Journal of Undergraduate Research
Volume 6, Issue 8 - July/August 2005

Does New Development Pay Its Fair Share of School Infrastructure Costs?:
An Assessment of Collier County Public School Impact Fees

Jeremy Martin

INTRODUCTION

Growth and School Impact Fee History in Collier County

Collier County has been one of the fastest growing counties in the United States. Based on the 2000 census, Collier County has the fastest growing 25-40 year- old population per capita in the country. This rapid growth means that Collier County’s government must continually invest in public infrastructure, including its schools, to maintain the current level of service to both existing and new residents.

Impact fees have become an increasingly popular way to raise revenues in Collier County. Collier County currently imposes eleven separate impact fees for services and projects, including schools, roads, emergency services, community and regional parks, libraries, government buildings, emergency medical services, jail facilities, and fire services (1). Two other impact fee proposals have come before the Board of Collier County Commissioners in the last year for law enforcement and beach/boat access, but were denied. A new residential unit of development must pay, on average, $15,706 in impact fees, or 6.99% of the value of an average new home ($225,000). Adverse economic consequences will result if the aggregate impact fee schedule is too high, as households and businesses considering moves to Collier County have many other locations to choose from, many of which are good substitutes for moving to Collier. Therefore, overcharging new development relative to other counties is likely to delay further development and slow economic growth.

Economists only support impact fees if new development does not generate sufficient revenues to cover public costs. If, however, revenues associated with new development exceed public costs, impact fees should not be imposed. The impact of new development should neither enrich nor impoverish existing residents. New development must maintain the current level of services. The current political mantra is “Growth Pays for Growth.”

The Collier County School Board first imposed a school impact fee of $1,778 in 1992, which has not been revised since. The school board commissioned a private study in 2002 to reassess the impact fee level, but it has not been published at this time.

Impact Fee Calculation

“New development should not impoverish existing residents, and impact fees should not enrich them – rather than simply used to generate revenue, the depreciated value of exiting infrastructure per housing unit, not 100% of the cost of new infrastructure, is the appropriate starting point (2).”

James Dewey’s impact fee theory is currently the foundation of two identical bills in the Florida House and Senate creating guidelines for the use and calculation of impact fees. His theory deviates from the conventional method of taking the marginal cost of new development, making growth pay for growth.

Cost of Needed Infrastructure. The current method is to base impact fees on the cost of new infrastructure, which violates the legal nexus for the fees. To illustrate the appropriate theory, consider a computer club, in which sixteen people own and share four two-year old computers. Members pay annual dues to cover the operating costs of the computer lab, and would like to replace new computers every four years, assuming the only difference between new and old computers is remaining useful life. What should they charge new members to join? By the conventional method, the club would charge each new member 25% of the new computer, or $250 if a new computer costs $1,000. By this method, however, old members’ value of the club would increase, since the average remaining life of the club’s computers increased (two years old versus 2.4 years old), resulting in lower replacement expenses per member in the future. The potential new members could instead form their own club at the $250 price and have an average remaining life per computer of four years. If the club’s four computers are already paid for, and worth $500 each after depreciation, then each new member should be charged 1/16th of $2,000, or $125.

Any improvements to the depreciated value of existing computers (infrastructure) would be paid by all twenty members. Thus, the depreciated value of existing computers (infrastructure) per member, not the value of new computers to be purchased for expansion, is the appropriate basis on which to charge new members.

This concept can be applied to Collier County Public Schools (CCPS). New residents, in effect, are buying into a “club” and are “purchasing” a share of or membership into Collier’s school system when they choose to move to Collier County.

Government Debt. CCPS finances a significant portion of infrastructure investment using bond issues. When buying a share of the club, new residents clearly create a need for additional infrastructure to maintain the same level of service. However, the new residents will also assume an equal per capita share of existing debt, creating a decrease in the future taxes existing residents will have to pay to retire debt. This is another illustration of how new development helps pay for infrastructure needs created by previous development. The appropriate credit to new development should include a full per capita share of existing debt when calculating impact fees.

Capital Improvement Tax Payments. The primary source of school capital funding is a 2-mill Capital Improvement Tax (CIT), which relates to a $2 tax on each $1000 of assessed taxable value. New and old development generates this revenue to fund school capital improvements into perpetuity.

DATA AND RESULTS

Impact fees are calculated by subtracting the present value of the revenues associated with new development from the present value of the costs of new development. Given the preceding arguments, the starting point for calculating CCPS impact fees are the net asset value of the infrastructure per household in the school system. When a newcomer buys into the CCPS system, he also buys into the land assets. The CCPS balance sheet uses historical values of land, but the true value of CCPS assets must include the true, or market, value of those land assets. Therefore, in this impact fee calculation, the historical land value is subtracted from the total asset value on the balance sheet and the land’s market value is added. The resulting figure is CCPS total asset value. The zoning, (i.e. commercial or residential), and market value of the land was appraised by comparing the school’s land value to the value of nearby land, and was set by the Collier County Property Appraiser’s Office. CCPS average market value per acre is $331,456.

Next, each household assumes an equal portion of government debt, which is subtracted from the total asset value per household to find the present value of the costs of new development in Table 1.

