Paying the way with property Cash-strapped cities eye more taxes, fees on real estate

CBS Market Watch ^ | 10-31-03 | Steve Kerch

[SheLion]

SAN FRANCISCO (CBS.MW) -- Budget crunches at all levels of government are likely to come home to
  roost on real estate owners and homebuyers as municipalities are forced to raise property taxes and
  boost fees on home construction, experts argue.

  "We are so pressed at state and local levels for money ... that it is going to
  be tougher for cities and counties and other local units of government to meet budgets," said Maureen McAvey, a
  senior resident fellow at the Urban Land Institute, a Washington land-use education and research organization.

  In high-growth areas, the squeeze will not be as pronounced, McAvey said, because new development will
  naturally raise the tax base. But in most areas, harder and more potentially divisive decisions will have to be
  made, she said.

  "Sales taxes and sin taxes have really raised a lot of revenue and helped hold off on increases elsewhere. But in
  most place those taxed have reached their upper limit," said Ellen Marshall, a vice president at Patuxent
  Consulting Group in Washington.

  "That's going to put pressure on property taxes in the next few years," Marshall told a session of the Urban Land
  Institute here this week.

  In their search for money to replace federal and state cutbacks, local governments may also turn increasingly to
  higher impact fees -- charges levied on developers and homebuilders -- and to additional taxes on services like
  real estate and mortgage brokerage.

  Those two moves could add the cost of buying or selling a home, and would likely drive up the cost of new
  housing, a panel of realty experts agreed.

  "If these budget deficits continue, I see more and more impact fees coming," said J. Ronald Terwilliger, national
  managing partner in Atlanta for development firm Trammel Crow.

  Fees expand -- and explode

  Already in states like California, fees run as high as $30,000 per developed unit, Terwilliger said, on top of land
  costs of about the same amount. "It makes it pretty hard to develop any affordable multifamily housing starting
  from that base," he said.

  Terwilliger pointed to other places where real estate has been targeted to produce more revenue: New Jersey has
  boosted its realty transfer tax, paid when a house changes hands, by 50 percent; property assessments in
  Virginia have risen double digits for the last several years, boosting taxes; Raleigh, N.C., has added a $1,000 per
  unit school fee; and in southern Florida builders must now pay a "concurrency" fee of $10,000 per multifamily
  unit, along with a $16,000 water and sewer fee.

  "We're seeing a lot of different, creative uses of these fees. And we're just at the beginning," he said. "Those fees
  either increase the cost of what you build or detract from the income you can earn."

  Nicholas Pappas, president of homebuilder K. Hovnanian Companies of California, (HOV: news, chart, profile)
  said impact fees in his state have tripled in the last decade, from about $10,000 per home to $30,000 or more.

  "These are not seen as a tax, so they don't hit the radar screen of tax increases. They are buried in the one-time
  cost of housing or the square footage rent of a commercial property, but they are not a matter that become a
  political hot button at all," Pappas said.

  "The problem is that once they are established, they never seem to go away, even if the impact [they were
  designed for] changes."

  Real estate bears the brunt

  The reliance on real estate to fund local government is nothing new; already, 70 cents of every dollar of local tax
  revenue is derived from real estate, said Jeffrey DeBoer, president of The Real Estate Roundtable, a Washington
  lobbying group.

  But that dependence can have unintended consequences, McAvey pointed out. Because sales taxes have
  become so coveted, "every little municipality pushes for its own strip malls and mini-centers to get whatever sales
  tax they can," she said.

  "You go out and look and all these centers are just two-thirds full two years after they were built because there's
  so much retail out there."

  Unlike the federal government, states and local authorities generally must present balanced budgets ever year,
  returning money in the surplus times but forced to make cuts when times are tough.

  For many, property taxes have been the savior in the downturn of the last three years because housing has been
  the one area of the economy that has percolated, sending home prices -- and thus property-tax revenues --
  higher.

  Those in real estate say only overall economic growth that includes new corporate hiring can lessen the
  dependence on property fees.

  "Hopefully the good news on the gross domestic product, and then on jobs, will help," Terwilliger said.

  Steve Kerch is the real estate editor of CBS.MarketWatch.com in Chicago.

