Last October, while the public eye focused on the presidential election and the battle over extending Paseo del Norte through the Petroglyph National Monument, a notable piece of legislation quietly passed the City Council on a 6-3 vote. At the time, there was barely a whisper about the city's new system for charging impact fees to residential developers, but when the law takes effect on July 1, it will symbolize a new era in Albuquerque's history.
When the Planned Growth Strategy Ordinance passed the City Council on a 7-2 vote in October 2003, the bill required that charges be imposed on subdivision developers to partially pay for the costs of "capital improvements necessitated by and attributable to the new development."
Then in October 2004, the city finally passed a series of impact fee ordinances that will add millions of dollars to the city treasury to pay for streets, sewer lines and parks, predominantly on the West Mesa, where new home construction has been outpacing the demand for infrastructure for more than a decade.
Beginning next week, any company applying for building permits to construct a subdivision will be required to pay several thousand dollars to the city for each new home. Over the next 10 years, the city estimates it will collect $182 million from impact fees. Most importantly, impact fees can only be spent in the service area where they are collected. For example, funds generated from new subdivisions along Unser can be spent only on parks, roads and drainage facilities in the surrounding area and not reallocated to other parts of the city.
"Impact fees are designed to deliver the system improvements that make life in growth areas livable—streets to handle traffic, parks to play in—at a pace that keeps up with the growth," said Susan Johnson, the city's Planned Growth Strategy Implementation Manager.
Following the bill's passage, City Councilor Michael Cadigan called it "one of the most progressive impact fee ordinances in the nation."
City Councilor Eric Griego, now an aspiring mayoral candidate, said last week the bill will help determine "who's going to win the battle for the soul of the city. Is it going to be greedy sprawl developers, or is it going to be the average Albuquerquean who wants sustainable economic development, sustainable water use and a vibrant, well-planned city people want to invest in?"
City Councilor Miguel Gómez, another impact fee supporter, who along with Cadigan and Griego represents Albuquerque's Westside, simply stated: "If we didn't pass the impact fee bills it would have been the same old story—no infrastructure on the Southwest Mesa."
Up until July 1, the city charged "exactions," described by Councilor Cadigan as "a random number on what to charge a developer for roads outside the subdivision." Whatever that random number was, if the Westside's overcrowded conditions are a testament, it wasn't enough, said Cadigan.
Or the money obtained from the exaction wasn't spent on infrastructure near the new subdivision, but allocated for some other capital project in another quadrant of the city. Also, the prospect of a politically well-connected developer finding a way to get their subdivision built without much of an exaction fee was always worth a grain of suspicion, especially if the developer was a generous campaign contributor. Besides, if the subdivision had less than 100 homes, it was exempt from all exaction fees. In other words, without some sensible and effective system of collecting money for infrastructure on the Westside from the production homebuilders, the planning problems that have existed there for more than a decade would continue unabated.
Now, for the first time, the city has set up an impact fee formula that projects to generate millions of dollars in revenue to support new infrastructure specifically in the areas where new subdivisions continue to flourish. The law primarily effects far Westside developers building on off-the-grid, private open space and not folks who build in older areas of the city.
"In the Downtown area you can't charge much of an impact fee, because roads, parks, police stations and sewer drains already exist," said Cadigan. "How can we collect money for building stuff we aren't going to build?"
A common refrain from City Councilor Eric Griego leading up to the passage of the new impact fee law was: "We want developers to pay their fair share." That notion, however, misses an important point, according to Jim Folkman of the Home Builders Association of Central New Mexico, because production home builders will simply pass along the increased cost to the home buyer. "It's a misplaced understanding of how the marketplace works," he said.
Folkman said he does not oppose the idea of impact fees, as long as the rules are "fair, consistent and reasonable," which they are not. "It's a matter of degree. We think impact fees are too high on the Westside and too low on the Eastside."
Folkman said the impact fee regulations will not solve the citywide problem of inadequate infrastructure, but instead will drive up the cost of affordable housing in the city, which will have a stifling effect on the local economy.
But just how does the housing market work in Albuquerque and the surrounding area? Developers say these new impact fees will simply be passed on to the consumer, particularly folks with little or no down payment and low-income qualifications, who must, in real estate parlance, drive until they qualify to the far reaches of the Westside. So the developers raise the cost of the homes to cover impact fees and these folks could be priced out of the market, said Folkman. Or, he said, they will just keep driving until they qualify elsewhere, which could take them to Rio Rancho, Los Lunas or Edgewood, where the mass-produced model homes of the Westside variety are less expensive.
