When residential developers come to town, neighbors foot about 76% of the cost for new roads. That could change by 2023.
Impact fees are a way for cities to have growth pay for the cost of development. Fort Worth City Council has historically chosen to give developers a discount, creating a gap between the money the city receives from developers and the total cost of building roads and providing other services. As a result, taxpayers pick up the tab, or the roads don’t get built at all.
The fees charge housing developers for the increased cost new development brings to city services. Impact fees come in three types: transportation, wastewater and water.
Residential developers pay an average of 24% of the maximum allowable impact fee, while non-residential developers pay 18%. The average fee, which varies across the city, is $2,110 per unit.
The city uses a formula to determine the maximum allowable fee, and the rate of discount per area. The formula accounts for estimated miles residents travel.
“So you can imagine for instance, if I had a 1,000-lot subdivision, that would have a large impact on the roads,” said Travis Clegg, chairman of public affairs on the Real Estate Council of Greater Fort Worth. “More homes mean more cars and more impact on future roads. So a developer would have to have to pay proportionally more to support his development.”
The city first collected impact fees in 2008. From the outset, to encourage development, City Council members made it policy to discount impact fees. The result of that policy, along with other factors, is that Fort Worth’s tax base is about 60% residential and 40% commercial, which makes it harder for the city to provide tax relief to residents, Clegg said.
Ideally, the cities tax base should be 40% residential and 60% commercial.
“Right at the inception of the program, we were just coming out of recession,” DJ Harrell, Fort Worth’s development director, said. “The council didn’t want to stifle development. So they decided to implement a reduced collection rate.”
After re-evaluating impact fees every five years, the city decided in 2017 to slightly increase the amount developers pay. Still, there was a gap between the total cost of road development and the amount of fees developers pay.
What’s next?
Council will receive the full report on Transportation Impact fees from city staff in October, 2022.
North Fort Worth has felt the effects of lacking adequate impact fees, said Rusty Fuller, president of the North Fort Worth Alliance. The area is still making up for lost time by advocating for new roads for the area. Long-awaited improvements are only now coming to Avondale-Haslet road, to be paid for by residents through the 2022 bond program.
“For the most part we don’t have any good solid east to west thoroughfares,” Fuller said. “Getting between Interstate 35 West and State Highway 287 is not convenient yet.”
Now, the Fort Worth City Council appears primed to consider a change in the city’s long-held policy of maintaining discounted impact fee rates.
“There’s a lot of synergy around raising the collection rate to ensure that we’re able to apply more funding from impact fees,” Harrell said. “Solving some of the transportation problems in the city.”
Fort Worth is required by state law to produce a transportation impact fee study every five years. The study estimates the cost of roads given the pace of development. The study is set to be finished in fall, but council members received a preliminary report in June. The study has to be adopted by council on Jan. 23, 2023.
The report finds that the city will need to pay $3.15 billion in road improvements over the next five years, although the report is not final and the total cost could change. the city projects the total cost of road construction by comparing the city’s Transportation Improvement Plan to the costs of materials and labor.
“We determine where the city’s going to develop, where we’re going to have more trips on the roadway, where we need to expand our existing capacity,” Harrell said. “And then that is the birth of the transportation impact fee program.”
The transportation impact fee study splits the city into service areas. Far west Fort Worth is estimated to cost the most, $406 million in new road construction.
Michael Crain, who represents the high-growth areas of west Fort Worth, said the city will need to look at the area holistically to determine the best policy on impact fees moving forward. North Fort Worth serves as a cautionary tale to the rest of the city, he said
“We’ve seen what it looks like to not look holistically at growth for the city of Fort Worth,” Crain said. “Residents are paying 60% of our property tax base. We can’t keep delivering property tax relief without that balance between residential and commercial.”
Impact fees can be levied only on new development, creating the need for zones exempt from impact fees. For example, areas in the core of the city already have roads, negating the need for transportation impact fees.
There should be some way to finance additional transportation projects like buses and trains through impact fees to ease congestion in the city’s core, council member Elizabeth Beck, who represents parts of downtown and south central Fort Worth, said at the June work session.
Which areas have no impact fees?
- H (Adjacent to Lake Worth)
- I (Carswell Air Force Base)
- J (Meacham Airport)
- K (Northside, Downtown)
- P (Rosedale, Stop Six)
- Q (Near Southside)
- R (TCU Area)
Developers can offset the costs of impact fees by building roads themselves. If builders construct roads included in the city’s transportation study, they can apply for a credit to exempt them from paying a portion, or all of the transportation impact fees.
The Real Estate Council of Greater Fort Worth is one of the organizations consulting with the city on the impact fee study, along with other developers and residents. Developers have wide-ranging opinions on the role of impact fees on the development.
On one hand, it’s harder to sell property without access to city services. However, impact fees also increase the cost of development in Fort Worth.
“Those fees are somewhat passed on to the price of the house, or the price of the property,”
Rachel Albright, a communications specialist with the council, said. “So there are some ways that the developer initially absorbs and pays those fees … then as they lease or sell, they’re breaking those fees out into costs the end user pays, but I don’t think 100% gets passed on in the end.”
The key will be striking a balance, Crain said, between encouraging development and asking builders to pay their fair share. Fuller hopes city leaders consider the impact undeveloped roads have on residents, rather than the impact fee hikes could have on developers.
“We need this council to do something different, and they seem like they’re willing to do something different,” Fuller said.
Rachel Behrndt is a government accountability reporter for the Fort Worth Report. Contact her at rachel.behrndt@fortworthreport.org or via Twitter. At the Fort Worth Report, news decisions are made independently of our board members and financial supporters. Read more about our editorial independence policy here.
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