OVERVIEW OF IMPACT FEE ORDINANCE This is a compilation of information obtained from numerous articles and existing impact ordinances from throughout the country. This outline is not intended to be exhaustive and/or complete, but merely a broad overview for further review and discussion. 1. Growth a. There is a direct cost attributable to growth. b. Property tax revenues increasingly fail to cover the full costs of infrastructure needed to serve new development. c. The electorates are becoming increasingly tax-averse. d. Taxpayers wish to shift the burden of expanded infrastructure to developers or other property owners. e. Impact fees are a favored alternative way to pay for infrastructure. f. With impact fees, there is an economic relationship between those paying for and those receiving benefits. g. Impact fees reduce uncertainty and risk for developers. h. Impact fees are a practical and valuable tool for financing local infrastructure needs. 2. Subdivision Extractions Generally a. A subdivision extraction is something paid or contributed in exchange for regulatory approval by a Governmental Entity. b. Subdivision extractions require developers either to dedicate land for public use (i.e. on-site right of way for construction of public roads) or contribute cash in lieu of land for the purchase of land or construction of facilities that the governmental entity perceived to be necessary to mitigate the impact of the development (i.e. impact fee). c. Typically, subdivision extractions are negotiated between the governmental entity and the developer. d. Extractions are usually on site improvements. e. An impact fee is a type of subdivision extraction. Jones Walker Law Firm Page 1 9/8/2004
f. Subdivision extractions are judged generally by a standard of reasonableness. 3. What Are Impact Fees? a. Generally, impact fees are one-time charges levied against new developments in order to generate revenue for funding new or expanded capital improvements necessitated by that particular new development and others within a specific geographical district. b. The premise on which impact fees are based is that development should pay for the cost of providing the facilities necessary to accommodate growth within a region. The cost of projects needed to support growth is financed with impact fees based on some measurement of a development s impact on future needs. c. Impact fees are broader and generally more flexible than other general subdivision exactions and creates more predictability for the developer and the Governmental Entity. d. Primarily used to fund construction of off-site facilities; e. Also referred to as: (1) Capacity fees (2) Facility Fees (3) System Development Charges (4) Capital Recovery Fees f. Typically, impact fees are: (1) Levied on an up front or front end basis, usually at the time of building permit issuance. (2) Calculated on the basis of specific criteria, including for example: (c) (d) the type of use; the number of bedrooms in dwelling for residential uses; the square footage of a building for commercial uses (with increasing fee impact for retail square footage); the linear footage of the front property line (problems), Jones Walker Law Firm Page 2 9/8/2004
(e) (f) (g) (h) (i) number of fuel positions for a service station; number of holes for a golf course; number of seats for a movie theater; number of students in a school; and/or as a flat fee per unit or building lot, or some other formulation; (3) Prescribed by ordinance, although the dollar amount may or may not be specified, it is recommended. (4) Dedicated to a specific public use(s), such as a: (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) Road, bridges and other transportation; Sewer and storm water; Drainage and Flood Control; Water; School; Fire; Law Enforcement; Library; Parks and recreation; Affordable Housing; Mass transit; Day-care facilities; Emergency services; Open space; Solid Waste; Historical preservation and cultural facilities; and Public Buildings. Jones Walker Law Firm Page 3 9/8/2004
(5) For example, Brevard County, Florida has a new separate fee schedule for residential uses and commercial uses effective September 25, 2004: Single Family, Detached Residential: (i) Transportation: $ 1,327.67 (ii) Fire/Rescue: $ 54.08 (iii) EMS: $ 38.65 (iv) Correction: $ 71.99 (v) Library: $ 63.84 (vi) Solid Waste: $ 160.00 (vii) Education: $ 4,445.40 Total per dwelling: $ 6,161.63 Apartments per Unit: $ 3,912.19 (c) Office under 10,000 sq. ft. Per 1,000 sq. ft.: $ 2,765.55 (d) Office 10,000 sq. ft. and over Per 1,000 sq. ft.: $ 1,620.88 (e) Retail under 10,001 sq. ft. Per 1,000 sq. ft.: $ 2,328.52 (f) Retail 100,000 sq. ft. Per 1,000 sq. ft.: $ 1,974.46 (g) Retail 300,000 sq. ft. Per 1,000 sq. ft.: $ 2,008.29 (h) Gas Station per fuel position: $ 1,543.83 (i) Restaurant per 1,000 sq. ft.: $ 8,069.95 Jones Walker Law Firm Page 4 9/8/2004
