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HomeMy WebLinkAbout05.10.1990 Impact-Fee Program_Turner Collie & Braden IncTurner Collie OBraden Inc. May 10, 1990 ���` ' � G n o The Honorable Paul Schrader �' Mayor °1° e�jP City of Friendswood �, c��A 1 Friendslwl ood, Texas 77546 ��' l.f 0 6tie�� Re: Impact -Fee Program Dear Paul: 1. CARROLL FAULKNER ENGINEERS • PLANNERS RO. BOX 130089 HOUSTON, TEXAS 77219 5757 WOODWAY 713 780-4100 TELEX 7741135 TC13 HOU CC: M&CC CITY MGR. I appreciate the frustration which you and Councilman Ritter voiced at the Council of Cities meeting regarding the development of an impact -fee program for the City of Friendswood. Impact -fee structures are difficult to establish because the basis of the fee is constantly changing. I have attached an article entitled "Critical Elements of Development Impact -Fee Programs," which was recently published in the ASCEJournal of Planning & Design. This article provides some interesting insight into impact fees. I would also like to offer TC&B's expertise to assist the City of Friendswood. We understand the requirements set forth in SB336. We can develop an impact -fee program for Friendswood using a geographic information system (GIS). GIS provides the capability to update capital improvements programming on a frequent basis, thereby eliminating the need to fix fees for long periods. We would appreciate the opportunity to demonstrate this system to you and the Council. Very truly yours, J. Carroll Faulkner, P.E. )C F: I ag Attachment cc: Neil Bishop, Ph.D., P.E. Alan Potok, P.E. TEXAS AUSTIN I DALLAS / FORT WORTH I HOUSTON COLORADO DENVER ARIZONA PHOENIX VIRGINIA RESTON CRITICAL ELEMENTS OF DEVELOPMENT IMPACT -FEE PROGRAMS By Arthur C. Nelson,' Associate Member, ASCE, James C. Nicholas,' and Julian C. Juergensmeyer3 ABSTRACT: Development impact fees have become a major source of new capital revenue for local governments, The need for new revenue is occasioned by de- clining federal public works funds, rising construction standards and costs, and increasing unwillingness of voters to pass tax increases, Communities thus look to new development to pay for its own way in part through impact fees. Impact fees are assessed to raise new revenue for the construction of a wide range of facilities. They are also being assessed by an increasingly large number of communities, some of which have no apparent growth problems. Soon, most communities of modest sophistication will assess impact fees. But courts require that impact fees be assessed in particular ways. This paper discusses the critical elements of de- fensible impact -fee programs. It includes a review of policy issues, basic legal considerations, general procedures for identifying impacts and assessing impact fees, and principles of administration. INTRODUCTION The cost per residential dwelling unit of providing new or expanded public facilities including water, sewer, drainage, police, fire, library, school, park, recreation, and other public facilities to new development now exceeds $20,000 (Impact 1986). This cost has been growing at a pace that exceeds local gov- ernment revenue. Growing communities across the nation are looking to the private sector for financial help since the federal and state governments have not been a significant source. Local governments have discovered that de- velopment impact fees are one way to shift some of the burden of paying for new or expanded facilities to accommodate growth. from existing devel- opment to new development (Nelson 1986). It is very difficult to estimate the number of communities across the nation that assess impact fees. One of the major complications is the lack of stan- dard terminology. In some areas, these developer charges are called impact fees while in other areas they may be called benefit assessments of connec- tion charges. Earlier studies indicated that impact fees were relatively com- mon in California, Florida, Oregon, and growth spots of other states in- cluding Colorado and Texas (Downing and Frank 1982; Downing et al. 1985a, 1985b). But since those studies, several states, including Arizona, Califor- nia, Maine, Maryland (for specific jurisdictions), Texas, and Vermont have explicitly enabled communities to assess impact fees. The number of local governments assessing impact fees has surely risen since earlier studies. Impact fees are assessed and dedicated for the provision of water and 'Assoc. Prof., City Planning Program, Georgia Inst. of Tech., Atlanta, GA 30332, 'Co-Dir., Growth Mgmt. Studies, Coll, of Law, Univ. of Florida, Gainesville, FL 32611, 3Co-Dir., Growth Mgmt. Studies, Coll. of Law, Univ. of Florida, Gainesville, FL. Note. Discussion open until October 1, 1990. To extend the closing date one month, a written request must be filed with the ASCE Manager of Journals. The manuscript for this paper was submitted for review and possible publication on April 3, 1989. This paper is part of the Journal of Urban Planning and Develop►nent, Vol. 116, No. 1, May, 1990. ©ASCE, ISSN 0733-9488/90/0001-0034/$1.00 + $.15 per page. Paper No. 24670. IA TABLE 1. Use of Development Impact Fees in Florida Counties: 1988 Fee (1) Number of counties (2) Percent (3) Water and sewer 67 100 ti Roads 26 39 Parks 15 22 Public schools 9 13 Law enforcement 8 12 Libraries 6 9 Fire protection 6 9 Emergency medical service 6 9 Solid waste disposal 6 9 1: Public buildings 6 9 Note: Adapted from Nicholas (1988a). wastewater systems, roads, parks, libraries, police and fire facilities, general government administration buildings, emergency medical facilities, hospi- tals, schools, solid -waste facilities, and even public cemetaries. If the experience of Florida counties can be considered representative, then the popularity of impact -fee usage can be inferred from the information in Table 1. The amount of the fees assessed varies