Developers: Timing bad for fee hike

BOULDER – In the midst of a recession – one that has hit the residential and commercial real estate sector hard – local developers are dumbfounded to why city officials are looking to raise taxes and fees on most new developments in Boulder.

City officials say the proposed changes will better balance the impact costs of new development. Developers say the timing for such changes is wrong.

Under the latest proposal, Boulder officials have estimated that some commercial development could incur an 18 percent to 86 percent increase in taxes and fees – as much as a $19,000 jump for a sample 7,430-square-foot retail/warehouse building.

New single-family residential developments could see a 17 percent to 23 percent jump, or a slight decrease if officials decide to suspend the education excise tax. New single-family additions would face impact fees for the first time. And new multifamily developments could see increases from 34 percent to 38 percent, or an increase of about 16 percent if the education excise tax is suspended.

“When business is slow, you don’t raise your prices, you have a sale,´ said Jeff Hindman, owner and president of Boulder-based Custom Home Builders Inc., voicing disapproval of the proposed changes. “At a time when people are truly hurting, Boulder is raising fees, raising the carbon tax and restricting home sizes. I think they are completely oblivious.”

Many local business leaders are pointing to Denver’s recent action to waive building permit fees for home improvement projects from June 1 to June 15 as a good model to spur some economic activity.

Boulder’s proposed development tax and fee changes are part of a larger effort to restructure the city’s overall revenue stream in light of predicted future budget shortfalls, Long Range Planning Manager Susan Richstone said.

“This is about development paying its fair share of what the actual cost is for the city to facilitate that new growth, rather than having existing residents pay for it,” she said. “At the end of the day, it’s a small component of the city’s budget, but it’s an important one.”

Over the past eight years, Boulder has collected from $1.4 million to $3.5 million a year in development excise taxes. It collected $2.7 million in development excise taxes in 2008 compared with nearly $85 million in sales and use tax collections.

The development excise tax is one approved by voters. Any desired tax increase, beyond what is allowed, has to be placed on the ballot. In 2009, the city can charge up to $2.48 per square-foot of new development to pay for associated city growth in police, fire transportation services and municipal facilities.

Rather than go to voters for a development excise tax increase, Boulder officials are proposing new impact fees in addition to the taxes. The proposed impact fees would go toward police, fire and municipal facilities – freeing up the entire $2.48 per square foot taxing allowance to go toward all transportation for commercial, and a split between transportation and parks and recreation for residential.

The new impact fees also would give officials greater power over some of its revenue streams, instead of having to go to voters for an increase.

To ease some of the new impact fee burden, city officials have proposed suspending the current education excise tax, which goes toward capital improvements at local schools. If city council approved that option, it would result in a slight total decrease in fees and taxes for new residential development. There would be no change for new commercial development because it does not pay the education excise fee.

City officials are considering shifting even more of the total excise tax burden from residential to commercial by having voters approve an increase of the housing excise tax – from 49 cents per square-foot of new development to $2.50 per square-foot – and transferring that entirely to new commercial development, instead of the current split between commercial and residential.

Richstone denied that the tax and fee changes were an effort by the city to favor more residential development and less commercial development.

“I think that’s a potential impact, but it’s not the driver,” she said. “The driver is the city’s philosophy that growth has to pay its own way.”

Within the commercial sector, Richstone said the proposed changes likely would affect new office development the most. The development excise tax is only paid on net new square footage, and since most new development in Boulder is redevelopment, then only the additional space, which would likely be office space above, would be charged extra.

Frances Draper, executive director of the Boulder Economic Council, said the city’s intentions are misguided.

“The issue is paying for growth, but what if you’re stifling growth and innovation?” Draper asked. “This sends another clear message that building is discouraged here. Boulder has always been a job center, but I don’t think a lot of people realize that. We’re undermining the financial underpinnings of the city.”

If the city needs to increase taxes and fees on new development, then it should also come up with corresponding incentives to spur new sustainable redevelopment, Draper said.

“In this economic environment, governments need to step cautiously and decide what they need to inspire, not tax and regulate,” Draper said.

City staff is expectedto deliver an update to city council on the proposed development tax and fee changes during a public study session on July 28. A vote on these changes and other budget issues is expected this fall.

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