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West County Growth

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G. James Benoit

P.O. Box 74
Crownsville, MD 21032

February 5, 2008

Anne Arundel's Fiscal Challenge
By Joseph Patrick Bulko
The Business Monthly

As the state resorts to myriad special session-inspired tax increases to ward off the looming structural budget deficit, Anne Arundel County is seeking remedies to its own fiscal challenges.

The local squeeze emanates from belt-tightening at the state level, the drooping housing market, the consequent drop in recordation and transfer fees, decreasing property taxes, the effect of the rash of mortgage foreclosures and a swooning national economy.

"The county took a $20 million hit during the [General Assembly's] special session," County Executive John Leopold said. "We're slated to lose more, including Program Open Space money."

In a pre-emptive strike, the county executive has already consolidated positions in the county government. "This administration acted prudently anticipating tight fiscal times," he said.

He's also hoping to save up to $4 million with his second county hiring freeze, which exempts "only public safety positions," and he's requested department heads to reduce costs.

The most controversial measure advocated by Leopold involves changing the impact fees charged to developers. "I recommended raising the impact fees significantly," he said. "We need the maximum from impact fees for school construction, roads and public safety."

Leopold cited growing infrastructure needs, "exacerbated by BRAC," as the impetus for this measure. "It's important that developers pay the full cost of development," he added.

Despite the downturn, "Anne Arundel County remains a very attractive place to live," he observed. "We have more miles of shoreline [than the other counties], and million dollar homes are cropping up like dandelions."

Emphasizing the need to manage growth, Leopold explained that a possible slowdown in development as a result of increased impact fees "is not necessarily a bad thing." He mentioned congestion on the county's roadways as one prime example of the problems of uncontrolled growth.

"We've taken prudent steps anticipating this downturn, so I think we will be OK," he surmised. On a related matter, Leopold said he expects to deliver a draft of the updated General Development Plan to the county council by January 2009.

The Impact of Impact Fees?

According to the county government, the rationale for development impact fees is that "new development results in impacts on public infrastructure such as schools, roads and public safety facilities." The fees allow the county to maintain a schedule of public improvements without overburdening the already burdened taxpayer.

Councilman Ed Middlebrooks (R-2) calmly noted that fluctuating economic cycles are "part of what you deal with" on the county council and that this particular downturn "was not unexpected." He explained that the county executive must present the fiscal year 2009 budget by May 1 for adoption by May 31, and the county council can only cut from the budget, not add to it.

"The impact fees go into a separate fund (not the general fund) and can only be used for schools and infrastructure," he said. His chief concern about the proposed increases is that no one in the county government has answered the question: "If you raise something triple, how much will it generate [in revenues] and what specifically is it going to be used for?"

In fact, some of the proposed increases are on the order of 12-times the current rates. Middlebrooks, an attorney, is concerned that the proposed increases will not yield the expected amounts of new revenue because developers might choose not to build in the county.

He wonders about the motive of the county executive to foist the impact fee conundrum on the council, in effect, to make it deliberate to determine and endorse an appropriate increase in the fee schedule. "I don't know if he really believes [the magnitude of the proposed increases], or is he making us do the dirty work," Middlebrooks noted.

A Dearth of Developers?

Councilman Jamie Benoit (D-4), also an attorney, said the third quarter economic data indicates a slowdown, but it is "not as bad as we thought it would be."

On the proposed impact increase, Benoit said, "The only way you collect an impact fee is if there is new development. This increase will stymie development. The chance of a net increase in impact fee revenue is minimal."

Instead of chasing away developers, Benoit believes the solution to the fiscal challenge involves generating more revenue from successful sectors of the economy. He noted, for example, the "surprisingly large contribution through tourism. Let's keep that sector strong."

He suggests an increase in the 7% hotel tax to be directed to the county tourism bureau. "On a short budget, they are bringing in an astonishing amount of revenue," he said. "They are doing great work. With a little bit of work on the budget side," they can attract even more tourism business to the county.
The proposed increase in the hotel component of the impact fee (approximately seven times the current fee) "will stymie new hotel development," he said. "Hotels are the backbone of the tourism industry."

The "eye-popping" increase to the office development impact fee (approximately a five-fold increase) could "discourage office space in west county," especially in Odenton, where the town center is planned to rise; Hanover and Laurel, Benoit continued.

With office space requirements approaching 8 million square feet due to the "push in the state to establish the BWI Tech Corridor" and the anticipated BRAC-related influx of business, this could be a troublesome matter indeed, he explained. Furthermore, office space tends to be low-impact because employees tend to "work here and live elsewhere."

Benoit said the council is beginning to hold hearings on the matter, with expected resolution of a new fee schedule in a couple of months. The impact fees are "overdue for an inflation adjustment," he added. "Infrastructure costs in the county have increased greater than inflation. There will be an increase." He emphasized that the fees should pay for the impact of development, but not hinder development.

The Numbers Guy

The proposed increases are based on a model by consultant James Nicholas, which uses the "current cost of construction of roads and schools," said county budget officer John Hammond. "These costs have been going up dramatically."

The new fee schedule reflects the actual infrastructure costs associated with new development. "There has been a tremendous increase in the component cost of construction, especially concrete and steel, which has driven up the cost of development," but has not hurt the pace of development, Hammond said. "Higher impact fees will drive up development costs, too," but if demand for development exists, development will still occur.

"How much we collect [determines] how much we spend and what we spend it on," he said. "Impact fees are geographically designated," meaning that the money is spent where it is collected, and most of the new development is expected to take place in the "western end of the county."

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