markedly among types of facilities financed with those fees, and among jurisdictions. For example, a recent study of impact fees that included only those jurisdictions for which impact - fee schedules were collected in 1987-88 shows that for single-family homes, impact fees for roads vary from a low of $130 to a high of $4,721. The national average for all fees (excluding water and sewer) assessed on a per single-family home basis was $2,100 with a median of $1,663 . The point should be clear: Local governments have found development impact fees to be a new source of revenue to finance new or expanded capital facilities to accommodate growth. The twist, however, is that new development shoul- ders much of the burden of paying for those facilities through impact fees. This paper discusses the critical elements of a defensible impact -fee pro- gram. Included is a review of the policy issues surrounding impact -fee pro- grams, legal aspects of those programs, general procedures for identifying impacts and assessing impact fees, and considerations for implementing im- pact -fee policy. IMPACT -FEE POLICY Impact fees may be defined as a onetime charge levied by local govern- ments against new development in order to generate revenue for the capital funding necessitated by the new development. The advantages of such a charge are immediately obvious. Capital outlays, the cost of which would have previously been assumed by the city or county, are now borne by the developer. Impact fees are up -front payments that make funds available roughly at the time the demand for new facilities is felt, although actual expenditure for facilities may come years later. Impact fees thus reduce the need for borrowing and the many problems associated with debt financing. Since the 35 �T developer's costs are privately borne the impact fee shelters occupants of existing developments from the near -term costs of providing new facilities (Huffman et at. 1988). Furthermore, a key element of impact -fee logic is that those who benefit most from new facilities are also those who pay for those facilities (Stroud 1988; Juergensmeyer 1988; Blewett and Nelson 1988). The principal disadvantage of impact fees lies in the attitudes that the developers may adopt toward them (Porter 1988a, 1988b; Stewart 1988a). Because the fees are an up -front cost to the developer, they represent an increased cost until completion or sale of the development (Connerly 1988a, 1988b; Peiser 1988). In addition, if the fees are passed on to the actual consumer, the developer's product will be less price competitive compared to existing construction and products offered in competing communities. De- velopers thus may need to reduce near --term profits to offset impact fees (Huffman et al. 1988). Still, many developers realize that the alternative to impact fees and the facilities for which they are invested is building mora- toriums due to inadequate facilities. Confronted with these choices, devel- opers tend to see impact fees as the Iesser of two evils. Impact fees cannot be formulated and applied overnight. Rather, their adoption requires considerable planning and a willingness to tackle difficult problems associated with allocating costs proportionate to benefits. The plan- ning required includes preparation of a comprehensive Iand-use plan in tan- dem with a capital -improvements program. Through statutes or case law, most states require communities to base impact fees on a land -use plan that distributes development according to some rational procedures. Communities then must prepare a capital -improvements program that assures development of adequate facilities when needed (Nicholas and Nelson 1988). LEGAL ASPECTS OF IMPACT FEES From a Iegal perspective, impact fees are justified as police power. In particular, IocaI governments may collect impact fees if the fees are logically connected to the impacts of the development and are expended in a manner that mitigates the impacts by providing for needed infrastructure. The courts have recently begun to speak with clarity and consistency in delineating a defensible legal framework for impact -fee systems. Three broad areas need to be addressed: statutory authority; constitutionality; and rational nexus (Stroud 1988; Juergensmeyer 1988; Morgan 1988; Leitner and Strauss 1988a, 1988b). Local governments usually need authority to impose impact fees. This authority may be either broad regulatory or home -rule power. More explicit authority takes the form of state -enabling legislation, as in Arizona, Cali- fornia, Maryland, Maine, Vermont, and Texas. Lacking explicit enabling legislation, communities must rely on the exercise of police power, as they do in zoning and land -use regulations. Because police power is broad in scope, the authority to impose impact fees as part of the regulatory scheme may be implied from general grants of authority. Impact fees used in many states rely not on explicit enabling legislation but on the exercise of police powers. Such is the case in Florida. The constitutionality of using an impact fee centers on whether or not the objectives sought are pursuant to federal and state law. There are three meth- ods through which impact fees may be constitutionally challenged: (1) Due process; (2) equal protection; and (3) taking of property without just com- 36 pensation. Generally speaking, due process claims allege that the develop- ment impact fee is beyond the authority, ultra vires, of the police power of the locality because it is arbitrary and capricious, and lacking a rational ba- sis. This objection is overcome by clearly demonstrating that new devel- opment necessitates new or expanded facilities. Under equal -protection anal- ysis, the focus is on whether or not the fee has produced. a discriminatory result. This challenge is met by simply assessing similar fees on similar new