O.C. gives developers a break on project fees
Acting at the request of the politically powerful real estate development industry, Orange County has agreed to postpone collecting fees for housing construction projects, without any analysis or discussion about the effect it will have on the county’s finances.
County officials and building industry representatives characterized the measure as an effort to help builders hit by the credit crunch and the real estate downturn to get projects off the ground. One supervisor, however, questioned whether it would stimulate growth and another critic dismissed it as a favor to the building business.
Orange County is the largest government agency in the state to adopt the change, which is being pushed by the Building Industry Assn., a trade group that lobbies local and state government on behalf of builders, engineers and other industries involved in housing construction.
The group is asking cities and counties throughout California for a similar break as part of a package of measures to ease up-front costs for developers amid an economic downturn that has hit the housing sector hard, particularly in Orange County. More than a dozen cities and counties have adopted the measure.
Developers of large-scale projects pay millions of dollars in up-front fees to cover the increased use of roads, parks, libraries and other services that more residents will generate. Governments put those funds in long-term, interest-bearing accounts and use the money to pay for infrastructure improvements and other services.
A rough industry estimate is that a developer will pay about $4.5 million in fees for a 100-home development.
Under the new order, Orange County and other agencies that have agreed to it will not collect those fees until construction has been completed and certificates of occupancy have been issued.
Industry representatives said the move would lower the amount builders have to borrow to get projects started and leave more cash to invest in their developments. They also say it makes more sense to pay the fees when new residents begin using government services rather than years in advance.
“Doing something about the fees will stimulate building activity,” Kristine Thalman, chief executive of the Orange County chapter of the Building Industry Assn., told supervisors during the board hearing Tuesday. “This will put funds into the economy and put our builders back to work.”
Officials said Tuesday that they did not know how much the county has collected for such fees in previous years and could not calculate how much interest income would be lost, but maintained the amount was not substantial.
Still, the county is heading into a difficult budget season with the looming specter of cuts because the economic downturn has reduced tax revenue.
Asked why there was no financial study, which is a common facet of virtually every proposal that could affect county finances, Tim Neely, director of planning and development services, said: “We weren’t asked to analyze the fiscal impact.”
Orange County’s Board of Supervisors voted unanimously to adopt the measure at the urging of Chairman John Moorlach, who called it an “economic stimulus package” that would help pull the industry out of the doldrums.
In an interview, he noted that counties depend on property tax revenue for 80% of their budgets, and said it made sense to help the industry because it would ultimately generate more tax revenue.
“The effect is that we’ve got people working,” he said. “They’re buying goods and services that could more than offset that lost revenue.”
Supervisor Pat Bates, whose district includes the pending Rancho Mission Viejo development of up to 14,000 homes that could benefit from the deferral, called the measure an “economic survival package.”
“To see our building industry collapse, companies bankrupt and going out of business isn’t good for anybody,” she said.
Real estate, housing construction and related interests gave tens of thousands of dollars in campaign contributions to supervisors last year, including $7,600 to Moorlach, records show. Moorlach said the contributions did not affect his judgment and he questioned the political power of the industry at the moment, saying it holds little sway while it is in such dire straits.
Though it passed unanimously, one supervisor questioned the proposal.
“To approve it as a stimulus package -- I don’t know if that’s appropriate,” Supervisor Chris Norby said.
Darrell Nolta, a close observer of county government, criticized the move as a favor for developers.
“There are many, many people who need to be helped” because of the economic downturn, Nolta said. “Not the builders.”
Under the measure, the county public works department is scheduled to provide quarterly updates on the use of the fee deferral program, and supervisors will revisit the matter in one year to determine whether to make it permanent.
Developers will still have to pay some fees up front, including those for public safety, building and planning inspection services.