Who pays for a city’s new construction and growth?

The city of Brownsville is proposing the implementation of a “capital recovery fee” on new construction. An average fee of $2,000 would be collected on every new building in the city, both residential and commercial. The city’s justification is to cover the cost of roadway and capital expenses needed to service these new structures. As the city’s final report describes it: “growth paying for growth.”

Growth can’t pay fees. People pay fees. People also face the consequences of policy choices. Growth does neither. The question the citizens of Brownsville must ask is: Who will actually pay this fee and what will be its consequences for the residents of Brownsville? The answer: Brownsville’s aspiring new homeowners will be saddled with increased home prices and, potentially, decreased housing production.

CDCB’s mission is to make homeownership accessible to as many members of our community as possible. This way, they build generational wealth through equity in their homes, bringing a range of economic benefits to themselves and the city. In the past five years, we have brought more than $31 million in private funding into the community through construction and financing and we have produced 341 new housing units.

The proposed capital recovery fee represents an obstacle to affordability, and that is by design. Historically fees such as these are, first and foremost, a housing policy tool aimed at managing a community’s growth and only secondarily a method by which to pay for new roads. This realization, and the supporting history, is missing from the city’s final report as well as public discourse on this topic.

A capital recovery fee is a popular rebrand utilized by municipalities and their consultants to divert from the term “impact fee,” which has a long and sordid history. Modern impact fees proliferated after the passage of Proposition 13 in California in 1979, which saw a dramatic reduction in property taxes, forcing municipalities to play a painful game of fiscal twister wherein they had to meet an expanding need for services without the requisite tax revenue.

But impact fees were more than additional revenue. They also were explicitly designed to manage growth to prevent the construction of affordable housing and homes with a dollar value below a certain point as they were “net drains on municipal budgets.” In essence, impact fees were the proverbial switchblade of gentrification, acting as a multiplier meant to change the nature of new single-family construction to a distinctly affluent phenomenon. This way, cities got increased bang for their impact buck, with higher valued properties being built that netted higher taxable dollars. But the result was more affluent homes being built for more affluent newcomers, with existing low-income residents being squeezed out.

Studies going back decades on this matter make clear that impact fees do what they were designed to do: raise the cost of housing not only through the added cost of the fee itself, but also through the rippling effect on the city’s housing market moving forward in what’s called an amenity spiral (nicer roads and nicer facilities increase property values, which changes the income levels of the population.) Our city is already one of the least affordable in Texas when taking income into account. It is also identified as a center of significant underproduction in housing units in a study by Up For Growth in both 2022 and 2023.

Again, impact fees are a tool of housing policy and not simply a way to pay for roads. If the city wants to wield such a tool, it should be a careful and precise scalpel and not a hammer to the heart of homeownership for a majority of Brownsville residents. To achieve this, the city should engage community partners to develop an official housing plan that prioritizes affordability as well as underproduction.

One example of how such a plan could offset the negative impacts of an impact fee is to engage in a strategic reconsideration of how it currently uses federal funds designed to address housing: Community Development Block Grants, funds for example, are intended for housing but the city uses many of these dollars on roads. It is reasonable that, as part of a capital recovery fee plan, CDBG expenses can be returned to their intended purpose. This newfound intentionality, where the city wields the tools at its disposal for their intended purpose, and with an awareness of what that purpose is, would provide an increased quality of life for all of Brownsville’s citizens and not just wealthy newcomers.

Daniel Elkin is director of policy, impact and innovation for Come Dream, Come Build in Brownsville.