranchised single-family neighbors at the expense of new people moving to our city.

But of all the bad ideas[1] in the bad idea factory that is City Hall, it’s quite possible that impact fees might be the least bad. Here’s why.

First, impact fees are legal. The idea that a new development, of any kind, creates demands on local infrastructure that the public ends up paying for and that should be offset, has been extensively litigated.  And in spite of our deep opposition and suspicion about the competence of City staff to implement impact fees, we do not argue that there are some things that are reasonable to expect when growth occurs. As I have pointed out before, builders are already paying for infrastructure, related and unrelated to their projects. Most builders would likely agree that paying for street restoration and new sewer service is a reasonable cost to bear; it is a cost of development that always, however, gets folded into what the renter or buyer pays for housing. More on that later.

Second, contrary to what NIMBYs believe, impact fees are very limited in scope. This is part of why they are legal. A very useful source of information on impact fees in Washington and how they work can be found at the Municipal Research Service Center (MRSC), a great resource on many land use and housing issues. Here’s a solid and straightforward paragraph on impact fees in Washington State from the MRSC website:

In general, an impact fee is a fee charged by a city or county to developers to pay for the costs of providing public facilities or of improving existing ones needed as a result of the new development. Developers are generally responsible for the entire cost of on-site improvements within the development that primarily serve residents of a specific project. Impact fees are a mechanism for assuring that developers pay a pro rata share of the costs of off-site facilities (system improvements) that serve the development. In addition, an overview of selected sources of public facility financing other than impact fees is provided (emphasis is mine). 

Impact fees must always be project related, be related and fairly priced based on value added both to the public and the users of the new development. From the MRSC website:

Setting fee schedules for impact fees is a complex process typically involving rate studies; generally, impact fees do not recover the full cost of a new facility since these fees must be directly and proportionately related to impacts associated with new development.

This is what has been extensively litigated and therefore established in law. It means that the fees associated with new development won’t pay for the full cost of infrastructure and they must be connected with the established infrastructure needs to serve the development being charged the fee. Impact fees are not a blank check to fill a local governments general fund; think of a road that gets built to serve a new housing development. And that road wouldn’t be fully paid for by the development because it also benefits the wider public, not just the people benefiting from the new housing.

So a legitimately established regime of impact fees would be something that might be welcomed by builders and developers as an alternative to the many fees and other requirements they face when building housing. Additionally, there is a lot of law that ensures that whatever charge gets levied against a new housing project it will benefit that project and the costs will be shared with the public. The idea is that elected officials would thoughtfully consider the utility and disutility of adding costs to projects with the commensurate increase in housing prices. A smart City Council would weigh the fee’s impact on housing price against public benefit; if one outweighed the other, they’d impose or not impose the fee accordingly.

But we have a City Council that has failed to demonstrate that it has this capacity to make good policy. Rather, they have consistently sought out ways to stick their ladle into private projects in the hope of bringing up gravy that they can distribute to poorly defined groups of people who they say need various forms of housing subsidy. Worse than that (because Robin Hood after all was just trying to help!), they have bought into the notion that housing is a bad thing, the production of which must be punished since it somehow benefits greedy developers and avaricious tech workers who are “driving up the price of housing” and running all the locals out of town.

In conclusion, while impact fees are legal we already have a Council and Mayor that have embarked on numerous other poorly motivated and conceived policies that are sure to add to the troubles of people looking for housing priced affordably for their needs. Mandatory Inclusionary Zoning, linkage taxes, destroying microhousing, limiting small-lot development only are the beginning of a litany of backward, pandering, and economically bad and infeasible policies created by people who simply won’t accept basic economic truth: more costs and fewer units means higher prices. Now and again, like a fevered patient in a hospital bed, staff will now and then have a lucid moment from the Populist Progressive Pox, and recognize this reality. But the realization is fleeting, then we descend back into calls for developers to “pay their fair share.”

Perhaps the time will come when the City of Seattle could be trusted to impose a reasonable, fair, and legal impact fee system to support and encourage growth in our city, but that time isn’t now.

[1] I rarely put footnotes in posts, but I want to make clear that the reason why City Hall has produced such profoundly bad housing and land use regulation is that they fundamentally and willfully mischaracterize how housing is financed. Every idea is based on the concept that there is a lot of “profit” in development, and that each time new housing is built, that the housing creates net negative effects on the community. I won’t write a separate essay here, but when a policy begins with these assumptions what follows is always an exaction of value and punitive. An exaction because in the estimation of bureaucrats and elected officials, “the builders can afford to pay their fair share,” and punitive because the general view some people who already live in Seattle is that housing makes life worse for them and therefore must be punished.