The present value of the revenues (Table 2) associated with new development comes from two sources: recurring tax payments that start after taking residence (i.e. property taxes and sales tax); and taxes targeted specifically at the growth process itself (i.e. taxes on vacant/partially developed lots, sales taxes on building materials, documentary stamp taxes, property taxes on model homes, and sales taxes on purchases made while in the area making preparations for their new home or job). The present value of recurring tax payments is based on the 2-mill rate CIT applied to the average taxable value of a unit of new development over a 30-year period. In this study, sales tax payments will be ignored because the state only allocates 9.635% of sales taxes to counties, and CCPS does not receive significant amounts of capital funding from the state because Collier County’s 2004 CIT collections on all properties were $102,584,562 (3). Other growth-specific revenues associated with new development that are incorporated into county-wide comprehensive impact fee studies will also be ignored because those revenues do not directly fund CCPS. Also, this study ignores the fact that new development creates commercial development, which also pays CIT taxes.

CONTROVERSIAL ISSUES SPECIFIC TO COLLIER COUNTY

Although the methodology of calculating impact fees does not differ across counties, some of the specific characteristics of Collier County may make these results and study atypical. First, the land value and taxable property values in Collier County are higher than every other county in the state. Collier County is able to collect $102,584,562 annually through CIT. The last two high schools built in Collier County, Golden Gate and Palmetto Ridge, exceeded the construction cost state ceiling, and CCPS needed an exemption from the state to build the $50 million facilities, which is twice the cost of a new high school in neighboring Lee County. In 2002, CCPS received an exemption from the state legislature to loan Osceola County $2.8 million from CCPS impact fee collections. This loan was repaid and could be used on operating expenses, violating impact fee theory which stipulates that these impact fees can only be utilized for physical facilities construction or maintenance. As a result, Collier County’s school board debated lowering the CIT millage rate to 1.88 ($1.88 per $1000 of assessed taxable value), which ultimately failed but also raises the question on how they can consider raising impact fees.

Secondly, Collier County does not combine all their separate impact fees into a single fee; rather, as stated in the introduction, Collier County imposes eleven impact fees. A fuller study would use the same methodology over all government costs and revenues instead of a specific government service or facility such as the school board.

Finally, Collier County relies heavily on impact fees as a major revenue source. A study by the Economic Development Council of Collier County found that less than 25% of county revenues came from “sustainable” sources. Collier County’s current tax structure puts the tax burden on visitors and property developers to reduce the burden on current residents. This structure is inherently unstable and could result in a budget shortfall if Collier County population growth rates slow because of decreased demand to live in Collier.

CONCLUSIONS

In terms of schools, Collier County benefits from each newcomer since the present value of the revenues associated with new development are significantly greater than the costs ($9,251.34 > $4,026.79). Impact fees are not needed to maintain the current level of service, or facility standards, for CCPS. Therefore, there is no justification for a school impact fee in Collier County.

Are school impact fees in Collier County fair and efficient? For the impact fee to be efficient, the marginal cost of each newcomer must equal the marginal revenue he generates. If, at the margin, the costs they impose to the county exceed the taxes they pay, Collier will have too many newcomers. Conversely, there will be too few newcomers if the costs are less than the taxes they pay. In terms of schools, Collier County currently has an inefficient and unfair impact fee, as the marginal costs outweigh the marginal benefits, resulting in too few newcomers, theoretically, moving to the area. This theory, however, does differ with the current conditions since the school impact fee is not the only demand determinant and the strongest determinants are currently non-economic factors, such as Collier’s average income level, climate, and consumer tastes. A more extensive study on Collier County’s overall impact structure can reach conclusions on the community-wide efficiency of Collier’s current cumulative impact fee structure.

---

ENDNOTES

1. Collier County Tax Collector°s Office. March 2005. Back
   
2. Dewey, James F. “Growth and Infrastructure in Manatee County, Florida: Does New Development Pay Its Share of Public Costs?” Bureau of Economic and Business Research, University of Florida: Gainesville, 2003. Back
   
3. Florida Department of Revenue. Florida Education Finance Program: 2004-05 Third Calculation. Tallahassee: School Business Services, Office of Funding and Financial Reporting, 2005. Back

---

REFERENCES

1. Collier County Property Appraiser’s Office. 2005. www.collierappraiser.com. Naples, FL.
2. Collier County Public Schools. 2003. Collier County District School Board: Notes to the Financial Statements. Naples, FL.
3. Collier County Tax Collector’s Office. 2005. Impact Fee Schedule. Naples, FL.
4. Dewey, James F. 2003. “Growth and Infrastructure in Manatee County, Florida: Does New Development Pay Its Share of Public Costs?” Bureau of Economic and Business Research, University of Florida. Gainesville, FL.
5. Dewey, James F. 2004. “A Review of Tischler &Associates, Inc.’s ‘School Impact Fees. Manatee County, FL.’” Bureau of Economics and Business Research, University of Florida. Gainesville, FL.
6. Florida Department of Revenue, School Business Services, Office of Funding and Financial Reporting. 2005. Florida Education Finance Program: 2004-05 Third Calculation. Tallahassee, FL.
7. Hannan, Larry. March 23, 2005. “Collier faces building moratorium if impact fee bill passes.” Naples Daily News. Naples, FL.
8. Layden, Layden. October 14, 2004. “Study: Collier must change tax structure.” Naples Daily News. Naples, FL.
9. United States Census Bureau. 2000. 2000 US Census. www.census.gov. Washington, D.C.
10. Zoldan, Denise. October 10, 2004. “Building plans raise question of impact fees.” Naples Daily News. Naples, FL.

---

--top--

Back to the Journal of Undergraduate Research