There are two theories on taxation. One is that if you impose lower taxes, more people will pay a smaller percentage of the burden. The idea is that reasonable taxes are conducive to helping an area maximize growth, achieve high levels of employment and in general, realize its full potential.

The other theory is that if governments increase the tax burden on individuals and businesses, they’ll collect more money from each taxpayer, but have fewer participants contributing to the economy. Typically, this means they get less money overall. Impact fees exemplify this theory.

The impact fee mantra is that growth pays for growth, and in Florida, developers bear the cost of public services that accompany growth by passing it on to the end users. While it may sound like a reasonable concept, it is deeply flawed.

Let’s say, for example, that I am developing an infill site off an established thoroughfare such as Del Prado Boulevard. Obviously, because the surrounding area is already being fully served by the county in terms of roads, law enforcement and other tax-supported services, there’s no way that the money I pay to develop that infill site will go towards the type of growth that impact fees were designed to address. That’s because they’re already in place!

Instead, that money will be used for other county projects and services in parts of the county that don’t have them. To me, that makes impact fees akin to an extra tax or special assessment for developers who are trying to bring commercial space to the market. As a result, impact fees can only exacerbate deteriorating conditions in a sluggish economy, as developers, end users or both must absorb them.

Time and again, impact fee increases have demonstrated that they do not work. As you may recall last year, builders and developers who wanted to avoid the higher fees had to apply for building permits by Jan. 31, and break ground on their projects by June 30. This forced a significant amount of new commercial development into the market prematurely, contributing more than any other factor to our current residential oversupply in the process.



Soaring costs spur protests, reform

When you consider the cost difference between the old and new impact fee schedule, it’s easy to understand why developers wanted to accelerate construction of their projects. For example, as of February 2007 in unincorporated Lee County, road fees jumped from just under $3,000 to almost $9,000, bringing the total average cost of builder impact fees to more than $15,000 for a 2,000-square-foot, single-family home and nearly $10,000 for a multi-family dwelling.

Commercial impact fees are even more costly, soaring upwards of $24,000 per 1,000 square feet of medical office space (the most expensive commercial space to develop). Impact fees for general office space average around $7,500 per 1,000 square feet, with fees costing approximately $16,500 per 1,000 square feet of retail space.

In an attempt to spark construction this year, commissioners in Charlotte County voted to reduce impact fees for residential and commercial properties to 1998 levels, effective for one year starting January 1st. The 1998 fee for all homes was $3,000. A 2006 change based fees on square footage and increased the cost of a 2,000-square-foot single-family home to $8,000. This year, the fees have been rolled back to about $2,500.

Compared to Lee County, commercial development in Charlotte County is a bargain, with impact fees for general office space in Port Charlotte ranging from around $1,850 to $2,750 (per 1,000 square foot), depending on building size. For medical office it’s $4,450 per 1,000 square foot; retail impact fees vary, but also are significantly lower than in Lee. Although it’s too early to tell what effect the lower fees will have on construction and the local economy, it’s definitely a step in the right direction.



Impact Fees Must Go

Unfortunately, Lee County commissioners recently put off a decision on whether to eliminate or decrease impact fees as a way to stimulate the local economy. Instead, they hired a firm to conduct a study of road impact fees. Now, it could be September before the study is completed and commissioners can act on it. Building industry officials say this type of delay will amount to a six-month moratorium on new construction.

I can’t disagree, although I’d like to offer my own suggestions for stimulating our economy. First of all, I’d like to see impact fees eliminated entirely and replaced with consumption-based tax, such as a one-cent, local sales tax. Also, I’d like to see our property taxes replaced with a state sales tax.

If we eliminate those taxes and get more people to participate in the system, each of us will pay less. How much less depends on the individual, because a consumption tax would enable us to choose how much we spend, thereby controlling how much we pay.

I don’t mind paying my share of taxes, and if I’m fortunate enough to make enough money to buy a lot of stuff, then I’m willing to be taxed for it. On the other side of the coin (no pun intended), a person of modest means isn’t forced to pay the same amount of taxes unless he buys as much. This would keep more people working and allow them to keep more money in their pockets.

This would prompt home sales, because if housing costs less as a result of no impact fees or property taxes, more people will buy. And that, I believe, will be a critical step in renewing our area’s economic prosperity.



Gary Tasman is executive director of Cushman & Wakefield’s Southwest Florida office. For more information, please contact him at (239) 489-3600 or gary.tasman@cushwake.com.