Read Part One
Back in 2005, the Town of Pagosa Springs was spearheading an exciting new search for money. The decade-old TABOR amendment had essentially frozen certain taxes in Colorado, and by 2005, Colorado governments large and small were scrambling to find new sources of revenue to help them deal with a big problem — growth.
 In the rural mountain town of Pagosa Springs, ongoing growth — at one of the highest growth rates in the U.S. — had been a double edged sword. On the one hand, the construction industry was healthy and booming, and that provided jobs for carpenters and heavy equipment operators — who in turn spent their paychecks at City Market and Plaza Liquor and Radio Shack. The money circulated and made the town feel prosperous.
On the other hand, the new homes popping up like mushrooms were putting an increasing strain on government services, especially road maintenance. And another government service had been working overtime as well: Planning.
In this hectic community environment, the Town of Pagosa Springs had gathered with Archuleta County and the two water districts — Pagosa Area Water and Sanitation District (PAWSD) and San Juan Water Conservancy District (SJWCD) to develop a new source of revenue.
Impact fees.
Impact fees were attractive, for one reason, because they appeared to be out of the reach of TABOR. TABOR requires any new taxes to be approved by the voters, and that approval was not easy to come by. But impact fees were not taxes — at least in theory — but were, as the name implies, “fees”.
There is a clear difference between a tax and a fee, in their legal definitions. A tax is a required payment to the government, for which no specific service is provided in return. If I own property in Archuleta County, but I live in Texas all year long, I am still required to pay my property taxes — even though I may not see a direct personal benefit since I don’t even live in the county. Another person who lives in Archuleta County may not own property here, but may send their kids to school here — and they thereby benefit from the taxes paid by our absent Texan property owner.
That’s how taxes work.
A fee is different. When I am charged a fee, I must receive a direct personal benefit in return for that fee, and the amount of the fee must be reasonably commensurate with the amount of service I receive. When I pay a building permit fee, for example, that fee should legally be paying for the salaries and costs incurred to process my application and to inspect my property during the building process and so on.
If I am charged a “building permit fee” when I am not building anything — then that is, in fact, a tax, not a fee. Along the same lines, if I am charged a “building permit fee” which costs me more than the service I am receiving — because the government is trying to use their excess revenues from building permit fees to fund needed road repairs, for example — then again, the "fee" has actually become a tax.
The idea behind an impact fee is this: I move into Archuleta County, a poor rural community with not the greatest infrastructure, and I build a new house. Because I am now going to put more pressure on that infrastructure by my presence, the state of Colorado has allowed local governments to assess an impact fee on my new house. Theoretically, the impact fee will be used to build new roads and new fire stations — to serve me, the newcomer. I am paying the impact fee, in theory, because I am the one who will benefit from the improved infrastructure.
My local government cannot, however, use my impact fees to repair old roads or pay salaries or fund ongoing operations. My impact fees must be used for new capital improvements. Period.
If the government uses my impact fees to repair existing roads, then I have paid a tax — and I’ve paid a tax that my neighbor, who has lived here for twenty years, did not pay. That’s just plan unfair. And it’s just plain illegal, and a good reason for a lawsuit.
To make sure their new impact fees were legal — and thereby avoid potential lawsuits — the Town, County and water districts hired an expert consulting firm, Economic and Planning Systems, to carefully construct the new impact fees. EPS was charged with making sure the fees were justified by planned capital projects — projects that would benefit all the people who eventually paid the fees — and that the fees were calculated fairly, so no one paid more than his personal fair share.
One of the projects EPS looked at funding was a new 35,000 acre-foot reservoir, proposed for Dry Gulch and to be built jointly by SJWCD and PAWSD. EPS took the numbers — the cost of the reservoir as estimated by PAWSD consultants, and the number of people who would be served by the reservoir as estimated by PAWSD consultants — and determined that SJWCD could fairly and legally assess a fee of about $1,100 on each new home.
In other words, each family moving into the PAWSD water district — an area considerably smaller than Archuleta County — could expect a benefit of $1,100 in new services from the proposed Dry Gulch Reservoir, whenever it was built. People outside the PAWSD district might also benefit from the enhanced community economy as a result of a new reservoir — but they couldn’t be charged an impact fee, because their benefits would be indirect, not personal.
The Town of Pagosa Springs offered to collect that $1,100 fee for SJWCD — in part because SJWCD had no staff or office, and in part because the Town would be collecting its own impact fees for roads, trails, and recreation facilities. In fact, the Town offered to collect impact fees for the Pagosa Fire Protection District and the School District as well.
The new impact fees were to be collected at the time a building permit fee was paid. This made the collection process even simpler — and it allowed SJWCD, the Town, the Fire District and the Schools to potentially collect from all the dozens of already platted but unbuilt lots within the Town — plus from any new subdivisions annexed into the Town.
The original plan was for the County to also collect the same SJWCD impact fees on building permits issued outside the Town but within the PAWSD water district — potentially, from over 6,000 already platted building sites, and from who knows how many new subdivisions to be platted in future years.
But the real estate and construction industries argued that the added fees would have an unexpected impact on development in the county. Property values had already been inflated as a result of the National Recreational Properties Inc. marketing scam, and some people were worried that new impact fees would scare away the second-home owners who were driving the real estate and construction markets.
The County BoCC decided not to collect impact fees for SJWCD. This was a severe blow to the proposed Dry Gulch Reservoir financing model, because nearly all the projected growth that would require a new reservoir — and that might pay for a new reservoir with impact fees — was expected to occur out in the County, not in Town.
PAWSD had some big problems. Its partner in the $150 million Dry Gulch project, SJWCD, was apparently not going to be able to bring in enough fees to even scratch the surface of a new reservoir. The public had voted down a bond issue for that same project. The County didn’t seem to want to cooperate.
Plus, PAWSD was desperate for money to fund a refurbishing of the existing Snowball Pipeline and treatment plant. The PAWSD board thought, “Maybe we can charge some of that repair work to new incoming residents?”
So PAWSD decided to take drastic measures on its own. It put in place an impact fee which was “not an impact fee,” in the words of Finance Director Shellie Tressler. That new fee, which hit builders with $7,200 per new house, sent shockwaves through the real estate and construction industries.
And builders in Town were still paying the original $1,100 fee to SJWCD — on top of the new PAWSD fee — for the same reservoir project, scheduled for 2035.
Read Part Three… |