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Illinois School Board Journal
July/August 2005

Sudden impact
Financing growing enrollment

by Linda Dawson

Linda Dawson is IASB director of editorial services and Journal editor.

Imagine a development corporation announcing plans for a new subdivision that will add 150 homes to your community within the next 18 months.

For school boards serving districts with declining enrollment, such an announcement might be greeted enthusiastically. New lifeblood is on the horizon for a struggling community. Empty desks will be filled; teachers' jobs won't be lost.

But for boards in other communities, the announcement may be greeted with wide-eyed stares as they scramble to figure out how to accommodate additional students in schools already bursting at the seams. Where will the money come from for more desks, more teachers, more textbooks or another new building?

Enrollment changes can leave school boards with financial problems no matter which way the pendulum swings. Declining enrollment can mean less money for a district, making it more difficult to provide basic education for the students who remain. Even though "hold harmless" legislation keeps funding from falling precipitously, a downward spiral in student numbers eventually translates to less operational money.

Rapid growth, however, brings its own problem. A big problem is the gap between when students appear in classrooms and when the first taxes and state aid are collected for those students … possibly up to 18 months after a desk is filled.

Welcome to the world of impact fees, transition fees and lag fees. The name can change from community to community, but their purpose remains the same: developers are assessed, either through land set-asides or cash payments, to offset the financial burden a rapid infusion of students can bring.

While such fees sound workable in theory, school districts often find the practice woefully inadequate to meet student needs, according to those currently experiencing rapid growth.

Additionally, not all communities have such a fee structure in place. And for districts serving more than one community, the current system can have mixed results in terms of fees collected.

So how does the current impact fee system work? And what can school boards do to ease the problems that unrestrained growth causes?

How impact fees work

While impact fees have been around for half a century, according to ImpactFees.com, the idea of growth paying its own way really has taken hold over the past 25 years to become an integral part of local government infrastructure financing nationwide. In Illinois, the successful imposition of impact fees began in the late 1970s, after a Naperville city ordinance finally passed the scrutiny of the Illinois Supreme Court.

The authority to assess impact fees actually comes from a portion of the municipal code dealing with subdivisions, according to Richard Flood, a partner in Zukowski, Rogers, Flood and McArdle in Crystal Lake. "Within that code, as a condition of platting," he said, "developers can be required to set aside a portion of the land (in the new subdivision) or cash-in-lieu of land for school purposes."

The court ruling (O.L. Krughoff et al v. City of Naperville) recognized Naperville's right to ask for "donations" to offset the impact of residential development on the city. However, Flood, who is member of Illinois' School Impact Fee Task Force, said that impact must be "uniquely attributable to and fairly proportioned to the need for new school and park facilities created by the proposed developments."

In other words, a community cannot arbitrarily set impact fees without showing a direct correlation between the new housing and its affect on that particular municipality. Additionally, impact fees are designated for schools and parks, not for other purposes.

Under the "Naperville Formula," the number of bedrooms in a new home triggers a sliding fee scale, which assumes a relationship between house size and the number of children who will live in that house. Naperville should know about housing in relationship to growth. According to the U.S. Census, the city more than doubled in size between 1980 and 1990, growing from 42,601 to 85,351 residents, and then gained half of that again by 2000 for a population of 128,358.

Even though formulas may be similarly based, because of the "uniquely attributable" language, impact fees often vary greatly even among municipalities in the same area or served by the same school district.

Kenneth Arndt, superintendent of CUSD 300 in Carpentersville, said impact fees in two of the larger communities served by his district run about $6,000 per house. But in neighboring Pingree Grove, developers are assessed less than $1,000.

Because state statute limits the use of impact fees to land acquisition for a school or actual construction costs, and because land in the area can sell for around $110,000 an acre, it takes a lot of impact fees to actually come up with an amount to offset the construction of a new school, he said.

Arndt, who also serves on the School Impact Fee Task Force, considers his one of the luckier situations with impact fees. District 300, which deals with 11 different municipalities, is part of a Community Leadership Council that meets quarterly to review the newest developments on the horizon as well as an equitable fee structure. The networking helps everyone understand the district's financial and spatial needs.

