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Candidate Alternate to the Capital Improvement Plan Requirement in the South Carolina Impact Fee Statute 1/05/05

The following excerpts the bulk of the talk given by George Edwards at the January 4, 2005 Horry County Council meeting.  The talk suggests an approach to rationally and fairly get rid of the Capital Improvement Plan that council had objected to due to its unnecessary detail and hence excessive administrative cost to taxpayers.  The  impact fee consultants,  Tischler and Associates, considered the S.C. law the most onerous in the country and suggested that Horry County attempt to get the Capital Improvement Plan requirement dropped completely.

At the talk's conclusion, Horry Council Chairman, Liz Gilland publicly suggested that this should be pursued with the S.C. legislature.  After the meeting, she responded to the objection that this would be fruitless without county council concurrence on what it found acceptable by suggesting working through the council's Infrastructure and Regulation committee.

Hopefully, this will be arranged. To exercise home rule, the council nust clearly define what it wants on this issue and others touched on in the 11/01/04 Editorial.

Introductory Remarks

At the last council meeting, I proposed finding a formula to use to charge impact fees rather than getting mired in the complexities and vagaries of the capricious Capital Improvement Plan required by the current South Carolina Statute.

I’ve mulled long and hard on many approaches to such a fair formula for impact fees including considering complicated ways to deal with partially paid off public facility bonds. But the winning formula for calculating impact fees turns out to be simple when you base it on the one basic principle for which impact fees should be imposed in the first place.

Basic Principle

Previous residents should not have to pay for public facilities and equipment required for a new private structure -- other than a replaced or remodeled private structure with no more square footage than the original.

Procedure

Once a public facility or equipment is tagged as being built or bought because of new development, it triggers a potential impact fee.

Then the owner of a subsequent newly constructed private structure built in the area served by that public facility or equipment and within the public facility’s or equipment’s life is charged an impact fee

Formula

The impact fee to be charged is the product of the tax ratio for a private structure times the cost of the public facilities required to serve the needs of that new private structure -- other than replacement public facilities and equipment.

Justification

1. The tax ratio used to determine fair impact fees is the ratio of the annual real property taxes imposed on a structure divided by the total of such taxes paid in the county. An Impact Fee effort does not rewrite the tax code. 
2. The fact that the owner of the new structure may subsequently pay taxes toward public facilities serving the structure is offset by the fact that so will previous taxpayers who would not have had to pay taxes for public facilities other than replacement facilities if it were not for the new private structure.

Exception

Even though previously declared needed to support new development, public facilities or equipments that are beyond their useful life at the time impact fees are imposed are not to be counted among those for which an impact fee can be charged.

Implementation

Impact fees shall be held in reserves to be used only for the category of public equipment or facility for which they were collected.  That is they may be used only to:

1. Pay down debt costs carried by a public facility in the service area and in the category for which the impact fee was collected;
2. Buy or pay towards the debt of such a new public facility or equipment in the same category; or
3. In the event that all debt has been paid off for a specific public facility within its category, reimburse property owners for taxes they paid for the facility to those who did not pay impact fees followed by those that did -- if and when legally possible

Determination of Service Areas

The county council shall determine service areas via its standing safety committee or by whatever committees or commissions it chooses, namely:

1. Facilities serving a specific defined area within the county, perhaps including such facilities as fire stations or C.O.P.E. team headquarters.
2. Other facilities serving the county as a whole, perhaps including a jail or police cars.
3. School attendance areas

Background

New Horry County public facilities and equipment are paid from the general fund or with bonds. 

Horry County maintains no reserves (facilities or equipment) except for a 15% operating reserve required by law.  Its use of depreciation is simply as a trigger to automatically transfer funds from the general fund to replace county vehicles (other than fire); it is not a reserve in any sense. Source: Wesley Sawyer, HC finance dept.

Real property taxes, and so impact fees by the proposed formula, are based on a property’s assessed value not on its square footage or other need such as the average number of children per household (for schools).

Concluding Remarks

I showed in an earlier presentation that developments that require new schools cost the county a minimum of $24,000 per student.  As much as I applaud this council’s general performance, it is irresponsible for it to continue to approve large new developments without, at least, charging impact fees to those requiring such expenditures.

You should impose a moratorium on new construction until the construction industry works with you to convince the public and the state legislature to change the impact fee statute to one that is workable.  Failing its cooperation, you should continue on your own, seeking the concurrence of the public and the rest of the business community that, after all, pays $2 for every $1 of increased real property taxes that homeowners pay. 

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