Growing Smart Legislative Guidebook

Chapter 8 (part 4): Local Land Development Regulation

Statutes Providing for Amortization

Only eight states expressly authorize amortization of nonconforming uses. Although the statutory authority to zone may not confer the power to amortize nonconforming uses without express authority[378], some courts hold that a statutory general welfare provision, or constitutional home rule authority, may confer the power to amortize.[379]

Colorado's nonconforming use statute[380] authorizes both the protection of nonconforming uses "if no structural alteration of such building is proposed or made" and their amortization "either by specifying the period in which nonconforming uses shall be required to cease or by providing a formula whereby the compulsory termination of a nonconforming use may be so fixed as to allow for the recovery or amortization of the investment in the nonconformance." Hawaii[381] provides for the protection of nonconforming uses and authorizes the gradual elimination of nonconformities, including amortization "over a reasonable period of time," but an amortization ordinance cannot apply to agricultural uses or to single family or two-family residential uses. Illinois382] protects existing lawful uses and structures which have not "been destroyed or damaged in major part," but authorizes "provisions ... for the gradual elimination of uses, buildings, and structures which are incompatible with the character of the districts in which they are made or located."

Minnesota protects nonconformities in general, with exceptions for uses discontinued for over a year or structures that are destroyed to the extent of more than half their market value.[383] Until 1999, it used to authorize local governments to adopt, by ordinance, requirements that "provide for the gradual elimination of nonconformities ... including requiring nonconformities to conform with the official controls of the county or terminate within a reasonable time as specified in the official controls." In April of 1999, a statute[384] was passed that prohibited local governments to "enact, amend, or enforce an ordinance providing for the elimination or termination of a use by amortization." There is an express exception, continuing local authority to adopt amortization for "adults-only bookstores, adults-only theaters, or similar adults-only businesses, as defined by ordinance."

Missouri[385] has a general nonconforming use provision, which prohibits applying the zoning power to the elimination of lawfully existing uses, but then permits local governments to adopt "reasonable regulations ... for the gradual elimination of nonconforming uses from districts zoned for residential use." Oklahoma[386] also provides general protection to nonconforming uses and then authorizes the local government to terminate nonconforming uses by designating conditions under which nonconforming uses must terminate, "specifying the period ... within which such use shall be required to cease, ... or by providing a formula ... to allow a reasonable period for the amortization of the investment in the nonconformance." No such ordinance can be adopted without a public hearing after due notice, nor can such an ordinance terminate a nonconforming use of extracting oil or gas or terminate a sign which has not been altered or abandoned.

South Dakota provides for the protection of nonconforming uses, unless discontinued for more than a year.[387] The local legislature may enact ordinances "to regulate or control, or reduce the number or extent of or bring about the gradual elimination of nonconforming uses," and if a use is discontinued for more than one year, the local government may impose an amortization schedule upon the property.[388] In Utah[389], nonconforming uses are protected, and may be expanded in the same structure so long as the structure itself is not expanded or structurally altered. The local government may provide by ordinance for the termination of nonconforming uses "by providing a formula establishing a reasonable time period during which the owner can recover or amortize the amount of investment in the nonconforming use."

Colorado and Delaware provide expressly that if the local government obtains title to property with a nonconforming use through non-payment of taxes, then the property must become compliant with the present zoning provisions.[390] Michigan[391] authorizes the local government to obtain property with a nonconforming use or structure, for the purpose of eliminating the same, "by purchase, condemnation, or otherwise." Minnesota authorizes local governments to obtain "by purchase" any property with a nonconforming use that the local legislature determines to be detrimental to the goals of the comprehensive plan.[392] North Dakota statute states that if any nonconforming property is acquired by the state, all future uses and structures must be compliant with existing zoning.[393]

Arkansas[394] has a rather unusual provision regarding setbacks: if there are any structures located outside the setbacks at the time of the adoption of the setback ordinance, the owner has only six months to remedy the violation, after which the structure constitutes a nuisance and incurs a fine of between $5 and $15 per day. This is akin to amortization, but, as can be seen, involves a relatively very short period in which the use is protected.

Case Law on Amortization

A number of states have upheld the constitutionality of amortization provisions.[395] Other states have found amortization to be per se unconstitutional,[396] or unconstitutional unless used to abate nuisances.[397] Some state courts have not allowed local governments to enact amortization ordinances without express authorization by state statute.[398] Other courts have allowed local amortization provisions without express provision in the state zoning enabling act, asserting that amortization is authorized under the general zoning power.[399] Where amortization is authorized, the key issue is how long an amortization period a structure or land use will be allowed. As stated above, the period must be long enough that the owner has an opportunity to generate a reasonable return on his or her investment in the structure or land use, or the amortization may constitute a taking.[400] Of course, some uses and structures require a longer period of amortization than others due to the amount of the investment and the complexity or permanence of the structure or land use. A large factory building requires a longer amortization period than an automobile junkyard, for example, because more money has to be invested in the former, and more time is required to earn a reasonable return on that investment.

Courts vary in the factors and criteria they consider appropriate as the basis for amortization, and there is no consensus on the factors that are appropriate in determining the length of the amortization period. The New York Court of Appeals (highest court) adopted a balancing test for amortization in Modjeskja Sign Studios v. Berle[401], that other courts have followed. The court held that the critical factors are the length of the amortization period in relationship to the investment in the nonconforming use, and whether the public gain from amortization outweighs the los suffered by the owner of the nonconforming use. The court held that the following factors are determinative in deciding whether a loss is substantial: the owner's initial capital investment, the extent to which that investment has been realized, the life expectancy of the investment, the existence or nonexistence of lease obligations, and whether there is a contingency clause permitting the termination of the lease.

The Eighth Circuit Court of Appeals has upheld a five-year amortization period for billboards and summed up the test for constitutionality of amortization this way:

Assessing the economic injury to a billboard owner and the extent to which the regulation has interfered with his investment-backed expectations involves weighing such factors as whether the land has any other economic use, the depreciation and life expectancy of the billboards, the income from the billboards during the amortization or grace period, the salvage value of the billboards and whether any amortization period is reasonable.[402]

Provisions of the Model Statute

Section 8-502 below consists of two alternative approaches to nonconformities (the term encompasses nonconforming land uses, buildings and structures including signs, and lots or parcels). The provisions common to both alternatives authorize local governments to facilitate the regulation of nonconformities by inventorying, registering, and issuing certificates for nonconformities. Amortization is authorized, under which a nonconformity must cease after a period of time. A local comprehensive plan with specific policies regarding the desirability of amortization must first be in place, and the determination of the amortization period must be made in an hearing if the zoning ordinance does not prescribe a specific amortization period.

The subsequent paragraphs then present two alternatives for nonconformity regulation other than amortization. It is customary in zoning ordinances to regulate the discontinuance and destruction of nonconformities their change and expansion, and their maintenance. Courts have approved these regulations, and this legislation is based on rules the courts have adopted.

The first alternative is open-ended. It authorizes local regulations for nonconformities. It does not specify what these regulations should contain, though it does authorize ordinances that do not require an intent to abandon as the basis for requiring the discontinuance of a nonconformity. The second alternative contains detailed statutory requirements for the regulation of nonconformities. One exception is regulation of the change and expansion of nonconformities, because it is difficult to specify in a statute the criteria that should apply when nonconformities change and expand. Case law in individual states will govern this question, and it may be possible in some states to develop ordinance criteria that will govern the change and expansion of nonconformities.


8-502 Regulation of Nonconformities; Amortization (Two Alternatives)

(1) Inventory. A local government [shall or may] prepare an inventory that identifies in detail the lots or parcels, structures, signs, and land uses that constitute nonconformities. The local government shall file the inventory with the [local planning agency or code enforcement agency] where it shall be available at reasonable times for public inspection.

• The preparation of a nonconformity inventory is not mandatory, but it is highly recommended. The inventory provides a basis for determining what nonconformities exist in a community, and for applying provisions that regulate nonconformities, such as an amortization provision. The inventory also provides a basis for issuing certificates of nonconformity, as authorized in paragraph (3) below.

(2) Registration. A local government's zoning ordinance shall authorize the registration with the [local planning agency or code enforcement agency] of nonconformities [included in the inventory of nonconformities]. The [local planning agency or code enforcement agency] shall maintain a register, which shall be available at reasonable times for public inspection, in which all registered nonconformities are listed.

• The purpose of the register is to provide a central place where all existing nonconformities are listed. The register provides notice to the public of nonconformities that exist in the community, and can also assist enforcement officials in carrying out the provisions of the nonconformity ordinance. Where a nonconformity inventory exists, registration is available only for nonconformities contained in the inventory, and registration will reference the inventory to provide detail about the extent and character of nonconformities. As an alternative, a local government could include the detailed description of a nonconformity in the inventory as part of the registration.

(3) Certificates of nonconformity. A local government [shall or may] authorize the issuance of certificates of nonconformity.

• A program for certificates of nonconformity can be a substitute for or in addition to the register authorized in paragraph (2).

(a) A local government shall issue a certificate of nonconformity on application by the owner of a nonconformity if the nonconformity is included in an inventory of nonconformities or if the owner can document in detail the extent of nonconforming land uses, structures, signs, and/or lots or parcels at the time the nonconformity was established.

• The inventory of nonconformities will contain the detailed information that must be contained in a certificate. If there is no inventory, an owner of a nonconformity can obtain a certificate if he or she can establish the extent and nature of the nonconformity at the time if was established. The key issue here is the status of a nonconformity at the time an ordinance was adopted or amended. A nonconformity can be established through photographs, maps and drawings, and written statements describing the nonconforming use at the time it became nonconforming.

(b) A certificate of nonconformity shall describe the nonconforming land uses, structures, signs, and/or lots or parcels in sufficient detail so that a reasonable person can determine how the nonconformity is not in compliance with present or previous land development regulations. [A map with drawings, which the location, height and size of structures and signs, and the area of the nonconformity shall be attached to the certificate.]

(c) A local government may rely on the description [and map] of a nonconformity in a certificate of nonconformity:

1. in determining whether a nonconformity has been discontinued, destroyed, changed or expanded; and

2. when it provides for the amortization of a nonconformity.

• The issuance of certificates of nonconformity provides a basis for regulating and amortizing nonconformities in the community, and provides owners of nonconformities with an official certification that the nonconformity exists and of its nature and extent. A requirement for a map and drawings of a nonconformity is optional, but can be very helpful when applying provisions that regulate or amortize a nonconformity.

(4) Amortization. A local government's zoning ordinance may:

(a) state a period of time after which nonconforming land uses, structures, and/or signs, or designated classes of nonconforming land uses, structures, and/or signs, must terminate; or

(b) include criteria that the [local planning agency or code enforcement agency] may apply to provide a period of time after which a nonconforming land use, structure, and/or sign must terminate.

• This paragraph authorizes the two most common methods of amortization. If the local government's zoning ordinance provides a period of time for amortization under subparagraph (4)(a), the Section authorizes different periods of times for different classes of nonconforming uses, at the option of the local government. Under subparagraph (4)(b), the designated officer or body can establish amortization periods on a case-by-case basis by applying the criteria for amortization contained in the zoning ordinance.

Amortization can raise a constitutional problem if the amortization period is so short that it amounts to a taking of property. Courts differ in the criteria they apply to determine whether a taking has occurred, so the statute does not include amortization criteria under paragraph 4(b). A local government must make this decision when it adopts an amortization provision for its zoning ordinance, based on the law that applies in its state.

Note that nonconforming lots or parcels are excluded from the coverage of this provision. This is because land is a permanent, non-depreciable asset and inherently cannot be "used up" or amortized.

(5) Comprehensive plan requirement. A local government may not adopt a provision for amortization unless it first adopts a local comprehensive plan pursuant to this Act, and the amortization of nonconforming land uses, structures, and/or signs implements an express policy contained in the plan. An amortization provision adopted in the absence of a local comprehensive plan and amortization policy is void.

• A local government must have a policy for the amortization of nonconforming uses and/or structures in its comprehensive plan as the basis for an amortization program. An amortization policy in the comprehensive plan will help support the constitutionality of amortization, because most courts consider the benefits of amortization to the community when they consider its constitutionality. The comprehensive plan will be able to identify these benefits.

In many instances, especially when an amortization provision is applied to buildings and signs, it is also important to show that a nonconformity is not compatible with other uses in the neighborhood. Lack of compatibility also helps support a decision to amortize a nonconformity. Comprehensive plans should include statements on neighborhood character and compatibility in their amortization policies.

