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Developer Escrow Fees: Why we have them, and are they fair?

The following column was written in its entirety by Yorktown Town Supervisor, Susan Siegel.

Developer fees have come under some criticism lately – but without much explanation of why we have them and how much they actually are.

It’s time to shed some light on the issue.

Why fees?

Like all towns, Yorktown charges a basic application fee for the review and approval of all new development applications, or for the redevelopment of an existing property. The fee is designed to offset a portion of the costs associated with reviewing the application.

Yorktown staff and our volunteer boards take their plan review responsibility seriously. They do not simply rubber stamp what a developer submits. In addition to checking the plans for compliance with all local codes and state regulations, they may also suggest plan modifications they believe will lessen any adverse impacts of the proposed new development, such as downstream flooding or traffic safety issues. Remember, developers are looking out for their best interests -- the town is looking out for the best interests of its residents and the town as a whole.

While town staff handle most of the application review, there are times, depending on the application, that the town needs the services of an outside consultant to review a specific aspect of a plan. For example, an outside environmental consultant will be hired to verify wetlands boundaries and review an applicant’s mitigation plans if there will be any disturbance to a wetland or wetland buffer.  Needless to say, applicants want to do as little mitigation as possible, or the least costly mitigation.

Think of it this way: If you were buying a house, would you rely on the seller’s inspection report or use the seller’s attorney?

Consultants involved in the application review process are paid by the town but with monies deposited by the applicant into an escrow account at the beginning of the review process. If the escrow money is not needed, or not used up during the review process, the funds are returned to the applicant at the end of the process. Alternately, if, during the review process, more money is needed to pay for additional consulting services, the applicant is required to deposit additional funds into the escrow account.

In 2010, the Town Board closed a loophole in the escrow procedure when it passed a new law that extended the escrow practice to include outside legal services. (Because the prior Town Board neglected to adopt this legislation, taxpayers ended up paying over $100,000 for outside legal services that should have been paid by developers).

In recent weeks, the escrow system has come under attack for being “unnecessary” as well as “onerous” to developers. Critics question why the town needs to review what the developer submits and what they see as the unreasonableness of giving the consultant a “blank check” when it comes to billing. While the criticism has been leveled against all consultant fees, the prime target has been the escrow fee for outside legal services. And figures like $18,000 in legal fees have been bandied about.

All this leads to two questions:  First, what have the actual legal fees amounted to, and second, who should pay them?

The REAL fees

In order to save taxpayer dollars, the town decided several years ago that it was more cost effective to have outside counsel provide basic legal services to the Planning and Zoning Boards on a retainer basis (currently $27,000 a year) and have applicants pay the cost for any additional legal services associated with their applications. The town’s reasoning was simple and straightforward: homeowners shouldn’t be expected to pay the necessary costs to approve projects that developers will profit from.

In sharp contrast to the mythical $18,000 legal bill, the record shows that actual legal fees have not been excessive . In fact, the fees have been relatively modest. The record is available for anyone who takes the time to review it.

For some applicants, there have been NO legal fees, and for 25% of the 53 applicants that did incur a fee, it was less than $100. For 64% of the applicants, the fees have been less than $1,000. Since the legal escrow system started in 2008, only six applicants out of 53 were billed in excess of $3,000, and each of the six had very unique legal issues that the Planning Board needed advice on.

Is the fee for additional legal services open ended? Yes, but that’s the nature of most legal bills. Lawyers often can’t give their clients a fixed price for a service when they have no idea how long it will take them to provide the service. The same is true for the fees developers pay their architects and engineers. We don’t hear developers complaining about those “open checkbooks.” On the contrary, developers understand and accept the fact that the project approval process is, by its very nature, open ended, whether it’s a change in a site plan or researching a complex legal issue.

Is the escrow system perfect? No. Have mistakes been made? Yes, but we have rectified those problems and the town will continue to look for ways to make it operate more smoothly.

Is it “strangling” potential new business? Hardly, especially when compared to what a developer pays his own development team.

Is it saving taxpayers money? It most certainly is.

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