development. Most court decisions, in determining the legality of impact fees, have held that the objective of the fee is permitted by the local gov- ernment if it is in accord with its regulatory authority, i.e. the police power. With regard to the taking issue, the court will determine whether or not the impact fee on new development is reasonably related to the public health, safety, and welfare of the community. A rational nexus (logical connection) must exist between the fee imposed, the use of the fee to pay for new or expanded facilities, and the new development causing the need for new or expanded facilities. This test thus has two aspects: (1) The new development must cause a demand for new capital facilities; and (2) the fee imposed must represent the development's pro rata, or fair share, of the total cost of all facilities that serve their development. Determining the new development's fair share of costs is the more critical issue and involves several aspects. To determine a development's fair share, the analyst must estimate the total cost of facility improvements, ensure that total impact fees charged to current and future development projects do not exceed the total cost of facility improvements, establish a common unit of measure that avoids discriminating against dissimilar uses and double charg- ing, and distribute the fee based on an assessment of the development's im- pact. In particular, the impact of development on existing facilities must be carefully evaluated. Inventories and data bases are needed to demonstrate existing facility and service levels and to aid in the establishment of ade- quacy standards for measuring the extent and cost of improvements. The assessment must be based on sound data and linked to a valid capital -im- provement programs. The more specific the impact -assessment methodol- ogy, the more directly impact and benefit can be determined. CALCULATING APPROPRIATE DEVELOPMENT IMPACT FEES In review, the rational -nexus test requires that there be a connection es- tablished between new development and the new or expanded facilities re- quired to accommodate that development, identification of the cost of those new or expanded facilities needed to accommodate new development, and appropriate apportionment of that cost to new development in relation to benefits it reasonably receives. Failure to meet the rational -nexus test may result in a court declaring the fee an unauthorized tax or an unallowable exercise of local government power. Also of substantial concern is assuring developers that they are paying only their fair share and no more. This sec- tion discusses how this may be done. Attributing Improvement Costs The primary factors involved in attributing improvement costs to new de- velopment are selection of facility standards, identification of current defi- 37 ciencies that must be upgraded by current development, and determination of the appropriate share of the cost of constructing new facilities to be borne by new development. Facility Standards During the comprehensive land -use planning and capital -improvements programming process, a set of facility service standards must be adopted. Standards can include acres of parks per 1,000 population; domestic water and wastewater flow or treatment measure per acre, resident, or square foot of different land -use types; sworn police, fire, and emergency medical per- sonnel per 1,000 population or active resident; number of library books per capita; and so forth. Identifying Current Deficiencies and Means to Remedy Under the rational -nexus test, new development cannot be charged for upgrading facilities used primarily for the benefit of existing development. Existing deficiencies must be determined. Communities must find ways and means other than impact fees in which existing development may be assessed to remedy current facility deficiencies. Apportioning Costs to New Development Determining the proportionate share of costs to be borne by new deveI- opment entails consideration of seven factors. Determining Cost of New Facilities. The capital -improvement program should identify the cost of new or expanded facilities. This cost must be apportioned to new development, usually by major land -use type, and further refined to account for variations of demand for improvements by individual activities within each major land -use type. Determining How Existing Facilities were Financed. Existing deveI- opment must be sheltered from the cost of new facilities necessitated by new development. Conversely, new development must be sheltered from the cost of paying for facilities that will be paid in part by other sources of revenue. How existing facilities were financed and the extent to which those means are available to finance improvements must be determined. For example, some facilities may have been financed from property taxes, intergovern- mentaI transfers, and user fees. Those same financing means may be avail- able to support improvements. Another consideration is depreciation. Depreciation of facility capacity benefiting existing development paid for by new development must be ac- counted for. While courts have not ventured into this subtle area of impact t fees, we believe it is only a matter of time (and sophistication on the part of plaintiffs). ; Determining How Much New Development Has Already Paid for Ex- isting Facilities Benefiting Existing Development. The extent to which new development has paid for existing facilities (e.g., through property taxes) over an appropriate period of time (5-10 years is typical) must be deter- mined. These payments must be credited to new development, otherwise new development would be assessed both for improvements it demands and facilities currently used by existing development, i Determining How Much New Development Will Pay in Future for Ex- isting Facilities