Impact Fee Basics 2005 Impact Fee Roundtable Rick
Impact Fee Basics 2005 Impact Fee Roundtable Rick Giardina, Red Oak Consulting Deb Galardi, Galardi Consulting, LLC Tyson Smith, White & Smith, LLC October 6, 2005
Agenda l l l Background Legal Environment Methodological Practices Myths, Half-Truths, and Other Fairy Tales Q&A
Impact Fees - Background
What Is An Impact Fee? “…monies collected formally through a set schedule, or formula, spelled out in a local ordinance…fees are levied only against new development projects as a condition of permit approval to support infrastructure needed to serve the proposed development. They are calculated to cover a proportionate share of the capital cost for that infrastructure. ” International City/County Management Association
Impact Fee Trends l l l More states adopting legislation More local communities using impact fees Used for greater variety of facilities Greater linkage between impact fees/CIP/ comprehensive plans 2 nd and 3 rd phases of program to increase fees
Why Consider Impact Fees? Significant actual/projected growth rate l Need for costly public facilities due to growth l Policy that growth should pay for itself l Limited alternative revenue sources l Maintenance of quality of life, as defined by public facilities and services l
Impact Fees – The Legal Environment
General Legal Considerations l l Implemented as a Regulatory technique, NOT a financing mechanism Structured based on “impact” on facilities, NOT, e. g. , on building value, frontage Can NOT be used on existing or to increase LOS to existing development Should be based on rational planning process and adopted CIP/capital budget
Authority l Home Rule Power – – – l Ohio Florida Kansas Statutes – – – Georgia Arkansas California South Carolina Texas Utah
Limitations on Authority l Reasonableness/Nexus l Statutory Limitations
Fee v. Tax l Taxes – – – l Primarily revenue-raising Authority must be express Proportionality not required Impact Fees – – – Land use regulations that mitigate off-site impacts – POLICE POWER Authority may be implied “Reasonableness” required
Dual Rational Nexus Test The local government must demonstrate a reasonable connection, or rational nexus, between: l l the need for additional capital facilities and the growth in population generated by the subdivision; and the expenditures of the funds collected and the benefits accruing to the subdivision – – Hollywood, Inc. v. Broward County, 431 So. 2 d 606 (Fla. 4 th DCA 1983) HBA v. W. Des Moines, 644 N. W. 2 d 339 (Iowa 2002)
Exemptions and Waivers l Exemptions – Uses to which the impact fee ordinance does not apply, based on a finding of No Impact l Waivers – Uses otherwise subject to the impact fee ordinance, but for which payment is not required, in order to advance Planning objectives
Exemptions No Impact on Facilities l l Senior Housing on Schools Commercial Uses on Schools Nonresidential Uses on Parks Rural Residential Uses on: l l l Neighborhood/Urban Parks Central Sewer Jurisdictional
Waivers Statute/Case Law-driven l l Schools Governmental uses Smart Growth-driven l l l Affordable Housing Infill/Compact Development Economic Development
Practice Tips Identify Policy Objectives & Limitations Early l Involve Opposition – Seek Alternatives l Methodology Report should incorporate & cross-reference Policy Objectives l Ordinance should adopt Methodology Report l Forms and Administration l
METHODOLOGICAL PRACTICES
Costs Fundable by Impact Fees Yes! Excess Capacity of Existing Facilities (Recoupment) Improvements Required to Service Existing Development (Deficiencies) No! Maintenance and Repairs Improvements Required to Service New Development Yes!
Fee Structure Options System Buy-In (Recoupment) Approach l Improvements (CIP) Approach l l } Consumption (Level of Service/Demand) Approach Combined Approach
Improvement and Buy-In Approaches Buy-In Fee Improvement Fee Existing Demand Growth Demand Existing Facilities ($) New facilities ($) Existing Facilities (capacity) New facilities (capacity) Combined Fee Existing Capacity ($) New Capacity ($) Growth Capacity Total Fee Buy-In Fee Improvement Fee
Consumption Based Approach Unit Cost Level of service SDC $/lane-mile Vehicles/Lane $/Vehicle-mile capacity/travel $/Acres/Capita (& employment) $/Capita (employee)
Fee Structure Considerations l l What is standard in the industry/allowable by law? How is system planned/built? – – l Large blocks of capacity Incrementally, as growth occurs Where will capacity for growth come from? – – – Existing available capacity (recoupment) Future capacity (improvement/CIP based) Combination
Fee Structure Considerations (continued) l What data is available to support the methodology? – – l Existing inventory/assets (recoupment and consumption approaches) Long-term capital improvement plan (improvement approach) What level of service is reflected in the capital improvement plan? – – Is it financially feasible? How will existing deficiencies be funded?
Fee Structures Other Issues l System Buy-In (Recoupment) Approach – l Improvements (CIP) Approach – l Allocation of improvement costs between growth and existing system users Combined Approach – l Selection of system valuation approach Explicit calculation of capacity needed for growth; no doublecounting Consumption – How does planned LOS compare to existing?
