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Arizona split on use of impact fees

A crane

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Kai Ryssdal: Once upon a time in Arizona, there was this thing called new home construction. It was a huge part of the economy. It helped make cities like Phoenix one of the fastest growing in the country. Now the cranes and back hoes have all but vanished from the desert. The missing construction revenue is really being felt. And cities and homebuilders each have very different ideas about how to replace it. From KJZZ in Phoenix, Peter O'Dowd reports.


PETER O'DOWD: The town of Queen Creek collects $16,000 every time a new home sprouts up from the desert floor. They're called impact fees, and they may not sound sexy, but John Kross says the fees essentially built this old farming community 40 miles southeast of downtown Phoenix.

JOHN KROSS: Make sure I don't hit any nails here.

Kross is Queen Creek's town manager. He's navigating his car down a busy road that dips into a desert wash. It's prone to flooding, and impact fees were supposed to fund a six-lane bridge here.

KROSS: This is delayed. It's an unfunded project.

During the state's real-estate boom, Queen Creek grew 20 percent a year. All the impact fees that followed helped build libraries, bridges and sewer plants. But now that new-home permits are down 90 percent, Queen Creek is having trouble paying the debt on those projects. The town has resorted to raiding its general fund to pay its $8 million annual bill.

KROSS: So that's really shaken the foundation.

Communities across Arizona face similar shortfalls.

Gary Birnbaum is a real-estate attorney and an associate dean at the Arizona State University College of Law. He says without impact fees, cities are handcuffed. They have no way to build parks or police stations without draining their reserves.

GARY BIRNBAUM: So where is the money going to come from? The answer is still always the same. It's the general fund. And that means more taxes somewhere, for somebody.

Homebuilders say impact fees stymie business in a recession. Warren Peterson is standing in this virtually empty Queen Creek development. Three years ago, Peterson's company planned to build 478 houses here.

WARREN PETERSON: Right now there is about in the community 27 homes built out. So it's got a ways to go.

O'DOWD: This is sort of a sign of the times, empty dirt lots.

PETERSON: Yeah, we're glad they're not tumble weed lots like a lot of places you see. They're nice and clean.

As he enters an empty house, Peterson says his problem is simple. Prices have fallen by half. This three-bedroom home could have sold for $400,000 at the market's peak. But now, the difference between profit and cost is razor thin. Impact fees eat up 10 percent of his budget.

PETERSON: For all builders in general, it's just that much more difficult to stay in business. The taxes continue to go up.

Peterson says cutting fees could make the difference. And industry lobbyist Spencer Kamps agrees. He says lower impact fees would jumpstart construction, the lifeblood of Arizona's economy.

SPENCER KAMPS: Why is it not a good idea to generate new home construction and generate sales tax and generate job creation in this downturn? And that's obviously a concept that is contrary to many local municipalities out there.

The homebuilder lobby carries a lot of clout in Arizona, and recently the legislature froze any increase in impact fees for two years. This week the League of Arizona Cities and Towns will decide whether to challenge that freeze in court. This debate highlights an even larger problem that has followed Arizona for years. Municipal budgets are built off the windfalls of housing bubbles that have a tendency to pop.

In Phoenix, I'm Peter O'Dowd for Marketplace.

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