Contact Us    Locations    01/05/2009

Taxes and regulations drive up costs

Businesses say taxes and regulations are driving them crazy, and it's only going to get worse.

“...Unless the tax burden and regulatory burden is lifted, California will fall into the ocean long before the San Andreas pushes us in,” one Mechanics Bank Business Optimism Survey respondent commented colorfully.

A good example is how developers are affected, from permits, agency review fees, and inspection fees to - worst of all - delays.

Local governments are scrambling for new sources of revenues, creatively inventing or raising so-called “user” fees, which don't require voter approvals. Local agencies now charge significantly more for reviewing and approving plans - and require more changes than ever before. Developers have no choice but to pay - and pass costs along to end users. Commercial rents may be the classic illustration of this “trickle down effect.”

“There are some communities where fees add $35 per square foot to building costs, compared to just $8 to $10 a few years ago,” says Basil Christopoulos, president of Walnut Creek-based C&H Development, which has been involved with some of the East Bay's highest profile commercial projects, including the Lafayette Town Center. “Cities are so broke that the only way to get money is to practically ‘fee us’ to death.”

The number of separate permits required for a project is mind-boggling, from building permits to electrical, plumbing and mechanical permits, fire, grading, sewer, encroachment, obstruction and excavation permits, and sidewalk, driveway, curb and gutter improvement permits. That's not even close to a complete list. Each permit requires inspection fees and the possibility of changes being ordered.

“At least 50 percent of the changes they demand aren't adding anything of value to the project,” says Christopoulos. “All they do is increase costs and time to completion. Projects that once took 18 months now take three years to complete,” he says. One unfortunate consequence of long delays and mounting expenses for development is that small businesses often are squeezed out of the picture. Some projects - the ones that might have more affordable rents for small businesses, don't get built, according to Christopoulos.

Christopoulos says his biggest complaint, however, is not the fees themselves, but the uncertainty.

“I just want them to tell me what they want up front,” he says. “Then I can crunch the numbers and figure out if it will work. But half the time, they don't even know what they want or how to get it.”

“For example, they say, ‘We want a vibrant downtown,’” says Christopoulos. “But to get a vibrant downtown, you need density - enough stores and restaurants and offices to encourage people to walk around. You can't get that unless you're willing to be flexible. Some planners just don't understand that - and they can't have it both ways.”

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