"There's a bit of an irony here," said Folkman. "If the purpose is to curb sprawl, the Planned Growth Strategy and impact fees have had just the opposite effect."
Folkman said that subdivision developers have been anticipating the impact fee ordinance in Albuquerque and, as a consequence, the new law has accelerated growth outside city limits. He said housing starts in the metro area, which includes Sandoval, Valencia, Torrance and Bernalillo Counties, have increased by 11 percent in the first quarter of 2005, compared to the first quarter of 2004—a record year for home building in the metro area. But, Folkman said, the increase is happening in Rio Rancho, while in Albuquerque housing starts have decreased by 26 percent compared to last year. As a result, the implication is that Albuquerque is losing out, while Rio Rancho is making progress, economically speaking.
Folkman still sounds optimistic about the future of Albuquerque's Westside, though. While he insisted that the new impact fee formula amounts to "a regressive tax, particularly on home buyers at the lower part of the spectrum," Folkman added, "we don't anticipate demand will go down for affordable homes (in Albuquerque)."
According to city data, from 2000-2004, the city population grew by approximately 37,000, while the number of new homes built was approximately 19,000. At the same time, sales of older homes in the city remained strong, while property values in established older neighborhoods increased.
"There aren't many ways to explain a booming housing market with no (significant) population increase," said Councilor Cadigan. "Where is the demand for 5,000 new houses a year coming from?"
Recent speculation, covered in the local media, has suggested real estate investors from outside New Mexico are purchasing new homes and using them as rental property. Also, with low interest rates and generous developer incentives such as free furniture and waving a down payment, first-time home buyers are finding it easier to qualify for a mortgage loan.
Regardless of where the demand is coming from, the residential housing boom is gobbling up land at a rate that shows no signs of slowing down. Folkman estimated that there will be no parcels left in Albuquerque, on the east and west sides of the Rio Grande, for production homebuilders to develop within the next five to seven years.
Jobs and Neighborhood Support
The Westside Coalition of Neighborhood Associations represents more than 30 neighborhood associations spreading across the City Council districts of Miguel Gómez, Eric Griego and Michael Cadigan. Two other neighborhood coalitions, the Southwest Alliance of Neighborhoods and the North Valley Coalition, joined the Westside Coalition in support of the city's new impact fees policy last year. In fact, the City Council's impact fee laws had unanimous support from all of the city's neighborhood associations.
To Joe Valles, president of the Westside Coalition, the issue is more about public welfare and quality of life for Westsiders than it is about "the marketplace."
"Whether too many building permits were issued, whether people didn't understand concurrency, the fact is the Westside has been ignored and we need to catch up desperately," said Valles. "The key question is: How can you build infrastructure concurrent with development? If you don't answer that you don't have a good plan. It's gotta be pay-as-you-go."
Valles said implementing impact fees is the only hope Westsiders have if they are going to satisfy the demand for infrastructure being created by the area's ongoing residential construction boom. He said Westsiders have heard the political rhetoric that improved planning and infrastructure are in the works, but the results have been negligible.
Meanwhile, there is an analogy, one conspicuously echoed by the Albuquerque Journal, that has become popular among the subdivision homebuilders. The memorable line, owed to Rio Rancho's mayor, is: Rio Rancho is becoming to Albuquerque, what Dallas is to Fort Worth. The idea is that Rio Rancho will one day become an economically vibrant, dynamic city, while Albuquerque will regress into something like her bucktoothed cousin—the city on the outskirts, removed from the hotter economic action.
True, Albuquerque shares some general similarities with Fort Worth. Although the Texas version is bigger, both cities' economies are heavily dependent on federal contracts and the ubiquitous presence of employers like Lockheed Martin. That's been their economic nature for decades, by in large and for better or worse. Comparing Dallas and Rio Rancho, by any reasonable measure but especially in terms of the job market, at this stage seems like inflated, if not preposterous, wishful thinking.
Why? Because in New Mexico the jobs are in Albuquerque.
The Duke City is, again for better or worse, the epicenter for the state's job market, which means it will always be a desirable place to live for New Mexicans seeking gainful employment.
When it comes to job growth, the Westside remains the top target for economic developers in the city. So far, the job market has not come close to satisfying the population growth; the traffic problems at the river crossings still indicate that most folks are commuting to work on the east side of the river.
