Everything You Need to Know About Impact Fees

  • Jan 23, 2015
  • maya

Helen Wolter
City of Mountain View, Parks & Recreation Commissioner
Emerge California, Class of 2015

Have you ever wondered where the funding for park space, new schools, or new sewers comes from? Impact fees are crucial for elected officials to comprehend when dealing with any proposed development, as they often pay for many of these new infrastructures. Historically, impact fees are fees that are imposed by local governments on new or proposed development projects to pay for a portion of the costs incurred by the city in providing public services to new developments, while helping to maintain the quality of life of previous residents.

To give some historical background, cities have long examined how to promote growth and maintain the quality of life for their current residents. Initially, zoning was first introduced in the 1920s as a way to maintain quality of life for residents. Over the years zoning has evolved to encompass specific planning tools concerning the usage of specific areas. Today, zoning is primarily utilized to help direct the use of an area, the intensity of use of an area, and bulk regulations, which address allowable height, set back regulations, and allowable lot coverage.

Other growth management tools used by municipalities in conjunction with zoning were extractions and development impact fees. First seen in the 1970s, municipalities began to guide growth in different ways than what had been previously seen due to tighter fiscal restraints. Most point to the tax revolts that began in the 1970s as the initial point that many public agencies sought other revenue streams to pay for the infrastructure that accompanied new growth.

Initially, many municipalities turned to extractions, such as land or needed facilities, given in exchange for permitting approval. In the past, there was more space, and extractions worked for many cities. However, as urban sprawl became a concern for many municipalities, cities worked to create higher density. As urban growth created higher density, extractions became less appealing; the sites offered were not ideal in serving residents’ needs due to the distance from services needed, which only exacerbated the sprawl. In response, many agencies began to experiment with various types of in-lieu fees to pay for needed infrastructure. These fees were often used to pay for sewers, parks, roads, community centers, schools, roads, water treatment, utilities, libraries, and public safety buildings

Impact fees were originally developed by municipalities with a pay to play mentality. Developers were required to pay for the infrastructure improvements within cities where new growth was expected. Historically, the fees were not always directly associated with the specific development that was paying the fees, but were related to maintaining the quality of life for citizens throughout the municipality. Initially municipalities based much of their usage of fees on the court case Jordan v. Village of Menomonee Falls, 28 Wisc. 2d 608 (1965); 385 U.S. 4 that was decided by the Wisconsin Supreme Court. This case upheld the spirit of the idea of using fees throughout the impacted areas by applying the Rational Nexus test to a proposed development. The test stood on two questions that must be posed for the benefit to be considered legitimate: that the community’s need was due to the proposed development, and that the expenditure reasonably benefited the development. As this was challenging to enforce and to meet, the U.S. Supreme Court in Nollan v. California Coastal Commission required a more direct linkage to the benefits for the development.

According to impactfees.com, about 60% of all U.S. cities with over 25,000 residents along with 40% of metropolitan counties use impact fees on new developments for public services or infrastructure, while 90% cities and counties in California use impact fees.

It is critical that current and future elected officials comprehend the possibilities that impact fees offer when developments are proposed; impact fees offer a manner to create affordable housing, park space and public art. These are critical issues to consider as urban areas become denser in coming years.

*Much of the historical material cited in this blog comes from the book Managing Community Growth Policies: Policies, Techniques, and Impacts by Eric D. Kelly. (2004).