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Parowan • Building a house in Parowan will be less expensive after the Iron County city earlier this month cut in half the mandatory impact fees it charges for new construction.
Parowan Mayor Donald Landes said Friday the fees were lowered in response to the recession that has resulted in a dramatic drop in construction from the booming years in southwestern Utah in the early part of the decade.
"We had some of the highest rates in the area and then growth came to a screeching halt," he said.
Landes said the average fee — $18,000 before the council's action — will now be about $9,000. He and other town officials hope the lower fee will spur new growth.
Like most incorporated cities in Utah, Parowan relies on impact fees as part of a formula that requires anyone who is issued a building permit, be it a developer or private individual, to pay for upgrades to infrastructure that could be strained by new growth. Developers usually pass the fees on to homebuyers, and some real estate agents fear if the fees are too high they can hinder growth and efforts to create affordable housing.
By state law, impact fees can be used only for such infrastructure as sewer, water, electricity hookups, parks and trails, and even fire or police stations. They cannot be used for the maintenance of old infrastructure, the payment of salaries or the purchase of items like furniture for offices.
The fees are embraced by cities as a way to keep pace with growth. Landes said when times are good or growth is projected to be healthy, fees may be higher to cover the impact of more residents.
Parowan City Manager Shayne Scott said the fees ensure that new residents pay their own way so existing residents are not burdened.
Landes said growth in the town of about 2,900 residents has ranged from 1.5 percent to 2 percent a year for the past several years.
He said it has been about four years since the city adjusted impact fees, but leaders now want to include an analysis of fees in every annual review of capital facilities costs.
Marc Mortensen, assistant city manager of St. George in Utah's southwest corner, said a review of that city's infrastructure and impact fee schedule is done every year. The fees are essential to keeping up with growth, he said.
St. George charges about $11,000 in fees on a $200,000 house. He said the fees have not been adjusted since the boom of 2005-06, when more than 2,000 building permits were issued.
That number has since dropped as the housing market soured, and the city now issues just a few hundred permits and may adjust fees accordingly in the future, but nothing is planned. He said that before fees are changed, a study is usually commissioned for recommendations, and those studies are expensive.
Craig Call, executive director of the Utah Land Use Institute and author of the Utah Impact Fee Handbook, said impact fees are about equality.
He said impact fees are not a financial "resource to be mined" by cities.
State law requires entities that collect impact fees to either spend the money collected within six years or refund it to the builder.
That means plans for future infrastructure have to be in sync with what is collected.
"Cities charge for what is appropriate," he said. "It's always a balancing act."
In more urbanized areas, a few counties also charge impact fees. So far, only Wasatch, Weber and Salt Lake counties use them.
Call said fees must be based on an equitable "level of services." For example, one development cannot charge more to build a "better" park or force someone to pay for a better road or curb and gutter in an area of a community if the same isn't required in another.
Real estate agents have mixed feelings about the fees.
Kenny Parcell, president of the Utah Realtors Association, said they are beneficial as long as cities don't keep them high to make up shortfalls in their budgets. And he worries that high fees can work against affordable housing.
"Realtors are all for affordable housing and sometimes that is not understood because their [city council] budget is off somewhere else," said Parcell, who lives and works in Spanish Fork.
He was pleased to hear about the rates dropping in Parowan and would like other municipalities to follow its lead.
"It's nice people can afford to build again," he said.
He said high fees combined with the cost of a building permit can price some buyers out of the market. He used the example of a 4,000-square-foot house that in some markets in northern Utah could have a total cost in permits and fees as high as $26,000.
"To a consumer, that can decide if they build or not," said Parcell.
He said low impact fees could entice individuals or businesses to build, thereby boosting property taxes and other revenue streams.
"By charging less, cities could make more," he said.
Impact fees
O To learn what cities and counties charged for impact fees in 2010 and 2009, visit http://www.auditor.utah.gov. In the left margin, click "Financial Reports of Local Governments" and go to the "Impact Fees" link for counties or municipalities under "Local Government Reports."