Importance of New Developments
IMPORTANCE OF NEW DEVELOPMENTS FOR LOCAL ECONOMIES IN USA
The major housing boom contributed to the economic growth in U.S. In between 2003 till 2008. The U.S. government received revenues from the development impact fees. Researches have shown that new developments greatly support the local economies in U.S.. Also the government plays an important role in providing the required resources and solutions to these new developments. The objective of writing this essay is to compare and contrast the cases of new developments that affect the environment and the development impact fees on the market. Also the environmental impacts will be evaluated in detail.
IMPORTANCE OF NEW DEVELOPMENTS FOR LOCAL ECONOMIES IN USA
The economic growth of U.S. greatly increased due to contribution from major housing boom that occurred in between 2003 to 2008. The government charges a development impact fee in order to generate revenues. Every new development has some positive and negative impacts. Local economies in U.S. earn profit from all the new developments. These developments include construction of new buildings, highways, dams and etc. This essay is based on the analysis of the impacts of these new developments on the environment and how the government can provide resources required by these new developments. This essay will focus on different kinds of new developments and their affects on economy and environment.
Before digging deep into the effects and impacts of the new developments, let’s understand what is meant by the Development Impact Fees? Development Impact Fees (DIF) is used for financing public facilities required to service new growth and it has gained acceptance and importance in the past few years. The widespread use and practice of using Development Impact Fees are asymmetric in the U.S. Many developers, public officials and also general public are unaware of the requirement of Development Impact Fees. There are many important legal issues and policies involved in understanding the effects of DIF on the economy. “Development Impact Fees are one time charges applied to new developments. Their goal is to raise revenue for the construction or expansion of capital facilities located outside the boundaries of the new development that benefit the contributing development” (Carrion & Libby 2008). The Impact fees are dedicated and assessed principally for provision of sewer systems and additional water, libraries, parks, roads and recreation facilities. This is necessary for all the new residents.
In simple words we can say that development impact fee is a financial exaction. The terminology of this kind of fee varies from one place to another. It is also called as impact fees, connection charges, benefit assessments or user fees. It is a financial tool that reduces gap between needed resources and improves the ones that have been provided earlier. Basically a development impact fee is the money used for providing all the facilities to the residents living in a particular area. The impact fees became very popular in U.S. when the voters started to resist property taxes. Hence a decline was observed in the federal revenues. The government of U.S. had to abandon the traditional financing ways for public services and infrastructure.
The use of Development Impact Fees follows some important policies. It affects the costs of the infrastructure and total services. The local communities (economies) have to make a decision; they have to decide whether only new residents will be charged or the cost should be charged equally from all the residents. An important point to highlight here is that if only the new residents will be charged then the old residents will get a chance to enjoy new facilities without paying for them.
The financing method of an infrastructure directly affects the pattern of development of urban areas. Considering an example of a densely populated residential area that is located at a certain distance from a sewer or water treatment plan. The residents have to pay the costs of water and sewer services. Two approaches can be used for determining cost of any kind of new development. These two approaches are marginal-cost pricing and average-cost pricing. Here marginal-cost pricing will be in three-part tariff form. Adopting this approach, one part of tariff can pay for facility of sewer and water services. Second part of tariff can pay for delivering of the services; here by delivering we mean costs of extensions or connections. The third part of tariff can pay for short-run costs; actual production of the sewer and water services.
The goal of the public officials should be to determine location of all the central facilities. Those facilities can then be priced according to the use. Efficient and appropriate land use patterns will then be dedicated by the market. Any new development has to pay for full marginal cost. This is because all the facilities are provided and the marginal cost can accommodate the economic growth. Burden of incremental infrastructure provision can become easy by the adoption of impact fees. The costs of future infrastructure can be shifted onto new residents. The local government can finance all the improvements in the construction if a comprehensive plan well implements for the right use of development impact fees. To guarantee adequate infrastructure and to facilitate economic growth, the impact fee should be used as an effective tool. The substantial infrastructure costs can be eliminated by adopting impact fee scheme.
There has been a rise in house price in U.S. And in other parts of the globe. Researches show that residential property rose by thirty trillion dollars since 2000. What actually is a housing bubble? Housing bubble is a term characterized by very fast speculation in values of house until it reaches relatively sustainable levels. One of those fundamentals is ratio of the rental house prices. Any housing market can easily return to the fundamental values by three means. Either there is a rise in rents or a fall in house prices or both. “There is always a limit on the increases in rent. During a house-price boom there is a substantial increase in real activity as investment in new houses increases. There are more jobs in housing and the investment generate more economic activity” (McKibbin & Stoeckel 2006)
Local economic development is also supported by universities. Now the universities are contributing to the innovation processes of local industries in order to support the local economic development. At present universities are focusing on technology transfer. They are licensing and patenting intellectual property to the local firms.