(6) Decision on amortization period. If a local government's zoning ordinance authorizes the [local planning agency or code enforcement agency] to provide an amortization period under paragraph (4)(b), it shall require a record hearing pursuant to Section [10-207], including provisions for appealing the decision of a record hearing.

• This paragraph specifies the procedures that apply when an officer or body provides an amortization period for a nonconformity by applying criteria contained in the zoning ordinance. The procedures in Chapter 10 apply, and the decision is appealable to the appeals board and from there to a court.

Alternative 1 — Local Specification of Regulations

(7) Regulation of Nonconformities. A local government's zoning ordinance shall:

(a) provide that a nonconformity has been discontinued if it has not been occupied, used, or engaged in for a period of time stated in the zoning ordinance, unless the owner of the nonconformity can show good cause why it should be continued. An intent to abandon is not necessary to show discontinuance.

• Paragraph (7)(a) expedites the removal of nonconforming land uses, structures, and signs by not requiring an intent to abandoned to show discontinuance. It is common to provide that a nonconformity is not discontinued if a failure to use or occupy was caused by circumstances beyond the control of the owner of the nonconformity. The "good cause" exception to discontinuance is intended to cover circumstances of this kind. The term "nonconformity" is defined in Section 8-101, and includes "nonconforming lot or parcel," "nonconforming land use," "nonconforming structure," and "nonconforming sign" which are also defined in that Section.

(b) specify the extent to which a nonconformity may be maintained and repaired;

(c) specify the extent to which a nonconformity may change or expand;

(d) specify the circumstances in which a nonconformity that is destroyed may be rebuilt; and

(e) specify other circumstances as are appropriate in which a nonconformity must comply with the land development regulations.

• Paragraphs (7)(b) to (7)(e) authorize the most commonly used methods to terminate nonconformities short of amortization. A local government may wish to implement subparagraph (7)(d), for example, by authorizing the rebuilding of a nonconforming building if less than 50 percent of its value has been destroyed. An example of an ordinance authorized by subparagraph (7)(e) is an ordinance requiring a nonconforming sign to comply with the zoning ordinance if it is located on a vacant parcel, and the parcel is developed.

(8) Regulation of nonconformities during amortization. The provisions of a zoning ordinance adopted under the authority of Section [8-502(7)] apply to nonconformities during an amortization period.

Alternative 2 — Direct Statutory Specification of Regulations

(7) Discontinuance. A nonconformity shall no longer be a nonconformity it is discontinued. A nonconformity is discontinued if it has not been occupied, used, or engaged in for more than [one] year, unless the owner of the nonconformity can show good cause why it should be continued. An intent to abandon is not necessary to show discontinuance.

(8) Destruction. A nonconforming land use, structure, or sign shall no longer be a nonconformity if it is destroyed as provided in this paragraph.

(a) A structure that is a building, and the land uses therein, are destroyed if the building as a whole, or more than half of its total floor area, becomes uninhabitable or unusable because of a sudden occurrence or a gradual process of deterioration.

(b) A structure other than a building, including a sign, and any land uses therein or thereon, are destroyed if the structure or sign as a whole, or more than half of its total surface area, becomes uninhabitable or unusable because of a sudden occurrence or a gradual process of deterioration.

• Deterioration can result in the "destruction" of a structure. An apartment building that is uninhabitable would be considered "destroyed" even if the building entered that state by gradual decay and not a sudden catastrophe (the usual implication of the term "destroyed"). This paragraph thus means that the owner of a nonconformity cannot continue its nonconforming status if he or she allows a building to deteriorate so that more than half of its floor area is unusable.

(c) If less than half the floor area of a nonconforming structure that is a building, or less than half the surface area of a nonconforming structure that is not a building, including a nonconforming sign, becomes uninhabitable or unusable because of a sudden occurrence or a gradual process of deterioration, the owner of the nonconforming structure or sign may rebuild it on the same lot or parcel as it existed before it became unusable.

1. If the local government issued a certificate for the nonconformity, the structure shall be rebuilt according to the description of the nonconformity in the certificate.

2. Any nonconforming structure or sign that is rebuilt under this paragraph must comply with the local government's building, property management, [fire, floodplain] and any other applicable codes.

• This paragraph allows rebuilding only if half or less of a structure or sign is destroyed. If more than that is destroyed, the policy against the continuation of nonconformities means that rebuilding should not occur. The nonconforming structure or sign must be rebuilt as it existed, and the rebuilding must comply with the local building code and other applicable codes.

(9) Repairs and maintenance. The owner of a nonconformity may carry out maintenance or repairs that are required by the [property management code, housing code, or similar ordinance] or that are reasonably necessary or commonly engaged in to maintain the property in a reasonably habitable or useable condition.

(10) Change and expansion. A local government's zoning ordinance may specify the extent to which a nonconformity may change or expand.

(11) Regulation of nonconformities during amortization. The provisions of Section [8-502(7) through 8-502(9)], and the provisions of a zoning ordinance adopted under the authority of Section [8-502(10)] shall apply to nonconformities during an amortization period.

Additional Provisions for Both Alternatives:

(X) Conformities amidst nonconformities. A conforming land use located in a conforming structure and/or upon a nonconforming lot or parcel may be replaced by another conforming land use despite the nonconformity, and a conforming structure or sign upon a nonconforming lot or parcel and/or containing a nonconforming land use may be materially changed or altered in compliance with existing land development regulations despite the nonconformity.

(X) Eminent domain. A local government may purchase, or condemn pursuant to eminent domain, any lot or parcel that has a nonconformity upon it, for the purpose of eliminating the nonconformity.

(X) Abatement of nuisances. Nothing in this Section shall be deemed to abolish or restrict the power and duty of local governments to abate public nuisances.

• The latter two provisions confer the authority to purchase or condemn nonconformities, and preserve the authority to abate public nuisances. The numbering of these paragraphs will vary depending on which alternative is adopted for the regulation and amortization of nonconforming uses.

Exactions, Impact Fees, and Sequencing of Development


Commentary: Development Improvements and Exactions

An exaction is the requirement that a developer provide certain improvements in a new development or, in some cases, pay a fee to cover the expense of the local government providing those improvements off-site. Exactions may require the improvements be dedicated to the local government — transferring title to and responsibility for the improvements from the developer to the local government — or may allow the developer or future owners of the development to retain the improvements. These improvements typically include streets and sidewalks, water and sewer lines, utility easements or alleys, and in some cases parks and schools.

The justification for requiring a developer to provide these improvements is two-fold. First, the improvements are reasonably necessary for the public health, safety, or welfare. Clearly, streets are needed for public movement, water and sewer service promote health, street lights help to prevent accidents and suppress crime, and the provision and placement of utilities is a matter of health and safety. Second, the development itself is creating the demand for the improvements, and the public as a whole should not bear the cost of constructing improvements for new development.

Parks and schools should be treated differently than other exactions for two reasons. First, while most exactions inherently concern improvements on the premises of the development (streets, water and sewer mains, alleys or utility easements), parks and school sites may be placed within the subdivision or may be located off-site so that a larger facility may be used by multiple subdivisions or neighborhoods. Therefore, if a park or school site is to be created off-site and exacted from multiple developments, there must be a mechanism for apportioning the costs and collecting the revenue to cover these costs. This is best accomplished through impact fees, as authorized in Section 8-602. Second, while most other improvements are to be owned and operated by the local government itself, parks and schools are often operated by special districts. Therefore, there must be a procedure for coordinating the needs of the school or park district with the exaction and impact fee powers of the local government.

Statutes on Improvements and Exactions

The Standard City Planning Enabling Act included provisions on exactions. Specifically, Section 14 authorized subdivision regulations to include provisions:

for the proper arrangement of streets, ... for adequate and convenient open spaces... [and] provisions as to the extent to which streets and other ways shall be graded and improved and to which water and sewer and other utility mains, piping, or other facilities shall be installed as a condition precedent to the approval of the plat.

Section 14 also provided that, "in lieu of the completion of such improvements and utilities prior to the final approval of the plat, the [planning] commission may accept a bond with surety to secure to the municipality the actual construction and installation of such improvements or utilities according to specifications fixed by or in accordance with the regulations of the commission."

Many states have enacted similar legislation as part of the subdivision enabling statute. The California statute[403] is very detailed. The law authorizes local governments to require developers to provide and dedicate "streets, alleys, ... drainage, public utility easements and other public easements," bicycle paths and transit facilities from subdivisions with 200 or more parcels, and sunlight easements.[404] However, dedication requirements must be "reasonably necessary to meet public needs arising as a result of the subdivision," or they may be declared "excessive," and therefore invalid, by a court. The local government must then either revoke the dedication requirement or pay just compensation for the exaction.[405] Special provisions govern dedications for parks and recreation and for school sites.[406] In particular, a general plan must be in place before a parks and recreation dedication ordinance may be adopted, and the amount of a parks and recreation dedication must be linked to the number of persons residing in a subdivision (not to exceed five acres per 1000 subdivision residents in any case).[407]

Colorado requires subdivision regulations to provide for sites and land areas for schools and parks "reasonably necessary" to serve a subdivision, either by dedications of land or the payment of fees in lieu, and to include technical standards for storm drainage, sanitary sewers, and water supply.[408] This is in connection with the requirement that a subdivision plat cannot be approved until the developer produces evidence to establish that the subdivision has an adequate water supply, sewage disposal, and precautions against any hazardous soil or topographical conditions.[409] Subdivision regulations may also require that subdivisions pay a fee on a per-acre basis to provide "equitable contribution to the total costs of the drainage facilities in the drainage basin in which the subdivision is located."[410]

Montana has a park dedication statute[411] that requires residential subdivisions, except for minor subdivisions and those with lots larger than five acres, to provide park land or a cash donation equivalent to the fair market value of the park land. The amount of the land dedication or cash payment is linked to the acreage of the subdivision parcels. Subdivisions with parcels smaller than a half-acre must contribute 11 percent of their area, those with lots between a half-acre and an acre must dedicate 7.5 percent, those with lots between one and three acres must dedicate 5 percent, and those with more than three acres but less than five must contribute 2.5 percent. Alternatively, if there is a density requirement in the local government's master plan, the park dedication requirements are to be based upon the plan, but cannot exceed 0.03 acres per dwelling unit.

New Jersey requires that a subdivision or site plan ordinance must contain requirements for streets, "adequate water supply, drainage, shade trees, sewerage facilities, and other utilities necessary for essential services to residents and occupants," and "open space to be set aside for use and benefit of the residents of planned development."[412] The ordinance must also include:

standards for grading, improvement and construction of streets or drives and for any required walkways, curbs, gutters, streetlights, shade trees, fire hydrants and water, and drainage and sewerage facilities, and other improvements as shall be found necessary, and provisions ensuring that such facilities shall be completed either prior to or subsequent to final approval of the subdivision or site plan by allowing the posting of performance bonds by the developer.[413]

New York mandates that local governments (specifically, towns) require, as a condition of subdivision plat approval:

streets and highways ... of sufficient width and suitable grade and ... suitably located, ... all streets or other public places shown on such plats be suitably graded and paved; street signs, sidewalks, street lighting standards, curbs, gutters, street trees, water mains, fire alarm signal devices... sanitary sewers, and storm drains, be installed all in accordance with standards, specifications, and procedures... or alternately that a performance bond or other security be furnished to the town.[414]

The dedication of parkland in residential subdivisions, or the payment of money sufficient to purchase parkland outside the subdivision, may also be required by local governments if the planning board finds that the population growth that the subdivision contributes, combined with the present and future needs for parks, establishes "a proper case" for such an exaction.[415] The improvements required by the local government must be completed before the plat may be approved, or the local government may require a bond or other surety to cover the completion of the improvements.[416]

Washington's subdivision statute provides that a subdivision or dedication shall not be approved unless the local government finds that "appropriate provisions are made for ... open spaces, drainage ways, streets or roads, alleys, other public ways, transit stops, potable water supplies, sanitary wastes, parks and recreation, playgrounds, [and] schools and school grounds."[417]

Model Statute

Section 8-601 below authorizes local governments to require the developers of subdivisions, developments subject to site plan review, and planned unit developments to provide certain necessary and useful amenities on the premises of the development. These amenities are called "improvements" in the Section, and include streets, sidewalks, pedestrian and bicycle trails, street signs, street lighting, water and sewer lines, utility easements, landscaping for drainage and erosion control, and parks and open space. If the state wishes to, it may also include sites for public elementary and secondary schools, but not the construction of schools themselves. The local government may require the owners of subdivisions to transfer these improvements, once constructed, to the ownership and operation of the local government, or the park or school district in the case of open space, parks, playgrounds, and school sites. This transfer is called a "dedication." Subdivisions are required to make dedications because the development will eventually be owned not by a single developer who can maintain and operate the improvements but by the owners of the various lots or parcels. Other forms of development may also be required to make dedications, even though the development is owned by a single entity, if public ownership of the improvement is desirable or necessary (e.g.: a turn lane for a shopping center).

