Do Your Impact Fee Homework

Regulatory Impact: Quality of Life versus Economic Development, Developers and Employers:  “Do Your Impact Fee Homework!”

By Bruce Beal, Esq.

We have commonly assumed that regulation of development results in increasing the quality of life.  The facts begin to contradict this where regulation becomes extreme.  The Counties of Los Angeles, Orange and San Diego bear perhaps the largest incremental regulatory burden upon development imposed by various federal, state, and local regulations.  Example in point:  Santa Monica will require treatment of storm water runoff from every parcel.  This tri-county area also comprises three of the four most expensive housing counties in the nation.

Before you complain that expensive homes are merely the result of everyone wanting to live in this beautiful climate, the increasing political costs of development in this region are a major driving force in expensive housing.  Increasing California and local regulation have pushed the development fees past $100,000 per dwelling in one part of Orange County.  These costs are passed along to the purchasers of such residences.

Impact fees also have other pernicious and costly effects.  They are not just taxes on new residents, but also impact current residents who are buying a new home, renters trying to buy their first new home, young families moving up to larger new homes, and seniors looking to purchase smaller new homes. The increased purchase price of a new home down the street from you will raise the appraised value of your home and raise property taxes for your now fewer future purchasers.

The impact on employers is also significant.  As housing costs rise, they directly reduce the availability of affordable housing for employees, especially in the lower income ranges, as the development fees are usually assessed per residential unit.  For example a $50,000 development fee might not be a significant percentage (1%) for a $5,000,000 home, but it would be huge percentage (10%) of the value of a $500,000 home.  High development fees drive away affordable housing, which drives away potential employees, which drives away employers, which in turn reduces economic growth in the region.

Fluor Corporation’s recent decision to move its world corporate headquarters from Orange County, California to Texas should be a wake up call for California, particularly Southern California.  Fluor Corporation is one of the world's largest publicly owned engineering and construction services organizations.  Fluor is a $10 billion, Fortune 500 company, has 30,000 employees worldwide, and is the only U.S.-based company to be ranked on Fortune magazine's “World's Most Admired Companies” list in the “Engineering, Construction” category. 

Although Fluor has been careful to put a positive business spin on its relocation (as it still will have a presence in Southern California) increasing state and local regulatory burdens, including the impact upon the housing costs of its executives, managers and staff, most likely weighed heavily in Fluor’s decision to relocate. 

Regulatory impacts of planning on local economies are increasingly recognized by academics and planning professionals. While more planning potentially improves the quality of development, the reality is that it drives up costs, slows down investment, and inhibits the natural evolution and development of land, according to Dr. Samuel R. Staley of the Reason Public Policy Institute. 

Drawing upon these factors, sophisticated developers and employers should research regulatory impact fees as a major factor in siting their future developments and employment facilities.  They should determine and avoid localities that use impact fees either as a method of growth control or to finance unrelated operations or current deficiencies.  Infrastructure, such as roads and fire facilities, benefits the community as a whole.  These should be paid for by the community, not by a very small and new portion of the community. 

Some developers and employers believe they have the political clout to overcome these barriers.  However, "It's a divide-and-conquer issue," says developer and builder Jeff Prostor, who pays impact fees of $20,000 to $50,000 in Orange County. "If you try to fight a fee on your own, the city will not provide you services. They will sit on your permits."

Developers and employers must also make themselves aware of the future trends of regulatory impacts in a locality, before they fall in love with a property there.  Just because it is more attractive today does not mean it will be so tomorrow.  Case in point: San Diego County.  A plan to levy fees against developers in the unincorporated areas of the county to help pay to build and maintain roads affected by their projects is being considered by the Board of Supervisors.

The fees under the county's proposal would exceed $30 a square foot for commercial retail projects in parts of North County.  Supervisor Ron Roberts, an architect, has stated in this regard, "I am extremely concerned because I think this has the potential of literally stopping most if not all industrial and commercial building in the county."  While perhaps an extreme statement, would you risk your development or corporate facilities in face of such a permit fee prospect?

Developers and employers: Do your homework!  Know the amount of, and reasons for, your present and future regulatory fee burden before mentally committing to a location.  Shop around.  Place your investments in localities that balance economic growth with reasonable regulation.  That is a win-win situation for you, your buyers and employees, and your community.

"Bruce, Oh, this is good ... So we are completely legal."

Who We Are:

Image of Bruce Leonard Beal

The present firm arose from Bruce's move from the Los Angeles area to Dana Point, where he and his wife wanted to live since they first  discovered it. 

Bruce comes from the Senior Counsel position in a large world class international technology, engineering and construction corporation with thousands of employees, hundreds of large clients, world class projects, hundreds of affiliates, and complex transactions and litigation.  Before that, he gained significant major law firm experience, including arguments before state appellate and supreme courts.

His desire in moving to Dana Point was and still is to bring his world class experience to smaller and emerging businesses in the area.  This experience produces more valuable legal and business judgment from him than is available from newer attorneys or attorneys whose practices are more specialized and localized.  His extensive Resume is here Résumé.

Marlene wears all hats other than "Lawyer" in the firm,  including Paralegal, Marketing, Accounting, and Office Management and Assistance. Her extensive Resume is here Résumé.

Disclaimer: The purpose of this article is to provide information, rather than advice or opinion. It is accurate to the best of my knowledge as of the date of the article. I have no duty to update this article. The information, examples and suggestions presented in this article have been developed from sources believed to be reliable. This article should not be viewed as a substitute for the guidance and recommendations of a retained professional and should not be construed as legal or other professional advice. In addition, I do not endorse any actions addressed herein, unless they are produced or created by me.  I recommend consultation with me or other competent legal counsel and/or other professional advisors before applying this material to any particular factual situations.