(j) Restaurant with drive through Per 1,000 sq. ft.: $11,896.49 (k) Convenience store Per 1,000 sq. ft.: $11,606.54 (l) Nursing Home per bed: $ 251.50 (m) High School per student: $ 151.86 (n) Motel per room: $ 497.67 (o) Church per 1,000 sq. ft.: $ 809.83 (p) Bank with drive through Per 1,000 sq. ft.: $ 7,302.40 4. Legal Aspects of Impact Fees a. State legislative authorization; (1) Louisiana does not have a state statute regarding impact fees; (c) Cities and counties in states where there is no enabling legislation generally derive their guidelines from legal precedent and the experiences of other jurisdictions. Where no state statutes, courts have used the concept of implied authority to uphold the impact fees. Impact fees can also be considered the exercise of home rule charter, which grants a locality broad powers to enact the various ordinances and regulations necessary for effective governance. b. The authority to impose impact fees stems from the state s police power to regulate in the interest of the public s health, safety and welfare. c. The Governmental Entity must adopt an ordinance which establishes the fee as well as the administrative procedures, including: (1) Authorization; (2) Purpose and Intent; Jones Walker Law Firm Page 5 9/8/2004
(3) Applicability (Who pays?); (4) Exemptions (Who does not pay); (5) Definitions; (6) Notice and Hearing Required for Establishing or Increasing an Impact Fee; (7) Imposition, Calculation and Collection of Impact Fees; (8) Accounting of the impact fee funds; (9) Spending of the impact fee accounts; (10) Refund of fees; (11) Independent fee calculation study at the election of the applicant or impact fee administrator (i.e. use not listed on schedule or proposed development will have significantly more impact than what is projected in schedules.) (12) Audits; (13) Credits in lieu of fees; (14) Protests and Appeals; (15) Review of impact fee schedules; and (16) Amendment Procedure. d. There must be a rational relationship of the ordinance to a legitimate public purpose and a showing that the ordinance is reasonably necessary. e. The ordinance may not create an undue burden on the property owner. It must have proportionality. f. When determining whether an exaction (i.e. impact fee) substantially advances a legitimate state interest in public health, safety or welfare, there are several factors to look for. Most importantly, the jurisprudence have held that there must be: (1) essential nexus ; and (2) rough proportionality. g. As a result of its regulatory nature, funds collected by the imposition of impact fees must be used to finance a public or state interest that is Jones Walker Law Firm Page 6 9/8/2004
directly related to the development being assessed and may not exceed that development s fair share of the cost of the improvements. h. Impact fees are assessed and collected to fund only those capital facilities whose need is generated by new development and similar new developments in the geographic region. i. Expenditures based on an impact fee collection must demonstrate a direct benefit to those paying the fees. j. Tax k. Fee (1) A tax is a revenue-generating measure. (2) Revenues deposited into a general fund and are available for general purposes. (1) A fee is a regulatory measure ; It is the exercise of regulatory powers. (2) The relationship between the fee and the benefit to the property owner necessary for the measure to be regulatory is not just that the property owner receives some benefit from the improvement but the amount must be reasonable and have some definite relation to the purpose of the Act. Eastern Diversified Properties, Inc. v. Montgomery County, 570 A.2d 850 (Md. 1990). (3) Fees should be earmarked or dedicated by being placed into a separate, interest-bearing trust and may only be used for the purpose for which the fees were collected for the specific district (separate accounts for each district are required). (4) If the fees are not used for their intended purpose, the fee plus interest must be returned to the developer after an established period of time. (5) If fees are commingled in the general fund, courts will generally conclude that the fee is a tax. l. Essential or Rational Nexus Test (1) Prime legal test of impact fee ordinance. (2) There must be an essential nexus between the purpose of the exaction and the amount of the exaction imposed as a means of Jones Walker Law Firm Page 7 9/8/2004
achieving that purpose. Nollan v. California Coastal Commission 483 U.S. 825 (1987). (3) Create specific service districts with a rational relationship to the new development and the expenditure of funds collected as impact fees. (c) Land use projections; Determine existing levels of service; and, Determine needs within the district to maintain such service levels. (4) Impact fees collected from one district may be spent for improvements in an adjacent impact fee district if the proposed capital improvements will provide capacity that will benefit properties in both districts. m. Rough Proportionality (1) There must be a rough proportionality between an extraction and a development s impact on the existing infrastructure. Dolan v. City of Tigard; 512 U.S. 319 (1994). n. Reasonable Relationship Test (1) A development which increases the need for infrastructure will be directly and/or indirectly related to the extent of the extraction levied. (2) Least significant of the tests. o. Basis for Opposition to Impact Fees (1) Violations of the Fourteenth Amendment Due Process (i) (ii) (iii) (iv) Requires a proper procedure; Proper notice and hearing requirements of procedural due process must be adhered to; Public meeting(s) prior to adoption; Cannot be arbitrary, irrational and capricious; Jones Walker Law Firm Page 8 9/8/2004
