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Growing Pains: Builders, Schools Fight Over Fees

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Highlands Ranch, Colo.

Amy Evans has only to say a few words before she marks herself as an outsider here. Although the jagged peaks of the Rocky Mountains leap virtually from her backyard, her soft Southern accent speaks of magnolia blossoms and sweetened iced tea.

About two years ago, Ms. Evans, her husband, and their three children moved from Jackson, Miss., to this planned community 20 miles south of Denver.

Thousands of families like the Evanses have migrated to Highlands Ranch and surrounding areas of Douglas County in recent years, a stampede not unlike the one that followed the discovery of gold at nearby Pikes Peak in the mid-1800's.

These nouveau Westerners have made Douglas the nation's second-fastest-growing county, but they also are at the heart of a shootout between schools and developers.

School officials fired the first shot in 1992 when they persuaded county commissioners to levy an "impact fee" on new home construction. With the county's existing schools already at capacity, they reasoned, growth would have to help pay the way for new schools.

Developers, however, saw the fee as an unfair, hidden tax on their customers and returned fire with a lawsuit. Three years later, the case is headed for the state supreme court, and schools throughout Colorado are waiting to see how it will settle the question of who foots the bill for booming growth.

'A Quagmire for Everybody'

The theory behind school impact fees is simple. Each new home potentially means additional students. To help offset the cost of building schools to accommodate these children, local governments levy a fee on the builders, just as they charge to connect new homes to water and sewage lines.

Most developers pass on the cost of the fees to buyers, according to finance and building experts. As a result, politicians who approve impact fees are tapping the wallets of future voters, not those who put them in office.

In the case of Douglas County, the impact fee on an average-size house is roughly $1,900. Over the past five years, the average selling price of new homes in the county has been $160,000.

Despite the obvious appeal of such fees, they are not as trouble-free as they might seem. Calculating school impact fees is a thornier issue than determining water or sewage fees. Even top accountants can do little better than guess what each new home costs a school district, said R. Craig Wood, a co-director of the Center for Education Finance at the University of Florida in Gainesville.

"It's a quagmire for everybody," he said.

Only a few districts nationwide have adopted impact fees, according to Mr. Wood and officials in the home-construction industry. Most of those districts are in California and Florida, where enrollments have boomed as school revenues have shrunk.

Developers in both states have fiercely opposed the fees. The Florida Supreme Court ruled such fees constitutional in 1991, but districts in the state still must dodge builders' lawsuits that question whether certain fees meet the court's definition, Mr. Wood said.

In California, a homebuilders' association last fall charged in a report that some 30 local governments, including some school districts, in the San Francisco Bay area were illegally diverting the fees from construction projects to other uses, such as salaries.

Despite this history of controversy, some districts--including systems in such high-growth areas as Dade County, Fla., and Chapel Hill, N.C.--are looking to impact fees to provide alternative sources of school revenue. And in Illinois, lawmakers are debating a statewide fee on new home construction.

From Prairie to Boom-Town

When Douglas County officials took the plunge three years ago, they knew that developers would answer with a lawsuit that ultimately would be decided by the Colorado Supreme Court, said Jack Christensen, the president of the local school board. But they believed the flood of newcomers to the county left them little choice.

Colorado and the other Rocky Mountain states--such as Arizona, Montana, and Idaho--recently have eclipsed California and the West Coast states as the country's magnet for growth. In Douglas County, where highway signs boast that "quality of life is first," the population has more than tripled since 1980, to about 85,000 people--a faster growth rate than every other U.S. county but Flagler County in northeastern Florida, according to census figures.

Many of Douglas County's newcomers settled in Highlands Ranch. About 15 years ago, the area was a 22,000-acre cattle ranch operated by descendants of Lawrence C. Phipps, who was a U.S. senator from Colorado in the early 1900's. But in 1978, the property was sold to the land-development company that designed the planned community of Mission Viejo in Orange County, Calif.

Soon, bulldozers began chewing up the prairie where cows once roamed.