Improvements and dedications may be required only through an improvements and exactions ordinance, which is considered an integral portion of the subdivision, site plan review, and planned unit development ordinances and which, as a development ordinance, must be consistent with the local comprehensive plan. The existence of a comprehensive plan is required only if the local government includes open space, parks, playgrounds, or school sites as required improvements and dedications. The improvements are to be governed by development standards, and both the required improvements and the development standards must be grouped in classes by, and appropriate to, land use and density or intensity of various developments. For example, an ordinance could require that nonresidential developments and residential developments of under 50 units need not provide parks or playgrounds, while larger residential developments must provide one acre of park land for every 50 units. This approach is in contrast to the lot acreage requirements of the Montana park dedication statute. Though linking the amount of park land dedicated to the size of lots in a subdivision was clearly intended to scale the dedication requirement to the density of development, the acreage of lots or parcels is only a rough measure of the density of development. Therefore, too little or too much land may be dedicated.

Since the improvements required in an improvements and exactions ordinance are on the site of the development, but open space, parks, playgrounds, and schools may be better located off-site and accessible to other developments, the Section authorizes, as an option, the assessment and collection of impact fees to fund these improvements in lieu of requiring their provision on-site. Also, since these improvements are often operated by a separate governmental unit from the local government — the park or school district — the Section includes provisions for coordinating the improvements and exactions ordinance or impact fee ordinance with the park or school board through an implementation agreement.

The Section requires that the developer produce construction drawings of the improvements and that the drawings must be consistent with the development regulations. An inspection by the local government engineer is required, and the written report and recommendations from that inspection must be given due regard. To ensure the completion of the improvements in compliance with the approved drawings, the improvements and exactions ordinance must require that either the development permit will not be issued until the improvements are so completed or the development permit will be issued subject to an improvement guarantee. Improvement guarantees may last up to two years, and may take the form of a bond. They cannot be released unless and until the improvements are completed in compliance with the approved drawings, the engineer has made the inspection and written report with recommendations, the report has been reviewed, and the improvements have been approved. Local governments may also require maintenance guarantees, which are bonds or other sureties to ensure that the improvements will last for at least a certain period, up to two years.

The local government can require dedications of improvements, but it need not accept them until the improvements are completed according to the approved drawings and any improvement or maintenance guarantees are released. A dedication consists of an instrument of dedication executed by the developer, but the instrument is not valid until the local government accepts responsibility for the improvements and marks the instrument of dedication accordingly. Typically, a developer will not want to be responsible for operating and maintaining the improvements, and will execute the instrument willingly. However, if a developer for some reason refuses or neglects to provide the local government an instrument of dedication, the relevant development permit (plat approval, site plan approval, or planned unit development approval) for the development may be denied or suspended until the developer delivers a proper instrument of dedication.


8-601 Development Improvements and Exactions

(1) The legislative body of a local government that has adopted a subdivision, site plan review, or planned unit development ordinance shall adopt and amend an improvements and exactions ordinance in the manner for land development regulations pursuant to Section [8-103, or cite to some other provisions, such as a municipal charter or state statute governing the adoption of ordinances].

(2) The purposes of an improvements and exactions ordinance, in addition to the purposes of land development regulations as stated in Section [8-102(2)], are to:

(a) secure the construction of improvements directly serving the development;

(b) ensure that such improvements will be reasonably proportional to the needs created by the development and will be built to last;

(c) ensure that improvements that are constructed and dedicated to the public will be easy and economical for the local government to maintain;

(d) provide coordination among private developers and public and private entities in the location, character, and safe design of improvements, the location and character of easements, and the acquisition of public property; and

(e) authorize local government to require specific and enforceable guarantees that improvements will be built on time, according to reasonable standards, and will last for at least a certain reasonable time.

(3) An improvements and exactions ordinance:

(a) shall be considered a part of the subdivision, site plan, and planned unit development ordinances; and

(b) shall be subject to the provisions of Sections [8-301, 8-302, and 8-303], as applicable. If any provision of this Section is contrary to a provision in Sections [8-301, 8-302, or 8-303], the provision in Sections [8-301, 8-302, and 8-303] shall govern to that extent.

• Therefore, the limitations in Section 8-302(5)(g) on the standards applicable to site plan review, and the provisions in Section 8-303(7), (8), and (9) regarding traditional neighborhood development and open space, supersede the more general provisions of this Section where there is a conflict.

(4) All public and nonpublic improvements required by an improvements and exactions ordinance shall be in reasonable proportion to the demand for such improvements that can be reasonably attributed to developments subject to the ordinance. Developments subject to an improvements and exactions ordinance shall be divided into classes that are defined by types and densities or intensities of land use. Different public and/or nonpublic improvements, appropriate to the types and densities or intensities of land use permissible in each class, shall be required from each class.

(5) Development standards:

(a) shall be adopted for all public and nonpublic improvements required by an improvements and exactions ordinance;

(b) shall be divided into classes that are defined by, and appropriate to, types and densities or intensities of land use.

[(6) Open space, parks, playgrounds[, and public elementary and secondary school sites.]

(a) The legislative body of a local government shall adopt and amend an improvements and exactions ordinance that requires open space, parks, playgrounds[, or public elementary and secondary school sites] only after it has adopted a local comprehensive plan.

(b) A local government may, in lieu of requiring open space, parks, playgrounds[, or public elementary and secondary school sites], assess and collect a development impact fee to finance such improvements, under a development impact fee ordinance pursuant to Section [8-602].

• Since improvements pursuant to this Section are inherently on-site, this provision allows local governments to deal with the situation where the open space, park, playground, or school is best located off-site by assessing a development impact fee instead.

(c) Except for open space, parks, or playgrounds that are not intended to be owned or operated by a park district, a local government shall not enact an improvements and exactions ordinance requiring open space, parks, playgrounds[, or public elementary and secondary school sites], or a development impact fee ordinance assessing and collecting an impact fee to finance these improvements, without consulting with the relevant park district [or school district] board in formulating the ordinance and entering into an implementation agreement pursuant to Section [7-503] with the relevant park district [or school district] boards, concerning, at a minimum:

1. for an improvements and exactions ordinance: criteria and formulae for determining the appropriate improvements and development standards therefor for given land uses and/or densities or intensities of development, the collection and transfer to the local government of any information held by the park [or school] district needed to apply such criteria and formulae, and conditions and procedures for the transfer, from the local government to the park [or school] district, of title to and responsibility for these improvements; or

2. for a development impact fee ordinance: the level of service standards for the improvements that are to be financed with impact fees, the adjusted cost of such improvements, criteria and formulae for determining the appropriate impact fee, the collection and transfer to the local government of any information held by the park [or school] district needed to apply such criteria and formulae, the disbursement of funds collected under the impact fee from the local government to the park [or school] district, and the refund of funds from the park [or school] district to the local government when a refund is required by Section [8-602].]

(7) A local government may require improvements or dedication only pursuant to an improvements and exactions ordinance adopted and amended pursuant to this Section. An improvements and exactions ordinance shall include the following minimum provisions:

(a) a citation to enabling authority to adopt and amend the improvements and exactions ordinance;

(b) a statement of purpose consistent with the purposes of land development regulations pursuant to Section [8-102(2)] and with paragraph (2) above;

(c) a statement of consistency with the local comprehensive plan that is based on findings made pursuant to Section [8-104];

(d) definitions, as appropriate, for such words or terms contained in the improvements and exactions ordinance. Where this Act defines words or terms, the improvements and exactions ordinance shall incorporate those definitions, either directly or by reference;

(e) a statement of the public and nonpublic improvements that the owners of subdivisions, developments subject to site plan review, and planned unit developments are required to construct, including:

1. any criteria by which developments of a particular land use or uses and/or density or intensity are required to have particular improvements, including any formulae used to calculate the appropriate required improvements for any particular development; and

2. in an appendix to the ordinance, the factual bases for such criteria;

(f) development standards for the required public and nonpublic improvements, including:

1. any criteria by which developments of a particular land use or uses and/or density or intensity are subject to particular development standards including any formulae used to calculate the appropriate development standards for any particular development; and

2. in an appendix to the ordinance, the factual bases for such criteria;

(g) if the required improvements include open space, parks, and playgrounds [and/or public elementary and secondary school sites], the provisions of subparagraph (6)(c) above;

(h) requirements for the submission of construction drawings, which shall be in compliance with the applicable development standards, and procedures for the review and approval or rejection thereof;

(i) provisions and procedures for the inspection and review of public and nonpublic improvements, including:

1. access to the property at reasonable times to inspect improvements;

2. a written report and recommendation of the [professional engineer] of the local government, based upon an inspection of the improvements, to determine whether such improvements have been completed according to the approved construction drawings, and;

3. a requirement that the local government review the written report and recommendations of the [professional engineer] and give it due consideration in approving or rejecting the improvements.

(j) a requirement that either:

1. the relevant development permit shall not be issued until the improvements are completed in compliance with the approved construction drawings; or

2. the relevant development permit may be issued subject to an improvement guarantee.

(k) procedures for the dedication of public improvements pursuant to paragraph (11) below;

(8) An improvements and exactions ordinance may contain:

(a) requirements that owners of developments subject to the ordinance provide improvement guarantees and/or maintenance guarantees, pursuant to paragraphs (9) and (10) below;

(b) requirements for the submission of drawings that show the construction of improvements as they have actually been built, as a condition of the release of the improvement guarantee and/or the issuance of a certificate of compliance;

(c) provisions regarding development impact fees in lieu of requiring improvements. For the purpose of such in-lieu fees, "fee eligible public facilities" are not restricted to off-site public facilities, Section [8-602(3)(c)] notwithstanding; and

(d) provisions exempting certain types or classes of development, including, but not limited to, affordable housing, development pursuant to a transit-oriented development plan, and development in a redevelopment area, from the requirement of providing particular improvements at a particular development standard.

1. No such exemption may be created unless there is a policy supporting the exemption expressly stated in the local comprehensive plan.

2. An exemption provision shall state the policy underlying the exemption and shall provide the procedure for granting exemptions to particular new developments.

(9) Improvement guarantees.

(a) Improvement guarantees shall be in an amount and with all necessary conditions to secure for the local government the actual construction and complete installation of all of required public and/or nonpublic improvements. The amount shall be based on actual cost estimates for all required improvements and these estimates shall be reviewed and approved by the [professional engineer] of the local government. The local government may fix the improvement guarantee in a reasonable amount in excess of the estimated costs to anticipate for economic or construction conditions.

(b) An improvement guarantee shall not be released until:

1. the required improvements have been completed pursuant to approved construction drawings;

2. the [professional engineer] has issued a written report and recommendations pursuant to subparagraph (7)(i)2;

3. the local government has reviewed the report and recommendations and given them due consideration; and

4. the required improvements have been approved by the local government.

(c) In the case of developments that are being approved and constructed in phases, the local government shall specify improvement guarantee requirements related to each phase.

(10) Improvement guarantees and maintenance guarantees:

(a) shall be valid for a period of no more than [2] years;

(b) shall be in the form of a financial instrument acceptable to the [solicitor] of the local government and shall enable the local government to gain timely access to secured funds or real property for cause; and

(c) may be enforced by the local government by all appropriate legal and equitable remedies, including access to the property at reasonable times to inspect improvements.

(11) The local government shall take title to public improvements, and have a duty to maintain or improve those public improvements, when, and only when, it has affirmatively and expressly accepted a dedication of the improvements.

(a) The local government shall accept a dedication only when the completed public improvements are in compliance with approved construction drawings, where applicable, and when it has released any improvement guarantee and maintenance guarantee. Any purported acceptance made in absence of these conditions is void.

(b) Approval of a subdivision, site plan, or application for planned unit development, or recordation of the plat or plan of the same, shall not constitute the acceptance by the local government of title to or responsibility for any public improvement and shown thereon, unless acceptance is expressly provided in the approval.

• Simply conveying streets and other public improvements to the local government via the final plat is not sufficient to activate acceptance of the dedication by the local government. Until the local government inspects and approves the improvements as complying with the construction drawings, and has released the various guarantees, the improvements should remain the property and responsibility of the developer.