(v) Create a standard process for implementing and administering an impact fee. Equal Protection (i) (ii) (iii) (iv) The ordinance cannot be arbitrary and irrational. The equal protection doctrine does not require that all persons be dealt with identically, but it does require that a distinction made have some relevance to the purpose for which the classification is made. The fee must not be applied arbitrarily. The fee must not have been enacted for a discriminatory purpose. Opposition argues since it is only applied to new development it is discriminatory. Differentiation from district to district is appropriate if supported by empirical evidence. (c) Taking of Private Property For Public Use Without Just Compensation (i) (ii) Best to have a comprehensive plan and independent calculations of impact fee to support ordinance and fee; A land use regulation, including an impact fee, will not constitute a taking if it: Substantially advances a legitimate state interest or; Does not deny the landowner economically viable use of the land. (iii) (iv) (v) Impact fee is imposed to correct existing deficiencies; There are viable alternative means of funding needs and will more fairly distribute the cost of services among those who use them. The principal benefit of the impact fee is to existing development, not the new development. (But for the Jones Walker Law Firm Page 9 9/8/2004
new development, is the proposed improvements still necessary?) (vi) (vii) (viii) The amount of the expenditure is not commensurate with the needs. The proceeds of the impact fees are not segregated for the specific planned infrastructure. The impact fee places a disproportionate burden on lower-income households. (ix) Impact fee becomes exclusionary for zoning purposes. (x) (xi) Most of the new development is being occupied by existing citizens, so there really isn t additional impact. Lack of Information; Developers have the right to know what they are paying for. p. Don t use impact fees as a method of growth control. 5. Economic Issues a. A complete evaluation of impact fees requires a comparison of the revenue raised by those fees to finance the necessary expansion of public services and infrastructure against the negative effects of those fees on housing affordability, economic growth and tax revenues. b. Impact fees are appropriate when the capital investments have long economically useful lives (e.g. water treatment plants, major roads), and the length of the financing period is shorter than the useful life of the facility. 6. Technical Studies a. There is a need to: (1) analyze the public costs of constructing capital facilities; (2) calculate the share that is needed to serve new development, and (3) Determine the portion of that share which will not be paid from other fees and taxes on the new development. Jones Walker Law Firm Page 10 9/8/2004
b. Recommended Report (1) Numerous names: Technical Memorandum, Fee Calculation Study, Public Facility Needs Assessment and Nexus Report. (2) A report needed to demonstrate that the impact fees are logically related to a need created by new development and that the amount charged is proportional to the cost of providing public facilities. (3) It is necessary to see precisely how the fee was calculated. (4) The fee calculation is a complex matter and is generally outsourced to a consultant that has significant experience and expertise in connection with impact fees. (5) The public facility needs assessment should not be a wish list. It should reflect what is necessary to maintain existing service levels. (6) The capital facility requirements should be based on a thorough analysis of future growth and appropriate levels of service for each type of facility to establish a clear and logical connection ( rational nexus ) between anticipated growth and the type and amount of capital spending that growth will require. (7) Review population and land use projects. (8) Determine the appropriate levels of service for public facilities. (9) Examine existing service levels and deficiencies. (10) Identify the capital facilities that will be needed because of new growth as opposed to curing existing deficiencies. (11) Determine the cost of the facilities identified in the plan. (12) Independent fee established. (13) Usually a 5 year plan and updated annually. c. General information sources: (1) General plans or comprehensive plans; (2) Zoning maps; (3) Master facilities plans; (4) Capital improvement plans; Jones Walker Law Firm Page 11 9/8/2004