“The ‘one-size-fits-all’ approach to economic development pursued by so many universities, with its focus on patenting, licensing, and new business formation, should be replaced with a more comprehensive, more differentiated view of the university role” (Lester 2005). The following statistical analysis (Clarke & Evans 1999) shows the impact fee exemptions for new developments.
The figure shows clearly that new residents in any local area require facilities such as security, education, parking and housing affordability. The development impact fee paid by the residents generates a lot of revenue for the government. Yet there is lack of services, quality education and high property taxes. Therefore it is not easy to plan moving into a new house. The government should take effective steps in order to cover up the lack of services despite of the fact that the residents are paying the development impact fee. The second option is to reduce the impact fee.
The developer funds for a part of the services that are provided by local government. Eighteen states of America have passed legislation. They have authorized that development fees will be adopted by the local governments. Taking example of Florida; for the last several years, it has been using the development fees and did not enable the specific legislation. There was no state legislation and yet the government was exercising its power to use the development fees. For big cities, there is generally no specific schedule. The local governments should analyze the entire infrastructure cost and then the percentage of development fees should be decided in order to recover that cost. Various new development projects begin in different cities therefore the development fee various from one city to the other. The fee adoption has some effects on the investment of local government. Local governments make capital investments that are greatly affected by the development impact fee. Let’s look into the process of use of the development impact fees in U.S. Three major states of U.S. namely: Florida, California and Colorado were the first states to adopt development impact fees. The major contributors to fiscal stress in these states were environmental concerns and limitations increased by the property tax. The fiscal stress forced the local governments for finding new funding sources. The impact fee is adopted by ordinance. This complies with any of the enabling legislation. This legislation has to be passed by the state. There are two types of exactions that are considered for this process such as off-site exactions and on-site exactions. In the case of on-site exactions the payment is made on the development of per unit; considering the case by case basis, off-site exactions are paid.
If the project of the developer creates an additional demand, off-site exactions are charged. This additional demand may include water sewage treatment. The demand of water sewage treatment can be fulfilled only by increasing the investment of the city in equipment or plant.
Usually cities have unused capacity the developers are willing to have that capacity. In this case, a fee is charged. Considering the Texas law; it requires some consistency so that each builder or developer pays an equal amount of the impact fee. The cities of Texas have separate districts as required by the Texas law. Each district has a different fee schedule. The districts are consistent and defined according to the development pan of the state of Texas. Larger cities of U.S. adopt more impact fee as compared to the smaller cities. Surprisingly the impact fee collected by the smaller cities has contributed to recover 90% cost of the infrastructure while the big cities are able to recover 55% only.
A greater portion of the development impact fee is subjected to the city’s legal challenges. A standard named as the Rational Nexus standard has been developed by the courts; this requires effective logical link in between infrastructure provided and the fee charged. It is important for the cities to determine that the charged impact fee from every development project should be in proportion with the demand created by it. There is a comprehensive plan for every development therefore the facilities should be financed as a part of it. The occupants will not pay property taxes as well as the impact fee; they will pay only once. All the planned facilities have to be constructed in timely manner.
The structure of the impact fee should be understandable to the layperson and the practitioner. As the economic conditions keep on changing therefore the fee structure should be elastic. It is important that administers of the fee (employees and city officials) as well as the developers and builders should be satisfied with outcome of the impact fee in both adequacy and equity. The effects of the development impact fees are discussed in the following paragraph.
The new developments are served by extending the facilities. These facilities require a lot of revenue that is generated by the impact fees. This fee has positive impacts on several prices including those of travelling to towns, beaches and shopping. This cost is shifted in a forward manner due to lack of competition.
A big portion of the impact fee transfers the cost of infrastructure to private sector. The developers and the builders have to pay for infrastructure, which provides so many utilities. The cities of U.S. have been able to generate more and more revenue as they attract new developments providing the infrastructure. Cities that have low levels of the capital acquisition are more associated with the use of impact fees.
New developments leave impacts on the environment. “Buildings and development provide countless benefits to society; they also have significant environmental and health impacts. Buildings in the United States contribute 38.9% of nation’s total carbon dioxide emissions including 20% from residential sector and 18% from commercial sector” (Roubini 2009). Every day the occupants of building consume 13% of total water per day in U.S. The occupants of the commercial building utilize 25.6% and home owners use 74.4%. The population of United States doubled suddenly twelve years ago therefore the demand for water increased three times. On average 150 gallons of water is used by Americans every day. More twenty five percent of energy of U.S. is used for pumping, treating and heating water. This is equal to power approximately 6 million homes for one year.