Not just the 'burbs

While primarily thought of as a "collar county" phenomenon limited to suburban Chicago, growth that necessitates talk of impact fees has hit some downstate communities as well.

Nearly half of the students who attend McLean County USD 5 schools actually have Bloomington addresses, according to Alan Chapman, Unit 5 superintendent. However, while the town of Normal has a land dedication ordinance in place to provide impact fees to his district, the city of Bloomington and McLean County do not have similar ordinances.

"Major developers recognize the need to do something to help the schools," Chapman said, but resistance still exists to the addition of such fees, which some maintain impedes home ownership.

According to the Spring 2002 issue of Visions, a newsletter from the McLean County Regional Planning Commission, initial concerns over enacting Normal's land dedication ordinance in 1998 have not been realized.

"Predictions that the imposition of impact fees would pose a serious barrier to new home ownership have not been substantiated by experience with the school impact fee in Normal," the article stated. But the rate of $200 to $650 being collected per home is well below the national average of $2,700.

Chapman expects Unit 5 to realize $11,400 in impact fees during the 2004-05 school year. That will put the district's impact fee fund in excess of $100,000, with an additional 11 acres of land available to use either for an elementary school construction site or to be sold, with proceeds to go into the fund.

The current ordinance requires a decision to sell or build on the site within a specific time period, he said. The decision on this piece of property will need to be made by 2009. Either way, the amount generated for the impact fee fund — while helpful — will fall far short of what might be needed to build a new school.

According to a May 12, 2005, story in the Peoria Journal Star, Dunlap CUSD 323 will face a new influx of students beginning in 2006 as development of a 1,625-home tract takes shape north of Peoria. But because this development expects to phase in over the next 17 years, Superintendent Jeanne Williamson looks at the possibility as part of what the district selected as its theme for next year: "Here we grow again!"

The growing theme was selected because Dunlap will begin the 2005-06 school year with a renovated high school — a $12 million project the district financed with working cash bonds. But when it comes to impact fees, the district has none.

"We have done well staying ahead of growth," Williamson said, "and have been able to finish every year with a balanced budget." Since 1989, CUSD 323 has grown from 1,639 students to a predicted 2,700 students for 2005-06.

With orderly growth, she said, the district benefits from the new residential property tax base without overly straining the district's capacity. But, she admitted, the district must monitor enrollment projections extremely well in order to keep ahead.

In addition, she said, residents have been very supportive of the schools, passing bond issues for a new middle school and a new elementary school in the past six years. Now that the high school addition is complete, growth patterns may dictate the need to ask voters for another middle school referendum in the coming year or so.

Because they market themselves as a growing district, Williamson said, the board has been able to make its case for need and residents have been more receptive to referendum pleas. At this point, she sees no need to ask for impact fees from the developer: the taxpayers and the district will be ready for the students when they come.

Unless, of course, those students arrive faster than expected. The 157-student increase Dunlap experienced last year "was huge for us," Williamson said. But, if the proposed housing develops over 17 years as predicted, that growth should be manageable, she added.

Further south, in the Metro area east of St. Louis, impact fees were discussed for more than two years before three of five governmental units in Edwardsville CUSD 7 approved an assessment of $3,000 for each new four-bedroom home. According to Superintendent Ed Hightower, Edwardsville, Glen Carbon and Hamel have approved similar fee ordinances so far. Discussion with the Madison County Board of Trustees, which governs the unincorporated portion of the district, will resume in earnest this summer. The remaining village of Worden has a new mayor, he said, which may lead to greater cooperation on the issue.

CUSD 7, which has a current student population of just over 7,000, is experiencing growth at a rate of about 3.5 percent a year, Hightower said. And he anticipates that growth will continue for the foreseeable future.

According to Edwardsville Intelligencer articles from April 2004, both area homebuilders and the local realtors association objected to imposition of impact fees, questioning the need to "single out" an industry to provide more money for the schools. However, Hightower indicated that the district's needs assessment showed $8,000 was closer to the actual "impact" cost.

"We had a continual message," he said of the negotiating process. "We aren't asking them to pay the whole share. In fact, we're not even asking them to pay half. So in that respect we're supporting growth.

