The History, Characteristics, Equity, Current Use,
Legality, And Ordinance Design Elements
DEVELOPMENT IMPACT FEES
THE HISTORY, CHARACTERISTICS, EQUITY, CURRENT USE, 1 LEGALITY, AND ORDINANCE DESIGN ELEMENTS OF VALID DEVELOPMENT IMPACT FEES
PREPARED BY DONALD A. SETEN
a thesis submitted in partial fulfillment of the requirements for the degree of
MASTER OF PLANNING AND COMMUNITY DEVELOPMENT
UNIVERSITY OF COLORADO
TABLE OF CONTENTS
A New Trend in Regulatory Extractions
The Historical Progression of Regulatory
Exactions ................................ 4
Early Exactions; Platting Requirements
Through In-Lieu Fees ...................... 4
DIFs vs In-Lieu Fees............................ 8
DIFs vs Special Assessments.................... 10
The Pervasiveness of the Trend................ 14
The Growing Role of Fee Revenue Sources ... 14
Three Impact Fee Surveys/Analyses ............ 16
Recreational Impact Fee Use................... 16
Impact Fee Use For Sewage Facilities .... 20
Impact Fee Use For Fire Protection Facilities 23
Individual Examples of Innovation ............ 26
The Fiscal Crunch: Fueling The Trend . Urbanization and Regional Migration Impacts .
The Special Burden of Capital Costs ..........
Restrictions on Increased Revenue Resources
(Property Taxes/Bonds/Subventions) Decaying Infrastructure; Mounting Capital
The Equity and Fairness Issues; Who Pays,
And Who Should Pay.......................... 38
The Optimum Balance Objective .................. 39
Horizontal Equity .............................. 42
Allowing Municipal Response to Changing
Conditions ................................. 43
Who Really Pays? The Third Party ............... 47
Six Means For Capitalizing Fees Into Lower
Land Prices................................ 50
Other Advantages and Justifications ............ 53
The Legality of DIF Systems..................... 60
Authorization Considerations ................... 61
A Fee or a Tax?................................. 63
The Reasonableness of Authorized Fee Exactions 68 The Three Traditional Test of Reasonableness 69
The Convergence of the Three Tests.............. 73
The Recent Florida Judicial Advances .... 77
The Leading Edge of Judicial Thought;
The "Utah 7"............................... 79
The Legal Status of DIFs in Colorado .... 86
Bethlehem Church ............................... 90
CHAPTER VII: The Design Parameters of an Equitable, Legal
Impact Fee System .....................
The Twenty-Point Ordinance Design Guidelines
BIBLIOGRAPHY: .............................................. 125
Recreation Standards; And Some Impact Fee
Formulas/Schedules Currenty In Use .
The idea that land developers should either install public improvements or make payments for improvements that their projects create a need for, so as to defray their fiscal burden upon the existing community, is certainly not new. New growth has had to pay at least part of its public facility cost impacts ever since the Great Depression, when near economic collapse left many local governments saddled with the expense of excessive subdivision activity. What is new is the way this requirement has been expanded to include mandatory contributions for the entire costs of a much wider range of public facilities; improvements that had formerly been provided by general fund expenditures. Even part of the cost of centralized facilities that generally benefit a community are being exacted. That the evolution in this area constitutes a new, volatile frontier in planning is evidenced by the plethora of court decisions, new development fee ordinances, and scholarly publications on the subject of which most have debuted during the first half of this decade. The following quotes illustrate the existence of a new trend:
"A new wave of stringent exactions and development fees seems to be occurring all across the country.1,1
"Perhaps no concept currently receives more attention in the land use community than the impact fee."2
"The development of capital cost shifting devices [exactions for public facilities] grounded in land use control regulations has been rapid and turbulent."^
"During the last couple of years, three state supreme courts have reviewed developer's challenges to subdivision exactions."4
The bottom line is that regulating development in the public
interest is today a new ball game with a new set of rules. The
practice, the judicial response, and even some of the theories
relating to the responsibility of providing public improvements
have changed. The primary purpose of this analysis is to sort
out the practical considerations from the ensuing confusion, and
to produce a clear, utilizable set of guidelines for those
entities considering the implementation of a development fee
Along the way towards this end, this thesis will also examine a variety of relevant issues and the various factors that have influenced the evolutionary course the expanded exaction. The intent of elaborating on the history, issues, factors and actors involved is to describe the arena in which today's fee-
based land use regulations operate. It is hoped that this will promote a better understanding of both the legitimate and questionable uses of this planning tool. The role of homerule charters, state statutory authorization, and annexation policies will be addressed. An overview of the extent of current fee useage, the reasons why the expansion trend is now accelerating, and the justifications advanced for employing impact fees is included. The discussion also entails consideration of the
typical legal challenges a fee ordinance may face, and the
concurrent evolution of judicial thought on the subject (which focusses both on the traditional legal tests and the newly
emerging criteria). While the objective of integrated ordinance design guidelines is intended for general application in the U.S., a more specific focus on the implications for fee use in Colorado is presented. A separate section concerning who pays the price of impact fees, and who should be paying how much, is a central element of this thesis. Discussion of any aspect of fee-based development regulations, however, revolves around the concept of fairness. The question of equitable cost distribution is thus a recurrent theme throughout this work. Finally, the culmination and core of this work is Chapter VII, where the various viewpoints and suggested impact fee restrictions discussed in this text are pulled together into a twenty-point guideline for designing a defensible impact fee ordinance.
THE HISTORICAL PROGRESSION OF REGULATORY EXACTIONS
The modern development impact fee (DIF) is essentially a close relative of the fee in lieu of dedication. For now, DIFs are defined as a one time fee imposed as a condition of development permission for the purpose of providing a public improvement (both land and facilities, whether on or off-site) to serve the paying development. To fully understand DIFs, an overview of their origin and the progression that produced the concept in its present form is beneficial.
The development impact fee, while representing a major new tool for contemporary planning, is simply the most recent stage in the evolution of a more traditional concept; the subdivision regulation. Its lineage extends back to approximately the 1930's. Prior to then, metes and bounds descriptions were largely employed for land conveyance, physical improvements were
not compulsory, and official recordation of plats was not a
universal requirement. With increasing sophistication in surveying techniques came the recognition that the ability to record a plat was an advantage, facilitating the easy conveyance of land. Minimal requirements included proof that the survey was adequate and that plats indicate the location of streets and public places, so that it could be seen how access to parcels would tie into the existing road system. The fee, if any, was merely for the cost of processing and filing the plats.
Since public improvements did not have to be installed to get land subdivided, the process was inexpensive. Quite often more lots were created than were actually needed. More practical, imminent subdivisions had to be located elsewhere, usually further out from municipal services. They were therefore more expensive to extend services to. The necessary improvements were frequently financed through special assessments. Because of the hardship of the 1930's depression, many people defaulted on their special assessment payments, bond holders lost out, and new bonds based on special assessments were difficult to sell. Local governments responded by adopting more rigorous subdivision controls.
In addition to the impetus of the depression, state and
local governments began to realize that they were granting a
"privilege" by recording plats, and that they could increasingly
engage in land use control by using this as a leverage point. In
exchange for the privilege, the platter-subdivider was required
to locate streets in a certain preferred way, at a specified
width, and furthermore had to construct and dedicate them for
public use. This had the advantages of slowing unnecessary,
excessive subdivision activity, and of insulating the public from
service extension costs that were not recovered when property did
not develop into a viable new tax base. About the time
subdividers were reconsidering and desiring to forego the
platting privilege, statutes and ordinances were revised to make
platting mandatory; "no plat, no conveyance."
Courts initially ignored this change, and deemed the requirements as a mere condition on a privilege to which a subdivider had no entitlement. A landowner was not required to subdivide his land for sale, so any improvements he had to install were viewed as voluntary and not regarded as a taking that justified compensation. Local governments noted this and gauged their exaction requirements accordingly (and somewhat eagerly).
The closely linked "voluntariness" and "privilege" concepts initially served as the basis for mandatory dedications. Although these concepts were once of powerful influence, they are now virtually defunct and are insupportable as a justification for DIFs. To argue that dedications are voluntary because no one is coercing a land owner to subdivide his property ignores the concept of development rights. To assert that the requirement merely conditions the privilege of recordation ignores the fact that this privilege is now the only available means for conveying land, due to the requirement that plats be recorded. After adoption of the Standard Planning Enabling Act in 1928 had made recordation a common requirement, the option to forego platting was closed in most locales and most courts then rejected the
privilege theory. One notable exception is Billings Properties, Inc, v Yellowstone County, which found that the developer's "act of attempting to secure approval of the plat was voluntary. There is no law requiring it to subdivide and sell its land by plat," and thereby eschewed the tougher constitutional issues altogether. West Park Avenue, Inc. v Township of Ocean followed shortly thereafter, and is likely the most influential case in
laying this questionable basis for dedication permanently to
rest. That court took a realistic view of the developer's situation: "Plaintiff feared it could not survive if its project stood still during a period of litigation. It also sensed a danger of hostile enforcement of ordinances bearing upon the construction of homes."'* His conpliance was clearly less than voluntary.
Donald Hagman notes that "By the time the courts were beginning to gag on the privilege fiction," exactions based on subdivision activity were wide-spread, and reasonable exactions became considered a proper exercise of the police power.-** Local governments then began reasoning that perhaps no public facilities for new developments should be provided at public expense. If a large development would need a new fire station to protect it, for example, local governments reasoned that the total cost should be cast on that new development, because the theoretical basis was the same as requiring improvement and dedication of the roads that serve a new development.
Through the years, the mandatory requirements for public improvements increased in size and variety. Fees in lieu of either dedication or provision of improvements were improvised as the next evolutionary step. The imposition of fees-in-lieu was conceived from subdivision dedication requirements formulated for the provision of parks. By uniformly applying dedication requirements to both large and small subdivisions, cities and counties found themselves burdened with the maintenance of numerous park sites that were too small and poorly located to
adequately meet newly generated recreational needs. Obviously, tot lots and minor neighborhood parks do not meet all the recreational needs of rapidly growing, large new areas of communities. The use of in-lieu fees enabled the shifting of land acquisition costs for ball parks, recreation centers, and similar large scale facilities that would better serve new demands to all those creating the demands.^ The fee-in-lieu marks an important change in the nature of exactions. With this device, developers began to be required to participate in the cost of off-site improvements. In one commentator's words, "It used to be that off-site costs were the community's responsibility. Now in many communities that distinction has
gone by the boards.
DIFs vs. In-Lieu Fees
Both impact fees and fees in lieu of dedication exact money payments, raising funds that can be used for off-site improvements. While the two are quite similar, some fundamental differences exist. These differences help explain the impact fee concept, and show how DIFs really are a n_ew regulatory device. First, in-lieu fees are based on the value of a rather arbitrarily selected percentage of a subdivision's land area. The revenues therefore are only enough to acquire a site. DIFs are cost-based, and distribute the full costs of a public improvement (site acquisition, plus construction and financing) among the developments causing the need for the improvement. With parks, for example, site improvements may be four to six times the cost of the land.^ Because all capital costs are
recoverable through impact fees, DIFs are a better mechanism for matching the exaction to a development's true cost impacts.
Second, land area based in-lieu fees remain a constant exaction, despite the fact that different developments on similar sized tracts of land may have different densities. Because DIFs use some form of units of demand' to distribute costs (number of acres of parks per capita, for instance), the exaction varies in relation to the quantifiable amount of need that a development represents. This means DIF exactions are more closely related to both the full cost impacts and the true amount of facility demand i involved with a development, and thus are less arbitrary than in-
Third, DIFs can be used to exact the costs of any kind of required public improvement. Because in-lieu fees are predicated on dedication requirements, they are limited to situations where dedications are appropriate. The subdivision map acts of many states specifically list, and thereby restrict, the public purposes to be promoted through mandatory dedications. Impact fees strive to tie into planning enabling statutes (and local ^ enabling language) for their authorization, and then are able to
avoid such restrictions. For instance, central sewer and water plants, public safety facilities, and similar capital items can benefit from impact fees, but cannot always rely on dedications (and their related in-lieu fees). These kinds of facilities are not appropriate for dedications because "one facility (and parcel of land) can service a very wide area and there is little need for additional land in extending these services." Yet the service extension is still a cost.
Finally, because impact fees are usually collected when building permits are issued rather than when plats are recorded, they truly regulate land development rather than just land division. In-lieu fees often must be collected prior to plat recordation. This is not to say that DIFs are better because they escape the legal limitations of dedications. They merely escape the limitations of statutory dedication authorizations. With either tool (and at any leverage point) the same legal principles of reasonableness are operative.
DIFs vs. Special Assessments
Even though DIFs may also resemble special assessments, these two measures remain distinguishable as well. Special assessments are a benefit-based payment intended to "tax" the increased value of properties adjacent or near a publically financed improvement. As with impact fees, off-site improvements can be the basis for assessment. Courts have upheld special assessments on properties both a block away and two-i thirds of a mile away from a street widening, and on properties
three-quarters of a mile away from a new park.iD To remain a fee rather than a tax, DIFs must give some kind of benefit to offset I the required payment. The benefit may be provided by a public
improvement some distance away. The primary difference is that special assessments are based soley upon the benefit of a specific increase in property values. DIFs, on the other hand, can be harm-avoidance measures based upon a negative impact generated by development activity. Thus while impact fees must
strive to provide a benefit if the exaction was based on newly
generated service demands, the fee can also be based upon a
negative impact (and then need not provide a specified benefit).
In other words, the benefit a proper impact fee ordinance tries
to provide is not limited to increased property value. Reduced
fire danger, prevention of flooding hazards, and availability of
sewage treatment capacity, for instance, are some of the harm-
avoidance "benefits" available which might not always directly
translate into increased property value.
This also points to the advantage DIFs have over special
assessments: It is easier to track the actual costs of an
improvement and apportion the costs based on either benefits
received or needs attributable to, than it is to track the actual
property value increase caused by one specific activity. Heyman
and Gilhool's article suggests that special assessments could be
improved by their reformulation via cost accounting theory.
Such a reformulation would essentially result in a DIF.
Furthermore, the fact that DIFs are based on actual costs
while special assessments are based directly on the benefit of
property value increase places a sensible restriction on the
required fee payment; a limitation that special assessments lack.
A DIF that takes in revenues exceeding the cost of the
improvement it was exacted for is patently unreasonable. Special
assessments, in theory, can recoup the value of benefits received
over and above the costs of the improvement without violating the
Constitution. Examples of such cases are exceedingly rare. One
example is the City of Brookings v Associated Developers, Inc. The City assessed property owners for the benefit they received
from an improvement financed by federal funds. The court held the assessment invalid, but made their judgement on a basis that did not seem to rest entirely on statutory interpretation. The commentator who found this case concludes that "a successful challenge to a windfall recoupment appears unlikely on constitutional grounds if the constitutional issue alone is strictly considered."-^
Because DIFs can be more burdensome (including a greater range of costs), because they are often used for facilities that benefit more than one development, and because they usually represent a change from the way more centralized facilities had been funded in the past, they will likely be tested in court more frequently especially as more DIF ordinances appear. The equity and legality issues that stem from these last three considerations can be obviated by a well-written DIF ordinance. As long as adequate authorization can be found, a properly designed DIF ordinance may weather all challenges.
The final change, which goes beyond the focus of this thesis, involves the transition of impact fees into impact taxes. Some state governments, recognizing that fee exactions are both a regulatory device and a revenue raising mechanism, have adopted a formal policy of imposing growth costs on new development and have explicitly authorized the exaction of these fees under the power of taxation. Arizona and California are two states that have such authorizations. Colorado has not authorized this kind of taxation, although Breckenridge and Aspen utilize a related real estate transfer tax (which is more along the line of
a sales tax on development) under
land transactions than a straight fee on
the authority of their homerule charters.
THE PERVASIVENESS OF THE TREND
If DIF use is really a new trend, as previously asserted,
there must exist some comparatively new ordinances that are
making innovative use of their regulatory power. Examples are
available, and some are included here. If a trend is occurring,
it should be possible to quantify the degree to which DIF use is
spreading. This is not such an easy task, however, since it
would require an in-depth survey of all entities that employ the
police power. In Colorado alone, for instance, there are
approximately 248 incorporated municipalities, 63 counties, and
1100 special districts, available.
Fortunately, there are some indicators
The Growing Role of Fee Revenue Sources
Census data on governmental finance is one indicator that
development fees have been expanded. In 1902, 70 percent of the
revenue raised by state and local governments came from property
taxes. By fiscal year 1976-77, this source only accounted for 22
percent of all revenues. At the same time, charges and
miscellaneous revenue sources rose rapidly to an all-time high of
about 17 percent of all revenues. This revenue source change is inconclusive as it reflects increased service charges and user fees not associated with development, but new revenues from development exactions undoubtedly contributed to this increase.
