A Cambridge city staff report created a year ago detailed how to pay for a five-year, $20 million water and sewer capital improvement program, which led to planned rate increases for July 2023 and July 2024. The report also brought up another source of revenue that hadn’t been used in Cambridge for over 15 years. City Manager Tom Carroll referenced this report at the July 24 City Council Meeting when he proposed reintroducing impact fees for new developments.
An impact fee is typically a one-time payment a local government assesses on a new property development. The fee is meant to pay for public infrastructure improvements that must be built due to the new development, which can put a strain on the city’s services.
“Impact fees are used to help make growth pay for itself so that you are not, as current utility customers, essentially subsidizing new homes,” said Carroll.
Until the 2008 economic recession, the City of Cambridge had impact fees for water and sewer as well as public safety, parks, and streets. These fees were suspended after the housing market crashed, and they have yet to be reinstated.
“I think from what I’ve gathered from people who have been here, Cambridge was slow to recover from the recession,” Carroll explained. “Our housing boom really started 2018-2019, so this was a full decade after.”
While Carroll admitted that “nobody likes a fee,” in fact impact fees are a preferred alternative to raising property taxes to pay for new infrastructure, which is sometimes taken care of with a special assessment tax levied against taxpayers within a certain district. Obviously, existing property owners would rather have the developer cover the costs. But there are cons to having an impact fee.
“The new home buyer has to essentially pay an extra, you know, if it’s a $300,000 house, it’s almost 1% additional cost to to the home,” said Carroll. “It costs more for a house to be built because there’s an impact fee. It’s not a significant cost increase, but you’re buying a $300,000 house. Every dollar counts, right? So anything you do to increase the cost of a home means that some people are not able to afford it.”
Also, since impact fees can significantly raise the cost of a sizable construction project, developers have been known to consider the fee a disincentive to investment, which can result in the loss of potential jobs in the area. However, some research shows impact fees to be more efficient in raising revenue for infrastructure than property taxes. Additionally, impact fees take into account the cost of development and creating new infrastructure, thus allowing for the creation of a larger bank of developable land.
“The ‘pro’ is the city accumulates money and we put it in a special reserve account, and that reserve account is what we use to undertake things like a booster station,” said Carroll. “And a booster station on the water side allows for pressure for the end of your water system. The further away you get from elevated towers, the lower the pressure is, the more water that’s being used on your system. The more volume that’s being used and drawn out of your system, the lower the pressure is. So you need to add booster stations to keep up with growth, and that’s what an impact fee, as an example, will do. It’ll pay for a booster station, which we need to put right out on Washington Street. So we just acquired some land and it’s right next to the city’s public works facility at 1025 Washington which is where the booster station is going to go which will support new development, new subdivisions, new homes being built to the west on Washington Street.”
The fee is calculated based on the size of the development, the cost of its implementation, and the amount of its impact on the surrounding area. Previously, the city’s impact fee was $2,710 per dwelling unit for water and sewer. Had impact fees been in place in FY 22 and FY 23, the city would have generated almost $1.4 million in water and sewer revenue. So, the absence of impact fees means the city’s water and sewer funds are not collecting between $600,000 and $750,000 annually that could be used to meet the large capital investments Cambridge makes.
When recommending the city adopt legislation to reinstitute an $860 impact fee for water and a $1,850 impact fee for sewer effective on July 1, 2024, Carroll said, “If imposed, impact fees will benefit the existing rate payers and provide more money for our enterprise systems to accommodate growth and replace existing systems.”
The City Council understood the significance of impact fees as a revenue source but also did not want to see these fees hinder development in the city. They decided there would be more analysis and consideration before approving the reimposition of impact fees. But the city staff was directed to prepare legislation for reintroducing the fees, to be effective from July 2024.
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