Reflections on Impact Fee Practice

by Jerry Weitz, AICP

There are many important and complex facets of instituting development impact fee programs. These range from technical facility planning considerations to fiscal and equity objectives to political limitations. This article shares just a few issues and considerations the author has encountered with regard to local development impact fee programs. They are from the private consultant's frame of reference, but the observations are relevant to local government planners.

Facility Planning "On the Fly"

One prerequisite to a development impact fee program is a capital facilities plan and program. The plan and five- or six-year program identifies capital facilities to be completed in the coming years, along with cost estimates for such facilities. It's rare for local governments to prepare such capital plans in advance of a development impact fee program. When they do, the plans typically aren't adequate enough. This is one reason why amendments to local government comprehensive plans, including facility master plans and capital improvement programs, must be undertaken to support development impact fee programs.

Given a lack of advance planning, and the need to identify facilities that will be funded with impact fees, program designers must engage in "quicker and dirtier" planning — or planning "on the fly." As facility planners undoubtedly know, planning for short- and long-range facility improvements can be complex and time-consuming. In my experience, facility planning for impact fees has to be done in relative isolation, and quickly, with only the most cursory review by local department heads responsible for facility planning. It would certainly be desirable to have more time and a lot of planning already completed. Instead, schedules for preparing impact fees will usually have little planning work to build upon, and planners will have precious little time (or budget) to develop facility plans. Furthermore, expertise and abilities of local department heads vary when it comes to the development of facility plans, thus lending the potential for inconsistency in terms of the quality.

I contend that, when time and budget permit, it is best to conduct more detailed assessments of existing facility spaces in order to determine level of service (LOS) standards specific to the community and facility in question. For instance, facility planners should consider the following facility issues, among others, prior to establishing LOS standards and making specific facility improvement plans:

  • Age and condition. Localities should consider whether or not existing facilities are in good enough condition to repair, rehabilitate, or expand.
  • Obsolescence. Localities should determine whether the facility is obsolete or has been modernized. For instance, a police department might lack a forensics laboratory but need one to provide modern services. In addition, parts of existing buildings may not have been originally designed for their current use. In such instances, renovation can be very expensive. Consider, for example the requirements to comply with Americans with Disabilities Act (ADA) access requirements.
  • Building expansion potential. Determine whether there is any expansion potential for the building. If it takes up the vast majority of the lot, there may not be enough land to expand the facility on the existing site. In such cases, the availability for purchase of abutting land should be considered. Building expansion potential also should be considered when new facilities are planned. 
  • Adequacy of parking. The facility and any expansion must be provided with proper parking facilities. It is important to determine whether additional parking can be added to the site along with an expanded building. If there is insufficient space for parking, the locality may have to choose another site.
  • Adequate access. It is especially important for public safety facilities to ensure that adequate and unrestricted access by public safety vehicles is possible. Facility planners should therefore investigate the adequacy of access. For instance, if a police station or fire house is located in a downtown area that is frequently choked off by traffic backed up at traffic signals, public safety response times can be impacted to the extent that the facility may need to be reestablished at another location.
  • Facility overcrowding. Facility planners should look for currently overcrowded facilities rather than assuming existing space is adequate. For instance, existing personnel may be doubled up in shared offices, and vehicles, equipment, and records may be stored in another location because of inadequate room on-site.

In choosing future locations for facilities, particularly those for public safety (i.e., police and fire), planners should consider whether facilities should be located as centrally as possible to the downtown area in order to reduce travel time from the facility to service recipients, or whether some sort of "decentralization" strategy for service delivery is more appropriate.

Choosing Which Facilities Will Charge Fees

One may initially prepare impact fees for multiple facilities such as parks, libraries, roads, and fire stations. But when it comes time for program adoption, elected officials may limit the facilities for which impact fees will be charged. If high fees cannot be charged because of political opposition, or if there is a need to limit impact fees to less than a full range of facilities, officials may choose to apply fees only to those facilities serving residential development (and thus impose impact fees only on residential development). For instance, impact fee programs typically attribute the full impacts on park and recreation and library facilities to residential development only.

