10-Year Review Shows Resort’s Impact Fees Worthwhile

OCEAN CITY — After 10 years, impact fees imposed on new development in Ocean City continue to achieve their goal of helping to fund infrastructure improvements, but the revenue stream has slowed down somewhat in recent years.

The Mayor and Council on Tuesday got a briefing on the success of the impact fee program on new development in the resort. In 2005, Ocean City officials passed an ordinance establishing impact fees. The purpose of the ordinance was to help ensure infrastructure for growth and future growth should be funded, at least in part, by the imposition of impact fees on new development. In simpler terms, if a new development was going to be built in the resort and served with municipal water and wastewater or roads, for example, then the developer would have to help pay for the future improvements to the infrastructure.

Impact fees are imposed on new development in a variety of ways, either the number of fixtures, such as water taps or toilets, or on the number of units or square footage of a new project. Since the fees were first imposed in 2005, several major projects funded by the town through bonds have been the beneficiary of impact fees.

For example, the town has built Sunset Park, expanded the Montego Bay fire station, expanded capacity at the 15th Street water plant and expanded wastewater processing capacity with flow equalization and a lime feed system. Those projects were funded by an $8.6 million bond sale and as of June 30 of this year, $4.5 million in impact fees have been collected and applied against the $8.6 million debt service. The $4.5 million represents 53 percent of the $8.6 million in debt service, Finance Administrator Martha Bennett told the Mayor and Council on Tuesday.

“The program has been successful to date,” she said. “It has been important in helping us satisfy our debt service. Impact fees should help us pay for infrastructure for future growth and we anticipate collecting another $4 million.”

When the impact fee ordinance was passed in 2005, Ocean City was in the midst of a significant building boom with several major projects coming on line each year. When the economy went south and the real estate and development markets went stagnant, naturally the number of new projects slowed in kind.

The numbers certainly seem to confirm that. In the first full year of impact fee implementation in 2006, a total of 1,755 new fixtures came on line, resulting in $624,309 in impact fees. By the next year in 2007, 3,977 fixtures came in line resulting in over $1.4 million in impact fees.

The fees bottomed out in 2011 when just 288 new fixtures came on line, resulting in just $105,360 in impact fees. Thus far in 2015, 1,037 new fixtures have come on line, resulting in $506,481 in impact fees thus far this year.

“We averaged 350 units added per year, but for a few years, it was more like 100 units added each year,” she said. “We have a little uptick this year, but the number varies from year to year and that’s one of the things that happened in this time period.”

Council President Lloyd Martin agreed the impact fees thus far have achieved the desired results in offsetting the cost of the debt service for new or expanded infrastructure.

“It has paid off for us,” he said. “That 53 percent is something the town did not have to pay.”

Perhaps more importantly, the impact fees have defrayed the costs of infrastructure improvements that might otherwise have been borne by the town’s taxpayers as a result of new residential and commercial projects.

“That $4.1 million would have ended up on the tax rate if it wasn’t for impact fees,” said Bennett.

Bennett said it was important for the impact fees to reflect only the cost of providing infrastructure and capacity to new development.

“We don’t want to discourage development,” she said. “That’s why we try to work as effectively as possible with developers when it comes to impact fees. The fees can’t exceed the cost of the infrastructure.”