Benefiting Existing Development. Likewise, the extent 38 to which new development will pay for existing facilities in the future must be estimated. For example, property taxes assessed on new development to retire bonds used to construct facilities for existing development must be credited. Another example is where current deficiencies will be remedied by property taxes assessed on all property in the future; new development will have to be credited for its future contributions to remedying current defi- ciencies. This is in contrast to some impact --fee programs that do not provide such credits; those programs may face serious future legal challenge resulting in the voiding of ordinances or the refunding of fees paid. Determining Credits for Facilities Installed by New Development. New development may occasionally opt to install certain facilities scheduled in the program. It should be given credit for facilities it installs for the ben- efit of the public. For example, a goad scheduled for improvement in five years for a cost of $1,000,000 may be constructed by a developer. A $1,000,000 credit against road impact fees may be granted. If road impact fees would have been less than $1,000,000, then the developer may be given the difference through future road impact fees paid by other developers. Determining Extraordinary Costs. Improvement -cost estimates for fa- cilities scheduled for future construction will change over time due to infla- tion, rising property value, and rising material and labor rates (exclusive of inflation). Some impact -fee programs build in assumptions of long-term price increases that sometimes bear no relation to reality over time. Impact -fee programs should allow for annual adjustments of fees reflecting these influ- ences over time. Allowing for Time -Price Differential Inherent in Fair Comparisons of Amounts Paid at Different Times. Perhaps the most difficult considera- tion in determining appropriate impact fees is accounting for money paid at different times for facilities already constructed or not yet constructed. Three impact -fee adjustments account for the time -price differential inherent in fair comparisons of amounts paid at different times. Past Payment. Take the example of a local government that had a five- year park plan financed solely from property taxes to construct a park system serving only existing development. Vacant, developable land has been as- sessed property taxes that help pay for those parks. New development must be credited the present value of past property -tax payments that went to fi- nance the new parks. Future Payment. Some local governments account for future payments that a development may make toward roads financed by impact fees. They consider the difference between the current value of motor -fuel taxes that new households will pay in the future and the present value, per dwelling unit, of new roads. Perhaps the road impact fee without future motor -fuel tax payments is $2,785 per new single-family unit. The average new house- hold occupying a single-family unit will contribute $77 per year in motor - fuel taxes used by local government to build the very roads financed in part by road impact fees. Thus, over 25 years, the present value of those future contributions, discounted at, say, 6%, is $990. The impact fee is properly $1,795 per unit (or $2,785 minus $990). A primary purpose of these steps is to assure that double charging is avoided. New developments that pay for a facility or service through both an impact fee and by its stream of taxes over time are double charged. The common solution to double charging is to conduct fiscal and economic analyses to .�'e define the nature and distribution of revenues. Local government can ap- propriately discount each type of fee until the combination of impact fees and other revenues does not exceed 100% of the total facility expansion. Accurate documentation of the impact -fee system will help avoid the double - charging argument. Fees Assessed to Build Future Facilities. A substantial amount of time may elapse between the time a developer pays impact fees and when facil- ities benefiting new development are actually built. Local government can invest those fees at 8% until needed for construction. This is called the pri- vate cost (it costs the private sector this much to accommodate public -sector investment). If local government had borrowed the money, its borrowing rate would be 6%. This is called the private benefit (money borrowed at such rate for immediate expenditure on goods benefiting the private sector). There is a net private cost of 2% per year for withholding expenditure of impact fees for construction of facilities that benefit private development. Impact fees should thus be adjusted to reflect the difference between the private cost and the private benefit. If a facility benefiting private devel- opment that is assessed impact fees will not be built for 10 years, the impact fee should be discounted by 18% (present value of principal discounted at 2% compounded over 10 years). Ascribing Benefit Attributing improvement costs merely fulfills the first element of the ra- tional -nexus test: determining the incremental cost that new development will impose on existing development. We now turn to ascribing the benefit re- ceived by contributing development. There are two elements: substantial benefit and certainty of benefits. Substantial Benefit The rational -nexus test does not require that contributing development benefits exclusively from facilities that it helps to finance with impact fees. The important question is whether or not it substantially benefits. That is, can the tenants of contributing development be expected to use the facilities for which they have been charged? This issue is resolved by locating facil- ities in such a way that a court may reasonably expect