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June 8, 2005

"Automatic Inflation" - or Passing The Buck

Alan Imhoff

A recent article in one of our newspapers had about 10 column inches on this "automatic inflation," in essence a passing footnote in the news of the day.

I coined the phrase "automatic inflation" in deference to the process the Board of County Commissioners (BOCC) has chosen for several years to peg the real cost of impact new homes have on providing public schools and libraries.

Adopted in late in 1992, impact fees have since provided for a portion of the cost of building new schools. Libraries were added to the mix a few years ago, but both fees were and are determined on the "incremental cost" new homes place on the system of schools and libraries we have in place.

The county paid a respected consultant, twice, once to devised the original 1992 methodology for calculating the fees and later in 2000 to update the calculations. It would seem the BOCC forgot a key element of the original recommendation, which was to review the costs on an annual basis, found on Page 44 of the 1992 study.

So, the board elected to use a neutral index rather than incur the expense of annually insuring the assumptions in the study were still valid. A 20-city national average from the Engineering News Record Construction Cost Index is used to build in this "automatic inflation" factor on top of what may be a slightly inaccurate base figure.

According to the recent local article, this "automatic inflation" factor will kick in at approximately 5% beginning July 1. But at the same time the article says that the commissioners acknowledge that "the numbers used to determine the impact fees and adequate public facilities school test are out of date." This quote is referring to what is known in the study as "pupil generation yield" per household type.

Here we have an "automatic inflation" factor, based on a national average, being added to a system that by their own admission is outdated in its assumptions being passed on to the citizens of Frederick County. There does not seem to be a plan in place to ascertain whether or not the "automatic inflation" factor is correct for the county, nor is there any reasonable attempt to update the assumptions on an annual basis.

Like so many things in government, we as residents assume our leaders have all the correct information from which to make reasonable decisions. But is this the case with impact fees?

As an early proponent of the use of Impact Fees during the late 1980's and as one who was tangentially involved in their development, I find it somewhat disconcerting that this valuable financial and planning tool has been relegated to a footnote not only in the newspaper but, it seems, government as well.

As a student of the methodology for constructing impact fees, the process is not that complicated; nor is it time consuming in the grand scheme of things. However, if it is to remain a valid tool for government planning and financial well being, then it must receive better treatment in the hands of officials responsible for its integrity.

In May 1998, the then county finance director, Doug Browning, wrote a memo mentioning some of the problems with the outdated 1992 report. By February 1999 staff provided some updates and in a March 1999 memo County Attorney John Mathias published this conclusion: "Before the county commissioners impose any increase in impact fees that approaches the maximum amount, a review and update of the Tischler impact fee study should be performed."

Now remember, the update was not completed until 2000, almost three full years after the first discussions.

Granted the county commissioners have many items which require more attention, but to allow a significant process to wallow in constant limbo with who is to do what, with unsubstantiated costs based on outdated information is cause for concern.

With the new Global Information Systems approach, a merge of household location with actual student generation could be done annually, not only by household type, but aggregated by high school feeder district. Cohort analysis of this information could assist Frederick County Public Schools in forecasting future needs for all schools within the feeder pattern.

It would also demonstrate just how much growth is caused by new homes as compared to how much is generated by the change in ownership of existing homes. That, by the way, is now over a four (existing) to one (new) ratio as compared to the 1:1 ratio when the study was done in 1992.

Hopefully this latest round of "passing the buck" will take less than the three years it took last time.

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