Saturday, December 30, 2006

Who pays this tax anyway?

The headline states, "Burden of Growth Shifting to Developers." My thoughts immediately were directed to local and state government and how they are finally doing something on behalf of the rest of us. The sub-heading, "Over 2 Years, State Law Nets Millions for Roads." Wow, how cool is that? Our government is finally coming through for us. YESSSS!

But, I'm never one to draw a conclusion from the headline so I made the mistake of reading the body of the article. Darn it. Why did I ruin my feel-good attitude with the content provided. It turns out that during the past two years developers have funded nearly $1 billion in new or improved county roads, bridges, lights, drainage systems and sidewalks.

The expenditures mark a fundamental shift in who carries the burden of paying for new development. For decades, most of those costs fell to the county. The results of the study look like this:

FY 2004 - Developers share of infrastructure - $8 million
FY 2005 - Developers share of infrastructure - $368 million
FY 2006 - Developers share of infrastructure - $554 million

Now that is a state law we can embrace. Right? Right?

The law requires builders and develepors to pay for infrastructure impovements not only in their development but within a five mile radius if the government determines the development will impact the given radius. The law was passed because consumers (users of government programs) have been complaining about too many tax increases and the burden those consumers are facing with ever escalating taxes. It said so right in the article. Interesting.

So, are developers now responsible for building schools, 24 hour emergency care, and Starbucks coffee houses? What is a development without a Starbucks two minutes away. But I digress.

The first question that popped into my simple mind was; what has the county government done with the $1 billion in savings during the past 24 months? I know, I know. We are not supposed to ask government officials those kinds of questions. We would't want them creating a silly answer.

The second question. Do government officials and newspaper editors really think that their constituency is so oblivious to reality to believe the headline. Apparently, the answer is yes.

For one to understand the operation of a business one must understand that the bulk of government imposed regulation will be passed on to the the end user via increased prices. I understand that many of my friends think that is such a simpleton approach but it is the truth. Will the builders pay some of the increased costs? Yes. Will they pass the bulk of the costs to the end user? Yes. Otherwise, they would operate on razor thin margins and the money used to fund the developers would flow to other activities and industries.

The strange twist to this story is that the state referred to in the article is Florida and the county is Hillsborough. The article was featured in a recent edition of The Tampa Tribune and I had the opportunity to read it as I was relaxing by the canal on a warm December morning during my trek to the Outback Bowl.

Now, without completing an in-depth analysis of the Florida real estate market let me tell you what is happening in Florida. Prices sky-rocketed in the past three years and have recently nose-dived. Much of the cost has been market-driven. For developers building new subdivisions, part of those increased costs are driven by government regulation. I stopped by a new development and talked with rep's from four different builders. To say the market for new homes is slow would be the understatement of the year in Florida. They will do almost anything to sell a new home in inventory. They are not building many spec homes at this point because it takes too long to sell them. Imagine making interest payments on 50 spec homes that sit on the market for the next 12 months. DOM for inventory is approaching one year.

Market forces are at work but what part of government regulation has impacted the new developers? I saw a billboard from a developer in the Tampa area that offered "UP to 60% off New Home Purchase." I laughed when I saw it but I'm sure the builder wasn't laughing.

I'm sure the politicians are laughing. The press and the public think that they have saved consumers $1 billion in taxes in the past couple years and no one has bothered to ask the officials what they have done with the $1 billion in savings.

So, who really pays the cost of development in Florida or elsewhere. It's obvious I think. And so do the laughing politicians.

1 comment:

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