A Proposal Only a Developer Could Love

Peter Navarro is an associate professor of economics and public policy at the Graduate School of Management, UC Irvine

Gov. Pete Wilson's latest school bond proposal is a logical extension of the governor's more than 20 years of feeding at the development industry's trough. This ill-conceived proposal would lower the margin necessary to pass a school bond from two-thirds to 50.1% and further lower the fees developers now have to pay to finance school construction.

This obvious developer sop is bound to inflame both right-thinking fiscal conservatives concerned about the integrity of Proposition 13 as well as people on all points of the ideological compass concerned about fiscally responsible growth management. More to the point, Wilson's scheme will make matters worse, not better. To see why, let's answer the obvious question: Why don't we have adequate schools in California?

The answer is that as the Golden State has grown over the past three decades, it has built far more apartments, condo farms and tract homes than schools. This is because the development industry is one of the largest sources of campaign contributions for both local and state politicians, from city councils and boards of supervisors right up to the Legislature and the governor. Hence most California politicians have not hewn to the first and most important rule of sound growth management, that new development must pay for itself and help provide all the facilities and infrastructure necessary to service that development.

Because California politicians have not required developers to pay their fair share, the state is being strangled by infrastructure shortages. It's not just overcrowded schools, but also congested parks, libraries and freeways, bursting sewer systems and woefully inadequate police and fire protection.

Back in the 1970s, California politicians constantly raised property taxes to fill the financing gap left by fiscally irresponsible development. That worked until 1978, when voters got fed up and passed Proposition 13.

In the wake of Proposition 13, the politicians turned briefly to a heavy reliance on development impact fees as the financing tool of choice. But over time, the juggernaut developer lobby has been able to beat these fees back down. In a case in point some years ago, the Legislature capped developer fees for schools at about half the rate required to ensure that enough schools are built to accommodate new development. Is it any wonder that we have a school shortage?

So what's left for the politicians to make up such shortages of roads and jails and sewers and schools? Bond issues. But voters have rejected past attempts to change the two-thirds approval required for passage of school bonds, a margin almost impossible to attain.

Now our great state is trapped in a precarious political gridlock in which developers, on the one hand, have too much clout to be forced to pay their fair share, and the majority of voters, on the other hand, have too much good sense to unfairly tax themselves. What do we do?

The obvious solution is not to make it easier to pass bond issues and lower impact fees as Wilson wants to do. That approach will virtually guarantee more growth-induced infrastructure shortages. Instead, our spineless politicians need to grow a little backbone and do what California should have been doing all along: Force developers to pay their fair share for infrastructure.

Now right here, let's knock down the Wilsonian straw man that developers simply pass on the costs of such impact fees to new home buyers and thus "make housing unaffordable." Why do so many people believe this illogical argument? Think about it: If the developers could easily pass on these fees, they would enthusiastically support them. But as any sensible economist will tell you, developers typically eat most of these fees; that's why they lobby so ferociously against them.

But of course, pigs will fly before California's politicians, from Wilson on down, will do the right thing. So don't hold your breath.

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