Osceola's proposed school impact fees could spell 'disaster' for new apartments

Osceola County school officials are working on a major rewrite of the district's School Impact Fees that could have widespread effects on development countywide, with some types of projects to pay double their current fee and others to reap huge savings.

Sarah Graber, chief financial officer for Osceola County Schools, told GrowthSpotter the district has been studying and reevaluating how it charges impact fees ever since the last update in 2014. Based on data collected over the last three years, vacation home builders have been overpaying school impact fees, basically subsidizing school construction for other homebuilders and apartment developers.

Graber said apartment communities generate the second highest number of students in the county and at a rate (39 students/100 apartments) almost as high as single-family homes (42 students/100 homes).

So one plan under consideration would double the current impact fee on apartments  -- to $12,351 per unit -- based on their location. 

The plan also separates apartments and condominiums -- which now pay the same impact fee -- into different categories since apartment communities attract more families with children than condos. The same is true for single-family homes and townhomes.

"This is the reality based on the number of students coming out of these communities," Graber said. 

When those numbers were released this week, they caused sticker shock among developers with active multifamily projects in the county.

Investors Realty President John Marling told GrowthSpotter the increase "would be a disaster" for a $50 million apartment project he's planning to build next to NeoCity in 2018. 

Upshot Capital Advisors CEO Raul Socarras echoed those concerns. His company is planning a 300-unit apartment complex at Amber Pointe, also on the E192 tech corridor. He could see the school impact fee go from $1.8 million to $3.7 million.

"If it was going to double, it would have a huge impact on how we look at this deal, because the school is the largest piece of impact fees," Socarras said. "There are a lot of projects that are barely penciling out, and a lot has to do with increase in construction cost. So it’s a double whammy to developers, and it could be the difference between moving forward or not."

Another key takeaway from the study is the potential for the county to reduce school impact fees in the Westside Short Term Rental Overlay District. 

"Our last study three years ago in 2014, the issue came up that we want to look at Short Term Rental and potentially doing something different," Graber said. "We didn’t have enough data to move forward with a recommendation, so it was agreed we would internally try to track these things."

Consultant Tindale Oliver calculated two sets of impact fees using different methodologies. First, they came up with a new county-wide impact fee for all five housing categories based on the district's higher cost of construction. Then they differentiated between developments inside and outside of the STR Overlay District, which extends from the Polk County line to Reedy Creek.

Under that proposal, single-family homes in the overlay could see their fees drop to $6,264, which could be a huge windfall for developers like Encore Capital Funds, which is building hundreds of new vacation homes in Reunion West and Margaritaville.

Those savings would be offset largely by revenue from single-family homes outside of that district, which could see their impact fees rise by as much as 20 percent -- to $12,811.  

The consultant also calculated fees based on homeowners who had paid a business tax license fee, which is required of all vacation homes but also applies to any type of home business. Graber said those licenses are voluntary, so they really don't reflect the actual number of vacation rentals in the county.

"In order for us to truly get to a point where we could have a separate impact fee, there has to be criteria for what it takes to qualify as short term rental," Graber said. "We’re in the process of figuring out how to define that. It just can’t be the developer says it's short term rental." 

Graber said she presented the findings on Thursday to the county's Growth Management Task Force, which recommended using the overlay district methodology. But that scenario doesn't differentiate between residential homebuilders and vacation homebuilders in the overlay district.

D.R. Horton, KB Homes and K. Hovnanian Homes, to name a few, are all building residential communities in the Westside Boulevard corridor. 

Kyle Upper, Florida Division president for KHov, said the higher school impact fees could potentially impact two of his three projects in Osceola County even though one is in the Westside overlay district. The third is age-restricted, so it's exempt from school impact fees.

"There are a lot of balls in the air right now in terms of impact fees and what's going on with the moratorium," Upper said. "When they all settle down, we hope Osceola County will remain friendly to growth. It's just impossible to say where everything is going to end up."

Upper said the higher impact fees will drive up home prices in a county that already suffers from a severe lack of affordable housing. He said affordability was a key factor in the decision to buy 124 lots in Magnolia at Westside, because KHov wanted to offer the same quality of homes they build in Orange County at a lower price point. 

"Right now, Osceola County has high impact fees in general," he said. "And we’re glad to contribute to growth of community, but affordability is an issue."

Socarras said the impact fees, combined with new stormwater fees and potentially higher mobility fees, could cause developers to scale down or pull the plug on their projects. He said developers in the NeoCity submarket are already taking a greater risk because they're building product for a demographic that doesn't yet exist. 

"I'm talking about building a $50 million project," he said. "That's another 4 percent increase to a project that's already running tight. I think the county needs to ask themselves if a $50 or $60 million project can't make it, how much revenue are they going to lose over time?"

Graber said she's working with the Growth Management Task Force to schedule a followup meeting on Nov. 9 primarily to get feedback from apartment developers. 

The school board is tentatively scheduled to hold a workshop prior to its Dec. 12 board meeting to discuss the impact fees. 

"If we’re at a point where board is ready to move forward with a recommendation after the workshop, then it could potentially take place on the 12th," Graber said. "That will depend on how the conversations play out."

More likely, the school board would vote on the new impact fees some time in January. That recommendation would then go to the Board of County Commissioners, which has the final say on impact fees.

Have a tip about Central Florida development? Contact me at lkinsler@GrowthSpotter.com or (407)420-6261, or tweet me at @LKinslerOGrowth. Follow GrowthSpotter on Facebook, Twitter and LinkedIn.

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