On the other hand, public safety facilities such as police and fire serve non-residential and residential development, and both residential and non-residential developments pay the public safety impact fees. In my experience elected officials sometimes, if not frequently, raise concerns that impact fees on non-residential development will be counter to economic development objectives and their desire to balance the residential and non-residential development tax bases. These concerns tend to drive local governments to favor charging fees for those facilities that serve only residential development, such as parks and libraries. This may put public safety impact fee proponents at a disadvantage.

Arguments that impact fees will scare away new businesses and industries from locating in the jurisdiction should be dispelled. They can be countered with literature citations showing that localities with impact fee programs are not at a competitive disadvantage purely as a result of charging impact fees. To the contrary, localities planning for the proper infrastructure and ensuring the funding of necessary facilities are more inviting places for new business and industry, according to Chris Nelson, a national authority on impact fees in the United States.

In terms of justifying a decision to charge residential-only impact fees, arguments regarding balancing the local tax base appear at first glance to be more compelling. Residential uses typically are considered to be a net fiscal drain on a community, requiring on average more than $1 in local government services for every $1 of local revenue generated. We know that schools are a big part of the deficit, but residential development has been found to create a net fiscal deficit even when schools are excluded from consideration (Dorfman et al., 2002). Hence, decisions regarding which facilities will have fees charged for them might influence the future distribution of residential and non-residential development in favor of more non-residential development. This line of reasoning assumes, of course, that developer considerations of the payment or non-payment of impact fees will prevail in their location decisions. That, again, seems worthy of questioning.

Service Areas, Benefits, and Equity

To charge an impact fee, a service area for the facility needs to be delineated. The service areas may be jurisdiction-wide, as is usually the case with library systems, or they may include only part of the jurisdiction, as in the case of a parks and recreation service district. Decisions on how to draw service areas need to be based on engineering and planning considerations, not political ones.

From a practical standpoint, for at least two reasons, impact fee program designers would like to shy away from drawing many different service areas in favor of larger (jurisdiction-wide) service areas. The first reason for favoring one service area is that less work is involved. If multiple service areas are used for a given facility impact fee, planners must have separate population and (in some cases) employment projections, and service area projections must be created anew because such figures are not readily available and sometimes not very reliable. Each service area also has to have its own LOS standard, which may or may not be the same as another service area for the same type of facility. To the extent that LOS standards are different for separate service areas within the same jurisdiction, equity issues can arise. For instance, if the representative of Ward 2 finds that his park service area has a lower LOS standard than Ward 4, the finding may stimulate debate over the need to equalize service standards.

Impact fees collected in one service area must be spent within that same service area. A second reason why single service area approaches are favored is the potential for not having enough fees to build facilities in some service areas. For instance, road impact fees collected for one service area may have insufficient development (fee payments) to pay for a single road improvement.

Using single service areas for some facilities, in larger jurisdictions, can raise objections about disproportional or inadequate benefit. Failing the so-called benefit principle can possibly undermine the legality of the impact fee program. Take for instance a county of 400 square miles that has one service area for roads and fire stations. In that same county, only one major road improvement is called for and one new fire station is projected to be needed. If both of these facilities are planned to be built in the south end of the county, do the builders on the extreme northern edge believe it is fair to pay the fee, or that the fee will go to construct facilities that will serve their houses? Such "benefit" issues are more likely to be raised in jurisdictions with larger geographic areas (i.e., a county or large service district) than they are in cities with smaller areas (e.g., 20-30 square miles). To mitigate equity or benefit concerns in large service areas, designers of impact fee programs can pay particular attention to the geographic distribution of improvements and spread them around where possible to ensure more localized benefits. There may be limits to just how facilities can be spread out geographically. Large geographic areas, especially counties, may require multiple service areas to adequately address these "benefit" and equity considerations.

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