New developments are affecting the health and environment of the people living in U.S. It is obvious that new developments cannot be stopped as the generated revenue is required by the local governments. The environment provides the economy with raw materials, which are trans-formed into consumer products by the production process, and energy, which fuels this transformation; ultimately these raw materials and energy return to the environment as waste products” (Lewis & Totenberg 2009).
In the United States, property tax imposed on facilities is a primary source of collecting funds for base. The value of a land is called as the tax base; it is determined by market value or it is estimated by any professional estimator. The perceived market value helps to assess. Development potential of land is reflected by the tax assessment. There are various factors that affect the environment due to new developments. The most important are the air pollution and land pollution.
There are several construction materials that emit dangerous compounds, bacteria and fungi. Some materials such as carpeting, adhesives, wood and upholstery emit harmful volatile organic compounds. Process of carpeting, wall covering and flooring releases PVC products; here by PVC we mean Polyvinyl chloride. Designing of new building, there construction and use of methods and materials for decorating them have consequences to natural environment. Approximately forty percent of carbon dioxide releases in the atmosphere due to several building related activities. This increases global warming and depletes the ozone layer. Development of new buildings uses more than 75% of PVC products. Several other materials are used during construction; this includes steel consumption, sand, stone and gravel. More than 20% energy resources are used in buildings and sixteen percent water. The human health is directly affected by these harmful products that are increasing air pollution day by day.
These issues have been realized by the American Institute of Architects (AIA). Green building strategies and designs have been introduced. These green building guidelines are adopted in order to build environmental building standards. These strategies have redefined the ways of designing and operating new buildings. The products and materials of a building can be reused, disposed or recycled as this reduces burdens on the landfills. Also it conserves the resources for future. This is a simple way of avoiding cost.
The quality of air present inside the buildings is even worse. The materials used in constructing new buildings have harmful emissions; they directly affect the health of the residents. This can be improved by establishing good ventilation standards and maintain high level of standards while using building products and materials. In order to maintain good quality of indoor air, it is essential to improve both source elimination and ventilation rates. The products used in building include wood, upholstery and adhesives; these contribute to air pollution inside the buildings. Poor quality of air present in the buildings contributes to cancer, asthma and reproductive effects.
To minimize the effects of new developments on the environment, it is essential to redefine buildings. Adopting the principles of constructing a green building is the best idea. This agenda should be reflected in the building portfolios of the healthcare professionals. The indoor air quality should be monitored in order to raise the health standard of the residents of the respective building. Waste generation, gas emissions of greenhouse, water consumption and energy use should be measured.
New developments such as developing new houses, buildings, dams or highways bring a positive change in the cities. The local governments get a chance to generate high revenues through the development impact fees paid by the residents. They then use the revenue to recover the cost of the entire city’s infrastructure. This is how the entire system runs. It is true that despite of receiving impact fees from the developers and builders, the government is unable to fulfill their requirements and lack in providing facilities. The development impact fee is not reduced and the issues of providing all the facilities are not yet solved.
The purpose of writing this essay was to analyze the utilization of impact fees in various cities of U.S. Also we have focused on the designing and implementation of the schedule followed for receiving and using the development fees. There are some legal ramifications involved but they can be understood easily. New developments in the housing society greatly affect the housing market and also the environment. To maintain the standards of environment the green housing strategies have been presented and adopted now. U.S. has a huge housing market but it is not easy to move in a new house as several factors are to be considered. The local government is responsible for providing all the facilities such as parking, sewer and water systems, roads, street lighting and recreational parks.
Carrion, C., & Libby, L.W. (2008). Development Impact Fees: A Primer. Ohio State University. Retrieved August 10, 2012, from http://www.impactfees.com/publications%20pdf/dif.pdf.
Figure from Clarke, W., & Evans, J. (1999). Development Impact Fees and the Acquisition of Infrastructure. Journal of Urban Affairs, 21, 281-288.
Lester, R.K. (2005). IPC Industrial Performance Centre. MIT Press. Retrieved August 10, 2012, from http://web.mit.edu/ipc/publications/pdf/05-010.pdf.
McKibbin, W., & Stoeckel, A. (2006). Bursting of the U.S. Housing Bubble. Economic Scenarios.com Pty Ltd., 14.
Roubini, N. (2009). Buildings and their Impact on the Environment: A statistical Summary. Journal of Environmental Statistics, 20, 113-119.
Tietenberg, T., & Lewis, L. (2009). Environmental and Natural Resource Economics (8th ed.). Upper Saddle River, NJ: Pearson Addison-Wesley.