Tucson missed stimulus opportunity

By Jack Camper, President/CEO
Tucson Metropolitan Chamber of Commerce

Well, Tucson has its own stimulus plan in place. Generally, the City of Tucson and local developers seem to be happy with it. But was it really the best idea?

The Tucson Metropolitan Chamber of Commerce was present as part of a 20-member Economic Stimulus Stakeholder Group, charged by the Mayor and Council to discuss economic stimulus ideas for the Tucson community, using Councilman Rodney Glassman’s proposed suspension of development impact fees as a jumping-off point.

The group met six times in 30 days, asking questions and discussing options. Over the 30 days, the discussions centered around impact fees and deciding whether to suspend or defer them (usually, impact fees are paid up-front before a development starts; deferral would push the fees off until after work has started or until a certificate of occupancy is claimed).

We were struck that the group didn’t consider other ideas – reducing property taxes, sales taxes, waiving the garbage fee, or even suspending parts of the sign code. There could have been many other things the city could have addressed to key the economy. But the meetings were all about impact fees.

Well, OK then.

As things developed in the meetings, the discussion focused primarily on deferring the fees. Admittedly, the TMCC jumped on board with Glassman’s original proposal, which was to suspend impact fees for 12 full months, in order to restart developments and to get construction workers back to work. The construction industry is the hardest hit in this region, so we felt that this was a positive step forward for the city.

However, the suspension idea didn’t come up as an option until the end. It wasn’t meaningfully discussed.

We hooked our wagon to the original proposal. We listened, asked questions and let the process work its way through. Late in the process, there was a compromise proposed between the suspension vs. deferral factions: How about suspending impact fees for six months, then deferring payment of impact fees after that time?

Well, it was a compromise, and we were willing to support it. But what happened? When all the options were put on the table, the City Council voted to approve an alternative option – deferral of impact fees, with a percentage of the interest savings to be contributed to the city’s Affordable Housing Trust Fund. Interestingly, this option was the one the council leaned toward when the group was formed in the first place.

An interesting idea, for sure, but let’s take a good look at this proposal and compare it to Glassman’s original proposal that we supported from the beginning.

Let’s use a $1 million impact fee as an example, for a residential project due to break ground in April. Under the plan adopted by the City Council, the developer would have the option of volunteering to enter this deferment program. instead of the impact fee being paid up front, this program allows the fee to be deferred until the first home is completed, which is, say, October. In the six months that $1 million sits in a bank account instead of going to the city in April, that money earns 4 percent interest, so it’s now $1.04 million in October. In this program, in exchange for the deferment, the builder agrees to contribute half of its interest gain (in this case, $20,000) to the Affordable Housing Trust Fund. In October, this builder will have given $1.02 million to the city instead of the $1 million up front. Having done that, the developer/builder would likely have to increase the prices of the homes to pay for the impact fee. Ironically, the increased price of the home would make it more difficult for those using the Affordable Housing Trust Fund to get assistance on a down payment for a home.

Under Mr. Glassman’s proposal, this same developer would not have had to volunteer for any program – he would have had no impact fee liability for 12 full months, which means his project begins with no additional charges by the city.  In this scenario, the builder will not have to roll in his impact fee into the costs of his homes, making his homes more affordable and competitive in the market.

We really believe that a stimulus plan should be stimulative to the economy – that is, be an incentive to getting the economy going again. We feel that of the options considered, Mr. Glassman’s original proposal was the best way to get several industries up and running again because there would have been an incentive to get working.

The Tucson Metropolitan Chamber of Commerce has always been, and will continue to be, advocating similar business-oriented economic incentives, those that will benefit not only the businesses, but also their employees. We were hopeful and encouraged that the city saw the need to develop some local stimulus instead of waiting for something from the state or national levels.

We saw this as a great opportunity. Let’s get back to the table and work on other ways to get this economy moving again. We must work together to take advantage of every opportunity, for the sake or our economy and our citizens.