that tenants would benefit. For example, impact fees used for a road very far away from con- tributing development could be construed as substantially benefiting that de- velopment nonetheless (by being available for longer commutes or relieving loads on other streets that contributing development tenants would use). This does not assure substantial benefit, however. Certainty of Benefits There must be certainty that contributing development will in fact sub- stantially (although not exclusively) use a facility for which it helps pay. Palm Beach County, Florida, resolves this issue by expending road impact fees within six miles of contributing development. Montgomery County, Maryland, expends impact fees within service areas or districts within which contributing development is located. IMPACT -FEE POLICY CONSIDERATIONS The fee structures must be sensitive to local competitive markets. In many cases, the city or county may be able to recover the total cost of infrastruc- 40 w' ture and still allow the developer to maintain an economically viable project, 'Local policymakers need to be aware of the potential impact on the rate and scale of development that may result from a given level of impact -fee as- sessment. Unrealistically high impact assessments may drive development to other jurisdictions where fees are lower or nonexistant. Impact fees can, in many instances, also be utilized as a growth -manage- ment tool. Certain types of development may be encouraged or discouraged by the impact -assessment structure. Differentiation of the fee structure from area to area can regulate development in accordance with the local growth policy, as long as the differentiation is consistent with infrastructure needs and costs. Impact fees, however, can never be used to pay for the operation and maintenance of facilities, even those that were constructed financially, in whole or in part by impact fees. For those and other reasons, many communities that first viewed impact fees as a panacea for their facility -financing dilemma have, upon analysis, decided against the approach. It is frequently easier to ask voters to finance the facility improvement than to expend the energy and resources needed to create a legally sound impact -fee system. An assessment of the potential benefits of an impact -fee system is therefore one of the first activities nec- essary in establishing its feasibility and desirability. Social and equity issues must also be considered. Impact fees can raise the price of housing beyond that which low-income households can afford. One solution is to exempt developments containing more than 50% low-- income housing from the fee. Another alternative is to exempt the portion of the development that is low-income housing from the fee. Many local governments create exemption, credit, or alternative -payment programs to assist in the provision of low- and moderate -income housing. Alternative ways of reducing inequitable effects of impact fees would need to be de- veloped before adoption of an impact -fee system. Communities are often advised by legal counsel to pay fees on behalf of lower- and moderate -in- come housing out of the general fund rather than waive them altogether. Their rationale is that if some projects have fees waived while others are assessed, there may be a violation of the equal -protection provisions of the U.S. Constitution. ADMINISTERING IMPACT -FEE PROGRAMS Effective exercise of impact fee programs depends on a sound design phi- losophy that will withstand court review. Impact -fee programs should ad- dress certain key administrative considerations. Assessment The appropriate stage of development at which to assess impact fees must be decided. Alternative stages include project/subdivision approval (plat- ting), issuance of building permits, or issuance of occupancy permits. It is likely that the appropriate stage of assessment depends on the facility being financed by impact fees and the kind of development being assessed. Impact fees are commonly assessed at the building -permit stage since local govern- ment already has experience and procedures established to collect fees at that stage. Moreover, by reviewing building plans, one can more carefully estimate the impacts and the impact fees to assess. Some communities assess 41 TT an initial fee at the project -approval stage (platting, rezoning, site -plan ap- proval) then assess additional fees at the building -permit stage. Other com- munities assess fees at the certificate of occupancy stage —but this is least common since the purpose of impact fees is to generate (and spend) revenue before the impacts are felt, not when they are felt. Collection The fundamental issue in collection is who will collect the fees. Since the objective of assessing impact fees is to provide the community and its var- ious agencies with needed revenues, close collaboration is needed between the assessing agency and the expending agencies. Collection of impact fees should be handled by one agency. Usually, it is the building agency. Some- times it is the planning agency or a centralized accounting office. In any event, all agencies need to know the following from the assessing agency: (I) What the fee schedule is; (2) how many fees are collected from which developments; and (3) when the building permit was issued and the expected date of development completion. For example,. Broward County, Florida, uses a five -copy receipt that is distributed to the person who pays, the plan- ning office, the accounting office, the public works staff, and the parks staff. In one county which assesses fees for schools, senior centers, child care, and housing in addition to more traditional uses, copies of receipts are also sent to those agencies. Accounting Accounting procedures are needed to assure that impact fees collected are deposited into earmarked