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Impact Fees

Overview:

Starting in 2009, the City of Flagstaff began collecting development fees (a.k.a. impact fees) for the purpose of funding public safety capital projects for the police and fire departments. Fees can only be used to fund service level demands, such as building a new firehouse, that have increased directly as a result of city growth.

The fees are assessed when a new building is constructed; this could be residential, commercial, or industrial. As of January 1, 2012, a new residential building is taxed $536-675, depending on the size of the dwelling; a commercial building is taxed $1.49 per square-foot; and an industrial complex is charged $0.13 per square-foot. State law requires that a city reviews its fees every five years. The new assessments that have gone before city council would raise the residential fee by as much as $396, commercial by $0.03, and industrial by $0.08.

The pitfall for city residents and businesses is that these fees which are assessed on the building developers are passed to the eventual consumer.

When the city council first debated the use of impact fees in 2008, the Greater Flagstaff Chamber of Commerce was opposed to their adoption. At the time our country was in an economic depression and the Chamber did not believe it was the proper time to consider a new tax to city residents and businesses. Now in 2014 we are in an economic recovery, albeit a fragile recovery. Increasing the fees would be a disincentive for business to locate or expand their operations in Flagstaff. What would especially hurt our community would be the extra cost to housing which is already extraordinarily high.

The Council for Community and Economic Research produces a quarterly and annual Cost of Living Index comparing cost between various U.S. cities. Flagstaff finished 2013 with its cost of housing 52% above the national average. Allowing additional fees that would be passed on to potential new home buyers would be especially stinging on retaining our city’s talent when Flagstaff already suffers from a shortage of housing.

On April 1, 2014, the Greater Flagstaff Chamber staff went before city council opposing an increase in the fees and called on members to keep the fees flat.

Next Steps:

At the April 1, 2014 meeting, the city council asked staff to provide options for keeping the impact fees flat. The Chamber will monitor the issue and continue to advocate for flat fees.

UPDATE: At the May 6, 2014 meeting, the city council voted 7-0 on the first read of an ordninance that would slightly lower the amount of impact fees that must be paid on residential and business developments. The second read (and final vote) will take place on Tuesday, May 13, 2014. Click here to read the ordinance.

UPDATE: At the May 13th meeting of the city council, members voted unanimously 5-0 (two council members were absent) to slightly lower the fees imposed for residential, commercial, and industrial developments. Under the new fee structure, the cost of building a new single family home in Flagstaff will decrease by an average of $127. The cost of a 20,000 square-foot commercial building will decrease by roughly $12,000. While these costs cuts are small, it is our belief that any reduction in costs will be significant in the long run as Flagstaff continues to see a cost of living significantly above the national average.

Council Watch:


City Council Video Archive:

April 1, 2014 - Impact Fees discussion

Additional Material:

Chamber statement to council

Statement by Councilmember Jeff Oravits

Daily Sun: Council postpones vote on impact fees

City publich outreach memo

City staff presentation to council

City council April 1 agenda