[Ahban]

There is some wasteful spending, but most of it is because of federal and state mandates. The locals have little option when it comes to the wasteful part. I guess some would consider sports "waste", but I don't. Other than that, there isn't a lot of waste to cut- its all mandated from above.

[Ahban]

You are talking about a different situation than I am. I am not talking about raising everyone's taxes, just getting developers to "front" the money that the district will eventually get anyway. This is due to the lag between when a new house is built and when the school can actually use the money (about 3 years).

I am talking about a high growth area, you are thinking about a situation where growth is near zero. The cost per person will not go down when enough persons come in that a new facility (that will last 30 years) has to be constructed. That will cause a temporary cash-flow problem, even when costs per person, over 30 years, do go down.

[Leisler]

"..We are become serfs and slaves ..."

Get back to work. There's plenty of daylight left.

[Ahban]

I've got 104 students, with one new move in per week. I teach six sections. There are some support personel like librarians.

The overall ratio is much lower because of the feds and their mandates for special-ed, counselors, therapists, and the like. That brings the ratio down to 6.5-8.5 staff per student. The 8.5 per student is for districts that pack 150+ kids into one teacher's class. They pay their teachers more for that, so it all balances out, but is too impersonal for my tastes.

[Ahban]

It sounds like your situation is different from my state. You say you are spending $6,000 less than the state schools. We are lucky to get $6K period. Since it gets cold in the Winter, they need buildings to meet in.

I have taught at a private school too. The public school I teach at (Mayberry RFD type small town) does a better job of educating.

[Ahban]

Your A and C may deserve a response.

Its three years because the first year in the new family assess, but does not pay. At the end of the second year, they pay for the previous year. The state gets the money and then eventually sends it down to the locals. The locals then can begin construction on new classrooms (for example).

I have heard of bonds, but I don't like government going into debt (a promise to tax in the future) any more than I like taxes. As long as the families are going to the bank for a loan on the home anyway, why not front the property taxes for the first few years on new constrution? That way, the school can save on the costs of the bond issue, where the bankers and brokers get fat. There is some fat we can cut right there.

Note I am only suggesting this for areas where there is high growth and a long delay in collection. Except for who carries the interest, it is not a tax increase. For three years that family pays no property tax. Heck, I wish there was a window where after a set period you paid no more propery tax for as long as you owned the property, maybe 7-10 years.

[Harmless Teddy Bear]

I could watch that all day.

+ happy sigh +

Well done California!

But oh boy do you have a mess to clean up. My sympathies.

[metesky]

So you have around 18 students per section?

What do you teach?

[Great Dane]

Sales taxes and sin taxes have really raised a lot of revenue and helped hold off on increases elsewhere. But in most place those taxed have reached their upper limit," said Ellen Marshall, a vice president at Patuxent Consulting Group in Washington.

Have they never heard of the "CUT WASTE CONCEPT."

[Great Dane]

and personally I'm not as inclined to stand up and say anything

I tend to agree, personally......... I will have a quiet little snicker.

[Ahban]

Science, 8th grade

[gitmo]

I am talking about a high growth area, you are thinking about a situation where growth is near zero. The cost per person will not go down when enough persons come in that a new facility (that will last 30 years) has to be constructed. That will cause a temporary cash-flow problem, even when costs per person, over 30 years, do go down.

I live in a high growth city. Charlotte has been growing rapidly for many years. For some reason, taxes do too. I think they should go down as the population increases.

I am not talking about raising everyone's taxes, just getting developers to "front" the money that the district will eventually get anyway. This is due to the lag between when a new house is built and when the school can actually use the money (about 3 years). "

The developer is already risking a large amount of his own capital and is being taxed and regulated heavily. To force them to fund the county's growth in anticipation of population growth is unreasonable.

[SheLion]

Have they never heard of the "CUT WASTE CONCEPT."

There's a lot of PORK they could cut here in MAINE, I know!!

[Ahban]

By what standard are you claiming it is "unreasonable"? To people who have lived in a small town all of their lives facing an influx of newcomers that might overwhelm government services it might seem very reasonable that the developers who stand to make the profits also bear the costs.

Of course, I did not even say make the developers pay it. I want to add it on to the buyer's loan amount, in exchange for them paying no property taxes the first 3 years. It is more of a way to adjust cash-flow than a long term increase in tax revenue.

[Mears]

Ditto to every word in your post #37.