(c) The owner of a development subject to an improvements and exactions ordinance from which public improvements are required shall execute an instrument dedicating the improvements to the local government.

1. An instrument of dedication shall be signed by the owner, provide the legal description of the development property, and shall identify all public improvements being dedicated by the instrument.

2. An instrument of dedication shall not be of any force or effect, and shall not be recorded with the county [recorder of deeds], until the local government has indicated its acceptance of the dedication in writing on the instrument and placed its official seal thereon.

3. An instrument of dedication so accepted and sealed shall be recorded with the county [recorder of deeds] within 30 days of the acceptance and sealing. A copy of the subdivision plat shall be made part of the instrument of dedication.

4. If the local government is authorized to accept a dedication pursuant to subparagraph (a) above, but the owner has not provided a proper instrument of dedication, then the local government may deny the subdivision plat approval if that development permit has not been issued, or suspend it if it has been issued, Section [8-501] notwithstanding, until the owner provides a proper instrument of dedication.


Commentary: Development Impact Fees

 

Introduction

A development impact fee statute authorizes local governmental units to assess fees upon new development projects to cover capital expenditures by the governmental unit on the infrastructure required to serve the new development. The statute prescribes guidelines for what constitutes a capital expenditure on infrastructure and when a capital expenditure results from a new development project, procedures for assessing the fee and for collecting the fee either in money or in kind (provision of the facility by the developer), and other necessary parameters.

Impact fees are intended to pay for the provision of new facilities and the expansion of existing facilities, not for the maintenance of existing ones used wholly by existing development. Nor are impact fees intended to cover operating expenses. Once the development project has paid for the additional facilities it requires, the regular assessment of taxes on all development, old and new, should fund the ongoing operation of all public facilities.

An impact fee provision is not the same as a requirement in a subdivision or site plan ordinance that a developer provide certain facilities, such as streets, sidewalks and utilities, within the development project itself. Impact fees are to be expended on capital facilities that are generally not on the premises of the development project but which are necessitated by the development project. These may include roads, schools, parks and recreation facilities, and utilities. Note that the need for a new facility may be created by more than one development project, with each project paying a fee which covers its share of the facility.

Pros and Cons of Impact Fees

The purpose of an impact fee, as the name suggests, is to require new development to pay for the impact it makes upon the infrastructure of the local government, rather than have the cost paid by both new and existing development through taxes and user fees. Put another way, an impact fee requires the developer or owner of new development to pay a cost generated by the development but which would otherwise be paid by the taxpayers in general.

In economics, costs borne by one party though the benefit goes to another are called "externalities." Theoretically, decisions made in a free market lead to the most efficient use of resources because costs and benefits balance when every market participant is trying to minimize costs and maximize benefits. However, the existence of externalities means that some decisions will not result in the most efficient outcome because the decisionmakers are either not bearing all the costs of their decision while receiving the benefits thereof (the developer in this instance) while others bear all of the costs of the decision out of proportion to their benefit therefrom (the local government). "Internalizing" externalities — making a decisionmaker bear the full cost of his or her decision — should therefore result in a more efficient use of resources.

In the instance of new development absent an impact fee, the local government and its taxpayers pay part of the costs created by the new development: the additional infrastructure needed to serve the new development. Not having to bear this cost, a potential developer is more likely to decide to proceed with development than if he or she had to pay for the additional infrastructure. Development that has a net negative impact on society — more cost than benefit — may be built. However, when the impact fee is applied, the potential developer will take this cost into consideration in making the decision to develop. If the impact fee a developer has to pay is equal to the cost to society of the development, then it is much less likely that a development with a net negative impact on society will result, because such a development would also be unprofitable to the developer.

This leads us to the negative aspect of impact fees. Impact fees work as a proper internalizer of externalities only if the impact fee is at least roughly equal to the public expense it is supposed to cover. If the impact fee is significantly lower than the cost to society, then it is less effective in internalizing the infrastructure cost and developments with a net negative impact will still occur. On the other hand, if the fee is substantially higher than the societal cost, then the developer may not build a development that has a net positive impact on society because it has been made unprofitable for him or her. Put in more prosaic terms, an impact fee set too high is not a tool to recover costs but an instrument for excluding development.

Impact fees may be disproportionately high with the intent of excluding all development or some classes of development. For example, the impact fee could be set so that affordable housing development is unprofitable and thus not built while luxury developments are still profitable. Or the fee may be set higher than the infrastructure capital costs because the existing officials and residents see it as a way to keep their own taxes low by passing on government expenses (in excess of the impact of new development) to the new residents and businesses who do not yet have a voice in the community. Though this is not done with the intent of discouraging development — that would kill the goose that is laying golden eggs — the effect is the same.

U.S. Constitution& the U.S. Supreme Court

A key issue in impact fees is what relationship between a development project and the exaction of fees or conditions from that project is required by the substantive due process requirement of the Fifth and Fourteenth Amendments to the U.S. Constitution. The U.S. Supreme Court addressed the issue of development exactions, though not impact fees specifically, in the case of Dolan v. City of Tigard[419]. In that case, a local government placed certain conditions on the approval of the expansion plans of a store. The city required the store owner to dedicate land along a creek for a drainage area and for a bicycle-pedestrian path. The owner challenged these requirements as a taking. According to earlier cases such as Nollan v. California Coastal Commission[420], the Court must first determine whether an "essential nexus" exists between a legitimate state interest and the condition exacted by the city.[421] The Court recognized this test and, in the instant case, found that preserving land from flooding and controlling traffic are legitimate state interests and that the proposed conditions were directly related to those interests.

The second determination the Court faced was "whether the degree of the exactions demanded by the city's permit conditions bear the required relationship to the projected impact of petitioner's proposed development.[422] The Court rejected, on one hand, "very generalized statements as to the necessary connection"[423] which some state courts had made and, on the other, the strict "specific and uniquely attributable"[424] test applied first in Illinois. Instead, it adopted the "reasonable relationship" rest of many state supreme courts, requiring "rough proportionality" between the state interest and the exaction. "No precise mathematical calculation is required, but the city must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development."[425]

Though the U.S. Supreme Court has not applied the Dolan test to an impact fee case,[426] it is the most on-point case from the Court to date and is therefore an important consideration in the drafting of any impact fee legislation. The two-pronged test that Dolan creates — "essential nexus" between the exaction and a legitimate state purpose, and "rough proportionality" between the exaction and the impact of the development project — determines whether or not exactions are in compliance with the Federal Constitution. As such, the Dolan test may be the minimum hurdle that must be cleared by any impact-fee authorizing statute.

State Court Cases

While the Dolan decision may or may not state the Federal constitutional requirements for exactions, state constitutions and statutes — and thus state courts — have imposed their own restrictions upon impact fees.

The most liberal standard for impact fees and other exactions is the "reasonable relationship" test. Under this standard, any condition or exaction that is "reasonably related to the protection of the public health, safety, and general welfare" is constitutional and requires no payment of compensation even though the public as a whole benefits from the exaction.[427] In other words, any exaction that can be reasonably justified under the police power is permissible. As one can see, this test authorizes exactions that may not satisfy the Dolan test.

Most states apply the "rational nexus" test, which requires (1) a reasonable connection between new development and the need for additional infrastructure to serve the development, and (2) a connection between the expenditures on infrastructure financed by the impact fee and the benefit that new development receives from those expenditures.[428] This test is much closer to the Constitutional standard on exactions set forth in Dolan, though it is derived separately under state law.[429] Indeed, the "rough proportionality" requirement was proclaimed by state courts before the Dolan decision was handed down.[430]

The strictest test for exactions is the "specifically and uniquely attributable" standard. The Illinois Supreme Court has stated that "the developer of a subdivision may be required to assume those costs which are specifically and uniquely attributable to his activity and which would otherwise be cast upon the public."[431] The Rhode Island Supreme Court adopted, in 1970, the position that the Constitution of Rhode Island requires that the need for an exaction "result... from the specific and unique activity attributable to the developer."[432] Another case before the Rhode Island Supreme Court, eleven years later, stated that "[a] developer may be required to provide the basic services essential to modern living, such as the construction of water, sewer, and other utilities, mains, pipes, or connections."[433] In a 1995 case,[434] the Illinois Supreme Court clarified the "specifically and uniquely attributable" test. The court held that "the new development must receive a direct and material benefit from the improvement financed by the impact fee ... [and] there is no requirement that the improvements financed by impact fees must be used exclusively or overwhelmingly by the development paying the fee."[435]

While the "specifically and uniquely attributable" test is strict, it is, when clarified as the Illinois Supreme Court has done, not as strict as the name would first suggest. For example, the term "uniquely attributable" would suggest that a new water treatment plant which serves a new subdivision in question as well as three others could not be financed by an impact fee on that subdivision, because the need for the plant is not uniquely attributable to the subdivision. When it is specified that the subdivision must receive a "direct and material benefit" from the capital improvement, then it becomes clear that the subdivision in the same scenario could be assessed an impact fee for a portion of the cost of the treatment plant equal to its share of the use of the plant.

State Impact Fee Enabling Acts

Several states have enacted statutes to authorize and to regulate the imposition of impact fees by local governments. These statutes are described in detail because the Legislative Guidebook is intended to provide a model act that incorporates best practices, and a comprehensive analysis of current approaches assists users of the Guidebook in understanding how the model Section was derived.

Arizona authorizes counties to assess development fees upon new development, but only by ordinance and to fund the construction of public facilities included in a benefit area plan.[436] The ordinance must be preceded by a development fee needs assessment.[437] The fees must be "reasonably attributable or reasonably related" to the demand created by the development, fees assessed on a particular development must be proportionate to that development's share of the public facilities demand, and they can be spent only in the benefit area where the fee was assessed.[438] While development fees cannot be spent to remedy deficiencies in existing public facilities, they can be applied to the cost of excess capacity in existing facilities that serve new development.[439] Credit must be granted for on-site parks built by the developer against development fees that are assessed for parks.[440] Development fees must be spent on public facilities within five years (which can be extended by development agreement) or they must be refunded to the present owner of the property.[441] Development fees can be waived for affordable housing or for other development "determined to serve an overriding public interest."[442]

The Georgia Development Impact Fee Act[443] authorizes municipalities and counties that have a comprehensive plan with a capital improvements element to enact impact fee ordinances.[444] Existing impact fee provisions are protected, but local ordinances are required to be in compliance with the Act by a specific date.[445] Municipalities and counties can enter into intergovernmental agreements with each other, schools and special districts, and the state, to jointly plan public facilities and operate impact fee systems.[446] Except for on-site improvements, no exactions, whether in cash or in kind, can be made except pursuant to such an ordinance.[447] An impact fee ordinance cannot be enacted unless the local government holds two properly-noticed public hearings and creates a Development Impact Fee Advisory Committee of five to ten members, at least 40 percent of which represent the development, building, or real estate industries.[448]

Impact fees must be proportional, must be assessed in service areas, derived from the comprehensive plan,[449] on the basis of the public facilities demand in the service area, and must be spent in the service area on the facilities for which they were assessed, which must be included in the comprehensive plan. An impact fee cannot be collected earlier in the development process than the issuance of a building permit.[450] Impact fee ordinances must include a procedure for individualized assessments of impact fees, an appeals process (including authorization of the use of arbitration), and a provision for credits (for on-site improvements and for impact fees paid in excess of a development's proportionate share), and cannot be retroactive — fees may not be assessed on the portion of a development project for which a building permit was issued before the ordinance took effect.[451] Assessed impact fees must be refunded to the payor of the fee if the capital improvement is not commenced within 6 years of the collection of the fee.[452] Payment of an impact fee automatically satisfies any adequate public facilities requirement applicable to the development project.[453] Affordable-housing developments, and projects that "create extraordinary economic development and employment growth," may be exempted from impact fees if the comprehensive plan provides for it and if there is another source of revenue to cover the project's proportionate share of public facilities in the service area.[454]

The Idaho Development Impact Fee Act[455] also requires a capital improvements plan as a prerequisite for assessing impact fees, and the plan must be based on the same land-use assumptions as other local plans.[456] Public hearings are required before a local government can adopt a capital improvements plan or make an amendment or material change to such a plan, and a public hearing must also be held before the adoption of an impact fee ordinance.[457] A Development Impact Fee Advisory Committee of at least five members, with two in the businesses of development, building, or real estate (the planning commission will suffice if it meets that criteria or if two complying members are added), advises in the drafting of the ordinance.[458] Existing impact fee provisions are protected for one year after the adoption of the Act, after which they must comply with the Act.[459]