And now, visitors are greeted by signs pointing the way to more than 50 model homes. The streets are wide and clean, and every other road seems to lead to a tidy cul-de-sac.

More than 30,000 people live in "the Ranch," as it is known, with an additional 60,000 residents expected before development is finished in about 20 years.

Families generally are not moving here for the wide open spaces--the community provides high-density living, with as many as 15 homes per acre.

Rather, like the Evans family, people relocate here for the view of the mountains, the good schools, and other quality-of-life intangibles.

In backyard barbecues and get-togethers with their neighbors from California, Texas, Georgia, and New Jersey, Ms. Evans and her family have found a sense of community they say was missing in Mississippi.

"It's been nice to meet such a nice mix of people," Ms. Evans said of her new home.

The community's compactness also means that Ms. Evans no longer spends hours every day shuttling her children to and from activities. Laurie, her 17-year-old daughter, takes horseback-riding lessons a few minutes away, and Margaret, her youngest child at 9, has only to cross the street to get to school.

Bursting at the Seams

While the Evanses may be model residents for the community, they have contributed to the influx of students that has boosted school enrollment at a 10 percent to 12 percent clip almost every year in the past decade.

To cope, school officials have made the politically tough decisions to phase in a year-round program, redistrict, and use some 60 portable classrooms.

Still, the families--and students--keep coming. In January, Superintendent Rick O'Connell welcomed the county's 20,000th student by taking him to lunch. If enrollment projections for the next few years hold, Mr. O'Connell will be making lunch reservations to welcome the 30,000th student in less than five years.

Revenues generated from impact fees would pay 10 percent to 15 percent of school-construction costs, school officials estimate. This extra money would relieve the crisis, supplement bond-issue proceeds, and stretch taxpayers' dollars a bit further, they say.

Asking developers to pay a school impact tax is no different from asking them to pay for a water tap, argued Denny Hill, the district's planning coordinator.

"It's an upfront investment in the infrastructure," he said. "In this case, the infrastructure happens to be public schools."

The Home Builders Association of Metropolitan Denver disagrees. It has mounted court challenges to school impact fees in both Douglas County and the St. Vrain school district in neighboring Boulder County, and it successfully fought against such fees in Boulder Valley.

Politicians in Colorado have turned to school impact fees not to handle growth but to boost their own popularity, builders contend.

"What could be better than going out and being the champion of the poor little school child against the nasty homebuilders for something as logically sound as growth paying its own way?" said Steve Wilson, the director of governmental affairs for the homebuilders' group.

The unfair irony, the group argues, is that the people paying the fees are often not the ones adding students to school rolls. In Boulder Valley, for example, the group contends that 64 percent of new homes are bought by families that already live in the district.

Impact fees also eventually could erode public support for the traditional source of school-construction funds, the bond issue, the builders warn.

"Once you say that impact fees are going to pay for schools," Mr. Wilson said, "how are you going to convince people to pay for bond issues?"

Voluntary Fund

Developers are not the only ones to raise doubts about impact fees. Although some Colorado cities have adopted the fees, others have resisted them even when the charges were approved for the rest of the county.

Michael Cooke, a Douglas County commissioner, said she believes that homebuilders' warnings about fees and bond issues could come true.

"It is a very dangerous proposition," she said.

In court, the homebuilders' association has won first-round verdicts in its suits against Douglas County and St. Vrain. Lower-court judges in both cases ruled that state law did not give counties the authority to raise money to pass along to the school districts. They also said that impact fees upset the funding balance prescribed by the state's school-aid formula.

As the courts sort out the matter, developers' fees have been held in escrow. More than 20 county developers, meanwhile, have voluntarily put about $6 million of their fees into a school-construction trust fund that has now paid for expansions of two high schools.

Some of these developers are plaintiffs in the lawsuit who oppose impact fees in principle but recognize that crowded schools would hurt the marketing value of areas such as Highlands Ranch.

"If you're going to build homes," said Darell Schmidt, the president of a leading Highlands Ranch developer that is a plaintiff in the suit, "then you've got to have schools. It's a simple as that."

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