"But if we have any hope of passing a referendum, we have to show the taxpayers that everyone is paying a fair share."

And a referendum probably will be in Edwardsville's future. While the new infusion of cash will help the district offset some costs to add to its facilities, it won't be enough to finance construction by itself.

Not a money-maker

Because some districts are coping with growth without financial assistance from developers, impact fees may be viewed as just another way for districts to squeeze more money from taxpayers. Most districts are like Prairie Grove CSD 46 in Crystal Lake: they don't want windfall profits from the growth, they just don't want to get hurt financially by a rapid infusion of students. They want the district to look the same from a financial standpoint both before and after the development, according to former board president Steven Todd.

Todd, who is beginning his second term on the board, said the district wants to make sure that every developer pays its own way as far as taxes are concerned.

Prairie Grove began looking into impact fees after the district gained students and suffered through a $1 million annual loss to the budget. That's when the board began to look at the costs of what it takes, per child, to put a student in a building.

Todd, who also sits on the School Impact Fee Task Force, said village officials have supported the school district by understanding how impact fees need to work in order to help the district at least keep up with its growth if it can't get ahead.

Because of his financial background, Todd himself spent two and a half years working on the fee structure which was approved for Prairie Grove last November. The first of those fees were collected in March 2005. The actual impact on school finances remains to be seen, but Todd hopes it will create a revenue neutral position for his district as far as subdivisions and growth are concerned.

Is the system working?

As impact fees vary from community to community, so does the growth experienced around the state. But the amount of construction for some of these districts is an eye-opener. Impactfees.com lists the numbers of single-family home permits for many communities, along with the dollar amounts that construction represents.*

In Carpentersville, the home community for CUSD 300, 1,270 single-family home permits have been issued since 2001, totaling more than $221.6 million in construction. That figure pales in comparison, however, with neighboring Huntley, which recorded 4,152 such permits over the same time period, for more than $509 million in new homes.

Mike Scala, a Huntley CSD 158 school board member, said his district's enrollment has risen from about 1,000 students when he joined the board in 1997 to more than 6,000 current students. Enrollment is projected to climb to more than 10,000 by 2010.

The biggest problem Scala sees with financing education is that schools are always working with last year's numbers. "We're trying to educate students with numbers that are a year old," Scala said.

If growth in his district was just a couple of years in a row, things might be okay. But, he said, "We're never catching up … and that compounds the problem."

Having each village in the district negotiate with individual developers for each subdivision also compounds Huntley's problems. A village might have set amounts, but the benefit to the school district might be negotiated away by having a developer put in a road, Skala said. "That doesn't help us."

Skala, who also is a member of the School Impact Fee Task Force, would like to see an agreement reached to have statewide impact fee scale.

"If we get something set in stone, it will take it out of the village's hands," he said, as well as providing better accountability and more accurate planning for school districts.

But when it comes to changing the system, each side has its own interests to protect. Developers, obviously, would prefer not to pay additional fees that drive up the cost of their homes. But public school districts experiencing growth can't turn away the influx of new students for lack of facilities and teachers.

Attorney Flood, who has counseled school districts all around Illinois in their quest for fair impact fees for their community, said a proposal now being discussed with developers would create a fee scale that would be calculated by the district. The fees would take into consideration the cost of building a school in that area, including land acquisition costs.

The developers could get a break by having the fee included as an additional tax on the home for a set number of years, rather than a cost paid at closing. Because there would be additional "lag time" between collection of the money and distribution to the schools, districts would be allowed to issue a bond for the amount that will be collected for those homes.

All of this is still speculation. And, Flood said, there is a question of how this might limit any other fees that municipalities collect on homes, as well as how the process would work with home-rule versus non-home-rule municipalities.

Until any changes are made, "those who have gone through (impact fee negotiations) are willing to share the perils and try to offer words of wisdom," District 300's Arndt said.

But he also advised not waiting until overwhelming growth puts financial stress on the district.

"School boards should be proactive with their community leaders," Todd said.

Boards need to be prepared to show their city leaders the effects of rapid residential growth on the schools and the financial burden that it can impose. "They have an obligation to do that," he said, "otherwise it will just happen to you."

Sidebar: Different growth, different problems