Temporary or accessory structures, and repairs or reconstruction that do not increase the size of a building, are expressly excluded from development, while manufactured housing is expressly included.[460] Fees cannot exceed a project's proportionate share of the demand for new public facilities, and developers can demand individualized assessment of the fee.[461] However, the addition of fines and penalties for late payment is expressly authorized, as is the denial of utility hookups or development permits.[462] Fees cannot be assessed for or spent on facilities not in the capital improvement plan, the operation or maintenance of facilities, the upgrade of existing facilities for safety or environmental reasons (and not to accommodate new users), or bond payments except on bonds financing the capital improvements in the capital improvement plan.[463] Fee ordinances must provide for credits (for excess impact fees and for system improvements, such as schools and parks, as opposed to project improvements such as streets and sidewalks)[464], refunds to the owner of record when the intended capital improvement is not appropriated for or commenced within five years[465], and appeals, including mandatory mediation.[466] Affordable housing may be exempted from impact fees if the plan provides for it and there is another source of revenue to fund the development's proportionate share.[467]

Illinois authorizes local government to assess impact fees for improving or constructing "roads, streets, or highways directly affected by the traffic demands generated from ... new development."[468] The fee cannot exceed a "proportionate share" of costs ... "specifically and uniquely attributable to the new development."[469] While fees can be spent on "engineering and planning costs" as well as the expenses of actually building or improving the road, they cannot be spent on the operation or maintenance of existing roads, nor to improve existing roads in order to make safety or environmental improvements.[470] Impact fees may be assessed only by ordinance, which must be preceded by notice and a public hearing.[471] The fee is to be collected at the time of final plat approval or when a building permit is issued.[472] The ordinance must be consistent with a local comprehensive road improvement plan.[473] In preparing the ordinance, the local government must create and consult with a "road improvement impact fee advisory committee" consisting of between 10 and 20 members, at least 40% of which must represent the real estate, development or building industries, or labor, and cannot be local government officials or employees.[474]

Indiana[475] authorizes local governments to adopt impact fee ordinances, after a public hearing and with the approval of the relevant planning commission or commissions. The ordinance must be consistent with the governing comprehensive plan, and the local government must create an impact fee advisory committee of five to ten members, with at least 40 percent representing the development, building or real estate industries.[476] Impact fees do not include utility charges or hookup fees, fees charged to pay the administrative costs of approving a permit, or similar charges.[477] Impact fees may be assessed only for facilities in the categories of sewers, parks, and recreation, roads, drainage, and water supply.[478] Impact zones must be created in the ordinance, on the basis of "a functional relationship" between the types of infrastructure needed and that the facilities to be built in the zone will provide "a reasonably uniform benefit" to the new developments in the zone, and fees may be assessed only in an impact zone.[479] Fees must be spent pursuant to a zone improvement plan, which must be consistent with the comprehensive plan.[480] Impact fee ordinances must include a schedule or formula for calculating the impact fee, so that developers can "accurately predict" the applicable fee.[481] Developers can demand an individualized assessment of their impact fee, which "locks in" the fee if a building permit has been issued.[482] The fee is to be collected within 30 days of receiving a permit or plat approval, whichever is earlier.[483] Permits or other approval of development cannot be delayed with the goal of awaiting the outcome of any impact fee procedure.[484] The zone improvement plan for an impact zone must set a timetable for the improvements to be financed by impact fees, and the developer is entitled to a refund if there has not been "reasonable progress toward completion" of the capital improvements by the deadline, or six years in any case.[485]

Impact fee ordinances must provide for an appeal of an assessment,[486] and for credits for any capital improvement to be financed by impact fees which the developer constructs itself.[487] Decisions on appeals of assessments, credits, and refunds are to be made by a three-member impact fee review board, consisting of one real-estate broker, one engineer, and one certified public accountant, none of which may be members of the planning commission.[488] Independent judicial review of the impact fee ordinance and decisions thereunder is authorized.[489] A reduction in impact fees may be granted to affordable housing developments, but a public hearing must be held first, the governmental unit providing the reduction must pay the reduction amount, and a decision on reducing an impact fee is appealable by the developer or by the governmental unit which was to receive the fee money.[490] To ease payment of large fees, ordinances must include an installment payment plan.[491] Impact fees can be collected in a civil action, and the local government has a lien under the statute.[492]

Maine[493] authorizes municipalities to require developers to provide off-development improvements or pay impact fees to finance public construction of such improvements. The fees may be expended on new capital facilities or the expansion or replacement of existing facilities, in the categories of sewer, water, solid waste, fire protection, road and traffic control, and parks and recreation. The fee must be "reasonably related" to a development project's share of the demand for improvements, the municipality must establish a schedule for the construction of the capital improvements which is consistent with the comprehensive plan, fee revenue must be kept in a separate fund in the municipal treasury, and the municipality must refund impact fees that were assessed for projects which were not built according to that schedule or when the fees assessed for a project exceeded the actual cost of the project.

Nevada[494] authorizes local governments to assess impact fees for new facilities, and improvements to existing facilities made necessary by new development, for drainage, sewer, water, and street projects. Impact fees cannot be assessed unless the local government has in place a capital improvements plan, which assesses existing public-facility capacity and predicts demand based on land-use assumptions that must, as well as the plan itself, be approved by the local legislature after public hearing and an opportunity for formal complaints and objections.[495] The capital improvement plan must be reviewed every three years.[496] In the capital planning process and afterwards, the local government is to be advised by a five-member capital improvements advisory committee, which may be the planning commission if it has at least one non-governmental member who is in the real-estate, development, or building industries.[497]

Impact fees can be expended upon not only the cost of obtaining land and of construction, but of professional advice and of bond interest if the bonds are to finance the capital improvements for which the fee was collected.[498] Impact fees cannot be spent upon capital improvements not in the capital improvement plan, operation or maintenance of facilities, or expansion of existing facilities to better serve existing development or for safety or environmental reasons.[499] There is a maximum impact fees for each unit of service provided, which is the total estimated cost of a capital improvement as set in the capital improvements plan, divided by the number of service units that improvement is projected in the plan to provide.[500] A development that pays impact fees has a right to the services of the facilities for which the fee was assessed.[501] Credits must be provided for a developer's construction of off-site improvements,[502] and there must be a refund of impact fees to the present owner if construction of the intended capital project is not commenced within five years, and of any portion of a fee not spent within ten years.[503]

New Hampshire[504] authorizes impact fees as one of many "innovative land use controls." Impact fees may be employed to finance the construction or improvement of capital facilities, made necessary by new development, of the following types: water, sewers, drainage and flood control, solid waste, recycling, roads, municipal office buildings, public schools, public safety facilities, libraries, and parks and recreation (but expressly not open space). It is expressly stated that expansion or improvement of public facilities not made necessary by new development is not a legitimate expenditure of impact fees. The fee is to be proportional to a development's share of the new demand for public facilities, and fee revenue is to be placed in a fund segregated from the general fund of the local treasury. An impact fee ordinance must establish a reasonable time, not to exceed six years, for the completion of improvements financed by impact fees, and refunds must be provided if the fees are not spent in that time. Appeals must be provided for, and the granting of waivers of impact fees is authorized, as long as the criteria for waiver are expressly stated.

New Mexico's Development Fee Act[505] provides that municipalities and counties may impose impact fees, and may enter into joint powers agreements to impose impact fees in areas under the jurisdiction of both the county and a particular municipality.[506] Before enacting an impact fee ordinance, there must be in place a capital improvements plan.[507] There must be public hearings, after due notice, on the land use assumptions behind the capital improvement plan, on the capital improvement plan itself, and on the impact fee ordinance before they can be approved by the municipal or county legislative body.[508] The land-use assumptions and capital improvement plan must be reviewed every five years, and there must be a public hearing with due notice before any amendment, or decision not to amend, the assumptions, plan, or ordinance can be adopted.[509] Advising the legislative body at all stages is an advisory committee of at least five members, none of which may be officials of the municipality or county, and at least 40% of which must represent the development, real estate, and building industries.[510] No moratorium can be placed on development for the purpose of awaiting the outcome of any of the above processes.[511]

There is a statutory requirement of a maximum fee per service unit.[512] Impact fees are to be assessed as early as possible, and collected at the time a development permit or building permit is issued[513], and a developer can enter into an agreement with the local government to pay the impact fee over time.[514] Fees cannot be collected unless the capital improvement plan provides that the capital facility to be financed by the fees will be constructed and in operation within seven years, and a refund is due to the present owner for impact fee money not spent within that period.[515] A development has the right to use facilities financed by its impact fees.[516] Fee revenue must be held in separate, interest-bearing accounts, and must be accounted for separately than the general revenue.[517] Credit for dedication of land or construction of facilities by the developer includes such on-site improvements as sewers, roads, and sidewalks.[518]

Oregon[519] authorizes the assessment of "system development charges" by local governments.[520] There must be a system for challenging expenditures of the charges,[521] and credits for particular improvements made by developers must be provided.[522] The impact fee ordinance must state the methodology for calculating the charge, with that method available for public review — any proposed change in the methodology must be preceded by notice to the public.[523] System development charges are divided into reimbursement fees, which are to be assessed and spent on improvements to existing facilities, and improvement fees, intended for new capital facilities.[524] A local government with a system development charge ordinance must also enact a capital improvements plan, public facilities plan, or similar plan for governing the expenditure of revenues from the charges.[525]

Pennsylvania[526] authorizes municipalities to assess impact fees to finance "public transportation capital improvements."[527] No other offsite improvements may be exacted, either as construction by the developer or as an in-lieu fee, as a condition of development approval.[528] Despite the phrase "public transportation," the impact fees may be spent only on "construction, enlargement, expansion, or improvement of public highways, roads, or streets" and expressly does not include "bicycle lanes, bus lanes, pedestrian ways, rail lines, or tollways."[529] Nor are the fees to be spent on maintenance or repair of existing roads, or on the improvement of existing roads to satisfy safety or environmental standards or to better serve existing development.[530] The local government must first adopt a transportation capital improvements plan, with the advice of an advisory committee of 7 to 15 members, none of which can be local government officials or employees, and 40 percent of which must represent the real estate, development, or building industries (the planning commission may be designated as the advisory committee if the requisite 40% representation is added to the commission when it is acting as the advisory committee).[531] Both the advisory committee and the local legislative body must hold public hearings on the plan before it may be adopted.[532] No approval or permit for development can be delayed or denied in order to await the enactment or complete implementation of a capital improvement program or an impact fee ordinance.[533]

The impact fee itself must be adopted by ordinance.[534] The ordinance must specify which local agency is assessing and collecting the impact fee, the method for calculating the fee, when and from whom the fee is to be collected, and the procedure for providing credits and reimbursement of impact fees paid.[535] Transportation impact fees are payable at the time a building permit issues.[536] Credits may be provided for affordable housing and for other developments "determined by the municipality to serve an overriding public interest."[537] De minimis applications for development approval are not subject to impact fees, and the impact fee ordinance must specify what is de minimis.[538] Fee revenue must be placed in a segregated, interest-bearing account.[539] The fees are to be assessed and spent on a service-area basis.[540] There must be a refund of impact fees not spent by the time the capital project is completed, or when the intended project is not commenced within three years of the date scheduled in the transportation capital improvements plan.[541] Appeal to the court of common pleas is provided, but unlike most civil actions, each side must bear its own costs.[542]

Impact fees in Rhode Island are governed by Section 47 of the Land Development and Subdivision Review Enabling Act of 1992.[543] This section governs both in-kind exactions, where the developer provides the capital improvement, and in-lieu fees. The need for a particular exaction or fee must be documented in the local comprehensive plan and in the capital improvement plan. In-lieu payments cannot be assessed until the local government enacts a formula for calculating the fee. A dedication or fee assessed to mitigate the negative impact of a development project cannot exist unless the negative impact is clearly documented and there is a relationship between the impact and the public improvement for which the fee is collected or the dedication. In-lieu fees must be kept in a separate account and can be spent only on the capital improvement project or other mitigation measure for which it was collected. Appeals are provided for elsewhere in the Act.[544]