accounts, expenditures from which will benefit contributing development. That is, impact fees collected for schools, parks, and roads must be earmarked for school, park, and road accounts. Further- more, if the impact -fee ordinance requires segregation of revenues geograph- ically (by service area or district), the accounting system should incorporate such a segregation scheme. The accounting system should also be designed to make available to anyone information on where impact fees from indi- vidual contributing developments were spent. This allows public officials and developers alike to be assured that impact fees benefit contributing de- velopment. Disbursement It goes without saying that impact fees must be spent. The manner of expenditure can be complex, however. Issues are raised relating to ear- marking, timeliness of disbursement, location of disbursement, and effect on community capital -financing policies. Earmarking While impact fees should be earmarked to accounts in the aforementioned manner, care must be taken not to accumulate separate accounts that are too small to be useful or to restrict the use of money in accounts in a manner that jeopardizes specific capital improvements. Broward County, Florida, faced this very problem with its road impact fees. Impact fees were deposited into hundreds of accounts, each earmarked for a specific road improvement. Few accounts were large enough to pay for the intended improvement. Even- tually, the county reduced the number of accounts and changed administra- 42 tive procedures to allow pooling of revenue under certain conditions. San Diego County, California, collects impact fees for specific projects but puts all money into a single, master account. That money is used to construct facilities based on a 20-year capital -improvement program. Tech- nically, impact fees collected for one improvement not scheduled for con- struction until several years later are loaned to another project scheduled for improvement in an earlier year. Impact fees collected for improvements that are already constructed repay funds borrowed from other accounts. : Timing Impact fees must be expended within a reasonable amount of time. Most communities attempt to expend them within a five- or six -year capital -im- provement program. There are exceptions, however. In San Diego County, some improvements are not built until nearly two decades after fees are col- lected. The program includes a master capital -improvements program, which explicitly shows when those facilities would be built. The county further demonstrates that there would be no need for those facilities until future years. Contributing development is not deprived of benefits since facilities will be built benefiting development as the need arises. When facilities financed by impact fees are scheduled for construction but must be delayed, impact fees need not be refunded. Among the conditions needed to extend the expenditure of impact fees are undercollection of im- pact fees due to reduced growth rates and discovery of extraordinary costs that affect prudent construction of facilities at the time originally planned. Location Various schemes are used to assure that contributing development benefits from the facilities it helps to finance. In Loveland, Colorado, it is presumed that all facilities financed in part by impact fees benefit all new development. This is an easy presumption, since the town is small and it is reasonable to expect that all new development benefits from construction of all new fa- cilities. Where impact fees are collected on a countrywide basis or in larger cities, however, it is customary to devise benefit districts or zones for each facility to be financed by impact fees. For example, the city of Raleigh, North Car- olina, is divided 'into three road -benefit zones. Road improvements within each zone are estimated, and impact fees for each zone are determined. New developments within each zone pay different road impact fees. Unlike the zonal system used by Raleigh, Broward County expends impact fees for local parks within 2.5 miles of contributing development. It spends fees for regional parks within 15 miles of contributing development. But some counties finance some facilities with impact fees that benefit all new development everywhere, and there is no need to devise benefit districts or zones. For example, Manatee County, Florida, applies the same solid - waste -disposal impact fee on all development. Matching the location of contributing development with the location of facilities financed by impact fees depends on the facility. Each facility has its unique service area: Local parks may serve areas of 2.5-mile radius while regional parks may serve areas of 15Wmile radius. Expressways may serve an entire county, but certain collector streets serve limited areas. Solid -waste sites serve large regions, but compacting and transfer stations may serve r 43 smaller areas. In general, impact fees must be tailored to the service area of the facility being financed with those fees. Effect on Capital-Improvenrent Policy Impact fees can, however, influence existing capital -improvement policy. For example, suppose that impact fees are assessed for a regional park sched- uled for construction in five years. Impact fees pile up, and substantial rev- enue is on deposit. But after five years, it is discovered that park -construc- tion prices have risen faster than impact -fee collections and account yields. The local public officials face the choice of deferring construction of the park, at risk of political pressure or opposition by developers who contrib- uted money to the park, or taking money from other projects and diverting it to the park. The availability of impact fees that are dedicated to certain facilities may thus place them on higher priority than other projects. This will happen