April 2, 1996
By Richard Stroup
If you live in Two Dot, Montana, open space is easy to come by. A grassy field with a dome of blue sky above is just down the street. And if you leave town for three months or six months or even a year, that open field will still be there when you get back, just as you remember it.
But if you live in a fast-growing city that is pushing its boundaries and spilling into the surrounding countryside, chances are open space is harder to find. One morning on the way to work, you pass an empty lot overgrown with bushes. A week later, you drive past a major construction zone, soon to be a supermarket and discount drugstore. Not only has undeveloped land for parks, greenbelts and open space become scarcer, but it has also become more expensive.
Those of us who have enjoyed this outdoor space without paying for it— and I am one— hate to see any of it disappear.
Of course, we can move to the new kind of residential development that is beginning to show up near these cities. They provide green space and wildlife habitat, and guarantee residents that this open space will always be there. Such developments are expensive, since they incorporate space that could be used for more houses. One example is Eagle Rock Reserve outside my hometown of Bozeman, a rapidly growing Montana university town. Each buyer purchases 20 acres, but 17 of those acres are set aside for wildlife habitat. Homes are built on 3-acre lots nestled in the woods and meadows. These homesites sell for about $150,000.
Another way that city governments can provide open space is buying land for public parks. Citizens gain enjoyment and scenery, and pay with their property taxes. Most of us think that this is a good trade-off.
Yet there are other ways for the city government to preserve green space without paying money for it. These ways are not so honorable.
Around the country, two major approaches are being tried. Some towns and cities simply take what they want by zoning land as green space and forbidding development on it. That is just as costly as buying parks, but the cost is borne by fewer people: specific landowners, future purchasers of housing, and renters. (Renters suffer as rents are driven up by the reduced supply of land and housing).
The larger number of current homeowners and landlords reap the benefit. As housing and other building space rise in price, current owners get a double windfall: more green space and higher property values.
Other cities are trying a newer technique (sometimes in addition to zoning green space). They are imposing "impact fees" on the builder of new housing or business space.
Impact fees take cash from owners of land that is to be developed, as well as from new buyers of space, and from renters (whose rents rise as they do with zoning). The cash goes to the city, which may use the money it took to purchase green space. Or it may use it for something else, such as planning services, property tax reductions, or whatever the politically powerful interests in the city want to use it for.
The effect on owners of existing homes and business buildings is, again, a windfall gain. Their buildings are suddenly worth more since they don't have to pay the new impact fee. New homes will cost more as a result, and growth will proceed more slowly. The city does not reduce the costs of green space but loads them onto a minority, including those not yet present to vote.
Some current residents support impact fees because they feel that without them they would subsidize the development of roads, sewer lines, and parks as their town or city grows. In most cases, they would not, because bonds are issued to cover the costs, and the tax revenues from the development will cover these bonds. Existing taxpayers do sometimes subsidize new development when a community builds in anticipation of growth and that growth occurs much later than expected.
Still, that does not justify impact fees. A better remedy would be to require that the developer prepay several years' property tax if the municipal government has to buy parkland or build a specific facility to serve the development. The developer would be able to sell each housing or commercial unit for a higher price due to its prepaid tax status. (The buyer would get the tax credit.)
Taxpayers would benefit in this way: If the developer's plan does not materialize, the developer (not other taxpayers or other developers) will pay the cost of preparing for it. In such a case, the developer could sell the credit for the prepaid taxes to another developer who uses the new facilities. The prepaid-tax approach would also force the city government to be explicit about which expenditures are required for each new development, an advantage not shared by impact fees.
Unfortunately, zoning green space and imposing impact fees seem to be gaining ground. As a homeowner in a town whose government favors an impact fee, I can see why. I personally stand to gain a windfall from these takings.
But they offend my sense of justice, and they should offend others' sense of justice, too. Who gives us the right, even if we are the voting majority, to take from the few to gain what we want without paying for it?
Richard L. Stroup is a professor of economics at Montana State University and a Senior Associate of PERC.