Supposedly we're in an economic downtown, which, if past behavior of local officials in California is any indication, ought to mean that development impact fees are heading south. After all, high fees often become a scapegoat in a down economy, and lowering those fees is often touted as a way to stimulate an economic recovery. But that is not happening. Throughout California, fees are not going down. They're going up. And, most significantly, they're going way up in the inexpensive inland areas that have, until now, enthusiastically accepted the spillover housing growth from coastal areas. It's indicative of a new trend in California growth policy — piling on several layers of fees — and it could lead to the next Proposition 13-style revolt. In Riverside County, the county government and the cities have joined together in adopting the Transportation Uniform Mitigation Fee (TUMF), a $6,650-per-new house assessment designed to help foot the bill for $2.6 billion in transportation improvements envisioned for the county over the next 20 years. The most recent approval came in late February, when the City of Riverside signed up for the TUMF. Although Riverside County has a reputation for providing affordable housing, the TUMF comes on top of local mitigation fees that total $30,000 to $40,000 per unit in most jurisdictions. Local economic developers and builders have complained that the TUMF could push growth into adjacent San Bernardino County — except that San Bernardino has begun to consider a TUMF as well, partly because of the possible loss of state funds for local government. Meanwhile, big mitigation fees are also appearing on the horizon in the inland areas that provide spillover housing for the Bay Area. In January, Stanislaus County increased capital facilities fees from $2,900 to $7,800 per house — and that's just inside cities, which have their own impact fees. In unincorporated areas, the fee is now $8,600. Despite this huge jump in Stanislaus County fees, the City of Modesto is now considering a big boost too. Having identified a $185 million shortfall in capital facilities — partly because of the debacle over the Village I project (see CP&DR Local Watch, September 2002) — the council is scheduled to vote this month on a proposal to double its own capital facilities fees. This is not the sort of thing that is supposed to be happening right now. With a downturn in the economy, there is also supposed to be a downturn in housing production, and the conventional wisdom would suggest that cities and counties would be cutting fees rather than raising them. This, after all, is what they did during the early 1990s. But the relationship between housing production and the overall economic cycle has been skewed for more than a decade. Throughout California's postwar boom, housing production appeared to lead the state out of recessions again and again. But the last 10 years have been oddly different. When the bottom dropped out of the California economy during the early '90s, housing production plummeted too. Seeking to stimulate the economy, many local governments responded at that time by cutting permit approval processes and, in many cases, cutting fees as well. But this did not stimulate housing production. In fact, housing production lagged far behind the economic boom during the latter half of the '90s. Production was stuck at around 100,000 units annually — half of what housing experts say was needed in a state adding about 600,000 people every year — and housing costs have increased dramatically. But the economy roared forward anyway. Now, the economy has slowed. Yet housing production has inched up, reaching a 10-year high of 164,000 units in 2002. Even with a downturn and an increase in production, home prices are still shooting through the roof. These trends seem to have persuaded many local government officials that they happily can rely on development impact fees, especially in the current budget context. Virtually all of the recent fee increases have been accompanied by rhetoric about likely cuts in state support for local government. Clearly, the current enthusiasm for boosting fees is informed by the mid-90s experience of cutting fees. The main reason that Modesto is in tough shape today — especially in funding capital facilities for the Village I project, a major development originally approved in 1991 — is that the city cut fees twice during the recession and it didn't work. Neither the 1994 fee cut nor the 1997 version did much to accelerate development interest in the Village I project, and the net result is that the city has had to eat tens of millions of dollars in capital facilities for the area. A recent audit found that the Village I debacle had not been caused by criminal actions but merely by mismanagement. So even in the supposedly affordable parts of the state, developers and homebuyers will have to get used to paying more — not only much higher fees, but also fees levied by different government agencies for different purposes. In places like Stanislaus and Riverside counties, there are now local fees and regional fees; city, county, and school fees; and more. This multi-level system of fees is mostly a creation of the Proposition 13 tax revolt, which began to shift the cost of capital facilities for urban growth from payers of property tax to homebuyers and created a strong expectation that growth would pay for itself. Ironically, the current situation bears an eerie similarity to the period leading up to the Proposition 13 vote in 1978. At that time, the biggest problem was accountability. Many different local government agencies had the independent power to levy property taxes, but no single agency was accountable to taxpayers for the entire bill. At a time when property values were increasing rapidly, many homeowners were hit with a big tax bill and no truly responsive public officials to whom taxpayers could complain. And so it is now. With most of their other options for raising revenue shut off, local government officials are simply following the path of least political resistance by sticking the cost of facilities and services to purchasers of new homes. But these officials are also creating a situation in which no one has full accountability to the overall schedule of fees. If the fees on your brand-new house in Modesto are headed toward $50,000, to whom do you complain? In the same fashion as the pre-Proposition 13 environment, nobody has to take responsibility for the total amount. The city points to the schools, which point to the county, which points to the special district, and so on. The one difference, of course, is that property tax is a tax on the voters themselves, whereas development fees are essentially a tax on people who have not moved in yet; therefore, they don't vote. So maybe there will be no homebuyer revolt. Or maybe the fees will simply go up and up until projects don't pencil anymore and then the politicians will be forced to cut them in the vain hope that they will stimulate construction. That would certainly seem to be a typical response to the yo-yo economy that has emerged in California since the 1980s.