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Real Estate Development: Can More Housing Mitigate School Infrastructure Problems?


Where does the money come from to improve old schools and build new ones?

Real Estate Development: Making Housing Growth Pay for ItselfThe debate over whether residential real estate growth pays for itself has been reignited over the last few months.

The Frederick County Board of County Commissioners have been moving forward with a school mitigation proposal for future housing projects that have been stuck in the “catch 22″ of its very strict Adequate Public Facilities Ordinance (APFO).

The County Commissioners have sought buy-in and feedback from the Board of Education and the leaders of the county’s 12 municipalities. In particular, Frederick City has been seeking to ,such as Frederick High School, which has not had a major renovation in over 40 years.

The basis of the County program is that developers of new housing projects will be given the option to move forward under the county’s APFO.  In cases where a proposed residential development is within a district with projected overcrowded schools, the land developer will now have the opportunity to pay a “Construction (mitigation) Fee” for school improvements, renovation or expansion in addition to the traditional impact fee used for new school construction.

In the land development world this is known as Pay-Go or Pay and Go — simply put, pay an extra fee to proceed.

The APFO School Mitigation plan proposes to assess an upfront mitigation fee at  the time of plat approval on all planned housing units in the development. The impact fees will continue to be assessed at the building permit stage.

Currently, if even one of the schools within the district of the proposed development is projected to be overcrowded, the developer can either foot the bill to build a new school, or an addition to resolve the problem… or just wait for what can often be years (or even decades) until the problem is resolved by other means.

Small residential developments of 6 lots or more typically have suffered from the latter scenario, but large projects of over 2,000 units can often find the margins to address school needs.

In the real estate bubble days about five years ago, the developer of was able build $10 million worth of Tuscarora High School to satisfy the APFO test.

That was then… this is now.

In today”s reality, zoning within Frederick County and its twelve municipalities have been planned such that the days of the large planned unit/neighborhood development projects are almost over.  In addition county-wide, we are experiencing some of the lowest housing starts in several decades:  fewer than 800 permits in 2010, which less than 50% of what previous Board of County Commissioners” president Jan Gardner approved in its 2010 Comprehensive Plan — 36,000 housing units within twenty years (1,800 per year).

The other reality: it is a fantasy to anticipate that there will be another real estate bubble of insatiable housing demand and exponential price increases within the next twenty years.

So, you ask, why should Frederick County be concerned if it does not meet the housing permit benchmarks set in the Gardner Comp Plan?

The sad truth is that “Frederick County needs the money! as stated by current commission president Blaine Young.  Previous boards worked very hard to curb the number of new homes from a 25 year average of about 2,600 units to the target of 1,800 per year.  Since the county”s APFO plan was adopted in 1991, school impact fees from all those units have been used to fund any number of new schools throughout the county.

In anticipation of state reimbursements, as well as a steady stream of impact fee income, previous boards floated bonds to forward fund this new construction. However, with state money now only trickling back to the county coffers the impact fee income is vital to covering the bond debt service on past projects, much less the banking of funds for future school construction for alleviating overcrowding problems.

While the real estate market was living the good life up to 2006, and even on much of its down slide thereafter, previous boards were spending beyond their means. To make up the spending difference they siphoned money from various rainy day funds to cover expenses — creating a serious structural deficit.

But now those accounts are nearly dry, property tax revenue is off and impact fees are more critical than ever before to cover the cash flow needs. As one local land use attorney told me, “the dirty little secret is that Frederick County is now addicted to impact fee income.”

Without a steady flow of school impact and mitigation fees from new homes, the school problems this county faces will likely persist. The only way the county can generate more impact fee income is to create a method of allowing projects to pass or mitigate the school test provision of the APFO.

But won’t this mitigation proposal open the gates and flood the already existing, overcapacity schools to higher levels of congestion?

County staff included in the proposal an overcrowding cap of 120%. Any applicant within a school district that meets or exceeds this figure will have to wait until that percentage drops. This may not address the issue in full, but there are other tools out there.

Frederick County Public Schools system-wide operates at an 88% student capacity; however, in a number of overcrowding cases  there are schools close to each that have a major spread in student occupancy.  But the system seems unwilling to make the very unpopular decisions necessary to redistrict students.

Frederick County families have a tradition of being extremely loyal to their schools and are typically not happy with redistricting plans. While the difficult task of redistricting is by far not the only means of solving the problem of overcrowding, in trying financial times like we are experiencing now, sacrifices are being made in all sectors of economic and personal lives.

In the end it comes down to a fiscal balancing act. The Frederick County School population will continue to grow even if all new housing ceases tomorrow. The problem of overcrowded schools and deteriorating structures will persist.

“I”ve asked at least 21 times now in various meetings,” Blaine Young stated to me, “and to date no one else has come up with another idea on how to generate the needed funds.  If we do nothing we will be lucky to be able to address the needs of only 2 schools within the next ten years.” 

There is no question that the debate will wage on as to whether housing pays for itself, but the reality of the current financial struggles in Frederick County is that a plan to allow a modest increase in housing will go a long way to providing needed funding for improving public educational facilities.

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The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board.  He also writes

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