City staff recommends ending automatic backfill for affordable-housing impact-fee waivers

City staff told the Johnson City Council at a workshop that state law permits local governments to waive development impact fees for qualifying affordable housing projects without requiring the city to “backfill” the fee fund from general revenues, and recommended the city stop routinely paying those waived fees.

The recommendation — presented by staff members identified in the workshop as Mike, Tamara and Ashley — would repeal the council’s existing resolution (Resolution 44-24) that had required the city to pay impact fees for projects that received the affordable-housing waiver. “The state statute allows ... a city can waive those impact fees without backfilling,” Mike told the council. He and other staff framed the proposal as a starting point for discussion rather than a final rule.

Why it matters: Under the existing local policy, the city uses general-fund dollars to replace revenue the impact-fee fund would have collected; staff told council that for the current group of proposed projects the backfill obligation would total about $760,000 for one housing authority project and that, across six applications submitted by the July 1 deadline, the city’s projected share under the existing policy would be roughly $4.19 million. “The city would owe on that portion would be 4,190,000.00 and some change,” Ashley said. Staff said changing the policy could reduce the city’s exposure: applying the staff-proposed tiered changes would drop the city’s total to about $1.87 million for the submitted projects, with developers’ net contribution falling to zero under that scenario.

What staff proposed: Staff outlined a multi-part approach: confirm that public housing authorities and entities in which they hold an ownership interest are exempt without backfill; eliminate the city’s standard backfill requirement for affordable-housing waivers; and adopt a tiered waiver structure that ties reductions to area median income (AMI) tiers and to water/sewer enterprise fees. Tamara described options to: (1) waive fees for rental units at 60% AMI and below; (2) allow staggered reductions for units at higher AMIs; (3) waive fees for for-sale units at up to 120% AMI under certain conditions; and (4) waive fees for multi‑unit projects that use income-averaging techniques commonly used in low-income housing tax credit (LIHTC) projects. “We would like to ensure that that's also recognized that any entity that they form a special limited partnership in that they have an ownership interested, is also exempt from paying those development fees,” Tamara said.

Council reaction and next steps: Council members generally signaled support for moving away from the automatic backfill while keeping predictability for developers. Several members emphasized the trade-off: money not used to replace impact-fee revenue reduces funds available for parks, streets, police and fire capacity projects. Robert asked whether the change would reduce funding for needed public improvements; Mike and Tamara confirmed it would, and that the council would need to decide how to budget those trade-offs.

Council members asked staff to return with more precise budget models and scenarios. Mike said staff would prepare estimates that show how many units at various AMI tiers would affect the city’s budget and could be incorporated into the 2026 budget process. “We can try to look at some historical data ... and give you an estimate,” he said. Council also directed staff to develop verification procedures (how income restrictions and long-term affordability covenants would be enforced) if the council proceeds with a program that does not require backfill.

Discussion versus decision: Council did not take a formal vote at the workshop. Staff characterized the presentation as a proposed policy framework and the council provided direction: staff should produce detailed fiscal modeling, draft program rules for verification and covenant length, and a budget proposal that identifies what amount the city would commit in the coming year if the council adopts the changes.

What remains unclear: Staff noted uncertainty about how many projects the market can produce at lower AMI levels without federal or state subsidies. They also flagged administrative complexity tied to water and sewer enterprise fees when other regional entities (such as special districts or county partners) supply service; those partners may require separate approvals or may be unwilling to waive fees. Staff said they will bring back proposed ordinance or resolution language and specific budget figures when council is ready to act.

Ending note: Council members asked staff to build predictable annual allocation rules (a yearly cap and application cycle) so developers can rely on city commitments during pro-forma and LIHTC application windows. Staff said they had already run a July 1 call for requests and would incorporate those applications into the budget modeling and follow-up materials.