The Cortez Planning and Building Department is floating the idea of reducing or waiving certain building permit or use tax fees in undeveloped parts of town to temporarily spur residential development.
The proposed program is called the 2019 Cortez Home Affordability and Mitigation Program. The City Council heard a report on the proposal at a Nov. 27 workshop. Planning and Building Director Sam Proffer said the city implemented a similar program about six years ago, on the heels of the 2008 economic downturn, when the city cut building permit and use tax fees by 50 percent for commercial projects smaller than 10,000 square feet.
“It was very successful,” Proffer said at the workshop. “It was really geared toward our small-business owners.”
The new proposal is in draft form. In an interview, Proffer said city staff will meet with the local development community in December or January and come up with a plan to forward to City Council for approval. City Council would determine the desired incentive level.
“The developers’ success is our success,” Proffer said. “The city and our department – we want to see stuff happen.”
Several local developers, builders and real estate professionals told The Journal that they believe a reduction in fees could help incentivize additional homebuilding.
“I agree wholeheartedly that it would increase the purchase of building permits and development of some of the vacant lots,” said Preston Dillon, president of development and real estate company Eagle Investment.
Leila Hanson, broker for West Slope Realty Century 21, said she thinks the proposal would be a good idea as long as the city could support the loss of revenue from the reduction in fees.
“Overall, if you have fewer fees it’s going to incentivize some people to do it,” Hanson said. “So, therefore, Sam would be correct.”
Both Dillon and Rodney Case, owner of Case Construction, said the city’s use tax fee deters some developers.
Proffer said the use tax is a 2.02 percent fee assessed upfront on the valuated cost of construction if the building costs more than $10,000. Builders then receive a tax exempt certificate that they can present to local vendors to buy materials to recapture some of the fee. The use tax fee for a 1,200-square-foot home with a two-car garage is about $3,700.
“It was a tool to try to get local builders to buy materials locally,” Proffer said.
But Dillon said suppliers often buy materials from wholesalers outside of Cortez, so it can be hard for builders to get their money back.
“That’s the whole purpose of it, but it doesn’t work,” Dillon said.
Similarly, Case said he often buys materials from Home Depot in Durango, but Durango doesn’t honor the Cortez tax exemption. “That’s what I don’t like about it,” Case said.
Case said builders will always complain about fees, but he said a reduction in use tax fee would make a lot of difference for builders.
“It makes a lot of difference,” Case said. “Look at it this way: Before I can break ground on a house in Southern Bluffs, it cost me an estimated $18,000 before I can even break dirt.”
All three development and real estate professionals are involved with the Southern Bluffs subdivision south of East Seventh Street. The subdivision was platted in 2004, but several phases remain incomplete.
Hanson has a real estate sign advertising 16 vacant lots at the end of an unfinished road that is planned to loop around and include nearly 80 homes. “You see there’s a whole arm where my sign is, a peninsula if you will, that doesn’t have anything happening,” she said.
Hanson said the 2008 economic downtown slowed growth at the subdivision, as well as fraudulent activity from Durango developer James Kreutzer, who pleaded guilty to tax evasion in 2013.
There are no roads or utilities in the area behind Hanson’s sign. She said it will take an investor with the determination and capital to build the missing infrastructure. At that point, the lots will be marketable.
Dillon said he’s built 27 homes in Southern Bluffs. He doubted that a reduction or elimination of use tax fees would incentivize a developer to build roads and utilities. Rather, a reduction in fees would only help developers build homes on lots on paved streets with existing utilities.
Proffer said completing the missing phases in a subdivision like Southern Bluffs, however, is the intent of the proposal.
“What we’re hoping to do is the fees will be attractive enough where it would make economic sense for the builders to go ahead and finish putting in that infrastructure, to create buildable lots and market some homes,” Proffer said.
The plan is still in the early stages, but one lingering issue is the impact on city revenue. Proffer said that’s still a wild card. A look at the past could help estimate the losses. In 2017, he said the city issued 19 building permits for new homes.
Dillon said even if the city loses out on immediate fees, the cost of doing nothing could be higher. “If the lot sits there and nobody build on it, nobody wins in that situation,” Dillon said.