Regulation for Revenue

The disputes about growth involve the issues of property rights, taxation, and government planning for public works such as transportation and water. But the growth issue opens a window on some of the larger and more ominous ailments of modern political economy, the nature of which is hinted at in the main title of Alan Altschuler and Jose GÃ?mez-Ib·Ã?ez’s recent study, Regulation for Revenue: The Political Economy of Land Use Exactions. The phrase “regulation for revenue” refers to the recent but now widespread practice of imposing large “impact” fees, special assessments, and exactions on new residential and commercial real-estate development. Only about 10 percent of American localities imposed exactions before 1960, the authors note, while by the mid-’80s about 90 percent did. Regulation for Revenue is the most thorough survey to date of the surprisingly limited amount of economic literature that has been produced on this subject. And although the authors do not set out to be partisans on one side or another, they clearly recognize that crafting regulatory systems explicitly to produce revenue, as opposed to a traditional “compelling state interest” such as health and safety, represents “a dramatic power shift…from the owners of property to government officials.” The other notable feature of this book is its recognition that “relevant market signals are almost entirely absent” from most aspects of urban planning today. The discussion of the virtue of road pricing and other market-based policies shows how ideas once confined to the pages of REASON have become part of the mainstream discussion. The use of impact fees and exactions–as high as $40,000 for a single family home and $30 per square foot for commercial development in California–soared in the ’80s, ostensibly as a way to get around anti-tax sentiment and voter-imposed tax limits such as California’s Proposition 13 or Massachusetts’s Proposition 21/2. … For goo-goo (“good government”) types, impact fees have the obvious attraction of being even more thoroughly hidden than their first cousin, the value-added tax. “They do not show up on anyone’s tax bill,” Altshuler and GÃ?mez-Ib·Ã?ez write, “and while they are likely to drive up developer prices they remain imperceptible even to purchasers as a distinct cost item.” Together with the enhanced regulatory regime to which impact fees are ineluctably linked, this new way of governing development has led to huge new opportunities at the local government level for socialist-minded reformers and has contributed to the bureaucratization of local government across the country.