Homebuilders oppose new fee Loudon County's tax on houses would go to schools

LOUDON - Homebuilders vow to oppose Loudon County's plans to fund school improvements with a new "impact fee" on residential development.

County Commissioners voted nine to one Monday night to make Loudon the state's second county to adopt a resolution under the County Powers Relief Act of 2006 that funds school improvements through a $1-per-square-foot tax on all new homes sold in the county.

Reaction to the new tax - which could generate up to $1 million a year in revenue - came quickly from representatives of the Home Builders Association of Tennessee, who said they will closely scrutinize the county's plan to ensure that it conforms to all state laws on facilities taxes. Other developers say they may cancel plans to build new homes in Loudon County.

"We want to see the capital improvement plan. We want to make sure this is being done within the law and we intend to see that it's implemented properly," said Mike Stevens, representing the Home Builders Association of Greater Knoxville and a member of the Home Builders Association of Tennessee's board.

Stevens said his own plans to invest in the new Tennessee National golf community will likely be canceled because of the new tax.

Other developers say they may challenge Loudon County's assertion that it conforms to the new law. The county is eligible to enact a tax under "growth triggers" of the new law but must also prove need based on growth in the number of school-age children.

Loudon County has added 470 students since 1994 and currently has a school population that is lower than in 2001 or 2002, said Gregg Reynolds, president of the Loudon County Homebuilders Association.

"Money collected by the tax has to be used exclusively for education expenses reasonably related to population growth," Reynolds said.

Some developers say the new tax will hurt Loudon County growth and say they are prepared to vote with their feet and their investment capital.

"Loudon County needs growth and this impact fee will stifle growth," said Bob Mohney, CEO of Knoxville homebuilding company Saddlebrook, one of East Tennessee's largest developers.

Impact fees are so good at stifling growth, Mohney said, that they typically are used in many parts of the country for exactly that purpose. Loudon could increase tax revenue and generate even more money for its schools by continuing to encourage growth, he said.

"I have property on Highway 11 in Loudon County planned for 47 sites and now I might not develop it at all," Mohney said.

The homes Saddlebrook is developing at Tennessee National are filled with "empty nesters" who already bring property tax revenue into the county without increasing the burden on local schools, Mohney said. Overtaxing this group of homeowners is not only counterproductive to growth, it's not fair, Mohney said.

The lone dissenting vote on County Commission was cast by Chris Park, who said his opposition to the tax stemmed from a feeling that it unfairly burdens certain residents.

"I just don't feel like it's a fair tax. It's more of a one-time fee that will only affect a certain group of people," Park said.

The county's new Capital Plan and the tax resolution approved Monday will survive scrutiny of the Home Builders Association of Tennessee and will not have a major effect on growth in the county, said Don Miller, the commissioner who wrote the original proposal for the tax.

Miller said he voted to shelve the tax plan last month until a new Capital Plan could be developed that shows the education system clearly needs the money to accommodate growth. The new plan also included provisions for the homebuilders, he said.

"We listened to the homebuilders lobby and we did our best to accommodate their concerns," Miller said. "We agreed that the tax would not be collected until the home actually sold."

The new plan was completed with the help of the County Technical Assistance Service, a group of legal and technical professionals at the University of Tennessee that advises county governments, Miller said. He said that the actual burden of the tax would only amount to a few thousand dollars per household.

"I think that if people want to move to Loudon County, a few thousand dollars is not going to stop them, especially if we have better schools," Miller said.

Several County Commissioners who voted for the new tax expressed concern about the ability to make changes to the plan.

"It may have a negative effect on growth. I want to make sure that somewhere down the road, if there is a recessionary trend in housing, we are able to review this," said Commissioner Chuck Jenkins. "Maybe the $1-per-square-foot amount could be adjusted down."

There was also some concern that Lenoir City's separate school system would not benefit from the tax. There is no provision in the current tax plan to return revenue collected in Lenoir City to the Lenoir City School System, Miller said.

"Can we revisit this each year with regard to Lenoir City?" Commissioner Nancy Marcus asked. The board of commissioners agreed to solicit information from Lenoir City Schools about specific needs and to revisit the issue of returning some tax revenue to Lenoir City Schools.

The new Capital Plan and the tax proposal will be reviewed again on second reading at next month's Loudon County Commission meeting and will be voted on one more time before the county can begin to collect revenue from sales of new homes.