WALL STREET JOURNAL ONLINE:  Mon., Nov. 26, 2007

Rising Use of 'Impact' Fees Rankles New-Home Buyers

By Kris Hudson

            When Jonette Banzon and her husband, Muhammed Ahmad, sought to build a home in Elk Grove, Calif., outside Sacramento in 2004, the city made a surprising demand: To get a building permit for the approximately $500,000 home, the couple needed to pay $240,357 for road improvements around the rural property.

            While the city reduced the fee -- calculated using historical data on the costs of building sidewalks, drainage systems and other street projects -- by about 40%, the couple still sued.

            While few rocket into six figures, impact fees are popping up in a rapidly expanding number of cash-strapped U.S. municipalities scrounging for new revenue sources while federal funding for local infrastructure has become more difficult to obtain. The one-time fees, imposed on builders and often folded into home prices and passed on to buyers, are used by cities to fund construction of infrastructure such as roads, sidewalks, parks and even fire stations for rapidly growing neighborhoods.

            With the residential real-estate boom now over in many states, the extra cost of those fees stands to draw more scrutiny from price-sensitive buyers of new homes. That could translate into more lawsuits in cases like Ms. Banzon's.

            "It would not shock me to start seeing some increased legal friction in this area," says David Barron, a Harvard Law School professor specializing in local-government and property law.

            Property-rights advocates decry impact fees and other so-called exactions -- requirements to donate land or make concessions to gain a government permit -- as a means for local governments to avoid unpopular tax increases for all residents by singling out new arrivals to pay for city projects.

FULL STORY:

http://www.realestatejournal.com/buysell/markettrends/20071126-hudson.html?refresh=on