So if there is one thing all sides agree on, it's that Westside industrial and commercial development will assuage some of the area's planning problems. For this reason, industrial development is largely exempt from the city's new impact fee regulations. For example, the anticipated business offices and new companies that should sprout around the Eclipse Aviation plant, near Double Eagle Airport, would one day receive exemptions, as would any other industrial or manufacturing center that would bring new jobs to the area.
Earlier this month, Eric Griego called for a moratorium on all residential building permits on the Westside. Although the idea didn't garner much Council support, it was a shot fired across the bow of the Westside homebuilders, one coming from a councilor who is campaigning for mayor. In addition to his political ambitions, Griego is also outraged over efforts to derail the city's impact fee regulations in the state Legislature this past session.
A bill backed by the homebuilders' lobby would have rewritten the city's new impact fee law, said Griego, making it difficult to collect any money from homebuilders to pay for infrastructure. All six of the city councilors who backed the impact fee bill (Griego, Cadigan, Gómez, Brad Winter, Debbie O'Malley and Martin Heinrich) made trips to Santa Fe and contacted legislators imploring them to preserve the city's ability to manage urban growth. The bill eventually died in committee, but not before it left supporters of the city's impact fee law feeling betrayed.
Councilor Cadigan called the homebuilders' bill "a hand grenade that would cause the city to start over and redo our impact fee system." The proposed state law, sponsored by Reps. Dan Silva and Kiki Saavedra, would have allowed land developers to build a road or sewer system in one part of town, say the Northwest Mesa, and get credit for impact fees they would owe on a subdivision they were building on the Southwest Mesa. The bill also intended to give developers credit for building roads that weren't on the city's capital improvement plan. In other words, it would have created a credit system that would have left the city with very little cash to collect in impact fee payments.
Joe Valles summed up his coalition's opposition in a letter written to members of the state Legislature: "A developer could lay out a road to a nowhere subdivision, get credit for it, and bankrupt almost immediately the impact fees collected for that particular ’service area.' In effect this would take the ’planning process' away from local government and place it squarely in the hands of developers. They would not be bound by any planning documents and could satisfy their impact fees responsibility as they see fit. This bill totally disregards and disrespects Home Rule—Local Control."
Last fall, one of the compromises made between the City Council and the homebuilders association was to phase in impact fee costs over two years. According to the City Council website, the fees will be assessed at 34 percent of their full cost until January 1, 2006. On January 1, 2006, impact fees will be assessed at 67 percent of full cost and reach 100 percent on January 1, 2007.
Councilor Griego said the proposal at the Legislature reflected a lack of sincere compromise by the residential homebuilders at the local level. "We really cut these guys a deal in good faith and they went to Santa Fe and tried to circumvent and undermine us."
Griego accused City Councilor Tina Cummins, a realtor who opposed the impact fee ordinance and the Planned Growth Strategy, of working on behalf of developer interests by testifying in favor of the state bill during the legislative session.
"She lobbied against our own Council's supermajority, even when every single neighborhood in Albuquerque supported the city impact fee bill," said Griego. "If people don't believe in a moratorium, then I want to revisit the sweetheart deal on impact fees given to developers. Why are we giving them a break now?" (Councilor Cummins, when contacted by the Alibi last week, said, "I'm not in the mood to talk about this," and declined any further comment.)
Meanwhile, it doesn't appear Griego's call for a moratorium or revision of the new impact fee regulations will amount to more than election year rhetoric.
"After two-and-a half years of work, the PGS and impact fees should be allowed to take effect," said Councilor Cadigan. "With a moratorium, we would stagnate and have no money from collecting impact fees."
Jim Folkman, while contending that the city has not put together an impact fee structure that is completely fair and equitable for all builders across the city, said his association has been willing to compromise, despite the negative effect he believes the fees will have on the city's housing market.
"The industry has been anticipating this and we are thankful for the phase in period," said Folkman. "We're not against impact fees. What we are against is the imposition of impact fees based on questionable methodology."
For Joe Valles, the city's new impact fee law is about more than moratoriums and methodology.
"The reality is, if we don't address the problems on the Westside, the entire city is going to be in trouble," he said. "The legacy of the next mayor could be defined by how well he handles—without ignoring the rest of the city—these issues of transportation and economic development."
Estimated revenue from impact fees from 2005–2014