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2. Efficiency and Equity Concerns
Evaluating DIF as an efficient funding source
Sufficient?
Do DIF revenues cover all costs involved in providing public facility needs for new developments?
Proportional?
Are facility costs allocated to those who benefit and are they proportional to benefits they receive?
Least cost?
Can facilities be provided with least cost possible?
Efficiency ("Horizontal Equity")—User Pay Principle
Key efficiency concerns
| Efficiency factor |
Concerns/remedies |
| Sufficiency |
- Insufficient, unpredictable when project-by-project basis
- Better handled when legislated as a formal city-wide program tied to local General Plan (GP)
|
| Proportionality |
- Gets high marks because enabling laws generally prohibits charging more than proportionate share
- Often benefit existing properties at the expense of new developments
|
| Least Cost Basis |
- Better for infill and redevelopments close to existing infrastructure capacity—pay for incremental cost only ("marginal" cost pricing)
- Greenfield without existing infrastructure more costly
|
Under marginal pricing, DIFs can help avoid undesirable urban sprawl ("leapfrog")
How well does DIF address equity concerns?
Under DIF, inequities could occur in two respects:
Gentrification
DIFs on new developments can increase property values and price out low-income property buyers
Flat Fee Structure
Uniform fees across all stakeholders without consideration for their ability to pay
"Vertical Equity"—Ability-to-Pay Principle
DIF as an equitable funding source
| Equity concerns |
Issues/Remedies |
| Gentrification |
- Developers typically pass on DIF costs to property buyers
- DIF can make both existing and new properties less affordable for low-income homeowners/renters
- Remedies: DIF waivers, deferments, other financial incentives
|
| Flat Fee Structure |
- Regressive flat-fee structure often used to reduce complexity and fee administration needs
- Remedies: Vary fees by land use, building type/size, density, location, and/or configuration
|
Striking a right balance between equitable fee structure and administrative complexity
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