Impact Fees

An impact fee is a one-time charge that private entrepreneurs, often developers, must pay to the local government in order to undertake their projects. In turn, the revenue from the impact fee finances public goods and services associated with the project, but which the developer would not provide voluntarily.²⁰ Water and sewer lines, streets and bridges, and parks and recreational facilities are typical impact fee-funded projects.

Although the fees have their proponents and detractors (who oppose the added cost of development and, in some cases, a decreased availability of affordable housing), more and more states are adopting impact fee enabling legislation -- total of 19 since 1987 when only Arizona, California, and New Jersey had such statutes.

The types of state statutes authorizing the impact fee vary considerably, from very specific, comprehensive, and restrictive (Texas and Illinois) to very brief and general with considerable latitude provided to the local government (New Jersey and Indiana).²² While Texas, for example, outlines the actual calculation of impact fees, California and Colorado's fees are governed only by reference to a general statute. Other statutory requirements include limitation on the size of service areas, whether interest or financing costs of bonds or loans may be included in the fee calculations, and the required useful life for capital improvements and facilities. Typically, impact fee legislation calls for the use of a citizens advisory committee and outlines accounting requirements and time limits for expenditures. Some statutes address the concern for affordable housing and employment.²³

What do these impact fees pay for? In Colorado cities, developers pay about $10,000 per lot in impact fees for infrastructure. In Carlsbad, California, developers must set aside 800 square feet of library space for every 1,000 people moving into town. And in Raleigh, North Carolina, known as the "park with a city in it", all residential developers pay impact fees that help finance greenways and other parks. Given North Carolina's tight rein on local taxing, Raleigh first had to receive special legislative permission to impose the fees. They won that authority in 1985, and by 1987 had a dedicated park and open space impact fee structure in place.

In fact, impact fees are a common tool used by local governments to help pay for the acquisition, construction, and maintenance of parks and recreational facilities near new residential, commercial, and industrial developments. In the community of Olathe, outside of Kansas City, impact fees helped finance six neighborhood parks through a $200 park excise fee on new homes and a square-foot charge for industrial and commercial development. The fee is generating about $500,000 a year.