(5) Population statistics; 7. Expenses Paid by Fee a. Generally (1) The average cost method evaluates the cost of constructing capital facilities in the past and divides this cost by the population served to produce a figure that is the average cost per capita for a particular type of facility. (c) It assumes that the average cost to provide facilities throughout the jurisdiction is the same in any particular part of the jurisdiction. This method makes no distinction between properties that require additional capital spending and those that don t. Generally, this method is not accurate measure. (2) The cost recoupment methodology recoups from new development the cost of the excess capacity present in existing facilities which is available to serve new development. (3) The only level of service that may be used to quantify the public facility requirements of a new development is the level of service currently provided in the community. (4) There is an exception, however: a community may require higher levels of service for new development if it is concurrently implementing a plan to raise the level of service for existing development and is funding the plan with revenues other than impact fees for the new development. b. Permitted Expenses (1) Capital Costs to maintain the existing service levels unless a jurisdiction has adopted a plan to address existing deficiencies and is actually implementing this plan. (2) Capital Facilities are appropriate, such as: (c) Land Buildings Durable equipment and machinery Jones Walker Law Firm Page 12 9/8/2004
(d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) Streets Paving Sidewalks Road lighting systems Landscaping Grading Water systems Storm and sanitary sewer systems Parks and recreation facilities Schools; and Police and fire protection facilities. (3) Some soft costs such as legal and engineering (limited) c. Excluded Expenses (1) Operating Costs, maintenance, repairs, salaries and other recurring costs (2) Furniture (3) Books (4) Computers (5) Nondurable items with a useful life of three years or less (6) Level of service study to increase service levels unless the jurisdiction is using other funds to bring other parts of the jurisdiction up to this same level of service. (7) Rehabilitation, retrofitting or replacement of existing capital facilities which are required due to existing development without consideration of new development in the future. (8) Moderate durability (questionable) (9) Contingencies (questionable) Jones Walker Law Firm Page 13 9/8/2004
(10) Administrative costs (questionable) (11) Interest (questionable) d. Construction Cost Information, for example (1) Identify the growth areas. (2) Identify the improvements which will be required to maintain the existing service levels taking into consideration the new growth. (3) Determine right of way costs. Actual ROW cost where available. Procedure that relies on Geographical Information System (GIS) based examination of the future land use plan along the roadway projects planned for future construction. (4) Determine Construction Costs Expected or actual construction costs where available. Where specific construction cost information is not available, typical highway-cost-per-centerline-mile figures can be utilized (unit costs). (5) Determine Design Costs (Percentage of construction costs). e. Credits (1) The impact fee payor is entitled to a reduction in the amount of the impact fee (a credit) to compensate for contributions the developer has made or will make toward the cost of capital facilities. (2) Types of credits: (c) Credit for land or public facilities that the developer may provide directly (on and off site); Credit for a change in land use that results in less impact than the previous land use; and Credit for property taxes and other revenues received in the past or to be received in the future which have been or will be used for the same public facilities for which the impact fee is charged. Jones Walker Law Firm Page 14 9/8/2004
(3) Consider all existing taxes, including the existing property taxes, gas taxation, tap-on fees, users fees or any other contributions. (4) For example, a gas tax credit could be calculated based on the gallons of gasoline consumed on an annual basis by each land use, using an average estimate of miles per gallon provided from national statistics. f. Growth Related Costs (1) Long range comprehensive plan with a capital improvement component. 8. When Fees Are Due? a. Most convenient manner is to withhold some permit or approval needed for development or occupancy until the fee is paid. b. Can be made a condition of: (1) Plat approval (2) Issuance of a building permit (most common) (3) Certificate of Occupancy c. Alternatives: (1) Seller of raw land to the developer; (2) Developer of finished lots; (3) Builder of homes on those lots; (4) Buyer of the improved lots; and/or (5) Community as a whole. d. In the long term, the cost is shift the cost of the impact fee to subsequent owners and reflected in higher purchase prices and/or rents. e. However, an impact fee could reduce the value of raw land because purchasers will take into consideration the amount of the impact fee to develop the property. Jones Walker Law Firm Page 15 9/8/2004