Texas authorizes "political subdivisions" to impose impact fees.[545] The fees can be assessed only for capital improvements or facility expansions, the latter being the expansion of the capacity of an existing capital facility to accommodate new development.[546] The fees cannot be spent on maintaining or operating public facilities or upgrading existing facilities to improve service to existing development or to improve safety or environmental standards.[547] A capital improvements plan must be adopted, and no fee revenue can be spent on a capital improvement or facility expansion unless it is included in the plan.[548] There must be a hearing, after notice, on the land use assumption used in the capital improvements plan, as well as on the plan itself and on the fee ordinance.[549] Also, the land use assumptions and capital improvement plans must be updated at least every three years, with a public hearing, after due notice, on the subject.[550] No moratorium on development may be placed in order to await completion of any of the aforementioned steps.[551] Advising at all stages is a capital improvements advisory committee of at least five members, at least 40 percent of which must represent the development, real estate, or building industries and not be a government official.[552] Based on the capital improvements plan, there is a statutory maximum impact fee per service unit.[553] Developers and the political subdivision may enter into an agreement setting the fee.[554] Once fees have been assessed, additional fees can be collected only if there are additional service units in the development.[555] A new development has the right to the services of the facilities that were funded by its impact fees.[556] Fees cannot be collected where public services are unavailable, except when the capital improvement plan provides for the necessary facilities to be commenced within two years and completed in a reasonable time not to exceed five years, or where the developer and the political subdivision agree that the developer will construct the facilities and will receive an appropriate credit against impact fees.[557] Refunds must be provided to the present owner of the property if facilities to be financed by impact fees are not commenced within two years and completed in a reasonable time not to exceed five years, as must the portion of fees not spent when the facility is completed.[558] An appeals process must be provided.[559] A developer must receive a credit for constructing off-site roads.[560] Impact fees may be waived for affordable housing, with the express provision that if the housing turns out to be not affordable as defined by Federal law, the impact fee may be assessed.[561]

Vermont[562] grants municipalities the power to levy impact fees.[563] The municipality must have a capital budget in place before it can enact an impact fee ordinance.[564] The fee must be calculated by a formula set forth in the capital budget, the municipality must account annually for fees assessed and their expenditure, and refunds are available to the present owner for the portion of an impact fee which is not spent within six years of the fee collection or which exceeds the projected expenses of the capital improvements it was assessed for.[565] An ordinance may provide for exemptions as long as the basis for exemption is clear in the ordinance,[566] and developers can set aside off-site land in an undeveloped state in lieu of paying an impact fee.[567] Impact fees are a lien on the property until paid, and a municipality may demand payment of a fee before a necessary development permit issues.[568]

Virginia[569] authorizes impact fees for counties with a population over 500,000, adjacent counties and cities, cities adjacent to the adjacent counties and cities, and towns in such counties.[570] These governments may impose fees only on new development for "reasonable road improvements attributable in substantial part to the new development."[571] Road development does not include streets and other roads that a developer is required to build within the development.[572] The government must first create an impact fee advisory committee of five to ten members, at least 40% of which must represent the real estate, development, or building industries.[573] A road improvements program must be adopted, after public hearing, to evaluate the existing roads, the need for additional road capacity, and the cost thereof.[574] According to the program, the government must divide its territory into service areas, and fees assessed on development in an area must be spent on road improvement in the same service area.[575] Only then may the government adopt an impact fee ordinance, which must set forth a schedule of fees.[576] The program and the ordinance must be reviewed and updated at least every two years.[577] A formula for calculating a statutory maximum impact fee is provided.[578] The fee is to be collected at the time a certificate of occupancy is to be issued.[579] Fee revenue is to be segregated in a "road improvement account," deposited in an interest-bearing bank account.[580] Appeals must be provided for in the ordinance, as must credits for off-site road improvements by the developer, and no fee may be assessed if the developer offers to build off-site road improvements and the government accepts the offer.[581] There must be a refund, to the present owner, of impact fees not spent on road improvements in the service area within a reasonable time, not to exceed fifteen years.[582]

West Virginia's Local Powers Act[583] grants counties the power to require new development projects to pay the cost of capital improvements, the need for which is attributable to the projects.[584] The capital project may be in the areas of water, sewer, drainage, schools, roads, parks, and police, fire, and emergency services.[585] The fee assessed against a project must be proportional to the project's share of the demand, and the project must receive some reasonable benefit from a capital improvement for a fee to be assessed against the project to fund that improvement.[586] The fee revenue can be spent only on new or expanded facilities or services specified in the local capital improvement plan and located in the same area where the fee was assessed.[587] The fees must be assessed according to a standard formula.[588] Refunds for fee money not expended within six years from collection must be paid to the present owner.[589] Credits for past or future payments must be appropriately adjusted for time (i.e. the present value of the payment must be used).[590] Capital improvements may be financed by revenues other than impact fees if the development project they serve "benefit[s] some public purpose," such as affordable housing or a project that increases employment.[591]

Elements of a Good Impact Fee Statute

From the case law, and the above statutes, one can extract some elements of a well-drafted impact fee enabling statute on which the model statute in Section 8-602 below is based. There must be a local comprehensive plan from which land-use assumptions (including land-use density and intensity as well as use) may be established. There must also be a requirement of a capital improvements program, so that the local government makes an assessment of its existing capital facilities, their capacity, planned or projected demand from new development, and planned capital facilities to meet that demand.

Other characteristics of a well-drafted impact fee statute include:

— The imposition of a fee must be rationally linked (the "rational nexus") to an impact created by a particular development and the demonstrated need for related capital improvements pursuant to a capital improvement program.

— Some benefit must accrue to the development as a result of the payment of a fee.

— The amount of the fee must be a proportionate fair share of the costs of the improvements made necessary by the development and must not exceed the cost of the improvements.

— A fee cannot be imposed to address existing deficiencies except where they are exacerbated by new development.

— Funds received under such a program must be segregated from the general fund and used solely for the purposes for which the fee is established.

— The fees collected must be encumbered or expended within a reasonable time frame, typically not to exceed five years, to ensure that needed improvements are implemented.

— The fee assessed cannot exceed the cost of the improvements, and credits must be given for outside funding sources (such as federal and state grants, developer initiated improvements for impacts related to new development, etc.) and local tax payments which fund capital improvements, for example.

— The fee cannot be used to cover normal operation and maintenance or personnel costs, but must be used for capital improvements, or, under some linkage programs, affordable housing, job training, child care, etc.

— The fee established for specific capital improvements should be reviewed at least every two years to determine whether an adjustment is required, and similarly the capital improvement plan and budget should be reviewed at least every 5 to 8 years.

— Provisions must be included in the ordinance to permit refunds for projects that are not constructed, since no impact will have manifested.

— Impact fee payments are typically required to be made as a condition of approval of the development, either at the time the building or occupancy permit is issued.[592]

— The statute should expressly state that the payment of impact fees entitles the owners in a development project to use the facilities built with their fees.

— The statute should forbid delaying or denying issuance of development permits or approvals in order to await the adoption of an impact fee system.

While not necessary, the division of the local government into service areas, where impact fees assessed in an area are spent on planned capital improvements in the area, is a powerful tool in complying with constitutional requirements of a relationship between the development project's demand for public facilities, the fee assessed, and the facilities ultimately provided.

Still another useful component of an impact fee statute is an authorization of exemptions from impact fees, to encourage particular types of development. An exemption from impact fees for affordable housing is common. Another common exemption is for developments that serve an "overriding public purpose." Some states require that, for an exemption to be granted, the policy behind granting the exemption must be stated in the local comprehensive plan and the local government must have an alternate source of revenue to offset the impact fee that the exempted development would have paid.

Although a number of the statutes provide for the creation of an advisory committee, with heavy involvement from the development industry, the model statute below rejects this approach. There is ample provision for the development community to make its feelings and concerns known in public hearings on the capital improvement plan and on the impact fee ordinance itself. What specific or technical advice the local government desires on the effect of impact fees on development can be just as easily obtained by employing a consultant. Also, as a practical matter, it may be very difficult to assemble a committee that satisfies the proposed membership requirements, specifically 40 percent representation of certain industries with no government officials or employees, especially in smaller communities.


8-602 Development Impact Fees

(1) A local government may adopt and amend in the manner for land development regulations pursuant to Section [8-103 or cite to some other provisions, such as a municipal charter or state statute governing the adoption of ordinances] a development impact fee ordinance.

(2) The purposes of this Section are to:

(a) determine what local capital improvements are reasonably necessary to serve new development, and the cost thereof;

(b) determine the portion of the demand for local capital improvements which is created by particular new developments; and

(c) assess against new developments an impact fee to finance the cost of local capital improvements which is proportional to the new developments' demand for the capital improvements.

(3) As used in this Section, and in any other Section where "impact fees" are referred to:

(a) "Adjusted Cost" means the cost of designing and constructing each new fee-eligible public facility or capital improvement to an existing fee-eligible public facility, less the amount of funding for such design and construction that has been, or will with reasonable certainty be, obtained from sources other than impact fees.

(b) "Development Impact Fee" or "Impact Fee" means any fee or charge assessed by the local government upon or against new development or the owners of new development intended or designed to recover expenditures of the local government that are to any degree necessitated by the new development. It does not include real property taxes under [cite to property tax statute] whether as a general or special assessment, utility hookup or access fees, or fees assessed on development permit applications that are approximately equal to the cost to the local government of the development permit review process.

• The definition of impact fee is intentionally broad, so that local governments cannot impose an impact fee that is contrary to the provisions of this Section and justify it as being some fee or charge other than an impact fee.

(c) "Fee-Eligible Public Facilities" mean off-site public facilities that are one or more of the following systems or a portion thereof:

1. water supply, treatment, and distribution, both potable and for suppression of fires;

2. wastewater treatment and sanitary sewerage;

3. stormwater drainage;

4. solid waste;

5. roads, public transportation, pedestrian ways, and bicycle paths;

6. parks, open space, and recreation; and

7. public elementary and secondary school sites.

(d) "Off-Site" means not located on property that is the subject of new development.

(4) A local government may assess, collect, and expend impact fees only for the design and construction of new fee-eligible public facilities or of capital improvements to existing fee-eligible public facilities that expand their capacity:

(a) when the demand for the new fee-eligible public facilities or for the additional capacity added to existing fee-eligible public facilities can be reasonably attributed to new development, and

(b) that are included in the local capital improvement program and local capital budget.

No impact fee or any portion of an impact fee may be assessed for or expended upon the operation or maintenance of any public facility, or for the construction or improvement of public facilities that does not create additional capacity.

(5) A local government may assess and collect impact fees only from new development and only against a particular new development in reasonable proportion to the demand for additional capacity in fee-eligible public facilities that can be reasonably attributed to that new development. The owners, residents, and tenants of a property that was assessed an impact fee and paid it in full shall have the right to make reasonable use of all fee-eligible public facilities that were financed by the impact fee.

(6) A local government may assess, collect, and expend impact fees only pursuant to a development impact fee ordinance adopted and amended pursuant to this Section. A development impact fee ordinance shall:

(a) be adopted or amended by the legislative body of a local government after:

1. the legislative body has adopted a local comprehensive plan that includes the elements required by Section [7-202(2)], provision for the fee-eligible public facilities that are to be financed under the impact fee ordinance, and level of service standards for all of the fee-eligible public facilities that are to be so financed, and

2. the local government has pursuant to Section [7-502] prepared a local capital improvement program and the legislative body has adopted a local capital budget, both of which include the fee-eligible public facilities that are to be financed under the development impact fee ordinance;

(b) contain a statement of the:

1. new fee-eligible public facilities and capital improvements to existing fee-eligible public facilities that are to be financed by impact fees,

2. level of service standards included in its local comprehensive plan for the fee-eligible public facilities that are to be financed with impact fees,

3. cost of designing and constructing each such new construction or capital improvement, such cost being either consistent with the local capital budget or accompanied with an explanation in detail of the changed circumstances which cause the cost to differ from the cost projected in the local capital budget,

4. sources and amounts of funding, other than impact fees, for the design and construction of each such new construction or capital improvement, and

5. adjusted cost of each such new construction or capital improvement;

(c) contain the actual formula or formulas for assessing the impact fee, which shall utilize adjusted costs and shall be consistent with the level of service standards;

(d) provide the procedure by which impact fees are to be assessed and collected;

(e) provide the procedure for refund of excess impact fees, pursuant to paragraph (8) below; and

(f) provide the procedure for review of the assessment of an impact fee, and for the payment of impact fees under protest, pursuant to paragraph (9) below.

(7) A development impact fee ordinance may include a provision exempting certain types or classes of development, including, but not limited to, affordable housing, development pursuant to a transit-oriented development plan, and development in a redevelopment area, from the assessment and collection of impact fees.

(a) No such exemption may be created unless there is a policy supporting the exemption expressly stated in the local comprehensive plan.

(b) An exemption provision shall state the policy underlying the exemption and shall provide the procedure for granting exemptions to particular new developments.

