Editorial: Clearing the air on impact fees

Some buyers of new homes in a Ward Village high-rise condo did not expect to see it on the accounting documents for final closing costs, and some complained about it.

A school impact fee.

These are fees that were established in state law in 2007, two years after a working group had studied the use of these charges in developments. The practice of requesting contributions toward new public schools had been established for many years already, according to that group’s report.

But the idea was that a standardized impact fee for a specific community would make more predictable how much developers would contribute toward the schools the community would need, partly as a result of their projects. The fee would reflect costs of building schools in defined school impact districts; there are five across the state.

Almost invariably, this fee was built into the price the buyer would pay for the home. But in the Ko‘ula condominium, a 565-unit tower built by Howard Hughes Corp. in Kakaako, part of the Urban Honolulu impact district, it was itemized at the closing-costs stage. For this development, it was calculated at $3,864 per unit, and was passed through and assessed to the buyer in order for Howard Hughes to recoup the fee it already had paid the state.

The developer did disclose it in sales contracts and a long disclosure document prospective buyers received. Some were surprised, all the same.

But buyers of new housing projects might have to get used to seeing this impact free presented in this new way. Going forward, this may well be how developers will recoup their upfront costs.

Selling residential properties, especially in now-lucrative areas such as Kakaako, brings in considerable profit, which is a necessary incentive to get developers who can shoulder the costs. But the public is also giving something, too, to accommodate projects that add to traffic and urban density, so it’s fair that development rights should come with responsibility to the community.

Enabling education where it’s needed is a contribution that the developer should make as a good corporate citizen.

Howard Hughes declined to say why it’s taken this unusual step, but in response to a query from the Honolulu Star-Advertiser, it did issue a statement that the company supports the fee to cover education as a “shared expense.”

“We look forward to welcoming more families in the Ward Village neighborhood and more children into the school system, creating a vibrant and thriving community,” the company said.

In 2007’s Act 245, lawmakers put it this way: “New residential developments within identified school impact districts create additional demand for public school facilities. As such, once identified, residential developments will be required to contribute toward the construction of new or expansion of existing public school facilities.”

In the Kalihi-Ala Moana school impact district that includes Kakaako, an estimated 39,000 new homes would generate about $150 million for the state Department of Education and a new School Facilities Authority in charge of school development.

The rule is that the fee is charged to the developer only if whole new schools or expansions must be built, not to replace existing schools. It can be fulfilled through provision of land or an in-lieu fee, under the law, which doesn’t seem to preclude itemizing it in this way.

Ideally, developers as community contributors would absorb some of those fees, instead of passing that cost directly or wholly to buyers. But at the end of the day, buyers should be aware that new housing in school impact zones will necessitate thousands of dollars in additional fees. For a revitalized community, it will continue to be the price of admission.