Missoula County exploring ‘smart growth fees’ to fund infrastructure costs

Martin Kidston

(Missoula Current) It doesn't take a longtime Missoula resident to understand the growth taking place south and west of the city, with new subdivisions filling in and road networks expanding.

Estimates suggest that over the next decade, Missoula will absorb another 12,000 residents who will need 4,500 homes. They'll also require the creation of 15,000 new jobs requiring more than 16 million square feet of new commercial space. That doesn't include the city's bedroom communities including Lolo, Frenchtown and Bonner.

To address the growth, Missoula County has begun to analyze the creation of smart growth fees, or impact fees, to pay for the infrastructure required by new development. That new infrastructure carries an estimated cost of $17 million, and many believe new development should pay for it.

“The county is recognizing that there are levels of service that people expect in some really important areas,” said Hatton Littman, a consultant with Surf HL. “We're talking about infrastructure, not about employees, supplies and operational costs. We're talking about physical infrastructure.”

Of the estimated $17 million in infrastructure needed to support future growth over the next 10 years, the Missoula County Sheriff's Department accounts for around 32% of it, or $5.6 million, while emergency management accounts for 16%, or $2 million.

Other costs include $3 million for parks, $3 million for growth in general government, $1.7 million for Frenchtown fire, and $1.5 million for paths and trails.

“Those are the costs Missoula County is trying to solve for,” Littman said. “The county anticipates that over 10 years, they could generate $16.6 million from new fees and $1 million from new property taxes. It's a way to buffer current residents and current property-tax payers, renters and business owners, from the costs to expand necessitated by these 12,000 new people.”

Buffering current residents from the costs of future growth lies at the center of what impact fees are intended to achieve. They represent a one-time cost placed upon new development, both commercial and residential, to fund the public infrastructure such projects require.

Without such fees, taxpayers across the city would have to pay more to cover the cost of growth, Littman said. The fees are leveraged in specific locations and can only be spent for approved uses in those locations.

But while some contend that new development should pay its share for the increase in services and infrastructure it requires, others contend that the fees only drive up the cost of housing and business. Some suggest it's not fair to place the costs on the backs of new residents, or residents who move to a newly constructed property where such fees are applied.

“The cost, that $17 million, is just the increase in the level of service and infrastructure needed by the new growth,” Littman said. “It's not like we're trying to charge our newcomers for everything the county general fund is funding.”

As currently proposed, county fees applied to new residential construction in one of the five new zones would range from just under $1,000 to just over $3,000, based upon size. Commercial fees would be higher and are also based on size.

The city also applies impact fees, so where the city and county's fees overlap, both impact fees would be applied. That could make the cost of development higher in the central zone, with fees ranging from $9,000 to nearly $13,000 for residential, again based on size.

Some fear that could potentially create a disincentive to build in the city's core, which is where the city wants to grow. It could effectively push growth further away from the city center, which runs contrary to goals set by both the city and the county.

“It was our builders and developers that started to bring up that concern,” Littman said. “We've got zoning, which has been updated, which is encouraging infill and density. At the same time, there's going to be some market pressures. Their hunch is that might be what pushes people out of Missoula County to develop in Ravalli County or Mineral County.”

But Littman said that's not the wider consensus, given that growth will occur regardless and the fees serve as a way to pay for it without asking taxpayers to cover the cost, or having the county push a bond to fund it.

Certain carve outs could also be considered to incentivize certain types of building, such as affordable housing, accessory dwelling units, or sustainable construction.

“I like the ability to use it as a tool to incentivize the kind of building and design we want to see,” said Missoula Planning Board Member Ellie Costello. “The more places we can put that in, the better. I understand the concerns, but this seems like a reasonable way to cover the costs we need and support infrastructure overall.”

Other planning board members are more skeptical, citing potential “downstream” effects.

“I know there's infrastructure that's needed to grow and needs to be paid for,” said Brady Michael Potts. “But every time we add costs to housing, it's something to be aware of.”

Offering carve outs doesn't mean the revenue that's waived isn't collected, Littman said. If the county reduces the fees for affordable housing or ADU's, that lost revenue still has to come from somewhere, she said.

“That fee revenue has to come from somewhere, and the county would have to allocate a line-item in their general fund budget to back-fill any discounts that they're giving on certain projects,” she said.

Littman said 38 states allow for impact fees, including Montana. It represents a one-time payment and must be related to growth-related infrastructure. It only applies to new development and the county must clearly state what it plans to fund.

Under Montana law, impact fees can be used for water, wastewater, transportation, stormwater and public safety. Any other use of the fees has to be approved by a unanimous vote by county commissioners.

“You're paying your proportional amount to develop, and it's based upon the impact you're creating on the community,” board member Shane Morrissey said of the fees. “I'm fully in support of this.”

The fees could be considered for implementation in 2023 or 2024.

“In the past two decades, federal and state funding has shifted so much that counties and cities have fewer and fewer tools to pay for what they need to do to provide basic services to their residents," Littman said.

This story was updated to correct the name of Hatton Littman's consulting firm Surf HL.