in those communities that must contribute general funds to projects because credits had to be given to new development for other payments, which new development made to existing facilities benefiting existing development. The effect, however, is to place at higher priority facilities that may solely benefit new development, and place at lower priority facilities that are long overdue j but solely benefit existing development, or that benefit the entire commu- nity. Enforcement The most common problem facing administrators is assuring that devel- opments use the land in the way in which it was approved to be used. The most serious situation occurs when a development is approved for and is occupied by one kind of activity, perhaps low -employee -density activities, and is eventually replaced by higher -employee -density activities. Roads may be more greatly impacted by the development than initial projections and impact fees estimated. Communities thus need to monitor the actual use of developments to assure consistency with initial permitted uses or initial -fee payments. This may be accomplished by monitoring business -license changes. When a license indicates a different or more intensive use, there may be a land -use violation. The remedy may include additional impact fees. Lee County, Florida, attempts to resolve this problem by making it a misde- meanor knowingly to avoid payment of the full impact fee. Variances Impact -fee programs must include provisions for variance. At issue is the impossibility of knowing exactly the impact fee due for every project. De- velopers, for example, may claim lower road impact fees for a particular project than indicated or implied on the formal road impact -fee schedule. Variance provisions would allow developers to perform their own impact- i fee analysis and present it to either administrators or the governing body (or its designee, such as the planning commission). Administrative hearings may be conducted where the fee proposed by the developer is up to 25% (or so) less than the schedule would assess, Differences of more than that amount would be heard before the governing body. Differences of less than 10% may not be subject to hearing, however, as the estimated impact of the com- munity would be close to that estimated by the developer. 44' E' .i, The decision to allow all or part of the developer's variance request would probably depend on the community's independent analysis. One hedge is to require full deposit of the fee with an evaluation of the project impact after one year (or so). The difference between the actual impact and the impact fees paid based on the community's estimate would be refunded with inter- est. In any event, to protect against development delays, the impact fee would be paid in advance of the hearing, but the portion of the impact fee in dispute would be held in a special interest -bearing account. Refund of all or part of the disputed portion would be paid from this account. Refunds Sometimes impact fees collected may not be used as intended. Unlike tax revenue, they cannot be diverted to other purposes. Unspent impact fees may need to be refunded if the facilities they were to finance are cancelled or unreasonably delayed. The questions involved here focus on notice and the parties who should be paid. Start with who should be paid. Impact fees paid by a developer are re� couped by the developer through lower land prices or higher development prices, or a combination of the two. Developers may also take a smaller profit. It is impossible for a community, however, to decide which party in the complex development process paid how much of the impact fee. Instead, communities may simply opt to entitle only current owners of the contrib- uting development under the theory that it is ultimately the owners who ab- sorb most of the impact fee in higher -priced, lower -quality, and/or higher - density development. Notice may then be given to all owners of contributing development as shown on the local property -tax records. Notice should be by registered mail. Owners should be given a reasonable period of time, perhaps three months to one year, to claim the refund. Refund claims should be relatively simple, involving only certification of ownership. For its part, determining the appropriate impact fee to be refunded in- volves using the very formulas or schedules used to determine the impact fee when first paid. Refunds should also include interest, probably at the local government borrowing rate. Data Maintenance The impact -fee program must be continually updated as to assumptions, r facility -cost estimates, growth patterns and rates, and demographic changes. Impact -fee assessments will therefore be kept current and less subject to - adverse court review. Three considerations are posed. First, the community should establish the frequency at which it updates each impact -fee schedule or formula. Specific staff should be explicitly as- signed this responsibility. Data updating may require establishing formal links between agencies; perhaps an impact -fee updating task force comprised of representatives of all affected agencies would meet annually to review changes. It is suggested, for example, that impact fees be based on current cost es- timates of new facilities. Those estimates should be made annually. Second, the governing body or its designee should establish a formal pro- cess by which changes are effected. This may include a formal public hear- ing during which the changes are proposed and adopted. Citizens and de- 45 velopers would also be allowed to propose changes at that hearing. Changes that are adopted should be supported by findings. Such a process should remove the taint of arbitrariness whenever the changes result in higher fees. Third, the community might decide the conditions under which unsched- uled reevaluation