Fee Schedule Scaling fees for sizes of developments l Fees by development type l System-wide fees vs. geographically differentiated fees l
Fee Schedule Considerations l Defensibility/Legal Requirements – – l Standard and uniform application Fees relate to potential use/benefit Administrative feasibility – – Fee assessed before use occurs Ongoing information requirements
Impact Fee Scaling Methods
Land Use Considerations
Geographic Adjustments l l Infrastructure needs Planning criteria (e. g, basin specific) User characteristics (e. g. , trip length) Policy incentives (e. g. , downtown revitalization)
Offsets/Credits l l Past payments by newly developed properties Future payments by newly developed properties Grants Contributions
Myths, Half-Truths, and Other Fairy Tales? ?
Impact Fees – Myths, Half. Truths and Other Fairy Tales? ? l Impact Fees fully cover the cost of new development – – – A “properly” designed fee may come close How do you define growth? Does not cover O&M costs l Additional police officers, fire fighters, etc.
Impact Fees – Myths, Half. Truths and Other Fairy Tales? ? l Impact Fees are “anti-growth” and will dry up development – – Impact fees ensure that services are available Impact fees maintain community standards Impact fees help make a development “marketable” Impact fees may be a catalyst for growth
Growth Happens With or Without Impact Fees Category of Growth (1) Top 3 in Growth Fayetteville, AK Las Vegas, NV Fort Meyers-Cape Coral, FL Bottom 3 in Growth Flint, MI Youngstown-Warren, OH Gary, IN 3 Most Improved Savannah, GA Des Moines, IA Newburgh, PA-NY 3 Greatest Decline Santa Cruz-Watsonville, CA Boston, MA Portland-Vancouver, OR-WA Fees (2) $0 $9, 043 $6, 805 - $10, 523 $0 $0 - $2, 496 $0 $1, 000 $1, 668 $0 $4, 556 - $31, 099 $0 $5, 748 - $8, 888 (1) As ranked in “Best Performing Cities: Where America’s Jobs Are Created, ” the Milken Institute, July 2003. (2) Fees for parks and recreation, water, sewer, roads, and schools as tabulated by Red Oak Consulting.
Impact Fees – Myths, Half. Truths and Other Fairy Tales? ? l Impact Fees drive up home costs and prevent ownership for 1 st time buyers, but: – Credits for affordable housing can mitigate impact – Fee not always passed-on in the price of the home; can be absorbed by others in the “food chain” depending on market conditions: l l Land owner Developer Homebuilder Home owner
Impact Fees – Myths, Half. Truths and Other Fairy Tales? ? l Development more than pays for itself through job creation, incremental property and sales taxes, etc. – True for some types of development but not all l Retail l Residential
Impact Fees – Myths, Half. Truths and Other Fairy Tales? ? l Our city can’t compete if we implement impact fees – True, if your fees are “out of line” with the area – False, if others in the area have fees and yours are “reasonable” – where else is development going to go? – Absent fees, development costs don’t go away - they are just recovered via other sources
Updating -- Inflation l Legal requirements – – l Methodology Implementation procedures Index options – – – Construction cost index (city-specific; national average) Consumer price index Land sales ratio report
Updating – Other Issues l Comprehensive updates – – Upon update of system facility/master plans Every 3 -5 years
Questions and Answers
Exemptions
Volusia Co. v. Aberdeen at Ormond Beach l l l l Covenants, Conditions, and Restrictions 30 years a magic number? Unit not the user Need Prong - More than a “possible or an incidental “impact Benefit Prong – “tangential benefit” is “too attenuated” Community-based analysis rejected Specific Need/Special Benefit adopted 760 So. 2 d 126 (Fla. 2000)
Use of Impact Fee Revenues
MBA v. Germantown, 698 N. W. 2 d 301 (Ct. App. Wis. 2005) Can a municipality spend “aquatic center impact fees” on something other than what was originally contemplated?
Fees Adopted 1992 1995 “A pool might be nice. ” Needs Assess ment 1998 – ‘ 99 Two Referenda
2001 2002 $103, 000 in fees collected “A spray ground might be nice. ” (Year 6) (plus 2 yrs. )
l Fee Basis: the Cost of an “Aquatic Center/Youth Center” ($1. 8 Million) l Statute: Must be Spent on “capital costs for which the impact fees were imposed. ” l MBA: the particular $1. 8 M Swimming Pool l Village: a “category” of facility
l Language in Needs Assessment was ambiguous and broad l “… good faith and informed estimate of the sort of cost it expects to incur for the kind of facility it plans to provide. ” l “… flexibility to deal with the contingencies inherent in such planning…”
No New Needs Assessment 2001 2002 Does a “spray ground” bear a rational relationship to the need for new … public facilities”?
Nollan – essential nexus Yes, since the Needs Assessment was based on the same “general category” of facility.
Dolan – rough proportionality
Krupp v. Breckenridge Sanitation District (Colorado) l l 1999 case before Colorado Supreme Court Key Issues before the Court – – – District policy that growth pays for growth Controversial single-family equivalent assessment schedule for Plant Investment Fee (PIF) Krupp et al. argued unconstitutional taking, i. e. , that Nollan and Dolan applies
The Colorado Supreme Court Decision l l The District’s PIF is a “service fee” The setting of service fees is a legislative function that involves many questions of judgment and discretion and the court will not set aside the methodology chosen unless it is inherently unsound Service fees are valid if they are reasonably related to the overall cost of the services provided The Nollan and Dolan test does not apply to service fees like the District’s PIF.
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