Impact fees talks stalled

KINGMAN - The commitment made throughout the recent City Council campaigns, to try and reduce impact fees to help spur local development, has hit a wall. Or, more precisely, it has been viewed by the majority of city officials as a policy that would unfairly hit the pocketbooks of Kingman taxpayers.

Finance Director Coral Loyd's presentation made during a special meeting Monday seemed to have convinced five of the seven City Council members that a reduction in the impact fees would hurt city revenues. It would cut the amount of money the city receives, money that is then earmarked for long-term capital improvements such as the Rattlesnake Wash traffic interchange and other future road, park and street projects.

Cutting impact fees would cut revenues, and officials Monday contested the options presented in countering that loss by increased costs elsewhere.

Loyd presented two main alternatives to cutting the impact fees, which are charged to new construction projects.

One option was to raise the percentage of sales tax it collects. The other would be to cut the Rattlesnake Wash project from the capital improvements plan, Loyd said, an option that would eliminate the state's commitment of taking 70 percent of the cost burden on the interchange project.

A third option would be to implement a primary property tax, something that Kingman homeowners have rejected in the past, one Councilman noted. Currently, property taxes are paid predominantly to the county and to schools. The city survives largely on sales tax and state-shared revenue.

In an hour-long discussion on the topic, there was an apparent split between Mayor John Salem, Councilman Keith Walker and the rest of Council.

Salem maintained his confidence in the ability to find a consensus on the issue and doing something to help local developers, but most officials did favor the revenue-compensating alternatives.

Salem and Walker argued that reducing impact fees would spur economic growth, thereby increasing sales tax revenue for the city, creating jobs and bringing some amenities to a city that continues to lose businesses. (This past budget season, the city made cuts to accommodate an approximate $2.3 million revenue shortfall. Last year, RAW Sports, a local sporting goods store, shut down. In December, Kingman's only movie theater closed. And most recently, on Sunday, Cappello's Italian Restaurant went out of business.)

"When this commercial dies," Walker said of the projects currently in the pipeline, "this town is going to be dead." He said he doesn't expect revenue to increase next year, meaning the city will again have to make additional cuts to the budget, as the city did this year, so encouraging sales tax-generating growth would be a plus.

In their opinions against reducing impact fees, several other Council members cited the economy, rising prices of gas, food and utilities, and the need to protect Kingman families from the burden of paying for new growth. They also feared being sued by developers who had paid the fees in full prior to the reduction and who would want to be reimbursed for the difference after the fees are cut.

Neither the attorney who helped the city of Kingman conduct its impact fee study, Andrew McGuire, nor the League of Arizona Cities and Towns could confirm whether or not a city had reduced its fees when contacted Tuesday. Also, neither could say whether or not a city faced legal battles from developers seeking reimbursements for the difference between the original fee rates and the lowered fees following a reduction, but LACT Executive Director Ken Strobeck added that he doesn't have access "to all studies done by every city and town."

Impact fees were implemented in 2006, Councilman Ray Lyons recalled, on the basis that existing sales tax revenue at the time did not cover costs of the mounting capital improvement needs. Impact fees, lauded for their "growth pays for growth" philosophy, were the most logical solution to those shortfalls, he said.

Councilman Kerry Deering said he understands that "ma and pa" shops will have a tough time building a business in Kingman with the fees in place, but the big developers, he said, won't have as much of a problem paying them. And right now, he said the big retailers are waiting for the construction of two Interstate 40 interchanges, at Kingman Crossing and Rattlesnake Wash in east Kingman.

Councilwoman Janet Watson noted how many commercial spaces in town lie empty, many of them sitting on major commercial corridors - Stockton Hill Road, Airway Avenue and Hualapai Mountain Road.

Salem called for the special workshop because he wanted to look into reducing impact fees charged to commercial development, and he was committed to doing so.

"We were all on top of the world. Now, the business community is struggling," he said Monday. "I know there can be a compromise." After the meeting, he was not so optimistic as he noted the views of Council, which, looking at the opinions viewed during discussion, likely would give him a 5-2 vote against changing the rates.

Of the options presented, a 25 percent fee reduction would create an $87,500 deficit in 2009 impact fee revenue, according to Loyd's calculations. By 2010, that deficit would increase by $330,000, she said.

If the fees were cut by 50 percent, the revenue deficit in 2009 would be $175,000, and an additional $660,000 by 2010, according to Loyd.

Council discussed compensating the deficits by implementing a sunset clause on a sales tax increase that would dedicate 100 percent of new revenue to the capital improvement fund.

But no action was taken at the workshop Monday, as it was not an action item on a regular meeting agenda. Officials directed staff to bring these proposals to the next Council meeting, where a public hearing will be held to take comments for the community.