(8) The portion of collected impact fees that has not been expended, or encumbered by contract for expenditure and earned by the contractor or contractors, on the new public facilities or capital improvements to existing public facilities specified in the impact fee ordinance within the time or by the date certain specified for their completion, and the interest thereon, shall be refunded.

• If contractors have completed a capital improvement project within the stated period and the local government has failed to pay them by the scheduled completion date, the money is owed to the contractors and should not be refunded. By including in the refund the money set aside by the local government and earned by the contractors but not yet paid, this result is ensured.

(a) The time or date certain for completion shall be the time or date specified in the local capital improvement program and shall be stated in the impact fee ordinance. If no completion time or date certain has been specified in the local capital improvement program, then the impact fee ordinance shall specify a reasonable time, ending at a date certain, for the completion of each new public facility and capital improvement to existing public facilities. The date certain shall in no case be more than [five] years from the effective date of the impact fee ordinance.

(b) All refunds shall be paid to the present owners of the property that was the subject of new development and against which the impact fee was assessed and collected. Notice of the right to a refund, including the amount of the refund and the procedure for applying for and receiving the refund, shall be sent or served in writing to the present owners of the property within [30] days of the date certain upon which the refund becomes due. The sending by regular mail of such notice to all present owners of record shall be sufficient to satisfy the requirement of notice.

(c) The refund shall be made on a pro rata basis, and shall be paid in full within [90] days of the date certain upon which the refund becomes due. If the local government does not pay a refund in full within that period to any person entitled to a refund, that person shall have a cause of action against the local government for the refund or the unpaid portion thereof in the [trial-level] court for the county in which the property is located.

(9) Any owner of property against which an impact fee has been assessed may seek a review of the assessment. The procedure for such a review shall conform to the provisions of Chapter [10] of this Act for land-use decisions except where the provisions of this paragraph are contrary.

(a) There shall be a record hearing on all reviews of an impact fee assessment.

(b) An owner of property against which an impact fee has been assessed may pay the impact fee and preserve the right to review the assessment by:

1. paying the impact fee in full as assessed, and

2. submitting with payment a written statement that payment is made "under protest" or that includes other language that would notify a reasonable person that the owner intends to preserve the right of review.

(10) An impact fee:

(a) is both a personal liability of the owners of property that is the subject of new development and a lien upon the property;

(b) shall be paid in full before any building permit may issue for a new development; and

(c) may be paid in full through the design and construction of new public facilities or capital improvements to existing public facilities by such owners at their expense when:

1. the new development is solely responsible for the demand for the new public facilities or capital improvements to existing public facilities, and

2. both the owners and the local government agree through a development agreement to such a disposition.

(11) The funds collected pursuant to a development impact fee ordinance shall be deposited to a special interest-bearing account of the local government treasury.

(a) No other revenues or funds shall be deposited into the special account.

(b) The funds deposited into the special account and the interest earned shall be expended only pursuant to the provisions of this Section.

(12) Two or more local governments may, through a implementation agreement pursuant to Section [7-503] and complying with the provisions of this Section governing development impact fee ordinances, jointly assess, collect, distribute, and expend an impact fee where the demand for new fee-eligible public facilities, or additional capacity added to existing fee-eligible public facilities, in two or more local governments can be reasonably attributed to the same new development.

• Therefore, if a subdivision located in one municipality but near its border with another municipality necessitated road construction in both municipalities, they could agree to jointly assess and collect an impact fee on that subdivision for those road improvements.


Commentary: Concurrency and Adequate Public Facilities Controls

A concurrency management or adequate public facilities ordinance is a type of land development regulation that ties or conditions development approvals to the availability and adequacy of public facilities. The purpose is to ensure the local government's public facility or system of facilities have sufficient available capacity to serve development at a predetermined level of service (LOS). A development is determined to be in compliance with the ordinance if its impacts do not exceed the ability of public facilities to accommodate those impacts at the specified LOS. If the proposed development cannot be supported by the existing system at the required service level, the developer must either install or pay for the required infrastructure improvements or postpone part or all of the development until the local government provides the needed public facilities. [593]

The Problem with Level of Service Standards

Capacity standards [for public facilities] are rather subjective determinations based to some extent on scientific data and to a greater degree on local experience. Transportation engineers, for example, understand that LOS [level of service] standards are only crude measures of actual congestion. A sprinkling of F level [gridlock] intersections through a street network that affords many optional routes may not pose grave congestion problems. In addition, LOS ratings are determined during peak commuting hours and thus do not reflect general traffic conditions. However, selection of an appropriate level to be used as the standard is basically a political decision based on citizen toleration of congestion..."Adequacy" is a subjective turn that appears to work on a sliding scale related to the urban experience of local residents... Furthermore, it is not uncommon for "acceptable" levels to be set above current levels, thus automatically putting a brake on future development until the condition is improved. In this way, APF [adequate public facility] requirements can be employed as a no-growth measure.

Source: Douglas R. Porter, Managing Growth in America's Communities (Washington, D.C.: Island Press, 1997), 130.

Alternatively, the local government can elect to move up the priorities of constructing new or expanded facilities. Such an ordinance allows control over the timing of development and clarifies the local government role in fulfilling its responsibility for providing public infrastructure. It also creates a direct linkage between the local government's comprehensive plan and its long-term capital improvement program and capital budget. Applying the LOS standards to public facilities is one way a local government can translate the vague concept of "quality-of-life" into concrete terms.The earliest experimentation with an adequate public facilities ordinance was the subject of a 1960 decision from New York, Josephs v. Town Bd. of Clarkstown[594], which upheld an ordinance that required the town board to grant a special permit for residential development when it found that existing community facilities or reasonable possibilities for expansion of such facilities were adequate to provide for the needs of future residents of the proposed development.

In 1972, the New York Court of Appeals (highest court in New York) in Golden v. Planning Bd. of Town of Ramapo[595] upheld a development timing ordinance tied to a comprehensive plan and an 18-year capital improvement program. Using a point factor system to evaluate proposals, the Ramapo ordinance allowed subdivision development only by special permit upon showing that adequate municipal services were available or would be provided by the developer. Once a development acquired enough points, it could occur. The Court of Appeals held the ordinance was constitutional and properly authorized under the state's enabling legislation. The landmark Ramapo system was to influence growth management systems around the country.[596]

Several states now expressly authorize adequate public facilities ordinances by statute, and in addition provide direction to local governments through rulemaking or technical assistance. Florida's requirement arises out of the state's 1985 planning legislation. Local governments were to adopt land development regulations that ensured that public facilities and services would meet or exceed the standards established in a mandatory capital improvement element. They are barred from issuing permits that resulted in a level of services for the affected public facilities below the level of services provided in the comprehensive plan.[597] A 1986 amendment clarified this requirement with the following language:

It is the intent of the Legislature that public facilities and services needed to support development shall be available concurrent with the impacts of such development. In meeting this intent, public facility and service availability shall be deemed sufficient if the public facilities and services for a development are phased, or the development is phased, so that the public facilities and those related services which are deemed necessary by the local government to operate the facilities necessitated by that development, are available concurrent with the impacts of the development.[598]

The Florida Department of Community Affairs has adopted an administrative rule regarding concurrency that is part of a longer rule on criteria for state review of local comprehensive plans.[599] The rule requires each local government to adopt, as a component of its comprehensive plan, objectives, policies, and standards for a concurrency management system.[600] The rule identifies the categories and facilities that are subject to the concurrency rule. It requires a system for monitoring and ensuring adherence to the adopted level of service standards, the schedule of capital improvements, and the availability of public facilities capacity.

The rule provides that the local government must adopt land development regulations that implement the concurrency management system. The rule states that, under the concurrency management system, "the latest point in the application process for the determination of concurrency is prior to the approval of an application for a development order or permit which contains a specific plan for development."[601] The concurrency rule requires the adoption of level of service standards for roads, sanitary sewer, solid waste, drainage, potable water, parks and recreation, and, if applicable, mass transit. A local government may voluntarily make additional facilities, such as schools[602] or health facilities, subject to concurrency provided such facilities and level of service standards are included in the local comprehensive plan.

There have been several criticisms of the Florida system. One criticism, particular to Florida's approach, has been the state's failure to provide adequate monies for infrastructure funding, particularly transportation. According to one commentary, Florida "has also greatly restricted local revenue sources by requiring public referendum approval for the major local option infrastructure taxes, making it difficult for local governments to comply with this mandate."[603] The second criticism, and one generally applicable to adequate public facilities requirements, is that concurrency, coupled with inadequate state funding for infrastructure, may encourage development in rural and exurban areas where excess road capacity exists, and this would be contrary to Florida's state goals discouraging urban sprawl.[604]

An analysis of concurrency by Ruth Steiner, an assistant professor of planning at the University of Florida, notes a contradiction in views among local government planners, based on her interviews.

The first concern is that concurrency uses a one size fits all approach for the diversity of communities across the sate. The other concern is that the law provides too much flexibility so that communities can ignore the concurrency mandate. . .[605]

Regarding the spatial impact of concurrency —that it penalizes infill and promotes development at the urban fringe — Dr. Steiner comments:

Even where there is a political will and a plan to encourage higher density infill development, neighbors who would prefer lower densities of development have used concurrency to fight some development projects. Projects at the urban fringe will continue to be built at lower costs and without consideration of any mode of transportation other than the automobile.[606]

Dr. Steiner contends that, absent strong incentives from the state, the pattern of new development in Florida is unlikely to change.

A 1999 report by the Transportation and Land Use Study Committee under the aegis of the Florida Department of Transportation has suggested a number of changes to the state's concurrency requirements. These include exempting public transit facilities, strengthening the requirements that local governments demonstrate to the state their capacity to fund roadway improvements through their capital improvement programming process, and allowing local governments in urbanized areas to set a level of service for general use lanes of the state interstate highway system, with the FDOT's approval (presently the FDOT has the authority to set level of service standards on the interstate system). The report also suggested that local governments should be required to publish on an annual basis a summary of current transportation LOS conditions, approved developments, their incremental trips assigned to the transportation network, and the anticipated resulted LOS.[607] With the exception of the exemption of public transit facilities, most of the changes appear to be ones that can be accomplished through rulemaking.

Washington state also requires concurrency as part of its growth management act, but only for transportation. Once a local government has adopted a plan, it must "adopt and enforce ordinances which prohibit development approval if the development causes the level of services on a locally owned (not state-owned) transportation facility to decline below the standards adopted in the transportation element of the comprehensive plan, unless transportation improvements or strategies to accommodate the impacts of development are made concurrent with the development."[608] The strategies can be non-infrastructure related activities, like increased public transportation service, ride- sharing, and demand management. Under the statute "concurrent with the development" is defined as meaning that "the improvements or strategies are in place at the time of development, or that a financial commitment is in place to complete the improvements or strategies within six years,"[609] which is also the time span of the required capital facilities element under the growth management act. The state issues administrative rules interpreting the concurrency requirements, but, unlike Florida, they are guidelines rather than directives.[610]

Maryland and New Hampshire both authorize, but do not require, adequate public facilities ordinances.[611] Neither state describes the operation of adequate public facilities ordinances. In Maryland, the state office of planning publishes a monograph that describes typical state practices and the steps in designing an adequate public facilities program.[612] The New Hampshire statute describes adequate public facilities ordinances as "innovative land use controls" that include "timing incentives" and "[p]hased development" and requires the adoption of a master plan and a capital improvement program in order to use them.[613]

The Model Statute

Section 8-603 below authorizes a local government to adopt a concurrency management ordinance to ensure adequate public facilities for future development. The Section describes in general terms the components of such an ordinance, including the steps in the concurrency determination process. In contrast to the Florida model, the model below limits local governments to five types of public facilities or facility systems: potable water supply and distribution; wastewater treatment and sanitary sewerage; stormwater drainage; solid waste; and roads (as well as public transportation, pedestrian ways, and/or bicycle paths at the option of adopting state legislatures). These are "the most fundamental facilities without which development cannot be occupied without serious threats to public health or safety"[614] and, for that reason, are the most appropriate upon which to place restrictions on the commencement of development. Like the Florida statute, the state planning agency is responsible for issuing rules that amplify upon and interpret the statute and for reviewing and approving any local concurrency management ordinance or amendment before it is adopted. In addition the state planning agency may provide additional guidance to local governments in terms of publication of manuals, training, and distribution of adopted ordinances.

