By Bill Kombol

The legal battle over school impact fees between the city of Covington and Kent School District is instructive on a number of levels, not the least of which is to educate taxpayers and residents on how this pernicious tax works. The theory is simple enough: new development should pay for new public facilities. But when put into practice some taxes based upon grand theories are found wanting due to unintended consequences. Impact fees are a fine example.

By state law school districts are allowed to collect impact fees from new residential housing projects. However, local municipal or county authorities must first vet the district’s proposal before agreeing to assess fees on new housing. Impact fees at their core are a tax on a small slice of the housing market: new homes and condos.

But, impact fees are a very popular tax with local government leaders because they tax people who don’t yet live in the community and thus don’t vote. Impact fees are also a boon to owners of existing housing because new construction must incorporate the tax into the sales price of the proposed home. As new home prices soar because of impact fees, taxes and regulatory requirements, so does the value of existing homes which are comparable in most respects, save for newness.

So, everyone’s a winner, right? School districts realize new revenue sources; politicians who support impact fees can claim they aren’t a tax on current voters; and existing homeowners see the values of their homes rise as new homebuyers examine and often buy less costly used home alternatives. Left unsaid at this congratulatory party is the unfairness of a system which attempts to fund a goal through an arbitrary process.

Say, an empty-nesting couple near retirement plan to move to Covington and buy a new home. Despite having no children they would bear an additional $5,500 in taxes to benefit the school district when they buy their new single family home. Now consider a young couple with a growing family of five children. If they purchase a used home in Covington, they pay no impact fees yet the Kent School District shoulders considerable new student impacts. This so-called “impact fee” does not really address impacts. Instead it taxes one slice of the housing market without regard to the real impacts from those who buy.

This is where the law of unintended consequences rears its ugly head. There are losers who most often are the poor and those struggling to buy a home for the first time. They suffer the most. The current Covington – Kent School District dispute centers around a simple question: how high of tax should be forced down the throats of future low-income residents. The district wanted the highest tax currently allowed by code. Covington wanted an 80 percent reduction to encourage low-income housing. The district said “no” and Covington repealed their tax in its entirety. Kent schools will continue to receive impact taxes from other cities and unincorporated areas in the district. But, at least for now the citizens of Covington will be unburdened by a tax which is indiscriminate by nature.

There are several lessons to be learned. Impact fee are a selective tax on new homes only. Impact fees, as assessed on new home construction, do not truly measure impacts – they simply tax whoever buys new homes. By taxing new homes, the cost of both new and existing housing goes up. Higher home values result in higher real estate taxes borne by all owners. But most tragically, high home prices, exasperated by school impact fees, result in fewer achieving the dream of owning a home.