Before the House Local & Municipal Government and Urban Revitalization Committee
Opponent Testimony On HB 299
Thursday – November 17, 2005

Mr. Chairman and Members of the Committee,
My name is Daniel Navin and I am the managing director of legislative affairs for the Ohio Chamber of Commerce, although my primary areas of responsibility are taxation and economic development. I am here today to express the Chamber’s concerns and reservations about HB 299, legislation that would authorize counties, townships and school districts to levy multiple, separate “impact fees” on the same commercial project in a development area.

Everyone on this committee is aware of the tremendous challenges our state faces over the next five to ten years in reversing the record of the past three decades in terms of its economic growth and progress, or the relative lack thereof. I also don’t need to tell you that the competition for business and capital investment is fierce and ever-changing, with economic development organizations and local government officials having to continually adjust to what other states and communities are doing.

In this context, we are less than six months removed from having enacted the most comprehensive restructuring of the state tax code in the last half-century. Because much of the tax package is phased-in over four or five years, we will not get a clear sense of the actual impact, positive or negative, of all these changes on the various sectors of our state’s economy, including the residential housing and commercial real estate markets, for at least three years and probably longer. So I sound this initial note of caution, urging the committee to proceed very carefully before striking out in the direction this bill would move.

There is a second, more specific, reason for my admonition. That is, the tax reform package includes the immediate repeal of the 10% rollback of real property taxes on Class 2 commercial/industrial real estate. This means a number of owners of such property will be surprised when they see a 10% or more increase in their tax bills next year, and it is unclear what effect that provision will have on the commercial real estate market, at least in the short term. Coupled with the widespread predictions of a collapse of the real estate boom nationally sooner rather than later, again, in our view, caution and prudence dictate not imposing additional costs in the form of “impact fees” to would-be developers of commercial property in Ohio.

Third, we are concerned the “impact fee” is simply a tax on the right to develop land or to do additional business in the particular jurisdiction. In other words, the government decides what it wants to do under some Master Plan through 2015, for example, then charges any person who wants to do some development a fee, in many cases, greater than the additional public services the specific development will require.

The dissenting opinion in the Ohio Supreme Court case of Home Builders Association of Dayton and the Miami Valley v. City of Beavercreek (decided June 14, 2000) put it this way:
“The majority states that the ordinance’s ‘classification as an impact fee or a tax is not determinative for purposes of our constitutional inquiry.’ I beg to differ. According to Section 2, Article XII of the Ohio Constitution, ‘Land and improvements thereon shall be taxed by uniform rule according to value.’ See State ex rel. Park Invest. Co. v. Bd. of Tax Appeals (1964)…Most of the existing infrastructure in Beavercreek and other cities and towns was paid for by the city or town. Here, however, Beavercreek is attempting to force developers to pay for improvements or additions to infrastructure as a quid pro quo for developing a site, even when the improvements or additions occur beyond the property lines of the development. This strikes me as a tax, and, since it is not applied uniformly, as an unconstitutional tax.”

At a minimum, the Chamber wants to avoid a situation where private enterprise is forced or obliged to pay the cost of some community planner’s dream that may never fully materialize. This is also one of the reasons why the committee should consider a matching funds requirement on the local government and a cap on the fee or tax. We believe that if the local government jurisdiction is going to impose a fee or tax on the right to develop land, then that charge must bear some demonstrable relation or have some reasonable connection to the burden on the local infrastructure the specific development will impose or the additional public services the specific development will require.

A final concern is the fact that these additional tax/impact fee costs and the cost of likely litigation that will ensue from the passage of a bill of this type will all be passed on to real property taxpayers. So if the purpose of the bill is to find a new stream of revenue and bypassing the need for a new levy, the reality is that those new taxes or impact fees will still be paid by property owners.

Mr. Chairman, that completes my testimony and I will be happy to answer any questions.