The state plays a key role. The state would be responsible for defining the level of service standards for different types of facilities or systems of facilities and for ensuring statewide uniformity in the establishment of such standards. This will eliminate the need for local governments to undertake a series of separate (and costly) but identical studies to define what such standards are. Ensuring uniformity would, for example, eliminate the possibility that standards would be so rigorous that they are unreachable by most new developments, would add unnecessarily to the cost of new development, or — if they are too weak — would not adequately protect public health and safety.

Rulemaking can take into account the fact that some facilities fall under the joint jurisdiction of local governments (because of geography) and the state (because of the responsibility for maintenance and repair). Flexibility would be needed in designing the level of service standards; a standard imposed by one local government can effectively bind the operation of the facility of another governmental unit, and the prospects for conflict must be assessed. For example, one local government could apply a level of service standard for all wastewater treatment and collection within its jurisdiction, but the wastewater treatment plant is operated by a special district. Similarly, a storm drainage standard imposed for new development by one local government could affect a regional detention facility under the control of another governmental unit.

Interstate highway systems and state highways that cross numerous local government boundaries pose the problem of open public facility systems. Obviously, one local government cannot adopt a relaxed service level for an arterial road segment that runs through another jurisdiction with tougher requirements. One commentary on the Florida concurrency system observed that local governments are not able to internalize traffic impacts in their communities because they cannot control access to roads that cross jurisdictional boundaries. Thus, local governments cannot control traffic congestion through the development review process than as they can, for example, control adequacy of water and sewer service, which involve closed systems as successfully. Rulemaking becomes particularly important in metropolitan areas where the application of the level of service standards by similarly situated local governments needs to be coordinated and entire transportation systems or corridors need to be examined.

Under this model, transportation is accorded the most lenient treatment because "it takes more time and money to provide transportation facilities."[615] Requiring level of service standards for each road (or path) segment "works satisfactorily in rural areas with limited roads and traffic congestion, but it is totally unsatisfactory in urban areas where transportation systems consist of a much more complex network of roads and public transit."[616] Other facilities, like parks and recreation, are better addressed through development impact fees.

Devising as well as applying level of service standards will, of necessity, be a trial and error process, particularly for metropolitan areas. It is also at the metropolitan level where the state review will ensure that conflicts among communities in applying such standards can be resolved.

A state that decides to use this model may want to consider three alternatives in its application, all of which can be accomplished with, at most, minor modification to the language: (1) simply authorize local government adoption of the concurrency management ordinance as provided below; (2) require adoption of concurrency management ordinances by all local governments in a metropolitan area, and authorize other local governments to adopt them should they so choose. This would be on the theory that concurrency would be most important in metropolitan settings where the consequences of growth would have the most far-reaching impacts; or (3) require concurrency of all local governments on the theory that provision of adequate public facilities is a statewide interest.


8-603 Concurrency; Provision of Adequate Public Facilities

(1) A local government [may or shall] adopt land development regulations and amendments thereto that include a concurrency management ordinance that is consistent with administrative rules promulgated by the [state planning agency] pursuant to this Section.

(2) The purposes of a concurrency management ordinance are to:

(a) ensure that adequate public facilities are in place when the impacts of development occur, or that a governmental agency and/or developer has/have made, in writing, a financial commitment at the time of approval of the development permit so that the facilities are completed within [2] years of the impact of the development in order to protect public health, safety, and convenience;

(b) direct development and land use into areas that are served by, or will be served by, adequate public facilities;

(c) apply level of service standards for those public facilities and systems of facilities for which concurrency may be required;

(d) provide a mechanism by which the capacity of public facilities or systems of facilities covered by the ordinance may be reserved for a reasonable period of time in connection with approval of a development permit; and

(e) designate types and categories of development and land use that are exempt from the ordinance pursuant to this Section.

(3) As used in this Section, and in all other Sections of this Act where "concurrency" is referred to:

(a) "Adequate Public Facility" means a public facility or system of facilities that has sufficient available capacity to serve development or land use at a specified level of service;

(b) "Concurrent" or "Concurrency" means that adequate public facilities are in place when the impacts of development occur, or that a governmental agency and/or developer has/have made a financial commitment at the time of approval of the development permit so that the facilities are completed within [2] years of the impact of the development;

(c) "Financial Commitment" means that sources of public or private funds or combinations thereof have been identified which will be sufficient to finance public facilities necessary to serve development and that there is a reasonable written assurance by the persons or entities with control over the funds that such funds will be timely put to that end. A "Financial Commitment" shall include, but shall not be limited to, a development agreement and an improvement guarantee;

(d) "Level of Service" means an indicator of the extent or degree of service provided by, or proposed to be provided by, a public facility or system of public facilities based on and related to the operational characteristics of the facility or system;

(e) "Local Capital Budget" means the annual budget for capital improvements adopted by ordinance that is also the first year of the local capital improvement program; and

(f) "Local Capital Improvement Program" means the document prepared pursuant to Section [7-502].

(4) A concurrency management ordinance shall be adopted and amended only pursuant to this Section and shall:

(a) be adopted or amended by the legislative body of a local government:

1. after the legislative body has adopted a local comprehensive plan that includes the elements required by Section [7-202(2)] and that includes level of service standards in the transportation and community facilities elements for water supply, treatment, and distribution; wastewater treatment and sanitary sewerage; stormwater drainage; solid waste; and roads [and public transportation];

2. after the local government has prepared a local capital improvement program and the legislative body has adopted a local capital budget consistent with the requirements of paragraph (7) below, and

3. after the proposed ordinance has been reviewed and approved by the [state planning agency] for consistency with this Section and with any administrative rules promulgated in connection with this Section;

(b) contain a statement of the level of service standards included in its local comprehensive plan for the following public facilities or systems of public facilities:

1. water supply, treatment, and distribution;

2. wastewater treatment and sanitary sewerage;

3. stormwater drainage;

4. solid waste; and

5. roads[, public transportation, pedestrian ways, and bicycle paths];

(c) contain procedures, standards, and assignments of responsibility regarding the issuance of development permits to ensure concurrency, as provided in paragraphs (5) and (6) below. Such procedures shall be incorporated into the uniform development permit review process established pursuant to Section [10-201] et seq. or the consolidated permit process established pursuant to Section [10-208];

(d) contain a statement that no applicant for a development permit shall be required, as a condition of issuance of that permit, to correct or remedy existing deficiencies in public facilities and systems of facilities covered by the ordinance;

(e) contain a list of types and categories of development and land use that are exempt from the requirements of concurrency pursuant to paragraph (8) below; and

(f) contain a procedure to appeal a determination of concurrency pursuant to Section [10-209].

(5) The procedures contained in a concurrency management ordinance regarding the issuance of development permits to ensure concurrency shall include at least the following minimum provisions:

(a) a process for ensuring adherence to the adopted level of service standards, including ensuring that proposed capital improvements contained in the local capital budget that are intended to establish, replace, or add capacity to those categories of public facilities and systems of facilities that are covered by the level of service standards are constructed within [2] years of the impact of development for which a development permit has been issued, and for monitoring the capacity of existing public facilities so that it can be determined at any point how much of that capacity is being used, or has been otherwise reserved;

(b) a process for allocating capacity to determine whether a proposed development can be accommodated within the existing and proposed public facilities or systems of facilities, which may include preassigning amounts of capacity to certain areas within the jurisdiction of the local government;

(c) provisions for reserving public facility capacity for proposed developments[, provided, however, that such capacity shall not be sold, assigned, or transferred to another development by the recipient of the development permit];

• If the legislature prefers that local governments have the authority to create a program whereby one developer can build or finance public facilities in excess of the adequate public facilities requirement and transfer the excess to another development that requires additional public facilities to comply with this statute, the bracketed language should be omitted. It should also be noted that the bracketed provision does not apply to sales, assignments, or transfers of capacity within the same development; that is, when the land is sold or otherwise conveyed to a subsequent owner.

(d) provisions that describe what actions may occur when the local government determines, in the review of an application for a development permit, that there is insufficient capacity in a public facility or system of facilities to serve a proposed development, including but not limited to:

1. denying a development permit;

2. issuing a development permit subject to the guarantee of such additional capacity through a development agreement pursuant to Section [8-701] or other financial commitment; and

3. issuing a development permit that authorizes and requires development to occur in stages based on the availability of adequate public facilities at each stage;

(e) provisions that describe the form, timing, and duration of concurrency approval when a development permit is issued, including a specification of the length of time that a determination of concurrency and a reservation of capacity are to be effective; and

(f) provisions assigning the responsibility of the administration of the concurrency management ordinance to a person, department, division, or agency, or combinations thereof, of the local government.

(6) A local government shall meet the following standards to satisfy a concurrency requirement for a type or category of public facilities and system of facilities and shall incorporate such standards into a concurrency management ordinance:

(a) for water supply, treatment, and distribution, wastewater treatment and sanitary sewerage, solid waste, and stormwater drainage, a development permit is issued subject to the condition that, at the time of issuance of a certificate of compliance, the needed public facilities or systems of facilities are in place to serve the new development;

(b) for road[, public transit, pedestrian, and bicycle] facilities, a development permit is issued subject to the condition that, at the time of issuance of a certificate of compliance, the public facilities or systems of facilities needed to serve the new development are either in place or are scheduled to be in place not more than [2] years after issuance of a certificate of compliance.

(7) Any local government that adopts or amends a concurrency management ordinance shall, as a condition of continuing validity of the ordinance, annually prepare a local capital improvement program and annually adopt a local capital budget. The capital improvement program and capital budget shall authorize, and provide for the funding of, capital improvements necessitated by proposed development or development projected by the local comprehensive plan.

• Absent a local government commitment to construct necessary capital improvements, a concurrency management ordinance is an empty regulatory device. This language ensures that the local government continues to recognize its own obligation to build new or expand existing public facilities to accommodate development.

(8) The following developments and land uses are exempt from the requirement of concurrency, provided that a concurrency management ordinance shall not exempt any development or land use other than as specified in or authorized by this paragraph:

• This language makes it clear that a local government cannot pick and choose among development types, by, for example, allowing commercial uses but precluding multiple-family residences, or distinguishing between types of housing.[617] The concurrency system is intended to apply to all development and land use because they affect all the public facilities in the community.

(a) development of affordable housing, but only for public facilities and systems of facilities for roads[, public transportation, pedestrian ways, and bicycle paths];

(b) any development in an area for which a transit-oriented development plan pursuant to Section [7-302] has been prepared and adopted [provided that the total land area contained within areas covered by such a plan or plans does not exceed [5 or 10] percent of the land area of the local government];

(c) any development in a redevelopment area for which a redevelopment area plan pursuant to Section [7-303] has been prepared and adopted [,provided that the total land area contained within redevelopment areas does not exceed [5 or 10] percent of the land area of the local government]; and

Language exempting transit-oriented development and redevelopment areas from concurrency is intended to serve as an incentive to promote infill development.[618] Bracketed language limiting the amount of land area is intended to ensure that a local government does not designate large areas of the community for transit-oriented development or redevelopment areas in order to escape the requirements of concurrency.

(d) such other developments and land uses as may be designated by the [state planning agency] by rule as having:

1. no or minimal impact[619] on adopted levels of service and public facilities or systems of facilities; and

2. whose approval will not impair the public health, safety, or convenience.

• For example, a cemetery or an accessory outbuilding may require a development permit but its impact on public facilities may be negligible. This type of development should therefore be exempt from concurrency determinations.

(9) The [state planning agency] shall promulgate rules to administer this Section, including level of service standards for public facilities and systems of facilities, and provide further direction and guidance to local governments.

(a) In promulgating level of service standards that are to be applied by local governments for roads[, public transit pedestrian ways, and bicycle paths], the [agency] may distinguish between public facilities that are owned by the local government and those that are owned by the state, or some other governmental unit. The [agency] may authorize the determination of concurrency for roads[, pedestrian ways, and bicycle paths] on an areawide basis, including an area that includes more than one local government, by reference to an areawide average level of service rather than on a road[, pedestrian way, or bicycle path] segment-by-segment basis.

(b) The [state planning agency] shall complete its review of a concurrency management ordinance or amendment thereto proposed by a local government within [60] days of the date of submission by the local government and it may, in writing, approve, approve with conditions, or disapprove the proposed ordinance or amendment.

(c) The [state planning agency] shall maintain, and periodically publish for public use, concurrency management ordinances that have been adopted by local governments pursuant to this Section.

(d) The [state planning agency] may promulgate rules that permit one or more local governments, or one or more state agencies and one or more local governments, to jointly administer a concurrency management ordinance, provided that they enter into an implementation agreement pursuant to Section [7-503].

(e) The [state planning agency] may prepare guidelines other than administrative rules, including manuals, and conduct training in order to implement this Section.

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