9. Additional Requirements for Infrastructure 10. Term a. Impact Fees does not prevent the Governmental Entity from imposing additional requirements on new development which has a project impact that exceeds the schedules. b. Also, the Governmental Entity may require construction of additional reasonable improvements required to serve the development project, whether or not such improvement. a. Impact fees collected must be spent within a reasonable time period. b. Usually 6-10 years c. Funds will be considered to have been expended in the same order as they were deposited in the accounts (first in first out). 11. Exemptions from Fees a. Alternation or expansion of an existing dwelling; b. Construction of accessory buildings or structures; c. Alteration of expansion of a structure other than a dwelling that is not expected to increase impact; d. Replacement of destroyed structures where the replacement does not increase impacts over that of the destroyed structure; e. Construction of publicly owned buildings for exclusive government use; f. Projects which have been granted approval of a preliminary plat, site plan or building permit prior to the effective date of the ordinance; g. New development for which an impact fee has already been paid (for example, a manufactured home where an impact fee had been previously paid for the lot upon which the Manufactured Home is to be situated). h. Could considered specific types of development such as affordable housing; i. In order to promote the economic development of the City or Parish or the public health, safety and general welfare of their residents, the City and/or the Parish may agree to pay some or all of the impact fees imposed on a proposed development or redevelopment from other funds of the City and/or the Parish that are not restricted to other uses. Jones Walker Law Firm Page 16 9/8/2004
j. A specific geographical area which is identified by metes and bounds. k. No waivers should be granted for any required impact fees. 12. Refund a. Provide for the refund of fees if services are not available within a fixed period of time; b. Impact fee not expended as authorized within a fixed period of time from the date of payment is refunded with interest to the person who owns the property at the time that the refund is made. c. Consider recalculating the actual cost after proposed improvements are made, and refund any excess. 13. Additional Considerations a. Spreading fee over both developer and purchaser; b. Assessment at the time of final plat approval but payment upon certificate of occupancy. c. Phase in the fees; (x% of the scheduled fee during the first year, for example). d. Establish a mechanism for a soft real estate market which slows down projected growth. e. Consider the impact of mortgage interest rate on the impact fees assessed ($1,000 fee results in a $3,500 payment over time). 14. Administrative Issues a. Consider the formation of an advisory committee. (1) Identify number (2) Citizen participation (3) Include expertise (4) Charged with overseeing program and providing a report to the Governmental Entity b. Consider cost in administrating the program. c. Annual Review with public hearing. Jones Walker Law Firm Page 17 9/8/2004
d. Evaluation all changes in the Comprehensive Plan and Impact Fee Ordinance. 15. Alternatives to Impact Fees a. General Obligation and Revenue Bonds b. Taxes, User Charges and Independent Special Districts c. Private Infrastructure Financing d. Grant Anticipation Revenue Vehicles (GARVEE Bonds) (1) Enables the state to borrow against anticipated future federal funds e. Special Financing Districts (1) Special Assessment District (2) Tax Increment Financing District 16. Initial Recommendations a. Follow the adoption process slowly and meticulously. b. Retain consultants with experience and expertise. c. Be prepared for a long, complex task that does not end with the adoption of the ordinance. d. Give considerable thought to the administration process. e. Develop a central point for tracking and collecting the fee. f. Develop several categories for land use as a way to easing the calculation of the fee. g. Collect and evaluate extensive data before making decisions. h. Prepare a comprehensive development plan and infrastructure needs plan before moving forward. i. Include considerable public input. j. Bring developers into the planning process early. k. Appoint a planning committee (builders, developers, city and parish representatives and community leaders). Jones Walker Law Firm Page 18 9/8/2004
l. Update, update and update. Principal Resource Materials Impact Fee Handbook National Association of Home Builders Paying for Prosperity: Impact Fees and Job Growth Brookings Institution Center on Urban and Metropolitan Policy Arthur C. Nelson Mitch Moody (June 2003) Practical Issues in Adopting Local Impact Fees Jerry Kolo and Todd Dicker Jones Walker Law Firm Page 19 9/8/2004