would occur. Changes may include substantially higher - or lower -than -projected growth rates, large but unanticipated annexations, and major changes in the construction standards of new facilities (for ex- ample, federal requirements for vastly improved and more expensive water and wastewater plants). Administrative Costs Impact -fee programs carry initially high implementation costs (including the costs associated with analysis, planning, and programming). Those costs can be folded into the impact fees to be assessed. One of the principle advantages of impact -fee programs is their ease of administration. Figures vary and figures reported here are informally gath- ered, but the cost of administering impact -fee programs ranges from about 2% to about S% of impact fee collections. If the cost of administration can be determined, it may be recovered by impact fees themselves. This is ac- ceptable practice throughout Florida, for example. The procedure involves reasonably documenting the cost of administering impact -fee programs as a percentage of total impact -fee receipts (sometimes divided into each impact fee assessed). This cost is then added to impact fees as a proportionate in- crease covering administrative costs. SUMMARY Impact fees respond to one of the more difficult problems facing com- munities today. Citizens demand more and better facilities while also de- manding lower taxation. Elected officials are finding that their constituents place a higher value on the quality of services and the level of taxes than on the pace of new development. Impact fees are thus a partial means to meet the seemingly insatiable appetite for services and facilities while ac- commodatirig new development. The task facing communities today is to structure a means of facility finance that is acceptable to voters and allows development to proceed. That structure will require that the private sector play a significant role in finance. Yet, impact fees are not for every local government. Defensible impact - fee systems require considerably detailed land -use planning and capital -im- provements programming. Some local governments determine that alterna- tive revenues are more promising and flexibly administered than impact fees. Since actual impact fees collected can be a very small proportion of the entire capital -facility needs of certain communities, and considering the re- quirements in administering impact -fee systems, it is not surprising to see many communities abandon impact -fee consideration altogether. There are no quick and easy answers to the funding problem. In certain communities there is a role for impact fees. In others, impact fees would be useless or even counterproductive. Each community must consider impact fees as they relate to local market conditions, legal situations, and political constraints. 46 APPENDIX. REFERENCES Blewett, R. A., and Nelson, A. C. (1988), "A public choice and efficiency argument for development impact fees." Development impact fees, Arthur C. Nelson, ed., Am. Plann. Assoc., Chicago, 111. Connerly, C. E. (1988a). "The social implications of impact fees." J. Ant. Plann. Assoc., 54(1), 75-78. Connerly, C. E. (1988b). "Impact fees as bad social policy." Development impact fees, Arthur C. Nelson, ed., Am. Plann. Assoc., Chicago, 111. Downin P B and Frank J E (1982) Recreational impact fees. Dept. of Urban and Regional Plann., Florida State Univ., Tallahassee, Fla. Downing, P. B., Frank, J. E., and Lines, E. (1985a). Community experience with fire impact fees. Dept. of Urban and Regional Plann., Florida State Univ., Tal- lahassee, Fla. Downing, P. B., Frank, J. E., and Lines, E. (1985b). Community experience with sewer impact fees. Dept. of Urban and Regional Plann., Florida State Univ., Tal- lahassee, Fla. Duncan, J. B., Morgan, T. D., and Standerfer, N. R. (1986). Simplifying and un- derstanding the art and science of impact fees. City of Austin Plann. Dept., Aus- tin, Tex. Frank, J. E., and Downing, P. B. (1988), "Patterns of impact fee usage." Devel- opment impact fees, Arthur C. Nelson, ed., Am. Plann. Assoc., Chicago, 111. Huffman, F. E., et al. (1988). "Who bears the burden of development impact fees?" J. Am. Plann. Assoc„ 54(1), 49-55. Impact fees in Florida. (1986). Florida Advisory Committee on Intergovernmental Relations, State of Florida, Tallahassee, Fla. Juergensmeyer, J. C. (1988), "The development of regulatory impact fees." Devel- opment impact fees, Arthur C. Nelson, ed., Am. Plann. Assoc., Chicago, Ill. Leitner, M. L., and Strauss, E. (1988a). "Elements of a municipal impact fee or- dinace, with commentary." J. Am, Plann. Assoc., 54(2), 225--232, Leitner, M. L., and Strauss, E. (1988b). "Model impact fee ordinance implementing standard impact fee enabling act." Development impact fees, Arthur C. Nelson, ed., Am. Plann. Assoc., Chicago, 111, Morgan, T. D. (1988). "Unraveling the mysteries of impact fees." Development im- pact fees, Arthur C. Nelson, ed., Am, Plann. Assoc., Chicago, Ill. Nelson, A. C., ed. (1988). Development impact fees. Am. Plann. Assoc., Chicago, Ill. Nicholas, J. C., and Nelson, A. C. (1988). "Determining the appropriate develop- ment impact fee using the rational nexus test." J. Am. Plann. Assoc., 54(1), 56- 66. Peiser, R. (1988). "Calculating equity -neutral water and sewer impact fees." J. Am. Plann. Assoc., 54(1), 38-48. Porter, D. R. (1988a). "Will developers pay to play?" J. Am. Plann. Assoc., 54(1), 72-75. Porter, D. R. (1988b). "Developers' views about impact fees." Development impact fees, Arthur C. Nelson, ed., Am. Plann. Assoc., Chicago, Ill. Stewart, H. (1988). "Impact fees: The mettle public officials need to meddle with the. market." Development impactfees, Arthur C. Nelson, ed., Am. Plann. Assoc., Chicago, Ill., 67-72. Stroud, N. (1988). "Legal considerations of impact fees." J. Am. Plann, Assoc., 54(1), 29-37. 47