Another source again compares the finance role of city charges to city taxes, though for a shorter, more recent time span. From 1978 to 1980, charges and miscellaneous receipts increased from 15.7 percent of the total general revenues of the nation's local governments to 18.9 percent. During that same period, the portion of total general revenues that local governments received
from property taxes fell 4.7 percent. It is likely that
development fees are taking up much of the slack from the cut in other local taxes.
A well-written article by Donald Hagman provides statistics that better isolate the increasing role of development fees. His focus on California, a state he contends is on the leading edge of the fee movement, is admittedly less than national. The findings, however, are striking. For example, California city revenues increased 45 percent from 1975-76 to 1979-80, but exaction revenues "having to do with development" grew far more
rapidly, increasing 413 percent during the same period. Hagman also cites a 1981 survey that reveals how California park fees grew 163 percent from 1975 to 1980 (to an average of $640 per single family unit), while the consumer price index rose only 53 percent. One community, the City of Seal Beach, exacted a DIF of
$$2,860 per single family unit just for parks and recreation.
Another author also examines California's use of development fees, but emphasizes the overall fee increase for single family homes rather than the fee-related increase to local revenues. Over a relatively short period of time, from 1978 to 1981, the median total development fees for a single family home in that state rose 32 percent.^7 This study of impact fees goes on to
note that "Enactments in recent years in many cities and counties in Colorado and Florida require developers to pay fees of several hundred dollars for each housing unit" for off-site improvements. Additionally, in some growth impacted communities as much as half
of the investment in public works come from private sources.
These are some significant indications of the extent of capital improvement cost shifting.
Three Impact Fee surveys/analyses
Paul Downing and James Frank conducted the three Florida
State University studies of impact fee use as applied to
recreation, sewer, and fire protection improvements. Although
their surveys could not begin to reach all of the nation's local
governments, enough were canvassed to show that DIF use is indeed
catching on and is not limited to a couple isolated communities.
The two stage survey design is essentially the same in each of
the studies. Their initial project, a 1982 study of recreation
impact fee requirements, began with a mailing to 4000 member
agencies of the National Recreation and Park Association. The mailer included a definition of impact fees, a request to identify any public agencies employing such a fee, and a return postcard to facilitate the responses. 411 nominations were received, and these nominees were each mailed an extended questionaire. With follow up inquiries, the authors obtained a 79.3 response rate.^
Downing and Frank established five categories to classify the type of exaction systems in use. These are:
CO A cash only fee that cannot be replaced by
land dedication and/or facilities (a pure fee).
Primarily a fee dedication be allowed cumstances
collection system, though of land and/or improvements as a credit under specific (a fee, with in-lieu land).
Primarily a system, certain cash).
land and/or facility dedication that allows in-lieu cash payments in instances (a dedication, with in-lieu
DO A land dedication system that does not allow
for in-lieu cash payments (a pure dedication system).
N/A A number of agencies responded that they were
not using a fee system, as defined in the mailer. Some of these are likely using a "DO" system that the respondents did not consider a fee system.
Of these five categories, the CO and ones that can be accurately considered systems). The others are fairly common securely founded in land planning tradition, the 326 responses fell out.
FILL systems are the as impact fees (DIF forms of regulation, Table I reveals how
No Fee 107
recreation study thus identified 48 jurisdictions using some m of an impact fee. These CO and FILL respondents are located
12 different states. Impact fees, then, are not just a ifornia or Florida technique. In addition, only six Colorado munities were nominated (and responded), of which four use a
FILL system. This author knows of at least two other Colorado communities using some form of a fee system, and numerous other Colorado jurisdictions employing standard dedication systems that Florida study does not identify. It is therefore likely that ly fee-using entities were overlooked, and that impact fees have emerged in more than the twelve states identified.
The purpose of the recreation impact fee study is not just to indicate the extent of fee use, but also to determine how the fee systems that do exist operate. By focussing the more detailed analysis on the CO and FILL systems, a number of common characteristics were found and summarized. First, the recreation fees collected are primarily used to acquire land, to construct facilities, and to purchase equipment. Most do not include on-going operation and maintenance expenses. The jurisdictions using impact fees only for capital expenses pay operation, maintenance, and replacement costs with general fund revenues. This helps to avoid the problem of double payment, which occurs when new facilities are provided via impact fees and the property taxes from new fee-paying residents also go towards capital expenses that benefit existing residents and existing parks. Double payment also is usually avoided (though not in all cases) by using DIF revenues only for facilities that will be used
mainly by new residents.
Second, there is a general pattern in the way the fee systems set the level of the fee. Most systems allow for an annual review by an elected body, but do not have an automatic mechanism to adjust for inflation. Most of the fees are not
frequently adjusted. Of greatest significance is that most of the DIF users do not adequately base the fee level on either actual costs nor actual demand, as they should. DIFs, you may recall, are supposed to be superior to standard dedications because they are able to distribute full costs (land, financing, and facility costs) and because they are not based on some arbitrary percentage of a development's land area. It appears that this advantage is not being fully realized by the existing fee systems. Most fee-charging agencies, for instance, do not calculate the total capital costs of their recreation resources and then net out revenues from outside sources (i.e. gate fees, state and federal subventions, etc.). In fact, the fee amount is most often set in a political fashion based on assumptions of "what the traffic will bear" and do not utilize actual costs at
allJ In addition, few fee jurisdictions make careful estimates of expected population growth, and then match estimates with formalized standards that relate future facility needs to anticipated growth (such as a number of of park acres per 1000 population, or maximum distances of parks from residential demand | centers). This lack of adopted standards indicates a significant
weakness. Instead, most CO and FILL systems use a flat rate or fixed schedule for fees that does not differentiate the demands
generated by housing type or dwelling unit size.
The following observations are also made in regard to recreation impact fee use: Most systems either earmark DIF funds for restricted use or track these revenues with periodic audits; a number of FILL systems exact recreation fees from commercial and industrial developments; Most FILL systems give full credit
dedications of land or improvements, while some give a
partial credit for private facilities; most fee systems have yet to be challenged in court; most fee systems were relatively recently adopted or revised; and CO systems primarily collect fees at the issuance of a building permit, while FILL systems usually make exactions prior to final platting (which is logical since FILL systems need to determine at that point whether or not
a land dedication will be allowed as a fee credit).
Exactions for sewer systems have a longer legacy than do exactions for parks and recreation. Many areas are served by sanitation districts, independent single purpose governments that operate much like a large special assessment area. It is not overly surprizing that Professors Downing and Frank found a higher incidence of fee use for sewage services than for fire or recreation systems. Their main interest was to identify and study those sanitation entities that employ impact fees for centralized treatment plants and major transmission facilities. Exactions for localized collection networks are more traditional and common, and are of less interest since they do not make full use of the DIF concept.
A total of 1718 public works directors in cities of 15,000 or more population were contacted in the first stage of the survey, and were asked to identify agencies believed to use impact fees. The nomination of 277 jurisdictions resulted, and each of these were canvassed with a more extensive questionaire. A total of 244 replied, for a response rate of 80.9 percent. 190
of these 244 were found to be using some type of a DIF system.
The greatest bulk of identified fee users were California and
Florida municipalities. When computed as proportions of the
total number of municipalities in each state, however, five
states had a ratio of fee users to total municipalities at the 12
percent level: California, Florida, Washington, Oregon, and
Colorado. In all, 36 states had at least one jurisdiction with a
positive response. One reason that this appears to be such a high amount of positive responses when compared to recreation impact fee use is that non-fee jurisdictions have an alternative for supplying recreation facilities (i.e. the dedication) that is not as frequently used for major sewage facilities. An examination of these agencies charging fees show that their systems are in some ways more sophisticated than recreation DIF systems in setting fee levels, but that improvements could be made in most instances.
The first significant finding is that most of the communities charging fees expended the revenues for such major off-site improvements as central treatment plants and main trunk line collectors. A minority restricted fee revenue expenditures to the smaller pipes and pumping stations of on-site and
localized collection systems. The second major finding
involves how fee amounts are determined. For instance, do fee-chargers attempt to recoup the cost of existing excess capacity, or are fees limited to the costs of increasing (new) trunk line and central treatment plant capacity? The survey authors believe that just charging for new, increased capacity helps prevent leap frogging developments, but that this is outweighed by the negative results of not charging for existing excess capacity.
The negatives include increased administration costs, the varying of fee magnitudes from zero to several thousands of dollars per dwelling unit, and the tendency towards chronic under-investment because "the agency that expands capacity in a timely fashion ceases to collect any more impact fees," when the costs of
existing capacity are not included. It was found that most fee using communities charge only for capacity expansion; only one-fourth employed fees to recoup the cost of existing excess capacity. There are other cost factors that are important in determining fee levels some are considered by the existing DIF systems and some are ignored. Only five communities of the 190 fee -using respondents vary the fee amount by considering a distance factor, and a mere two considered differences in the elevations of new developments. Both factors can significantly affect service costs. On the other hand, a majority (60 percent) employ a coefficient per dwelling unit type to vary fee levels by the amount of effluent that is anticipated to be generated.^ This still leaves 40 percent who do not consider these relevant cost factors, although overall the sewage fee systems are more appropriately differentiating demand by type of development than do the recreation DIF systems.
A number of other DIF system characteristics are summarized in the sewer fee study. The average fee is $689.48 per dwelling unit; all types of development are assessed; revenues are generally segregated and restricted to capital outlays; and the average fee amount is not high in comparison to the known typical cost experience. Also, two-thirds of of the DIF users determine
fee amounts by a fixed schedule, while one-third utilize a formula that includes relevant cost variables. In fact, only one respondent indicated the use of a negotiable fee, and another six consider their systems to be "negotiable with guidelines." Some surprizing general patterns were discovered as well. A total of 159 communities charge a fee even if a private system (septic tanks or package treatment plants) is installed, and only 14 percent of the fee levying jurisdictions allow an in-kind credit for providing physical system improvements. Also, a full 60 percent allow adjustment for inflation, split evenly between a published construction cost index and locally gathered construction bid data as the basis of adjustment.^
In the initial stage of the similar fire impact fee study, 1699 fire chiefs in communities of 15,000 or more population were contacted to obtain nominations of DIF users. The resulting 84 nominees were queried, and the high response rate of 85 percent gave the authors identification of 21 jurisdictions employing a variation of a DIF system. While 21 is not a great number, any positive response is significant as fire protection is not a service typically financed by development fees. The following six states had positive responses: California, with eight positives; Florida, with seven; Colorado and Illinois each have two positive responses; and Louisiana and Washington each have one known DIF system for fire protection. In addition, this author is aware of another DIF system currently being developed by the Red, White, and Blue independent fire district in Summit County, Colorado. Like the previous two studies, some fairly common observations were made. The fee levying entities assess
all types of development, the fees are exacted at the issuance of a building permit, and the revenues are placed in trust funds and are limited to use for capital expenditures.
While the use of the fee revenues is restricted to capital
items, the capital purchased is usually a neighborhood facility,
such as a substation. Some do allow for the revenues to be used
for centralized offices and facilities, but for the most part
this is avoided because of the difficulty in constructing a
rational basis (i.e. an adequate unit of demand) for allocating
costs of centralized facilities to the true benefit receivers.
Even though water system costs (mains and hydrants) usually
exceed the costs of other fire fighting facilities, fewer than
one-third of the fire DIF users expend fee revenues for this
capital expense. This is believed to be the result of the
frequently used requirement that on-site water systems be
constructed and dedicated (such as lateral mains and hydrants). The problem, however, is that off-site water system components such as reinforcing mains, transmission lines, and balancing reservoirs that are necessary for fire protection remain uncovered.
The users of fire impact fees do have an element of sophistication that is largely absent from the previously examined DIF systems. Over 80 percent of the fire impact fee users identified base their fees on an explicit level of service. Minimum response times (or distances), similar to standards promulgated by the Insurance Services Office, are used to determine when and where new facilities are needed. This also
helps to define the group that receives the benefits of the
ility, which enables the equitable distribution of the costs, course, the standard is too expensive to maintain in sparsely eloped areas, so a majority of the DIF systems include a imum threshold point based on density (sometimes population is trigger, while others consider building densities; there is dominant pattern).44
The double payment question is usually addressed by the 21 ities that have DIFs for fire protection, but is sometimes
on 1 ope mak
disregarded in an almost reckless manner. Most use fee revenues
y for capital items and use ad valorem taxes to cover ration and maintenence costs. Four jurisdictions, however, e no such distinctions at all. Also, most of the systems
n challenged in court, or are based on existing judicial 45
ensure that new residents are not subsidizing existing residents by establishing benefit districts, and therefore prevent fee revenues from going towards the upgrading of older stations. Two jurisdictions do not guard against excessive fees in this manner. It is notable that only three of the fire DIF systems have either beei
A few other findings were made. Most eschewed any type of negotiation for setting the fees, and a fixed schedule is the most popular approach for imposing fees. While formula systems were not often used, the fixed schedules were in many instances designed to allow fee variations based on building size, type of construction, occupancy types, and/or location. There was no one prevalent approach in determining variable fees among these 21 DIF systems. A majority of the jurisdictions allowed non-cash
contributions for credit, though many limited the contributions to dedications of land for new substations. The fees examined ranged from $50 to $621 per dwelling unit, with a median fee of $182.73. While most of the respondents allowed for inflation adjustments, only a couple based this on a recognized construction cost index. One community has an automatic adjustment since the fee is based on the building value; another simply incorporated a six percent inflation factor regardless of
actual price behavior.
Examples of Innovation
The preceeding text illustrated some of the experiences encountered in present DIF use, and in so doing provided examples of the type on innovation that exists. In most cases the individual communities were not specifically identified because of the composite survey nature of the studies. A few more spefcific examples are depicted here to reinforce the assertion that "something new" is happening.
In Montgomery County, Maryland (part of suburban Washington D.C.) some new methods are being used to fund road improvements. Because the State Highway Department will take years to construct the additional capacity needed to accommodate new growth, local planners and planning commissions are encouraging developers to form "road clubs." An attourney for a group of these developers, John Delany, calls this arrangement the ultimate exaction, or "subdivision exactions gone to Heaven." Under a "Public Works Agreement," the County put up the funds to improve overcrowded state highways adjacent to the proposed developments. Developers
were denied project approval until the overcrowding could be ameliorated. The developers did not have to participate, but their only other recourse was to wait for the state to take action. The County would then be reimbursed either when the dwellings were conveyed to a buyer, or under a deferred payment plan. The deferred payment allowed the road costs to be placed on the new homeowners' tax bills and amortized over a five or ten
In Butte, Montana, parking availability in the CBD became a wii
ear f ac
o f app zon ab 1
_ng problem. New and expanded uses were required to provide
off-street parking, but often found it a difficult requirement to meet on the development site. The requirement came into direct conflict with historic preservation objectives, because older structures were threatened with demolition and subsequent conversion to parking lots. In response, the City allowed reuse of historic structures, grandfathered out of the requirement for parking provision. New and expanded uses could comply by paying a fee in lieu of providing parking, and the revenues were then marked by the Parking Commission to provide area-wide ilities.^
Florida has recently been at the forefront in using impact fees creatively. Miami has been employing fees for a wide range purposes. Projects above a minimum size require City roval, even when they are a use by right in their land use e. Through the development review process, Miami has been e to assess a fee of $.60/square foot on new development to
help fund a people mover in the downtown area. In one major
project, Miami exacted $100,000 for, among other things, traffic
improvements, air quality monitors for inside the structure, and
contributions to police and fire services. For office projects
in general, Miami requires $4 to $6.60/square foot to be
contributed to a trust fund for later residential development.
Broward and Palm Beach Counties in Florida have development fees for a variety of public improvements, but most attention has
focussed on their road impact fees. The systems were redesigned in response to State Court precedents which allowed fees when a local government could show that expanded road capacity is necessary to accommodate new users, when the fee represented a reasonably proportional share of the new expansions' costs, and when the fees are appropriately earmarked for the expansions they
were exacted for. The cost of existing excess road capacity is not distributed to new development via fees. It seems inequitable to charge only developments that put roads over capacity and necessitate road widening, when developments that use up remaining capacities go free. Traffic zones were established, and existing road capacity (both used and yet available) were determined. Development fees collected in a traffic zone were then earmarked for improvements to deficient arterials in that zone. A computerized "TRIPS" model (Traffic Impact Planning Study) is run to estimate the amount of traffic
expected to be generated, which is used to apportion costs and
thus set fee levels that relate to the capacity that is expected
to be used. Palm Beach County uses a similar approach, but
foregoes the use of computers.
THE FISCAL CRUNCH; FUELING THE TREND
Now that some indicators have demonstrated that a new wave of more demanding exactions has indeed entered the planning arena, the question of "why now?" deserves consideration. What is fueling this new trend? Local governments do not operate in a vacuum. They are subjected to a variety of social, political, and economic changes just as is any other industry. The setting in which local governments exist has experienced some profound changes, and many different factors have come together to promote today's expanded use of pure fee exactions. While these environmental changes differ in kind and degree, they all essentially center around the bottom line of cost. Local governments are now more hard pressed to meet all of their service obligations than ever before. They are seeking new ways to fund essential services. For some localities, the search is conducted with an air of desperation.
There are basically two forces that have produced this budgetary desperation. The first is the character of today's urban growth. The second is the local government fiscal crunch' of rising costs and constrained revenues. The more complex budgetary bind is a product of many related factors, affecting both the income and expenditure sides of the fiscal equation.
The reasons local governments are now starting to use DIF systems can be considered partial justification for fee use.
Justifications other than the great financial stains on these public entities are explored in the next chapter.
Urbanization and Regional Migration Impacts
Urban growth rates are a major cost impact that has encouraged the emergence of impact fees. As in third world countries, the United States is seeing a continued increase in urbanization, as rural areas suffer sustained population losses.
Table II illustrates the magnitude of the domestic urbanization
Distribution of American Population: 1880 -- 1980
(In Mill ions)
YEAR TOTAL U.S. URBAN Total % of U.
1880 50.2 14.1 28.2
1900 76.2 30.2 39.7
1910 92.2 42.0 45.7
1920 106.0 54.2 51.2
1930 123.2 69.0 56.2
1940 132.2 74.4 56.5
1950 151.3 96.8 64.0
1960 179.3 125.3 69.9
1970 203.2 149.3 73.5
1980 226.5 167.0 73.7
The effects of this urbanizing trend are compounded by the unbalanced regional distribution of this growth. The Nation's population is migrating from the industrial Northeast to the Sunbelt' states (the South and West). During the 1960's, the Northeast grew at only three-quarters of the national rate. Since the 1970's, this region's relative growth rate dropped to
one-fifth, and the South and West together have grown nine times as fast as the North. When considering the combined
urbanization and regional migration trends, it is of no surprize that Arizona, California, Colorado, Florida, and Utah are the states that have been identified as areas where DIF experimentation is on the rise.
This Rapid growth impacts two basic types of municipal expenditures: Capital costs and service costs. Heyman and
Gilhool's respected study of exactions asserts that service charges generally tend to increase according to population growth, so that old and new residents equitably shoulder this cost burden and rapid development does not create a fiscal emergency for the current budget. Neither is true for capital outlays. When capital items are purchased out of current revenues, there is "an appreciable drain on revenue sources in a specific year and a fiscal "emergency" is created." Most communities cannot survive very large emergencies. The budget busting nature of capital costs thus additionally compounds the impacts of accelerated growth, especially since an up front expansion of capital facilities is usually required.
The need for significant expansion of capital based service
systems means that new revenue resources must be found. New revenue sources are not easy to come by. Property taxes, the traditional backbone of municipal finance, have had a declining role and are very difficult to increase. The state limits on property taxation levels have become more restrictive in the wake
of the anti-tax movement, which climaxed in 1978 with Proposition 13 and has yet to completely subside. Since then, 23 states have imposed at least one additional limit on the revenues and expenditures of local governments. It is no coincidence that charges and miscellaneous receipts increased markedly after 1978. Citizens are especially opposed to tax increases when they feel they are caused by the capital facility needs of new residents. As western growth impacted cities confront the pollution and congestion problems of the eastern seaboard, the public's concern about the costs of new development has reached a heightened level of awareness. No-growth sentiments have emerged with vigor, and the protest against increased costs is simply one manifestation.
Bonds show even less promise for increasing revenues, for four reasons. First, they require voter approval, and cannot be considered a controllable resource for this reason. Second, states also set limits on indebtedness, and rising costs have eroded purchasing power within these limits. In Colorado, there are "literally dozens of communities" with pressing, even mandated improvement needs which have used their total bonding
capacity. Third, rising interest rates have made municipal debt service more burdensome. For example, Milwaukee has a AAA bond rating and sold 15-year general obligation bonds at 6 percent in June, 1980. By October 1981, their interst rate on a
similar bond sale doubled to 12 percent. Finally, bond buyers are finding better investments. Substantial changes in the tax rate on long term capital gains has made stocks more attractive, and accelerated depreciation (a 15 year write-off on commercial buildings) has made real estate more appealing. In fact, two
multi-bil1 ion dollar bond purchasing industries have virtually
withdrawn from the bond market.
A few observations on the final, dubitable revenue source of federal subventions is in order before moving on to a detailed description of growing infrastructure costs. Continued diminution of federal revenue sharing funds would have a severe if not disastrous effect on local governments' ability to finance pressing capital needs. A study of the use of revenue sharing funds revealed that the top three expenditure priorities were capital improvements, public safety, and maintenance.00 Clearly, further reductions would seriously impact the ability of communities to provide the new infrastructure that growth demands.
The size of the problem is evidenced by three May 1985 headlines in the Denver Post: "City Faces $12 Million Loss in
; Revenue-Sharing Program in Peril,
Financial Crisis," and "City Faces Shortfall of $25 Million in 62
'86. The articles state that Denver has been operating at a
deficit and relying on "savings" since the late 1970's; that increased taxes and/or fees will be needed (politically, it is apparent which option would be emphasized); and that past shortfalls had often been covered by transfers of large amounts of money from the capital improvements fund to the general fund. This latter approach is fairly typical, but deferred maintenance has major long-term cost implications.
Mounting Capital Costs
It is readily apparent that municipalities' revenue sources are highly constrained, but the cost side of the equation is even
south and western cities
mor st r
e dramatic. As rapidly growing ive to cope with the need to expand capital systems, the costs
of maintaining and replacing infrastructure have gotten out of
d. It is extremely difficult for a community to supply new
facilities when it is unable to cover the expenses of necessary,
g overdue maintenance and restoration activities. The
magnitude of capital needs unrelated to growth is staggering. It is estimated that $3 trillion is needed simply to restore existing infrastructure in the United States. A vast number of communities are finding themselves unable to keep up with these needs, and individual horror stories abound. In a 1981 address to state officials, Representative James J. Howard (D N.J.), chairman of the House Public Works and Transportation Committee, claimed that "It is no exaggeration to say that this country is perilously close to becoming a nation of ruins, and only massive and continuing investment in public works can keep it from going over the brink.Table III gives an idea of the incredible levels of expense needed just to restore existing, decaying lities (note that all costs are in bill ions of dollars):
Estimated Infrastructure Restoration Costs
$1,800.........Roads and Streets
$33.........Interstate Highway Repairs
$110.........Watersystems in 750 urban areas
$31.........Wastewater Treatment Facilities
$15.........Prisons and Jails
In raw numbers, it is estimated that 250,000 bridges are structurally deficient. There are about 9,000 "unsafe" dams in
hly populated areas, and another 130 in danger of imminent
collapse. Interstate highways are wearing out at a rate of 2,000
mil 1 i a
es per year, and New York City alone paid $20 million in bility claims for "negligent maintenance" in 1980. According to the 1982 Municipal Yearbook, there is a "sizable portion" of U.S. communities that cannot permit major expansion because wastewater and water treatment facilities are at full
capacity. Supnorting this statement is a U.S. Department of Commerce survey of 6,870 communities. The survey found that 46 percent of these communities were operating "at or above
It is not merely limitations on revenues that have made cities reluctant to generally fund new facilities and that has caused cities to fall behind in the maintenance/restoration game. Rather it is a combination of restricted revenues and an almost absurd increase in unit costs. From 1965 to 1977, construction costs have inflated twice as fast as consumer prices. y For water and sewer systems in particular, construction costs have increased approximately 10 percent per year since 1979 (and the major supplier of assistance for municipal sewer systems, the EPA, reduced its support of this program by 35 percent for fiscal
yeajrs 1982 through 1985)
When the increased construction
ts are considered along with the compounded effect of
increased interest rates (i.e. more exacting debt service costs), the extent of cost concerns is understandable.
The tact commonly taken by cities in budgetary shortfall situations is to defer capital improvements. The long term cost
impacts of maintenance deferal can be devastating, but often this is one of the few discretionary budget items that allows any flexibility. Also, many of a community's costs are mandated by the state and federal governments. It is not unusual for the regulatory requirements of these governments to impose specific expenditures of local revenues for specific programs at explicit service levels. Handicapped accessible features for public buildings and mass transit vehicles are one example. Federal and state law set public health standards for water and effluent that apply to all communities regardless of ability to pay. Standards for jails and correctional facilities are of the same nature.
Roads provide a good example of the potential effect of postponing needed repairs. Assume an asphault cost of $40 per ton in-place, or about $63,000 per two lane mile for a two inch thick overlay. If two inches of overlay extends a road's service life by eight years and a two and one-fourth inch overlay extends service by 16 years, trying to save the one-fourth inch (or $8,000) costs a city $55,000 eight years down the line.72 In some ways, municipal repair efforts are similar to taking care of the family car. Failure to correct poor alignment in a timely fashion can necessitate more costly drive train repairs later, and failure to change oil frequently can require a whole new vehicle much earlier than is really necessary. The analogy extends to the maintenance of many types of municipal capital service systems.
To summarize, the DIF trend is only now gaining momentum. The natural evolution of this regulatory device from the relatively modern land-based fee in lieu of dedication has
gained greater impetus from the
munities are presently experiencing. Rapid growth,
dangerously deteriorating infrastructure, inflated construction
costs, diminished local revenues, and emergent no-growth/anti-tax
sentiments are the key forces that, in combination, have promoted
today's enlarging scope of impact fee experimentation. As a
National League of Cities survey report puts it, "...cities are
generally turning to increases in fees rather than taxes" to
raise revenues, and "Fee increases or new fees occurred in 71% of
the cities..." that they surveyed. There is certainly an
immense need for increased revenues simply to maintain the existing capital facilities of our cities; facilities that are essential for preserving the general health, safety, and welfare of the public. If attempts are made to expand service systems in response to large amounts of new growth in the way cities did for slower, incremental growth in previous years, the quality of life both new and existing residents will deteriorate. By
resorting to impact fees, cities are admitting that past means of providing capital improvements (i.e. bonds and general revenue expenditures) was a mistake, and cannot possibly meet all needs during times of rapid growth.
If necessity alone were adequate justification, impact fees could not be rejected. Illegal, inequitable, and/or poorly devised DIF ordinances are never justified, however, no matter how urgent the need for new revenues.
THE EQUITY AND FAIRNESS ISSUES; WHO PAYS, AND WHO SHOULD PAY?
Many cities may indeed be struggling with severe fiscal
difficulties, some to the point of crisis, and therefore have
great need to look for additional revenues wherever they may find
them. And large amounts of growth unquestionably generate the
necessity for additional expenditures of public funds;
expenditures that can be ruinous to a community's ability to cope
when existing facilities demand attention. But even truly great
need does not excuse injustice. One weighty argument against DIF
requirements is that there is no reason to think that communities
"would voluntarily stop charging developers at the point where
their fees became fiscally inequitable." It is quite likely that some communities are exceeding this point. The intent of this chapter (and the next dealing with legal issues) is to determine where this point is, and to design a fee system that stops short of fiscal inequity.
The primary argument for resorting to impact fees is that growth costs, cities can no longer handle these costs, and thus growth should pay its own way. Just as one buys his way into the capital costs and capacity of a centralized water treatment plant through expensive water tap fees (and courts have supported the buy-in concept in this area), should not one also have to buy into the capital costs of other municipal service systems such as
ds, parks, fire protection, schools, and the cost of the
Fundamentally, the central questions are: should impact fees be permitted to assess new growth when previous growth was not so charged? Is the use of impact fees justified? Can impact fees be fair? Who really pays the impact fees? Developers risk huge losses if they wind up in a conflict situation, faced with the need for approvals from a hostile city, and will therefore pay more than their fair share of costs in many instances just to remain solvent. Impact fees, then, can be abused. The Florida State University studies have revealed a number of poorly thought-out fee systems that could be considered less than fair. Do impact fees protect a community from excessive growth costs, or are they simply "extortion in the public interest," as some have called them?"^ These and other questions are addressed here, as we examine the various arguments concerning fairness; the crux issue of DIF use. Even if ample justification of DIF systems is found, failure to consider the complaints against their use and to incorporate mitigating measures into a fee ordinance will lead to continual court challenges which "could
undermine the legitimate use of the fee concept."'0 In other words, if justification exists for DIF use, design a fair system that will help offset the fiscal burdens of new growth, rather than a system that is designed only to bring in as much revenue as one can possibly get away with.
The buy-in concept of impact fees is that existing residents have already paid for the capital facilities that they use should not have to subsidize new residents by buying more of these items for them. On the other hand, new residents who pay impact fees should not be seeing those funds used to either
upgrade or expand the capital-based service systems that benefit
existing residents. Since DIFs are often used for centralized, off-site improvements, the fear that fees will subsidize existing residents is certainly well founded. Optimally, a balance should be reached by setting fees so that neither existing nor new residents subsidize the other, and growth pays its own way (and no more).
The author of this analysis believes that such an optimum balance can be achieved by a properly crafted ordinance. If this
is true, then the initial question to consider is whether it is fair to charge fees for new growth when formerly growth occurred at general public expense. On the surface, the argument that new grc ,vth should cover its own costs abd not burden the existing community would seem quite reasonable. There are, however, arguments on the other side of the coin that undermine this simple logic. The following excerpt perhaps frames the anti-DIF
Compare a new resident and a lifetime resident of a community needing to add capacity to its sewage treatment plant. Certainly but for the new resident arriving, the system would not need expansion. It must also be the case, however, that but for the lifetime resident remaining, the system would not need expanding. The cost of serving each of these persons is the same. Unless we give a preference to the person there first, which is a practice of questionable validity, the conclusion that it is equitable to make newcomers pay for expanding a system seems a doubtful one.
The issue is not further this criticism of impact communities will nevertheless
addressed fees. He assess new
by the author who cited simply concedes that growth, states that this
equity question depends on what is included in the distributed costs, and moves on to suggest which costs are inappropriate for recovery through fees. What this discussion did not note is that in all communities the existing housing stock does turn over, since we are such a mobile society. Newcomers could opt to purchase existing housing rather than paying fees associated with new developments. In fact, it is unreasonable to assert that the residents of a new development are all newcomers to town when locals will often be looking for a new, upscale home in their own community, and will pay impact fees as part of the cost of upgrading their dwellings. In any event, if the newcomers are unwilling to buy a "used" house, they choose to pay the fees. If they are unable to find an existing dwelling because the population influx is much greater than the turnover rate for older homes, then new growth has been attracted because of the current quality of life and the newcomers should pay the fees for the capital items they cause a need for, so that this quality may be maintained. Otherwise essential maintenance and repair funds are no longer available.
Along a similar line, some argue that if capital service facilities had been provided by the town previously, it is unfair to alter this practice by initiating a DIF system. Professor Robert Ellickson, in a significant article on the economic fairness of growth controls, illustrates this argument using a hypothetical town ("Eden") and developer ("Tacky"); "If Eden has traditionally satisfied park "needs" by spending general revenues, why should Tacky have to pay specially to meet its own
park needs when no other landowner ever has?
forms part of an equality of treatment theory that Ellickson calls "horizontal equity." The answer to this troubling argument has already been given. It is absurd to inflexibly lock cities into their historic funding methods. They must be allowed to respond realistically to economic changes and radically altered growth rates. If local governments experienced slow, steady rates of growth, they could perhaps pay for capital items out of general revenues and suffer through the lag time until the new development's property taxes begin to roll in. The nature of the fiÂ£cal crunch', however, precludes such financial abilities.
It is unfortunate that Ellickson gave so much weight to his arguments for horizontal equity, which overemphasizes the need to treat new developments the same way previous developments were treated. After all, circumstances do change. It is unfortunate because his article has acheived wide acceptance, and his horizontal equity argument was expressly cited in the Banberry Development Corp. v. South Jordan City decision (discussed at length in the next chapter); a new Utah decision which may well becdme a landmark case for its efforts in specifying detailed criteria for determining the reasonableness of fee exactions. In referring to Ellickson's important 1977 treatise, Donald G. Hagman later noted that indeed, "Professor Ellickson comes to
many wrong conclusions."
In discussing the equal protection clause, Heyman and Gilhool's equally prominent article also dissagrees with Ellickson's opposition to changing the way municipalities finance capital items to account for growth. They note that the newer
exactions do not discriminate between contemporaneous builders, but might be argued to discriminate between earlier and later developers. Heyman and Gilhool respond that "classifying such builders differently would not be unreasonable under the equal protection test: legislation must take effect on some day, and
hence there would not be proscribable discrimination."
Another author offers an excellent example that criticizes the disadvantages of Banberry that result because of "the practical problems inherent in the horizontal equity theory" upon
whijch this recent, innovative case partially relied. It is charged that the case and the theory it applied do not allow a city any discretion in dealing with the changed circumstances involving growth. If a city were economically stagnating, for instance, it might offer generous concessions to a potential developer in order to lure economic stimulation. Once the economy started to improve, pure horizontal equity would require it to treat new developments the same way, and lock the city in
to a pattern of excessive generosity. This might result in a catastrophic financial bind, if growth suddenly takes off at a hectic pace. While the Banberry court gave too much emphasis to comparing the relative burdens of old and new developments, it at least allowed some recognition of the need to preserve municipal flexibility. The court adopted language from a New Jersey case, Deerfie1d Estates, Inc, v. Township of East Brunswick: "nor
should a municipality be denied the right to modify an established pattern where altered circumstances reasonably so dictate. Equality of treatment may upon occasion be forced to
give way before some supervening public interest
It has long been recognized that cities must be allowed to
discontinue impractical past policies in response to altered circumstances. U.S. Supreme Court Justice Sutherland established this in his opinion during the classic Vil1 age of Euclid v. Amber Realty Co. case in 1926;
Regulations, the wisdom, necessity, and validity of which, as applied to existing conditions, are so apparent that they are now universally sustained, a century ago, probably would have been rejected as arbitrary and oppressive... and in this there is no inconsistency, for while the meaning of constitutional guarantees [sic] never varies, the scope of their application must expand or contract to meet the new and different conditions which are constantly coming within the field of their operation. In a changing world, it is impossible that it should be otherwise,
One reason that DIF systems have recently become so popular is because they can be supported politically. The newcomers who must pay the fee exactions are a politically silent, disenfranchised nonconstituency with no real power. In addressing fiscal equity, it has been charged "that a general municipal tax that falls entirely or primarily on a politically
helpless minority is prima facie unfair
unable to oppose fee systems enacted before they arrive, but they
it 8 6
not wholly without a vote. As previously asserted, they Id opt for temporary housing in their chosen high growth munity until the turnover rate allows them to buy into
previously constructed dwellings; in homes already well served by the communities existing capital investments.
Of course, any so-called discrimination against newcomers and new developments could be avoided by utilizing pure horizontal
equity theory. This would require that the existing housing stock be assessed an impact fee when sold, so that both old and new dwellings are treated the same. But in practical terms, this would be absurd. The market for older homes would be depressed and slums could result. Also, new residents in existing homes do
not add to service demands as does growth. Finally, older homes have paid significant property taxes for years, as opposed to lowly-assessed vacant tracts just beginning to develop. Any fees paid when existing homes change hands would largely go towards new facilities for new developments, and again would reduce the appeal of existing homes serviced by older facilities.
Another frequently cited criticism of DIFs is that they increase housing costs enough to cause the exclusion of low income housing and high density dwellings. Accepted social po 1 and fir: pol:
icies promote mobility so that labor may follow industries,
also favor the provision of decent housing for all. At st blush, DIF systems would seem to conflict with these icies. In the logic of one commentator, since developers pass
fees on to buyers, courts might consider high fees to be "tantamount to illegally restrictive or exclusionary zoning" when minorities and low income groups are forced out of the housing
market and de facto segregation results. Impact fees that are
d for exclusionary purposes, or that inadvertently result in
exclusion, deserve to be overturned so that the current fair share housing concept does not suffer. A DIF system can promote affordable housing by offering incentives or exemptions for certain apartment developments or deed-restricted low cost housing. This may be unnecessary because fees are only assessed
of new developments, and new housing is by its nature generally too expensive for low income groups. Newly constructed subdivisions are generally exclusionary without fee requirements. Despite this logic, provisions in DIF ordinances that encourage high density, infill, and/or low cost housing is still a good idea.
Perhaps the most significant, fundamental question involved in the emergence of impact fees is "who pays?" The foregoing discussion contains the implicit assumption that DIF ordinances are a new burden on today's developer, or that fees are passed on to home buyers as an additional cost. Since this is an economic
question, it is not overly surprizing that the true answer is not
The assertion that impact fee costs are reflected in the price of property that new residents buy assumes that developers automatically pass costs on to home buyers. This presupposes that the demand for housing does not respond to changing prices, or that housing supply is completely responsive to price changes.
Neither of these assumptions is a realistic possibility, so
complete "passing on" is actually the least likely outcome.
The most recent court decisions on fee exactions, however, stress
that the reasonableness of fees should be measured by equating
benefits and burdens. This would allow fees, in theory, to be
completely passed on because the home buyer would realize an
increased property value that exactly equals the price of the Q1
fee. But fees may be used for centralized facilities such as sewage plants or major ball parks, and thus a home buyer receives
only proportional benefits from an item financed by his fee payment, which may not be fully reflected in the value of the property he purchased. So the idea of getting a property value increase as the benefit from a DIF payment is a little more far stretched, which makes passing costs on more difficult. The value, in some instances, may only be reflected in that the whole community's overall appeal is not allowed to decline. Also, DIFs may be imposed for a harm avoidance measure rather than for an item which gives immediate apparent benefit (a storm darinage improvement, as opposed to a neighborhood park, for instance). This again hampers the ability of a developer to completely pass on costs. In practice, in a community where a DIF system is employed both the developer and the home buyer experience increased costs.
But a very important third party who has a stake in the equity issue has not yet been mentioned. The owner of vacant land who sells to a developer is certainly affected. Hagman offers two excellent examples that show how landowners are really the ones who pay. Consider a developer who wishes to acquire one of two properties that are identical in every way, except that one is in a city that will provide infrastructure out of general funds, and the other is in a city that exacts infrastructure costs from the developer. The developer will offer a lower bid to the landowner in the city with stringent exactions. The landowner may not sell, but he will not be able to sell at a higher price because property sells based on what it can be used for. If infrastructure is needed for development and the
developer must provide it, the costs will capitalize into a lower
land value. Hagman states that;
...as a developer, I don't care whether infrastructure is in or is not in. I will either pay, say,
$500,000 for land and incur $500,000 in infrastructure costs, or $1,000,000 for otherwise identical infrastructured land. In short, I might write the check of $500,000 for in-lieu fee exactions to [the] city, but I don't "pay" it, really. I merely transferthe$500,000thelandownerdidn'tget.2
This example assumes that all developers are shrewd and
knowledgeable in the ways of land development, and that the
developers know well ahead of time what public costs they will
have to pay. Unfortunately, neither is true in many instances.
There are amatuer developers who would pay the excessively high
es price on land, not knowing exactly what they are getting o. Little can be done about this, though the phrase caveat
emptor comes to mind. The second assumption, however, can and should be addressed. There are six ways that cities considering the adoption of a DIF ordinance can insure that the landowner, not the developer, will pay the new costs.
But is it fair for the landowner to pay? Fees are fair to landowners if one examines what it is that adds value to developable land. It is because of community effort and the actions of society, not the landowners actions, that gives added value to land. A community that decides to recapture part of the increase it "gave" to landowners is not being unfair. This is the concept of unearned increment recapture, that might be argued to be a civic duty, since it usually violates state constitutions for a government to give gifts to private persons. The
concept has been embraced by the U.S. Supreme Court in Penn
Central Transportation Co. v. City of New York, where a taking charge was turned down in part because the court segregated the privately contributed ingredient of the property's value from the governmental/societal contribution of value to help determine the "elusive concept" of reasonable return.94
Hagman's second practical illustration emphasizes the land residual method that is widely used by developers and appraisers. He hypothesizes a developer who wishes to build 100 homes and then sell them for $100,000 each, for a total sales price of $10 million. The developer runs some calculations for the project considering labor, materials, and financing costs, and determines that he or she will make the profit he or she requires by paying $2 million for the necessary land. Landowners also know these costs, and based on these and the permitted use of their land know that their holdings are worth approximately $2 million (in a case where the land is appropriate for the hypothetical developer's project). Then the city enacts a DIF ordinance; one that means that the city will exact an additional $1 million in fees for that hypothetical project ($10,000 per dwelling for all public costs imposed). Now the project will not be worth the developer's efforts if the new cost comes out of his or her profits, so the project will only be executed if the cost can be made up elsewhere. The developer may choose to sell the homes for $110,000 each to cover the difference. But if the developer can now sell the units at $110,000, why did he or she earlier "give" them away for $100,000? The answer is that the developer would probably be lucky if he or she could get the original $100,000 per unit, and would be unable to sell them at the higher
price. Since the developer does not have to build, there is no way he or she can be made to pay the fees and the home buyers will not pay either since they will not buy the $110,000 units. If the project is to procede, the developer will re-run the calculations, and will find that he or she can now only "afford" to pay $1 million for the land needed. Hagman concludes that
"generally, inexorably, the landowner will pay."
This author believes that it is the landowner who should pay the costs of fee exactions, because this is merely a means for the public to recoup some of the value increase that society (and the government) contributes to property. But how can a DIF ordinance be designed to achieve this objective, and limit the costs imposed on the developers and consumers of new construction?
The first of six possibilities is to give adequate notice.
If it is announced well in advance that a DIF system will one day be adopted, the situation where a developer buys land assuming that the city will provide all necessary off-site facilities only to find out later that he is stuck with some of these costs can be avoided. Proper notice would allow development costs to be capitalized in lower land values. This is not just a courtesy. Today's courts are increasingly looking at systems that establish costs before hand with favor, and overturning those systems that are overly open-ended.
Second, developer contributions should be tailored to specific sites and fees varied according to the specifics of the development proposal. This would call for a formula for
determing the fee levels; one which includes variables for housing types, densities, building types, and locations. Location is especially important since leap-frogged, outlying development is more expensive to service. Other site-specific variables may be relevant as well, such as the cost impact of land elevation on sewage collection systems. This should be done in a predictable way, however. Developers should be able to determine fairly quickly and easily what will be expected of them. Use of the comprehensive plan and/or the CIP is also suggested. If developers can use these documents to know what kind of improvements must precede development, they may know what costs to expect. For example, suppose some outlying incorporated areas are vacant, and will need to cross a river to enter the main part of town, and the existing bridge is suitable only for very low amounts of traffic and light vehicles. If the CIP includes the cost of the bridge's improvement and the comprehensive plan establishes some sort of "benefit district" showing all the properties it expects to become developed that would enjoy use of the bridge (and a share of its costs), the prospective developer will know with some certainty that significant fees will be imposed for the improvement. If the city does not contemplate development in that location within the next five years, but knows that it may one day develop, then only the comprehensive plan needs to indicate that this improvement will have to be completed at some time prior to development of the area.
Third, local governments should promote the supply of land and plenty of competition in the land market. Short supplies
allow developers fewer options and make it difficult to capitalize fees into lower land prices, because restricted supplies mean higher prices. Increased densities effectively increase supply, and can be cheaper in terms of infrastructure.
Fourth, while regulation of development should not be inflexible, the land use plan and development codes should be consistent. If landowners believe that higher density zoning can be obtained because the land use plan is not adhered to, they will be likely to charge higher prices.
Fifth, inhibit land speculation by assessing vacant land at a rate that begins to approach full value, so that carrying costs are greater. Property taxes can have an effect on real estate activity, and "a community with full-value assessment of vacant land is likely to see greater capitalization of development fees in land prices than one that underassesses and undertaxes its vacant land."^
Finally, do not go to unreasonable extremes in setting fee levels. If the fees are too high, they will cancel out any property value increase that land gets from infrastructure improvements. When this happens, housing prices get bid up. Whenever possible, the fee exaction should approximate the amount of benefit that land receives. This can be a difficult objective when fees are used for a proportion of a centralized facility or for a purely harm avoidance improvement, but the use of fees in the area from which they were exacted (areas that can be designated in the comprehensive plan) should be done whenever possible to allow a quid pro quo. This is not to suggest that
DIF levies be limited to the specific benefit of increased property value, like a special assessment, but that attempts
should be made to match benefits and burdens so that one does not
excessively outbalance the other.
Other Advantages and Justifications
There are a number of other reasons why DIF systems are desireable; reasons that also serve as justification for increased use of impact fees. One of these is the impetus that DIF use gives to promote thoughtful, practical advanced planning. The previous section demonstrates how the comprehensive plan and CIP might be used in this respect. DIF use forces communities to consider how much of what facilities will be needed when and where. They are forced because they must estimate the costs that will be apportioned in direct relation to either the needs generated or the benefits conferred upon a particular development. The actual amount of future costs need to be estimated as accurately as possible so that these costs may be fairly apportioned as development occurs. Foresight rather than hindsight is needed. Of course, not all costs can be exactly foreseen, so flexibility must be retained. It is because of unforeseen costs that specific service level standards are required. In this way, fees may better be defended as relating to the development's needs. (i.e. each project's needs may be consistently quantified). By anticipating where growth is likely to occur and at what rate, a community can apply its standards to that particular area, estimate how much of what kind of facilities will be needed, estimate the costs, and determine how these may be
itably distributed. By extending existing service level
standards to new developments and imposing the capital costs, a community ensures that its overall quality of life does not diminish. Areas that are undesir+able for immediate development because they would be more expensive to serve thus should be tagged with more onerous fee levels.
Too often tax increases and bonding measures are instituted after development has occurred, and a city may find itself unable or unwilling to finance the needed services. DIF use gives a community immediate availability of either funds or land, so that it need not pay exorbitant prices for improvements at a later datq (or the need to employ expensive eminent domain). Consider
New residents ultimately pay the costs of development, however, either up front in cash and land or later when problems of over-crowding, insufficient sewer capacity, or inadequate educational facilities must be remedied. The former is certainly cheaper than the latter and emphasizes anticipating problems rather than mopping up afterward.
To this one might add that the exorbitant costs of "mopping up"
erwards fall upon the entire community, so DIFs may be
justified in that the newcomers will pay a lesser amount for the
e result as opposed to everyone paying much greater costs
The use of DIF systems encourages advanced planning in another way; the managing, directing, and even sometimes slowing of accelerated growth. By setting fees with a formula that
incorporates site-specific variables (the distance factor
previously suggested, for example), infill development and development at the fringes of a community may be encouraged and leap-frogging developments discouraged. Similarly, the type of growth may be influenced by the fee level. Commercial developments may be promoted over residential, for instance, or high density residential may be encourage over single family detached dwellings. This should be achieved, however, by incentives rather than unfair or illegal disincentives. No particular use should be assessed fees exceeding its actual burden or benefit, though it might be desireable to assess a particular use type below its actual benefit/burden. Similarly, impact fees may be a disincentive to all growth and thus slow its rate. Some existing attempts to slow growth are indeed no more than euphemisms for growth as fast as developers are willing to pay. Again, though, the fees should accurately reflect true costs, and not be designed as excessively (or unreasonably) burdensome simply to stop growth.
Another justification for DIF systems returns to the argument of who should pay. Some assert that it is not unreasonable for developers and new residents to pay, because in the absense of devices to shift the cost of public improvements, the developer reaps windfall profits. Baldly stated, "the developer "sells" his customer the schools, recreational facilities, fire protection, etc., that are primarily paid for by the older residents of a community."99 This is essentially just another perspective on the unearned increment recapture theory, whereby
private entities would otherwise profit from public investments
A further justification is that DIFs allow for full nondiscriminatory, equal treatment under the law in the provision of all public facilities. In-lieu fees for parks were justified under this argument for imposition upon small developments. If a large development that alone necessitates a new park can be required to provide one, it was reasoned, why shouldn't small developments (and even single new buildings) be required to shoulder an equal burden and pay a proportional amount for its contribution to overall community park needs, just because it alone is not generating enough need for a full park? Similarly, huge new developments are often required to provide localized fire protection facilities, neighborhood schools, and package water treatment plants. Since this has been allowed, the same reasoning would permit impact fees to exact proportional costs from small and single unit developments, to achieve truly equal treatment. The reasoning, as framed by Heyman and Gilhool, is "no justification appears for perceiving a constitutional dividing line between statutes which permit one kind of [public] cost to be imposed (for instance, street improvements) and not another (for instance, educational facilities) as long as a method exists for relating costs and exact ion."1
Impact fees may also be justified in that they can prevent unnecessary, wasteful costs. DIFs do this in two ways: they of course reduce the need for costly "mopping up," but they may also enable cities to realize economies of scale by investing in centralized facilities. If fees were restricted to expenditures for on-site improvements, a community might be unnecessarily hamstrung, and cost savings left unrealized. Assume, for
instance, that a large 1200 unit residential subdivision was proposed; big enough to justify a minor sewage package treatment plant. The affected city could require the developer to construct it, under existing precedents in their particular state. Suppose, too, that the city could instead exact less than the cost in fees, and apply the funds towards expanding the capacity of a major off-site existing treatment facility. It is possible that this might allow the city to realize an economy of scale, and actually provide more than an additional 1200 dwelling unit capacity for less cost. If off-site facilities were a prohibited use of fee exactions in that state, the advantage would be lost. In times of fiscal hardship, such flexibility should not be denied.
The fact that nearly every state authorizes dedication requirements (and most also permit in-lieu fees to enable equal treatment of large and small projects) establishes a policy that new growth is expected to bring its share of necessary public facilities with it when it enters a community. The existence and acceptance of dedication requirements, therefore, shows that exclusive reliance upon the uniform property tax to supply newly needed service facilities is considered an inappropriate burden on the existing community. Impact fees, then, serve two purposes consistent with this policy. First, the arbitrary nature of land area/land value based dedications is eliminated. A regulation is itrary when the rational relation between it and the posited
arb ob j
ective it is supposed to serve is weak or non-existent
Impact fees are less arbitrary because they are more directly
tied to their objective, being based on a more rational demand (such as anticipated new population, rather than an area percentage of a developing tract). Second, DIFs provide a more accurate portrayal of the true public facilities costs that a new development represents. The real costs include construction and financing, as well as land acquisition. Dedications provide only land, while DIFs allow distribution of the full range of capital expansion costs. Also, DIFs can recover the costs of any public service system expansion, including capital items normally beyond the reach of dedications and in-lieu fees.
In response to this, some might agree that the relation of needs to exactions is indeed more closely linked by DIFs, but would argue that the validity of regulatory fees requires a more strict set of criteria than do more conventional police power regulations such as dedications, bulk regulations, use restrictions, setbacks, etc. They might reason that more strict standards are warranted because DIFs are "positive exactions" rather than "negative prohibitions." This focusses more on the taking issue, rather than that of arbitrariness, and DIFs do appear to be more of a taking of property without just compensation. With a conventional regulation, all that needs to be shown is that the development will result in negative impacts to the general welfare and the regulation is necessary to mitigate the impacts. As long as the relation between the regulation and the impact is rationally conceived, the public purpose being served is legitimate, all similarly situated developments are treated the same, and a reasonable value is left for those regulated, the regulation will be upheld. While some
feel that this is not strict enough for fee exactions, Heyman Gilhool note that "the actual cost of a zoning regulation to owner in any specific case might easily be higher" than a sitive" fee exaction. This is particularly true of
prohibitions on types of use. They also assert that "there seems no ground for distinguishing constitutionally a "positive exaction" and a negative regulation of use. Either, neither, or both may be discriminatory or a taking in any specific case."^^ In response to the off-site use of DIF revenues, one might complain that the benefits of the exactions should inure exclusively to the affected subdivision if impact fees are to be
irately considered a police power regulation. To support this plaint it is argued that newcomers to a community should bear
no more than a proportionate share of governmental expenses, and that it is unfair for his costs to provide benefits inuring to the general public. Heyman and Gilhool counter this by showing how modern cost accounting can determine the costs generated by a new development, and thus avoid charging newcomers more than their proportionate share. Moreover, cases concerning conventional zoning and subdivision regulations have ruled that benefits to the general public do not make regulations illegal, long as there is a rational nexus between the exaction and
costs generated by the creation of the subdivision." The
eral public may recieve some benefit without violating the
reasonableness of the regulation
THE LEGALITY OF DIF SYSTEMS
Perhaps the most important critic to consider when igning a DIF ordinance is the judiciary. As the size and
types of required dedications and improvements have expanded over the years, the corresponding response from the courts has demonstrated an evolution in judicial attitudes. Many requirements that were initially struck down dedication of park sites, for instance now enjoy a rather wide acceptance. Courts today are more likely to sanction development fees, but judicial treatment of this regulatory tool has been inconsistent. It is because the United States Supreme Court "has not spoken directly on this issue" of impact fee use that consistency does not exist171 and the legal status of DIF use varies greatly from state to state. The evolution of judicial attitudes in this area of land use law has therefore progressed at different rates in different states. Some states have gone a long way in defining the reasonableness and constitutional limits of fee exactions, while in others impact fees lack authorization cannot be used.
Three primary, traditional tests exist for weighing the reasonableness of exactions. In states where impact fees have determined to be authorized, these tests have been applied evaluating the fees, and frequently have been modified. Fortunately, although inconsistent treatment exists, a general pattern or concensus (regarding the constitutional limits and the reasonableness of impact fees) appears to be emerging from the
states that have found authorization for DIF systems. By examining some of their relatively recent cases, and putting them in context with the earlier cases from which their principles evolved, the action in these states help establish the limits of reasonable DIF use and enable one to determine how best to lay the foundation of a solid fee ordinance. Before locking horns with the difficult issues of reasonableness and constitutional limits, two other issues need to be settled. One is whether or not DIFs are authorized as a regulatory measure; the other is whether the device is to be considered a tax or a regulation. These two issues are partially related.
The fundamental prerequisite for DIF use is a suitable source of authorization. State planning enabling acts, the basic source of authorization, are generally of two types: they either explicitly detail the regulatory powers of their local governments; or confer broad planning powers in very general terms (i.e. 'to regulate land development so as to promote the general health, safety, and welfare of the public'). Communities in some states are fortunate in that their state statutes specifically empower them to consider the impact of development in determining appropriate regulations. These rather rare, explicit delegations of power are sometimes found under the auspices of state environmental protection acts and are limited to consideration of environmental impacts,while other states may permit consideration of social, aesthetic, and economic impacts, among others. In such cases, the reasonable use of regulatory fees is
authorized. There are other states that explicitly authorize dedications for various public purposes, sometimes in a subdivision map act, which may be in addition to planning enabling statutes, and some of these also include specific authorization of in-lieu fees. Communities in these states usually, but not always, will find that their courts will allow impact fees, since they are analogous to in-lieu payments. The other states simply say that their local governments may provide for streets, parks, and other public purposes through very general language, and do not specify how this is to be accomplished. In these states, the courts may either make strict or expansive interpretations of the relevant state statutes, and a community's ability to use a DIF system depends wholly on the court's interpretations. Of course, adequate authorization is a moot point if the pertinent statutes are found unconstitutional. But "the clear trend among state courts is to validate such extradevelopment capital funding payment requirements as a valid exercise of the police power" when proper authorization is established.'*'
The first step for communities considering the adoption of a DIF ordinance, then, is to check both the existing statuatory authorization and the previous judicial decisions on the issue for their particular state. Both are important because a
tutory delegation which "appears to be a weak basis for local
action can become much stronger when bolstered by a liberal
construction by a state supreme court." The reverse,
obviously, can also occur.
e or a Tax?
If authorization for fee exactions is adequate under the police (regulatory) power, DIFs are then frequently attacked on the grounds that they are an illegal tax rather than a permissible regulation. The question of whether a DIF is a tax or a regulatory measure is critical, because the device is actually both a form of land use regulation and a revenue raising measure. If the tax label sticks, the fee requirement is defeated before its reasonableness can be ascertained, either because taxes require specific legislative authorization or because impact fees only affect certain properties, and many state constitutions contain prohibitions against uneven property taxation.
One aspect of the evolution of judicial attitudes is that early regulatory fee exactions were often struck down as
unauthorized taxes, whereas more recent cases have accepted
impact fees as a regulatory concept within the scope of the police power.1^ Two means are available to prevent DIF ordinances from being classified as taxes. First, the specificity and clarity of the enabling statute is important, because a demand for money under the police power can be upheld only if it primary purpose is regulat ion. Tying the enabling language closely to established regulatory purposes such as providing adequate light and air, preventing congestion of population and buildings, and other harm avoidance goals (so as to promote the general health, safety, and welfare) helps to avoid the tax label. If the state enabling statute is overly broad and does not do this well, specific enabling language can
be adopted locally, either in the comprehensive plan, the zoning ordinance, or preferably in a home rule ordinance.
The existence of home rule power availability implies a state policy that favors flexibility and broad regulatory discretion for local self-government.'***'* Indeed, the mere fact that a state confers home rule powers on its local governments is a weighty argument for broad interpretation of state authorization, especially in California and Colorado, two states that delegate the strongest home rule powers. The mere labelling of impact fees as a regulatory device is not absolutely determinative, but courts are likely to give some deference to legislative judgement. It is true that the more recent court decisions indicate that "judicial conceptions of public policy favor a regulation characterization of fee requirements for extradevelopment capital funding."'* * The inclusion of policy considerations in conjunction with the regulatory label in the local ordinance (or homerule charter) is still a suggested goal.
Most courts tend to be result oriented in making the distinction between fees as a tax or a regulation. Hagman suggests that the only real difference between a tax and a regulation, when both are costs for developers, is a good
He, too, is result oriented. He notes that some
local governments have avoided limiting judicial constructions of the subdivision map act by basing exactions on the home rule power and demanding payments at other leverage points. Since most courts have been result oriented recently, the reasonableness tests used to evaluate the validity of subdivision exactions can and should be applied to all exaction/improvement
requirements regardless of the leverage point. This has been the
eral judicial approach. In fact, when weighing the
reasonableness of land use regulations, most commentators point
that neither the leverage point nor the type of regulation es a difference. They use terms such as cost shifting
devices,compulsory requirements,and BHAPS (Benefit-based
Harm-Avoidance Payments), which lumps impact fees together h other regulatory measures such as land dedications, construction and dedication of facilities and improvements, in-lieu fees, and even inclusionary zoning requirements. Any measure that imposes public costs as a condition of development permission at any leverage point is essentially evaluated in the same manner. Thus when this discussion turns to cases dealing with the reasonableness of subdivision exactions, the same legal criteria apply to impact fees when they are found to be a police r exercise.
The second means for avoiding a tax characterization of DIFs, when properly authorized as a regulation, is to design certain restrictions into the ordinance. A tax is defined as "an involuntary charge for the purpose of raising revenue where the payor receives n_o specific good or service in exchange for the payment"[emphasis added]. The foregoing discussion focussed on the purpose. From this definition it can be seen why it is important to tie the enabling language to formal policies that promote established, traditional regulatory objectives. The DIF ordinance design restrictions are geared towards ensuring that the assessed development either receives a benefit that relates
to its payment, or that the exaction is used to mitigate an adverse impact caused by the development.
The first restriction for a DIF system is to earmark the
revenues and restrict their expenditure for the purpose their
payment was based upon. The revenues should never be deposited
in the general fund. Impact fees that would otherwise be
acceptable are often struck down by courts because they lack
safegaurds that guarantee the revenues are expended for their
stated purpose and for the benefit of the paying developments. Impact fees differ from taxes in that the payment is supposed to be either for a benefit that is above or separate from that received by the general public, or for mitigating a need that is not caused by the total development of the community. In other words, you get what you pay for and you pay for what you get. Depositing DIF revenues in the general fund is immediately suspect, since the expenditures may be for the general benefit of all residents. The two states at the leading edge of judicial evolution in terms of regulatory fees, Utah and Florida, have courts that expressly embrace the fee concept, but have struck down fee ordinances for not properly restricting expenditures.
Another tact to avoid is using property value as the benefitting unit (or unit of demand) by which to distribute costs. Fees based on property value can be very difficult to distinguish from a localized property tax (i.e. a special assessment). The only service system that might legitimately use property value or structure value, to be more specific is fire protection. The value of a building does bear a logical relationship to this service, but since structure size and type
(square footage of industrial or residential use, for instance)
correlates with building value, these variables are a
sufficiently similar, but safer, basis for calculating the fee
amount. When an ordinance apportions costs and exacts impact fees based on assessed property value, "courts are wont to hold it invalid."118
Other methods may be combined to further increase the likelihood that a DIF will not be characterized as a tax. One strategy is to integrate impact fees with other land use regulations. By having a schedule or formula of fees tied into dedication, improvement, and in-lieu requirements, all in the same document and all promoting the same purposes, the fee is more defensible as a regulation. Criteria can be specified to determine the appropriate regulation for each case, or the developer might be given the option, or the governing body might decide. In any case, an integrated structure may be beneficial. Also, tying the DIF system to an expenditure program establishes that revenues are providing the benefit they were exacted for. Specifying when and where expenditures will be made is espcially helpful. This can be accomplished by a sound comprehensive plan, combined with restrictions that specifically limit the time period between collecting and expending funds. In addition, the advantages of formally adopted service level standards include more than just providing a nexus between needs and exaction, and segregating general service system betterment costs from service system expansion (growth) costs. The standards also play an important role in programming expenditures. It is easier to
substantiate that fees are being expended to benefit the paying development when it can be shown that expenditures were made to achieve the given standard.^
Reasonableness of Authorized Fee Exactions
Once beyond the threshold concerns of adequate authorization for regulatory fees and a proper regulatory characterization for the device, the remaining question is one of reasonableness. The reasonableness issue is certainly one that has been fraught with inconsistency, and that has evidenced a great degree of change in judicial attitudes. There are different tests used to weigh the reasonableness of regulatory actions, the test used varies state to state, and different states may use the same test for similar cases, but arrive at opposite conclusions.
Heyman and Gilhool state that courts consider one or more of
fourgeneral rubrics to determine reasonableness: is the regulation arbitrary, confiscatory, discriminatory, or a "taking?" It was earlier asserted that DIFs are not disciminatory because all contemporaneous developments (large and small) are treated the same, and treating previous and upcoming developments differently does not violate this rubric because laws must take effect someday. Confiscatory is usually applied
inappropriate zoning restrictions that regulate all reasonable ue from a parcel (single family zoning in the midst of an
industrial park, for instance). Fees may be extremely burdensome, but they do not exact all value from a parcel. DIFs were also claimed not to be a_rb i _tr a. r y, because there is definately a rational relation between the device and its
regi alatory objectives, at least when appropriate units of demand
and adequate standards are employed. A regulation can also be
i con sidered arbitrary when the public good realized by applying
the regulation (so as to achieve an accepted public purpose) is
outi cal weighed by the detriment to the private landowner. This test lsfor a balancing of interests. The taking issue is also
intertwined with the definition of permissible regulatory
ob j ectives (the public purpose being sought). So the second
aspect of the arbitrariness consideration is closely linked to
the taking concept. These are the two issues (or perhaps one,
sin ce they are so similar) that come into play in evaluating the
r e a sonableness of impact fees. Because DIF systems are
f re quently attacked on the basis of their being an unreasonable
application of the police power that constitutes a taking without
jus t compensation, the tests that exist for exactions (tests that
wei gh competing public and private interests) have been applied
to impact fees.
The Three Traditional Tests of Reasonableness
Most commentators have not closely examined the mostcurrent
cases of the eighties involving fee exactions, and attest to the
exi stence of three basic tests that have traditionally been used
to evaluate the reasonableness of a regulation. In doing so,
the y have failed to note that the current litigation surrounding
DIF s appear to be bringing the criteria of these three tests
clo ser to a common ground. The most restrictive of these three tests was established by
the Pioneer Trust & Savings Bank v. Village of Mount Prospect.
schools to be
This case found a required land dedication for
authorized, but declared the authorizing statutes unconstitutional. The court said that if a regulation is within statutory authorization and "the burden cast upon the subdivider is specifically and uniquely attributable to his activity, then
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the requirement is permissible..." A literal application of
this test means that a developer could not be required to contribute to a public facility unless he alone was responsible for it.
The second test is the "rational nexus" test that involves a
balancing of the costs imposed and the benefit conferred on
developers, and is credited to the New Jersey Supreme Court.
That court determined that a "subdivider could be compelled only
to bear that portion of the cost (of an off-site improvement)
which bears a rational nexus to the needs created by, and the
benefits conferred upon, the subdivision." The third, and
most liberal or unrestrictive evaluation is called the
"reasonable relationship" test. This gives local governments the
greatest latitude because it only needs to be shown that a
proposed development will increase the needs of the community and
that new residents will benefit from their payment or dedication.
A liberal construction of this test, first established in Ayres
v. Cjrty Council of Los ArigeJ^e^s, would find few municipal
The Ayres case forms a good starting point when considering the way judicial viewpoints have changed. The case is particularly important because of two subsequent cases that drew from its findings; Pioneer Trust, and Associated Home Builders of
Greater East Bay v. City of Walnut Creek. Ironically, while
both are based on Ayres, the former case established the most restrictive test and the latter bolstered the most liberal test. So while both relied in part on Ayres, they are worlds apart. In Ayefs, a landowner wished to subdivide and develop his triangular
tract of land, and proposed dedicating a 60 foot strip of land
through the middle of his property (a nearby cross street, also
60 foot wide, would have bisected his land if extended). The
City denied his subdivision because they wanted, among other
improvements, the dedication of an 80 foot wide strip. The
developer brought an action of mandamus to compel recordation,
but the Supreme Court of California upheld the requirement.
Their opinion declared that it is no defense that an exaction
...will incidently also benefit the city as a whole.
Nor is it a valid objection to say that the conditions contemplate future as well as more immediate needs. Potential as well as present population factors affecting the subdivision and the neighborhood generally are appropriate for consideration. 126 [emphasis added]
The Walnut Creek case "dispelled any limiting interpretations of the Ayer^s test," andin effect expanded the reasonable relationship test. In that case, the court stated that it had no doubt that an exaction for parks "can be justified on the basis of a general public need for recreational facilities caused
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by present and future subdivisions." This certainly bestows broad powers upon municipalities seeking to regulate land development in ways that limit impacts on general public capital-based service systems.
Pioneer Trust also purported to follow Ayres, but reached a
contrary result. Actually, Pioneer Trust was directly based on another case that explicitly and incorrectly interpreted the Ayers standard of reasonableness. In that case, the opinion reads;
The distinction between permissible and forbidden requirements is suggested in Ayres v. City Council ...which indicates that the municipality may require the developer to provide the streets which are required by the activity within the subdivision but can not require him to provide a major thoroughfare, the need for which stems from the total activity of the community. 129
In the words of the commentator who cited this case, "This statement manifests a complete misunderstanding of Ayres." The restrictive standard of P_i o n Â£Â£ .r Z Â£ u srt has been heavily criticised, for good reason. A series of three adjacent subdivisions, for example, might wholly generate the need for a new school, but since no one project generated the entire need, the school's site could not be exacted whatsoever. If the same three projects had been one single development, the site could have been exacted. This unreasonable distinction between large and small developments seems to violate the Constitutional provision of equal protection (i.e. equality of treatment).
A year after Pioneer Trust, New York followed suit with ir own extremely restricitve reasonableness test in Gulest
Associates v. Town of Newburgh
The Town required ten percent
a subdivision's gross area be dedicated for 'recreational purposes,' or that a $50 per lot fee be paid into a special fund instead when dedication was determined to be an unreasonable or undesirable requirement. The court rejected the money payment
because they felt 'recreational purposes' was too vague, that the recreation fund could be used to benefit the whole Town, and that the assessed development might not receive benefits directly related to its payment. This Pioneer Trust-like case established a very similar 'direct benefit' test. If the collected funds were not used solely for the benefit of the paying subdivision, the requirement for payment is invalid. Therefore if the funds collected were used for a park outside the assessed subdivision, the direct benefit test would not be met.
The Convergence of the Three Reasonableness Tests
Cases subsequent to the ones described above show how judicial attitudes have changed, and suggest that "the gaps
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between the tests are rapidly shrinking," Both Illinois and
New York have backed away from their strict standards, other states have also rejected the Pioneer Trust and Gulest tests, and California has modified its liberal test into one that is less open-ended and more similar to the New Jersey "rational nexus" test.
The New York case that scrapped the Gulest direct benefit
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test was Jenad, Inc., v. Village of Scarsdale. Scarsdale
required a land dedication for parks or payment of an in-lieu fee (under specified circumstances), quite similar to Gulest. The
New York court here expressly overruled Gulest, stating that 'any recreational purpose' was not an unconstitutionally vague phrase, and further rejected the direct benefit test (which allowed park fee revenues to only provide benefits that inure exclusively to the paying development).1^4 Thus the fee exactions could be used
for parks that might incidently benefit the entire community.
An Illinois court retreated from its own Supeme Court's restrictive "specifically and uniquely attributable" concept (the
Pioneer Trust test) in Plote, Inc., v. Minnesota A1den Co. While they backed off from the severity of this test, this lower court reaffirmed the test's catch-phrase, but modified its meaning so that appropriate fees could be exacted based on proportional benefits received or the portion of needs generated by a development. That court also noted that the Illinois Supreme Court was at the time tending towards a more liberal interpretation of the validity of exaction ordinances. Thus in that state it is no longer required that the entire need be attributable to the development activity before costs can be exacted.
The Wisconsin Supreme Court determined that mandatory dedications or payment of fees is authorized by state statutes, and that the authorization is not unconstitutional, and then moved on to evaluate the fee exaction's reasonableness in Jordan v. Village of Menomenee FalIs.136 That court examined Pioneer Trust, and expressed concern that it might be impossible for a municipality to prove that required exactions were demanded "to meet a need soley generated by a particular subdivision." The
Jordan court used a substitute test, requiring a city to merely establish that due to increased population new facilities would be needed, that the assessed development caused a population increase, and that the anticipated capital outlays total more than the fees assessed of the new development.
At the other end of the spectrum, a California court of appeals limited the extremely broad reasonableness criteria that was founded in Ayres and expanded by Walnut Creek in Liberty v. California Coastal Commission. The Liberty court noted that;
Where the conditions imposed are not related to the use being made of the property but are imposed because the entity conceives a means of shifting the burden of providing the cost of a public benefit to another not responsible for or only remotely or speculatively bene-fitting from it, there is an unreasonable exercise of the police power...[T]o impose the burden on one property owner to an extent beyond his own use shifts the government's burden unfairly to a private party.
change is that although the general public may still
incidentally benefit from an exacted improvement, dedication, or payment, there had best be a valid connection between the exaction and the benefit received by the paying development.
The above changes in judicial criteria show how the most restrictive and most liberal tests have somewhat converged, so that the New Jersey "rational nexus," at more of a middle ground, is now akin to a national concensus on the reasonableness of fee exactions. This New Jersey principle is also quite notable in that it recognizes the dual purposes of fee exactions. The Court expressly refers to the way valid regulatory exactions may be based on either the 'benefits conferred' o_r the 'needs attributable to a development. Thus the basis for an exaction can either be the demand for public services that a development generates, or the harm-avoidance/mitigation costs a project may necessitate. In New Jersey, too, there has been an evolution. Before the logical rational nexus standard was developed, the New Jersey Supreme Court had first rejected the validity of
regulatory fees in Daniels v. Borough of Point Pleasant. It had found the requirement of a fee payment to be an unauthorized tax in that 1957 case. Actually, it was a rather easy case, as funds were exacted as a rapidly (and greatly) inflated building permit fee that had a declared purpose of raising revenue to ease school overcrowding. The fee bore no relation to the costs of plan checks and site inspections that building permit fees are supposed to recoup. Today's fees are more sophisticated in that they may be collectible at the issuance of a building permit, but they are enacted and defended separately, on their own merits. In White Birch Realty Corp. v. Gloucester Township Municipal Utilities Authority, a case subsequent to the emergence of the rational nexus test, the New Jersey Supreme Court weighed the reasonableness of a sewer connection fee and rejected the city's method of calculating the fee as an after-the-fact attempt to justify the requirement.1^ That court instead proscribed its own method of determining a reasonable fee level, using an approach that considered debt service costs, the connection fees already collected, operating costs, service units added to the system, and capital expenditure amounts. Like the seven criteria of Banberry (outlined in an upcoming section), this decision shows that courts can only determine the reasonableness of fees when municipalities are required to come foreward with the information used to formulate the fee amounts. If that information does not demonstrate a careful consideration of all relevant cost and benefit/demand factors, the fee requirement will not be upheld.
Recent Florida Judicial Advances A series of Florida cases, from 1976 to the present, show this state is on the leading edge of the legal progression in luating DIF systems, and how rapidly judicial evolution may
advance. In Broward County v. Janis Development Co., a 'land use
of $200 per dwelling unit was assessed for the express
purpose of raising revenue to finance transportation improvements
in the County
The County tried to support the DIF exaction
drawing an in-lieu fee analogy, as accepted by the Jenad court. This Florida district court of appeals found the measure, which had raised $6 million in its first year, to be an unauthorized tax, and struck it down for two reasons. First, like the Daniels case, it simply inflated the existing building permit charge and thus far exceeded the true costs of monitoring the quality of construction. Second, even though a trust fund was created, there was no guarantee when or where the revenues would be expended, so it could not be proved that the payment would result in any benefit. Later cases changed this approach, and the reasonable use of DIFs have since been upheld in Florida.
The case Contractors and Builders Association of Pinellas
County v. City of Dunedin demonstrates the post-Broward County
judicial change. Dunedin exacted sewer and water connection
fees which were struck down by a district court, but were eventually rewritten and then validated by the Florida Supreme Coiirt. In this case, the appellate court announced;
[W]here the growth patterns are such that an existing water or sewer system will have to be expanded in the near future, a municipality may properly charge for the privilege of connecting to the system a fee which is in
excess of the physical cost of connection, if this fee does not exceed a proportional part of the amount reasonably necessary to finance the expansion and is earmarked for this purpose.
Florida Supreme Court expressly reaffirmed this as an
appropriate standard, and found that Dunedin had in this instance sufficiently resticted the expenditures of their fee revenues to
provide a benefit to the paying development.
Hollywood, Inc., v. Broward County expanded the Dunedin citeria to apply to fees outside of the context of a municipally owned utility system. The Hoilywood court rejected a developer's challenge that Broward County's new park expansion fee was an illegal tax. They stated that a requirement is valid if it "offsets needs sufficiently attributable" to a development, and on the condition that the revenues be devoted to the substantial benefit of the assessed development. This time the County was implementing a park expenditure program, they adopted service level standards, existing residents' needs were being met in other ways (though a major bond issue), and the fee revenues collected were earmarked for parkland acquisition expenditures that had to be within fifteen miles of the assessed developments.
The same court later also upheld a new road impact fee in
e_ Builders and Contractors Association of Palm Beach County v.
rd of County Commissioners of Palm Beach County. ^^ The
rt, in upholding this road fee, directly addressed the 'tax or
ulation question, stating that the earlier Broward County
d fees (the one it overturned) differed in that;
The amount and use of the funds simply did not jibe with the concept of regulation; it smacked mor^gf revenue raising which is descriptive of a tax.
In this valid system, Palm Beach County used trust funds and required the collected revenues to be spent in the one of 40 road improvement zones that the revenues were collected from. The revenues would revert to the payor if not expended within six years of their collection. Furthermore, the County had blended the DIF requirement with existing subdivision exaction requirements so that the entire package of regulations constituted one concept. Broward County, as well, once again has a DIF requirement for road improvements, but have made the necessary changes to suitably restrict their new system.
The Leading Edge of the "Utah 7;" Six Steps Foreward, One Back
In the multiple state, independent judicial evolutions, no state has made the type of advances that have been seen in a series of recent Utah cases. The specificity and precise details that the Utah approach has announced go beyond anything that has emerged from the judiciary to date. Utah has expressly sanctioned the use of DIF systems, and there is little question as to what a reasonable fee exaction system is expected to consider in that state.
The series of four cases involving in-lieu and impact fees begins with Call v. City o f West Jordan.^ This case is important in Utah for establishing a broad interpretation of state statutes; an interpretation that found adequate authorization for in-lieu fees, which was later construed to also authorize the similar impact fee concept. The court found that required land dedications or equivalent in-lieu fees for flood control and parks were authorized even though these exactions
were not specifically mentioned, because state statutes simply cannot spell out all the measures a city should use to execute its required functions, and thus broad interpretations of state statutes are necessary. The Call court also noted that calling a development fee requirement a tax was just an "exercise in semantics which misconstrues the purpose of the ordinance," and
determined fees to be regulatory measures.
The next relevant fee exaction hearing is the central Utah case, which may be destined for consideration as a landmark in exaction litigation. The case concerned the evaluation of a park improvement fee of $235 per lot and a water connection fee of up to $1000 per dwelling unit (in addition to the cost of physical installation of interior distribution lines extended from a trunk
> main). The Banberry court did a number of notable things. They
first stated that a reasonable fee is one that does not require a developer to pay more than his/her equitable portion of capital costs (apart from installation of distribution lines) in relation to the benefit received. Also, the court ruled that any evaluation of a fee's reasonableness requires a city to produce
* the data that was used to determine the fee amount. This places the initial burden of a challenge on the local government, but once this is done, the burden is shifted to the challenger. He
* must then demonstrate the unreasonableness of the fee. But of greatest significance, the B a ri bÂ£Â£Â£y court then took the initiative to specifically list seven criteria that must be
^ considered to arrive at an equitable, reasonable fee levy. The
seven criteria that a reasonable DIF must consider are:
(1) the cost of existing capital facilities; (2) the manner of financing existing capital facilities (such as user charges, special assessments, bonded indebtedness, general taxes, or federal grants); (3) the relative extent to which the newly developed properties and other properties in the municipality have already con-contributed to the cost of existing capital facilities (by such means as user charges, special assessments, or payment from the procedes of general taxes); (4) the relative extent to which the newly developed properties and other properties in the municipality will contribute to the cost of existing capital facilities in the future; (5) the extent to which the newly developed properties are entitled to a credit because the municipality is requiring their developers or owners (by con-tractural agreement or otherwise) to provide common facilities (inside or outside the proposed development) that have been provided by the municipality and financed through general taxation or other means (apart from user charges) in other parts of the municipality; (6) extraordinary costs, if any, in servicing the newly developed properties; and (7) the time-price differential inherent in fair comparisons of amounts paid at different times.14
These factors incorporate part of Ellickson's horizontal equity theory, and for the most part are quite sound and rational. Reviewing these factors, it is easy to see how this case relates fairly closely to New Jersey's White Birch criteria, though these are certainly far more explicit.
The first factor helps to determine the present residents' equity in existing capital facilities, and to set out the remaining costs that need to be apportioned. This factor is the basis for the fee determination, and helps to establish how other costs should be measured.
The second factor indicates who has paid how much for existing facilities, and who will yet bear the cost of these items. This is important because the entire cost of expanding capacity cannot be charged to new development under this criteria. If the entire expansion costs are recovered via DIFs,
the assessed new developments would be burdened with both the total costs of expansion and a portion of the costs of existing facilities, since their post-development general tax payments help retire existing debts.
The third factor establishes the extent to which various
properties have already contributed to existing facilities.
other words, it sets out how much existing residents have paid. If chis factor were not considered, the existing residents might have to bear more than their fair share of costs.
The fourth factor requires local governments to determine how much present users will pay in the future, and to estimate how many future users will be paying for how much benefit. These estimates about future users are of course less than certain, but consideration of this is intended to ensure that future developments will neither be penalized nor rewarded because of when they happen to come about.
The fifth, sixth, and seventh factors involve figuring what credits are due to new development for public costs they have already paid (through property taxes on the previously vacant land, for instance), extraordinary costs unique to the site-speqific characteristics of each particular new development, and recognition of the way the time element affects the value of money.
The Banberry court did mention that this is not an exhaustive list of considerations, but that they are among the relevant factors to consider. Also, the court recognized that perfect precision can not always be obtained, but that at least
reasonable efforts must be made in accounting for these factors. The court's exact words on this are, "courts must concede municipalities the flexibility necessary to deal realistically
;h questions not susceptible of exact measurement Overall, the horizontal equity theory, as applied here, is rather fair. Some of the general tax monies paid by vacant land prior to its development do go towards the purchase of public capital, and this should be considered a credit to be applied against the impact fee. And the general property taxes paid by the new development after its construction is complete will also help retire the debt on existing capital facilities. This, too, is a proper consideration and should be credited against the impact fee imposed.
My main objection is to the fifth factor, which places too much emphasis on what a local government 'owes' a new development, because of what that local government had previously 'given' to earlier developments. One commentator interprets this factor in the following manner: if capital facilities serving current residents extension of water and sewer lines, for example were provided out of general revenues at a cost of $1000 per dwelling unit, and it now costs $5000 per dwelling unit to extend the same kind of services at the same level of service,
only $4000 can be exacted in fees. This is the problem
inherent in Ellickson's horizontal equity theory; it locks cities in to their historic practices. Whether or not that Banberry factor, the one relating municipal benefits 'given' past developments to benefits that must be provided (or credited) upcoming developments, will be so strictly applied is not known.
More Utah cases will have to be heard. It is likely that if all
other more appropriate credits are applied against the DIF
exaction in the future, the Utah courts will not be highly
inflexible on this item. As mentioned in chapter IV, the
Banberry court did adopt language from the New Jersey Deerfield
Estates case that indicates the Utah Supreme Court would be
amenable to allowing local governments to 'shift gears and stop
their previous, more generous practices.1^1
The remaining two Utah cases are not highly significant,
except for the way they show how the governments involved failed
to meet the Banberry test. One of these, Lafferty v. Payson
City, occurred virtually concurrent to Banberry Payson City
thus did not have time to respond to the 'Banberry 7' and adjust their comparatively simplistic exaction. What is significant in the rejection of Payson City's connection fees is that, when remanded for a reasonableness determination, it was found that Payson City only met a couple of the seven criteria. The court held that all seven of the Banberry factors must be examined in weighing the reasonableness of development fees.
* The remaining case, Patterson v. Alpine City, struck down a
requirement that raised a sewer connection fee from $700 to $1000
in one month, and then to $1500 another month later. Alpine
> City entered into a facility expansion that cost $375,000. They
anticipated another 540 new sewer connections, and simply intended to recoup their outlay (and more) from these new connectors. The measure encouraged speculation in growth (buy taps low and resell them high), and the court concluded that a
fee that more than doubles in two months cannot be reasonable.
Despite having Banberry as an example, this city did not make much of any attempt to consider the seven criteria, and really deserved to have their requirement overturned.
THE LEGAL STATUS OF DIFs IN COLORADO
Colorado's courts have reviewed a number of exaction cases in recent years. The State Supreme Court has not as yet expressly adopted any of the three traditional reasonableness tests, nor is that court at the leading edge of judicial change. None the less, the Colorado judiciary has changed, and the doors have not been closed on any of the more recent approaches to considering the reasonableness of DIFs. While our courts are not at the leading edge of change (though they could be quite easily in the near future), the local governments in Colorado are pushing to the forefront of impact fee innovation and experimentation. Loveland and Fort Collins have been particularly innovative in this area of planning. So what, exactly, is the legal standing of DIF use in Colorado, and how will this experimentation fare?
A few background items of pertinence should be clarified first. For one thing, Colorado does confer home rule powers upon its local governments. The scope of this delegation is very broad; only California rivals this state in the way it endows its local governments with home rule power delegations. Also, Colorado has an existing court precedent that characterizes annexations as a contractural arrangement. That is, a municipality has no obligation whatsoever to annex land, nor to extend services to 'customers' beyond their boundaries. In the case City of Colorado Springs v. Kitty Hawk Development Co., the
court said "It is now well established in this state that a city is under no obligation to sell or furnish water or sewer to anyone outside its corporate limits," and that there was "nothing in the general law of this state or in the Constitution prohibiting the imposition of conditions by a municipality upon
one seeking annexation.11 The state statutes on annexation are
failrly clear on this. Because cities are not obligated to
service outlying areas, their power to make exactions and require improvements based on the contractural arrangement of annexation is far more broad than through regulations under the police power. This is also true in a number of other states.
Before going into the wording of existing Colorado case precedents and the approach taken by our courts, it is sufficient to note in overview that both dedications and in-lieu fees have been found to be authorized. Thus by offering an analogy that relates land value based in-lieu fees to DIFs (cost-based fees, where costs are apportioned by units of demand for 'benefits conferred,' or by units that specify harm-avoidance 'needs attributable') a Colorado municipality should have no trouble finding adequate authorization for reasonable impact fee use. Between the existence of broad based home rule powers, explicit enabling statutes, and previous litigation, local governments have some strong sources to draw upon to establish that solid authorization for impact fees exists.
The state statutes referred to deserve special mention, because Colorado is one of those rare states that has quite unique enabling language. The statutes directly speak to
offsetting the impacts of development. This language was adopted in 1974, when Colorado's most rapid (post-gold rush) growth was beginning to roll. At that time, the State Legislature enacted the Local Government Land Use Control Enabling Act. Excerpts from subsections of the Act state that "each local government has the authority to plan for and regulate the use of land by: ...regulating the use of land on the basis of the impact thereof
on -jbhe community and surrounding areas." It would appear that
this is a quite broad umbrella under which Colorado's local governments could regulate a wide range of development impacts; presumably fiscal impacts through DIF systems would be included. The remaining question is, which reasonableness test will Colorado's judiciary adopt?
The chronological starting point for this discussion of existing Colorado case law concerning the reasonableness of
1 r 7
exactions is Stroud v. City of Aspen. As asserted, the
progression of evolving judicial attitudes in this state is not all that far advanced, but at least nothing exists to cut off further improvements in the sophistication of the State's reasonableness tests. Although the Stroud court did not cite Â£Â£Â£Â£. Â£ Â£ they used a somewhat similar restrictive
standard. The court struck down an off-street parking requirement on the technicality that the ordinance delegated power to the city manager improperly. It was noted in dicta, however, that the required improvements "were of benefit to the >ple of Aspen as a whole and have not been for the use and
benefit" of the permittee.
The nin King's Mill Homeowners' Association v. City of Westminster, the court referred to Ayres and applied a test similar to the "reasonable relationship" rationale. There the court upheld the City's conditions on a rezoning, stating that as long as the conditions are "reasonably conceived" they are a
valid police power exercise.
Two cases followed in 1977. In one of these, Wood Brothers
Homes, Inc, v. City of Co 1 orado Springs, the court properly
struck down a requirement that the developer assume the total
cost of a drainage improvement that would have served an area far
larger that the proposed subdivision. The plaintiff argued
for application of the Pioneer Trust analysis, seeking rejection of the authorizing statute. The court did not mention Pioneer Trust and the requirement was not found unconstitutional, but was held to be unauthorized by the local ordinance. The court's ambiguous reasoning did not specify exactly how Colorado Springs had exceeded its authority. Had Colorado Springs been more careful, its authorization perhaps would not have been a problem. It is unfortunate that this basis defeated the requirement. If the City had enacted adequate enabling language, the court would have had to evaluate the reasonableness of the requirement, and more specific criteria than now exist might have evolved. Since Colorado Springs' requirement exceeded the proportion of needs generated by the development, one would assume that it would have been rejected as unreasonable. In the other case, Cimarron Corp.
Board of County Commissioners, the court applied a very
literal, strict interpretation of the authorizing state statute, and once again ruled in favor of the plaintiff. This case
involved a dedication requirement imposed on a subdivision
application. That particular statute stated that acquisition of
school and park sites is authorized only "when such are
reasonably necessary to serve the proposed subdivision and future
residents thereof." By relying heavily on this wording, the
court avoided determining the limits of regulatory exactions and did not settle the constitutional question. By implication, Cimarron seems to mean that exactions must exclusively benefit the affected development, along the same lines as Gu1est and Pioneer Trust. It is notable that the statutory language was extremely similar to the statute considered by the Walnut Creek court, though they did not make such a narrow interpretation. Also, although the Cimarron court decided this case without going into a detailed evaluation of the requirement's reasonableness, they did indirectly allude to the reasonable relationship test.
The most significant Colorado case concerning exactions and mandatory improvements is Bethlehem Evangelical Lutheran Church v. City of Lakewood. It is important both because it is the
most recent Colorado Supreme Court case on this topic, and because it reflects a less restrictive approach to evaluating development exactions. The Church, which also operates a school, applied for a building permit to expand its gymnasium. Lakewood imposed both a street improvement and a land dedication condition on the request. The Church filed suit, charging that the ordinance lacked sufficient standards to guide its administration, that the requirements amounted to a taking without compensation, and that it violated the Church's right to
f re edom of religion. The trial court agreed with these charges,
but the Supreme Court upheld the conditions. In so doing, the
cou rt cited state statutes that empower local governments "to lay
out , establish, open, alter, widen, extend, grade, pave, or
oth erwise improve streets, parks, and public grounds" (Colo. Rev.
St a t. 31-15-702 (Repl. Vol. 1977) ). Although the statutes
pro vide that the cost of these improvements should be charged to
ad j acent property owners as special assessments, the court did
not view this as the sole means by which a city might exercise
its powers. The result of this determination is that Colorado
1 oc al governments have a more than sufficient source of
aut horization to condition requests for development permission
(in eluding building permits) in ways that promote police power
obj ectives. In regards to the taking charge, the court disagreed
and flatly stated that this was not an eminent domain hearing.
The court thus placed the requirements squarely under the City's
po 1 ice powers. This also seems to hint at the privilege
rat ionale, in the way the ruling refused to consider the
p 1 a intiff's implied request to sue for inverse condemnation.
^ One e the authorization question was settled, the court employed
cr i teria that suggest a reasonable relationship approach to
eva luating mandatory requirements. The court's analysis states
tha t; [T]he interest of the public requires the dedication, and the dedication is reasonably necessary for the purpose of promoting public safety and is not unduly oppressive upon the Church. Stated otherwise, the condition is neither arbitrary nor capricious, but rather is reasonably conceived to avoid danger to the pedestrian and vehicular traffic on the streets adjacent to the Church.
Again, however, the court did not explicitly outline what it felt 'reasonably necessary' nor 'reasonably conceived' mean in terms of general application. The questions of "what conditions may be considered reasonably necessary" and "what should a reasonably conceived condition consider" remain unanswered.
Jan Rundus, in her University of Colorado Law Review article, interpreted these cases in terms of their meaning for the legal scope of dedicat ion/improvement requirements in Colorado. She concludes that Bethlehem Church opens new opportunities for fast growing cities in this state, and that this case places Colorado among those jurisdictions employing the reasonably related test for weighing the reasonableness of exactions. Her article goes on to praise the advances made by Utah in Banberry, and suggests that Beth 1ehem Church has paved the way for our courts to adopt similarly explicit criteria, as this could be done without disrupting statutory or judicial precedent.
Given the previous record of Colorado's judicial decisions in this area, this might simply be wishful thinking. The State Supreme Court, however, has yet to review a case involving a well designed, bonafide impact fee (as opposed to a dedication or improvement requirement). Since more of these ordinances are appearing in the state, and more are presently being considered for enactment, an answer might be available in the near future. For the present, adequate authorization clearly exists, it is only the reasonableness issue that is unsettled, and Bethlehem Church indicates an inclination towards the test that gives local governments the most latitude in placing conditions on
It is suggested that Colorado
municipalities directly tie local enabling language to the 1974 Local Government Land Use Control Act (House Bill 1034), which specifically provides for the regulation of development based on the impacts such developments mean for the community. The local home rule or zoning ordinance enabling language might be framed as follows;
Pursuant to Colorado Revised Statutes 29-30-104(1), the Planning Commission is hereby authorized to regulate the use and development of land on the basis of the social, environmental, physical, economic, and aesthetic impacts thereof, so as to best promote the health, safety, morals, order, convenience, prosperity, and general welfare of the community. The Commission shall ensure the provision of adequate roads, streets, drainage, fire protection, educational facilities, parks and recreational facilities, pedestrian ways, water treatment and distribution, sewage collection and treatment, other public buildings and grounds, and any other improvements reasonably required to satisfy the needs generated and mitigate the impacts imposed by a development. The methods of ensuring adequate provision of these public improvements may include dedication of land, construction and dedication of improvements, and/or payment of a fee relating a development's share of needs and impacts to the appropriate portion of of the costs of the necessary improvements, when such methods are utilized as conditions upon subdivision approval or upon the issuance of a building permit.
Notice that this includes everything but the town entrance sign (and even part of the cost of this has been extracted, although not quite exacted, from a local developer in Breckenridge, CO). It may be prudent to cut the list short and end with "other improvements reasonably required" sooner. It is also suggested that the enabling language be placed with the local provisions for the comprehensive plan, so that the rather broad powers
associated with the authorization of this plan may be brought
into to f ac
Pi put 1 it
ay. Use of the comprehensive plan developers on notice regarding ho ies may be required of them.
will additionally help w much of what kind of
THE DESIGN PARAMETERS OF AN EQUITABLE, LEGAL IMPACT FEES SYSTEM
The previous chapters examine a great number of aspects involved in the use of development impact fees, and represent a variety of perspectives. These viewpoints are all couched within this author's stated bias: that DIFs, when properly designed and adequately restricted, can be a legal and equitable means to distribute the relative fiscal burdens of growth; and that DIFs promote sound, rational planning more effectively than do the more traditional regulatory tools.
The preceding discussions concerned the way DIFs function differently than in-lieu fees and special assessments, how they should dovetail with the comprehensive plan and the CIP, how various groups of residents should be responsible for their costs without subsidizing the costs of others, who should pay fees and who does bear the imposed costs, what costs fees should include and not include, and how courts have recently been approaching this issue. These topics provide the insights necessary to design an equitable, legal impact fee system. The twenty-point ordinance design guidelines included here are intended to pull all relevant considerations together, and to provide a systematic approach to assembling a valid DIF system; one which integrates the various viewpoints and well founded concerns.
One caveat must first be advanced. It is not possible to specify a single, invariable approach to designing a DIF ordinance that is appropriate for all localities in all situa-
tions. Each ordinance must consider the individual circumstances involved. The fiscal and statutory organization of the regulating entity, the kinds and amounts of growth being experienced, the type of fee-levying entity (whether county, municipality, or special district), the range of capital-based services provided, the local political atmosphere, and the nature of existing judi-cial/state statutory authorization are among the factors that affect the structure of the ordinance. Therefore, while the following ordinance design considerations attempt to lay out a methodical approach, they may more appropriately be thought of as the parameters whithin which the design and operation of a DIF system should be constrained. As such, these guidelines serve as a template against which a prosective DIF system may be compared and adjusted. It must also be noted that the role of of the CIP and the comprehensive plan cannot be overstated. Many of the guidelines refer to these documents. The comprehensive plan is especially important, as it is meant to be a carefully considered plan for the growth and development of a community and should reveal the interdependence of the types and intensities of anticipated land uses, and the types, locations, and capacities of the facilities constructed to serve these uses. This plan should include a facilities inventory, adopted standards, an assessment of current deficiencies, a set of planning districts, an inventory of the improvements needed to bring existing developed areas up to the standard and those needed for new developments (with the needs individually listed by district), and the various cost
ind demand coefficients that will be used in the fee formulas
(see guidelines #11, cribes the importance
12, and 13). One commentator aptly des-of this plan,
...it demonstrates the local government's sincerity in attempting to manage its land use and facility investment decisions in a deliberate, systematic, and interrelated fashion serving the community's objectives. It establishes the principle that the pattern of future land use types and densities is interdependently linked to the planned pattern of facility locations and capacities, and vice-versa.14
1. Examine the language
Authorization must exist statutes is the first of t
of existing state enabling statutes.
for DIFs to be valid. Researching hree requirements for evaluating and
ensuring adequate authorization. The relevant statutes may include a state planning enabling act, a subdivision map act, and/or separate land use control statutes. Any statutes
ressmg iewed. visions istency
annexation powers and procedures should also be Focus especially upon specified planning purposes, for the comprehensive plan, and the related requirements, if any.
Evaluate the state's existing judicial decisions concerning
exactions. The strength of authorization depends on judicial
construction of the relevant state statutes. Determine whether the state's courts have made expansive or strict interpretations of these statutes. If an overly rigid construction has been made, the ability to use DIFs may not exist. If the judicial view of the statutes simply show that in-lieu fees are authorized, impact fee systems may also be authorized, but you
may be preparing an authorized system that will later force the courts to explicitly rule on the constitutional limits of the regulatory requirement's reasonableness.
3. Draft local enabling 1anguage to be adopted prior to instituting a DIF system. Ideally, this enabling legislation would go into a home rule charter to acheive the greatest strength. This language should tie the fee system to established regulatory purposes, and avoid a stated purpose of "to raise revenue for..." A preferable alternate catch-phrase is "to ensure the provision of adequate...(publ ic facilities)...so as to best promote the health, safety, and general welfare, etc." Also, the local enabling ordinance should draw upon the state statute that appears to be the most promising source of broad authority. The enabling language should also (or alternately) be included in the comprehensive plan.
4. Obtain public improvements through annexation agreements whenever possible. Existing statutes and/or judicial precedents may characterize annexation as a contractural arrangement. A local government is therefore not required to annex and extend services to outlying areas. A fee-levying entity is in a much stronger position and is better able to bargain for necessary public improvements in this context than it is in a purely regulatory situation.
5. Use DIFs only to recoup capital out 1 ays. Impact fees are cost-based, but only capital costs should be exacted. The combined costs of land acquisition, equipment, facility
construction, financing, and land improvement costs should be computed and distributed through fees. The increased costs of personnel, supplies, and other operation and maintenance (0 & M) expenses should be recovered through the increased general tax revenues that the new development will provide. By using ad valorem and other general taxes only for 0 & M costs rather than for retiring existing debts, the double payment predicament (where those paying fees also pay some of the costs of existing facilities enjoyed by existing residents) can be avoided.
6. Avoid using property value as the unit by which service expansion costs are apportioned. This basis of cost distribution makes an impact fee more closely resemble a special property tax, and should not be used. If buildings' values do logically relate to the service provided, use an alternate 'demand unit' for distributing costs that correlate with value. Construction type, building use types, and building size are suitable alternatives.
7. Use different units to apport ion capital costs, as appropriate for each service system. The unit selected depends in part on the adopted service level standard, (see guideline #11). Sewage treatment plant costs, for instance, are best apportioned based on historic data concerning the amount of effluent typically generated by different land use sub-types (specific commercial uses, for example) and building sizes. School and park standards are usually stated in terms of per capita demand or use, so population is a good basis for distributing the costs of these facilities. Road impact fees are
bes;t based upon the number of trips a development can be expected
to generate. Fire protection costs may be appropriately distributed by varying the fee level by building construction (cinderb1ock, masonry, wood), land use type (commercial, industrial, etc.), and building size (square footage or number of bedrooms). Basically, the unit which most logically reflects the needs attributable or benefits received by a development should be employed.
8. Assess fees of all new development. For uniformity and nondiscrimination, all new development should have to pay impact fees regardless of land use type or project size. Some allowances must be made, based on the rational relationship of the type of development and the fee basis. Industrial and commercial uses, for instance, are not primary generators of demand for new recreational facilities and should not be assessed for this purpose.
9. Collect Fees as Late in the Development Process as Possible.
Fees should be collected no earlier than at the issuance of the building permit. This ensures that previously subdivided but undeveloped land is properly assessed. Collecting the fees prior to issuing a certificate of occupancy might be preferable, because this helps relieve the developer of the need for additional early financing.
Consider credits or exemptions for certain residential uses,
to promote fair share/inclusionary zoning concepts. This is
beneficial in that it weakens any challenges that claim DIFs are used for exclusionary purposes. As an incentive, certain areas
should be planned, zoned, and set aside for modular, mobile home, and/or high density apartment units. The uses, if limited in their total amount, should be provided a fee reduction or exemption as part of a formalized policy of promoting a share of affordable housing if none currently exists.
11. For each capital-based service system, formally adopt explicit service 1evel standards. This is highly important, and serves a number of necessary purposes. First, a standard is quite useful in that the fee level is related to the amount of need or demand caused by a new development, and thus serves as the 'rational nexus' that shows how the fee is 'reasonably related' to the paying development's needs. Second, the standards show that the fees are not open-ended, negotiated extortion without guidelines, but instead are exacted from each development in a uniform, nondiscriminatory manner. Third, the standards help insure that the paying project receives a benefit for its payment, as it must receive services at (and not below) the express level specified by the standard. Fourth, the standards belong in the comprehensive plan, for each public service element of that plan. This lends credence to the fee regulation by demonstrating that the DIFs are in keeping with a thoughtfully conceived plan for the future of the community (thus also meeting state consistency requirements). Finally, explicit service level standards help a community to determine whether or not all its existing areas are up to the current level of service. If deficiencies exist, the location and extent of these may be demonstrated. A program should be instituted to make up
for existing deficiencies through expenditures of non-fee revenues. This proves that DIF revenues are not being used to subsidize existing residents, which avoids the inequity of the double payment situation and helps to show that the fee-paying developments will receive benefits from their payment. The appendix includes a set of national recreation standards that differ by type of park facility and amount of population that each should serve. Note that the part of the standards that portrays the amount of facility needs per 1000 population (by type of facility) helps to measure the capital expansion needs and thus the fee level while the service area factor (distance) helps guide the decision concerning the location of the improvement, so that new developments are assured of receiving a benefit for their payment. Response time (or distance) is the basis for fire protection standards, available from the Insurance Services Office. Similar appropriate standards should be devised and adopted for each service system.
12. Use a fee formula that differentiates 1 and use types and housing unit types (number of bedrooms per condo, townhome, single family detached, modular, etc.). This is the best method of linking the fee magnitude to the needs attributable or benefits conferred upon a paying development. Consider a service system where the capital costs are apportioned by a standard that uses a per capita basis, such as parks and recreation. A three
-i r* c
step formula is most frequently used.00 First, estimate the total population of a proposed development. This will involve differentiating the population per dwelling unit by the type and
size of the units proposed. State or regional planning ices may best provide coefficients that adequately estimate
population by dwelling unit type and size. If these sources are
available, the Census may be the best starting point.
Second, multiply the project's total estimated population by the standard for each type or level of recreational facility. This will indicate the number of acres of needed neighborhood parks, tor instance, and the number of acres of multi-neighborhood or community-wide facilities required by the proposed development. Third, determine the fee level by multiplying the acres of park need by two cost coefficients. One cost factor is the average land acquisition cost per acre; the other is the average site improvement costs per acre (see guideline #13 to learn how these average cost factors are determined). The populations per dwelling unit type, and the two average cost factors are the fee formula coefficients that should be set out in the comprehensive plan, and adjusted periodically as needed. Similar cost and demand coefficients that are not on a per capita basis may be devised for other capita 1-based service systems, using average unit costs and 'units of demand or need generated' that are
ected in their particular standards.
Some communities opt for a fixed fee schedule, rather than loying a formula driven system. This may be found to be itimate by the courts, if the schedule is first assembled by
usihg a cost formula that demonstrates how the schedule was
ionally conceived. A fixed fee schedule system has two
advantages. It makes the developers' costs simpler to determine
up front, and it is easier to administer. The result is that the
schedule's required fee level reflects an average cost, and thus does not specifically differentiate the fee by dwelling unit type nor by locational factors. The disadvantage of a fixed schedule is that although it remains an effective revenue raiser, much of the ability to use DIFs as a true planning tool is lost. This happens because a formula is also able to account for extraordinary, site-specific costs (the sixth Banberry factor). A formula may incorporate localized costs variables that may vary the fee for location, so that infill development may be encouraged and outlying areas out of synch' with the logical pattern of development (i.e. leapfrogging developments) may be discouraged. It is less lucrative to develop cheap land in outlying areas when the road, sewer, and water fees include greater costs for difficult arterial and trunk main extensions. The flexibility of a formula also allows a community to promote certain uses or dwelling types over others, by offering incentives.
13. Establish DIF planning districts to determine unit costs, and to al low adjustments for inflation. Land acquisition costs can vary significantly by location within a community. A sound approach is to select a set of districts, each with relatively uniform land values that adequately differ from the other districts. Good local surveys are not overly difficult to obtain for this, as assessor's data, sales information, and local valuation expertise are available. The data and/or expertise may then be used to determine the appropriate land cost coefficient
for each district. Independent estimators and historical data can provide the site improvement cost coefficients that account for prototype facility designs. In the recreation example, average per acre improvement costs may be estimated for each type (or level) of facility. These costs are fairly uniform across all land value districts for parks, but may vary more with distant developments for other services (such as roads and sewer 1ines).
A built in inflation factor can automatically adjust the site improvement cost variable (the facility construction cost variable), although many localities choose to review the costs annually by comparing the revenues exacted based on projected costs to the amount of actual costs. A standard construction cost index should be used if the fee system includes an automatic adjustment mechanism. Local site acquisition costs vary more by changes in supply and demand than in response to general inflation. This cost coefficient should be adjusted for the fee formula as necessary by using the local survey data and/or local valuation expertise.
14. Give DIF exaction credits for on-site facilities provided by the development. Full credit for a neighborhood level fire substation constructed on-site, or for a local park, for instance, should be given when such improvements are provided for public use by a developer. Partial credit for private facilities should also be given.
15. Use the DIF planning districts to a) give advance notice of costs that developers will be required to pay, and b) to earmark funds. The districts established under guideline #13 should be shown in the comprehensive plan, along with its land value coefficient and the types of public improvements necessary for development. The CIP should be used whenever possible both to determine the true dollar amount of anticipated costs (which aid in setting the unit cost factors) and to ensure that expenditures are planned so that benefits will be provided to fee-paying developments. But the CIP is limited both by its time frame and by anticipated revenues. If the comprehensive plan indicates for each district the type of public facilities that will be needed to serve anticipated densities, developers will know ahead of time at least what kind of improvements might be required, if not the precise dollar amount. This also allows DIFs to be exacted for needed improvements that are not in the five year CIP. Any indication of relative cost burdens in the comprehensive plan (i.e. "extensive curb and gutter needed, 12" water mains anticipated in this part of this district") will be helpful in putting land developers on notice. Of course, the best way to let developers know in advance what costs to expect, in terms of impact fees, is to announce a couple of years prior to enactment that a DIF system is being prepared. This promotes the capitalization of DIF costs into lower land values.
The fee revenues should be earmarked for expenditures consistent with the purpose for which they were collected. Earmarking by type and level of facility (neighborhood parks, community parks, fire substations, etc.) and by the location that
the fee revenues are to be expended for is recommended. If fee revenues are spent in the district from which they were collected, the requirement that the fee be offset by a special benefit will be met. The fee revenues should never be placed in the general fund, as they can then be used for for anything and thus are appropriately considered an unauthorized tax. This earmarking by purpose and location also avoids the double payment problem by restricting expenditures in a way that prevents tne fee revenues from being used to subsidize existing residents, to bring their deficient areas up to the service level that new, fee-paying developments are expected to meet.
16. Place time limits on the DIF revenues. This is again to help demonstrate that benefits will be provided. As you may recall from Chapter V, Palm Beach County's (Florida) road impact fee required the revenues to be expended within the district that they were exacted from within six years of collection, or be refunded to the then-owner of the property.
17. Consider using DIF revenues only for localized facilities.
While DIFs may be legally used (in some states) for more centralized public facilities, it may be desirable to use the revenues solely for neighborhood-level improvements. This will effectively disarm the charge that the fee revenues might be used to make fee-paying developments pay for improvements that benefit pre-fee areas. If fee revenues are desired for use in centralized public facilities (such as the main fire station, or a major park), some additional safegaurds are necessary. The
community must first embark on a capital improvement program that will ensure that the inventory of existing facilities for pre-fee developments is brought up to the same level of service as is required of the new, fee-paying developments.
For DIF revenues to be used for centralized public facilities, the proportional share approach is required, so as to meet the criteria of the judicial concepts now emerging in regards to the rational nexus and reasonably related tests, as applied to fee exactions. In other words, the proportion of the cost recovered through impact fees must be reasonably related to the amount of need generated by the assessed development(s), and the facility must be located and constructed so as to reasonably benefit that (those) development(s) in proportion to their payment.
standard requiring one 20-acre regional park (with bike paths, a
poo 1, a
eve ry 10
dev e 1 opm
at DIF could be collected even if the total community
population would only reach 93,000, in anticipation of the future regional park need). Given the projected population of the proposed development(s) and the 100,000 population standard, only 10 percent of the facility's costs may be exacted. Assume a total cost of $20 million for land acquisition, equipment
purchases, construction costs, drainage, parking, landscaping costs, and financing. This 10 percent, or $2 million, would be the starting point for assessing impact fees from the new development(s) (see guideline #18, below). This amount would be apportioned by dwelling unit, with the individual fees adjusted for variations in the expected population per dwelling unit.
18. Give the credits due to fee-assessed developments. In the
above example, if $10 million can be expected from gate fees and state and federal subventions (not so likely these days!), the total costs to be recovered via DIFs would be cut in half. The outside revenues should be netted out of the total facility cost. Also for the 90 percent of total net costs that will be paid for by the existing community with general revenue funds or G. 0. bonds, it must be recognized that the fee-assessed development(s) will contribute general tax revenues to this payment, at least in part. A credit for this indirect cost support must offset the impact fee if the reasonably founded Banberry factors (numbers 3 and 4) are to be met. Here is where cost accounting comes into play. It should be fairly easy to estimate approximately how much general revenues will be expended in each upcoming year to retire the project's debt, and what percent of all general revenues received in those years the expenditure for this individual item represents. Thus one should be able to determine, for example, that of every general revenue dollar collected in 1989, 3.75 cents will go towards this project. The 3.75 cents should then be multiplied by the total amount of general revenue receipts expected from the fee-paying
development(s) in that year, and this amount (combined with similar estimates for the other years throughout the life of this debt) should be the credit offset against the impact fee.
In summary, if a DIF system is to be used for community-wide facilities of this sort, the following features of a proportional share approach should be included: a) use multiple standards for the different levels of service facilities; b) use an appropriate 'unit of demand'-based standard and corresponding fee level formula to apportion costs; c) use a trust fund capable of tracking fee levies for each type and level of facility; d) ensure benefits via an expenditure program that utilizes DIF or planning districts and distance factors; e) institute an expenditure program utilizing non-fee revenues to improve deficient existing areas; f) net out any outside revenues from the improvement's costs; and g) provide a credit for previous and future property tax payments made by the fee-assesssed property.
19. Tie the Capital Improvements Program (CIP) to the DIF system. The CIP should anticipate the amount of capital costs that will be incurred over the next five years. As such, this document provides specific cost amounts upon which impact fees might be based. Of course, not all costs can be anticipated. This is the reason that average cost coefficients are built into the fee formulas. It is also a reason for establishing fee or planning districts in the comprehensive plan, so that the variety, scope, and magnitude (though not dollar amounts) of improvements in each district may be portrayed.
Also, not all the capital costs set out in the CIP are
growth related. The total capital costs in this document include capital replacement costs and capital betterment costs, as well as the capital expansion costs necessitated by new growth. The expansion costs should be isolated and apportioned as impact fees. The betterment and replacement costs are more attributable to the existing community than to growth, and thus should not be a part of the costs distributed as impact fees.
For an example of how to use the CIP with a DIF system, let us turn again to recreational impact fees. Suppose a city has $50,000 worth of park acquisition and improvements laid out in part of its CIP, with $15,000 of this anticipated for a neighborhood park needed to address an existing deficiency in an older neighborhood, another $10,000 set aside for equipment for other existing parks in older areas of the community, and the remaining $25,000 intended for the purchase and construction of a new neighborhood park site in an area expected to develop within five years. Only the $25,000 represents growth related costs, and is the starting point for determining the costs to be apportioned and charged as impact fees. If $4,000 is expected from outside revenues, net $2,000 out of the $25,000. Each dwelling unit of the new development within three-quarters of a mile of the new park will pay a fee based upon the total costs apportioned in relation to the individual units' expected population per dwelling unit (the standard must include this distance factor and the pop./D.U. coefficient). Do not forget to give a credit for the portion of general taxes paid by the
vacant-but-soon-to-be-developed property that went towards park
exp set 1 an
ital in previous years (and that might be expected to go ards park capital in the foreseeable future). If a new development not anticipated to benefit from this CIP-planned park expansion comes on line, it will not benefit from the programmed enditure and should not be charged a fee based on the costs out in that document. Their fee will thus be based on the d acqusition and site improvement coefficients for their
planning district instead, although the formula will continue to
use the same population per dwelling unit factors.
Furthermore, previous expenditures may be tracked, so that value of the existing excess capacity of current capital-based service systems (capacity set aside for for future growth) may be identified and then recovered through through impact fees. Here, too, outside revenues that went (or are going) into the cost of this existing capacity should be netted out. Credits for past general revenues paid by the affected property should again be determined and offset against the fee levy. The procedure for this is the same as in the preceeding examples, but should be easier and more precise since actual, historic costs and revenues are involved, rather than projected amounts. Also, the historic cost of that excess capacity may be adjusted for inflation, so that its present value may be apportioned.
20. DON'T BE GREEDY. The purpose of the ordinance is to provide essential services and recoup the related capital costs from those causing the need for the expense. The bottom line is that DIFs may be exacted only in so far as a community is able to
measure the costs represented by the needs that a development
generates; or in so far as it is possible to measure the amount
of benefit an individual development receives. Costs are not always so easily assigned, and it is better to forego some fee revenue when the relation of costs to these two 'causes' begins
to stretch credulity.
^Douglas R. Porter, "Exactions An Inexact Science," Urban Land, January 1983, p. 34.
Barry A. Currier, "Legal and Practical Problems Associated With Drafting Impact Fee Ordinances," Institute on PIanning, Zoning, and Eminent Domain, Southwestern Legal Foundation, Texas (New York: Mathew Bender Publ., 1984), p. 273.
Julian Conrad Juergensmeyer and R. Mason Blake, "Impact Fees: An Answer to Local Governments Funding Dilemma," 9 Fla.
St. U. L. Review (1981), 416.
^Edith Netter, "Developers Balk at Subdivision Exactions," Planning, January 1983, p. 9.
Donald G. Hagman, Public Planning and Control of Urban and Land Development; Cases and Materials (St. Paul: West Publishing Company, 1980), second edition, p. 903.
6Ibid, p. 903.
^Ibid, p. 904.
ake, at 430.
1964), as cited by Juergensmeyer and
Juergensmeyer and B1
9394 P.2d 182 (Mont. Blake, at 430.
1048 N.J. 122, 224 A.2d 1 (1966), as cited by John D. Johnston, Jr., "Constitutionality of Subdivision Control Exactions: The Quest for A Rationale," 52 Corn. L. