LV-area building fee hikes have industry worried

Phil Levine

Friday, Feb. 18, 2000 | 11:13 a.m.

Will the thorny issue of higher municipal fees help burst Southern Nevada's real estate development bubble?

It depends on who you ask.

Area developers and builders are flying warning flags and telling cautionary tales about the potential impact of growing municipal fees. They warn higher permit fees -- combined with rising interest rates and land costs -- may threaten the future of regional development.

Municipal officials, however, contend the higher fees are needed if governments are to provide the quality and variety of services demanded by residents.

"There's no (other) reliable source for funding of infrastructure," Clark County Finance Director George Stevens said. "And the monies collected from developers (at specific projects) are not siphoned off, but rather used for parks and other services on-site."

Still, Mark Jones, managing partner of Las Vegas-based Southwest Engineering, said his company closely tracks permit fees and all the directional arrows point upward.

"It's really similar to the domino effect," he said. "One jurisdiction raises their fees, and all the others want to be on par.

"There's a snowball effect that comes into play with these rate hikes. Municipal officials start to think 'oh well, if they raised theirs, so can we.' "

Jones cautioned that rising municipal fees are prevalent in almost every jurisdiction in Southern Nevada, and there's no sign of a slowdown.

Henderson raised fees Feb. 1. That was followed by a Feb. 7 increase by the Las Vegas Valley Water District.

Jeff LaPour says higher fees are already affecting project costs.

"They're (fees) definitely going up at a rapid pace, and for us the biggest hurdles are often the water fees," said LaPour, regional partner with Dallas-based builder Jackson-Shaw Co. "There are five or six different classifications (for water fees), and they add up quickly.

"On a project we're building in North Las Vegas, for example, water fees alone add about $2 per square foot to construction costs."

Jackson-Shaw is currently building the Northport Business Center, a $30 million master-planned business park adjacent to the North Las Vegas Airport.

LaPour said, for the most part, developers have absorbed most of the higher permit fees.

But he warned that practice may be coming to an end.

"You have to ask yourself, how much longer can developers continue to absorb those costs?" he said. "Something has to give. We've seen combined permit fees rise by between 25 and 30 percent over the last three or four years."

For their part, local water officials say they're making every effort to institute a system that's both equitable and predictable.

"The fees established (as of Feb. 7) were not set in a vacuum," said Southern Nevada Water Authority Controller Matt Thorley. "The rates are set by a board of elected officials and determined after completion of a public input process."

Thorley said the SNWA is working to ensure that "the people placing the demands on the (water) system pay their fair share."

In response to developers' needs for long-term planning, Thorley said the SNWA instituted a five-year plan for water rates for residential development.

"Rates will rise a total of 3 percent over the next five years, and increases will be phased in annually on Feb. 7 each year," he said. "That makes it easier for developers to plan ahead."

Regional municipalities currently charge a wide array of varying service fees.

For example, as of Feb. 1 the city of Henderson charges $104 for an excavation permit and $5,200 for an "expedited commercial review" of development property of less than 10 acres.

Henderson officials are quick to point out that many development fees haven't been raised since the 1980s; they contend the newly added fees will also assist the city in providing a quicker response system for development permit applications.

"We've been told by developers that time is money, and these fees will allow us to have the staff needed to provide a faster turnaround time for applications," said Henderson Assistant City Manager Bonnie Rinaldi.

Permit fee revenue will also enable the city to keep track of its rapid development.

"We currently have no comprehensive tracking system for development," said Rinaldi. "The funds from these fees will help develop that type of system. We've been working for about a year with consultants to put this project together."

Although they acknowledge the need for fee-generated revenues, local developers warn rising permit fees add to an ever-mounting financial burden.

"I can tell you there's not a developer out there who's not worried about the cumulative affect of these (permit) fees, higher land costs and rising interest rates," said Rick Smith, president of the Southern Nevada chapter of the National Association of Industrial and Office Properties.

Smith also cautioned there's mounting concern municipalities could repeat what he described as "previous mistakes" made in California.

"Many (developers) in this area are from Southern California, and we can point to a number of cities where (permit fees) just priced them out of the market," he said.

"For example, Ventura County and Thousand Oaks are two areas (in California) that just kept raising the cost of development until it became prohibitive."

However, Clark County's Stevens says local officials are limited in their ability to generate needed revenues.

"We're restricted by state law on the kind of fees we can charge," he said. "However, before any fee changes, our planning officials often meet with developers to work out an agreement specific to their particular project."

He cited negotiated accords with officials from the Howard Hughes Corp. and the Rhodes Ranch master-planned community as examples of project-specific agreements.

Last spring, the issue of development fees was raised in the state Legislature. However, a bill that would have allowed Las Vegas to levy impact fees on new developments to pay for parks and fire stations died quietly in the Assembly.

Still, despite the lack of legislative action, the debate over escalating municipal fees rages on.

Like their commercial real estate counterparts, Nevada home builders are also expressing concern over rising permit fees.

"Labor costs are up, interest rates are rising, and you have to make the most out of every dollar available," said Frank Pankratz, senior vice president of home builder Del Webb Corp.'s Nevada operation. "Permit fees add to the already rising cost of development.

"That's especially true given today's more demanding (new home) customers, who are looking for a wider range of amenities. There's no free lunch, and those added costs must be paid for."

Pankratz said one of the driving factors behind Southern Nevada's booming economy has been affordable housing; if that should change, he believes the region may lose much of its attraction for new businesses and residents.

"As companies look to expand, they may begin to weigh the attraction of other more affordable locations," he said.

As an engineer, Jones believes his profession is the development industry equivalent of the canary in the coal mine: if there's trouble ahead, they're the first to know.

"There's a lag time in this industry of about six months to a year before the issues that we confront on the front-end become obvious to the general public," he said.

"Awhile back we initially started seeing the affects of higher land costs, and today the new $100,000 (Las Vegas) home is pretty much extinct in this market."

NAIOP's Smith says the good news is that -- despite their differences -- Southern Nevada's local governments are willing to keep the lines of communication open with the development sector.

"All four regional municipalities maintain a very pro-business attitude," Smith said. "There's a definite willingness to talk (to developers.)

"No one (in local government) has turned their back on this issue."