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Impact Fees - Hofman Planning Associates Answers Questions

How can Development Impact Fees Help City pay for Infrastructure

Questions & Answers

How can a development impact fee program assist my City with ensuring the provision of an adequate infrastructure?

April 29, 2002

Ensuring the provision of adequate infrastructure is an issue that most jurisdictions are faced with during the course of their growth. Financing infrastructure and other public facilities quickly becomes the most difficult issues to resolve. Hofman Planning Associates recommends that jurisdictions consider establishing a Development Impact Fee Program as one of many financing mechanisms widely used to help fund public facilities and services.

Development impact fees are essentially mitigation fees placed on new development with the purpose of paying a portion of the cost of providing the necessary public services and facilities needed to serve that new development. Development impact fees are not for every city.

The first step is to conduct a preliminary feasibility analysis to assess the appropriateness of implementing an impact fee program in the jurisdiction. Development Impact Fee programs are primarily implemented by cities with the propensity for future growth, the land availability to accommodate growth and a political disposition to ensure that new development substantially funds the impacts on public facilities created by the new development.

The primary steps include identifying the public facilities to be funded by impact fees, conducting a build out analysis for the jurisdiction, developing performance standards, determining existing deficiencies and future needs, estimating the costs for the improvements needed and computing the fee.

Although the formula to determine the impact fee amount is complex, it can simply be stated that the fee amount is the future cost of the facilities needed divided by the equivalent dwelling units receiving the benefit of the facilities.

One of the major components of an impact fee program is establishing a clear link between the fee amount and the facilities to be funded. This is typically referred to as the "nexus requirement". Essentially it must be demonstrated that a reasonable relationship exists between the fee's use and the type of development project, the need for the public facility and the type of development project and the amount of the fee attributable to the development project.

Impact fees are not an "end all" to public facility financing, however, they can substantially supplement the financing of services and facilities. Impact fees cannot be used to correct existing deficiencies cannot be placed in the General Fund and cannot be used to pay for operation and maintenance of facilities.

The development impact fee program may not ensure that all infrastructure needs are met, but it does provide a viable and valuable mechanism to fund services and facilities needed to meet the demand created by ongoing and future development.

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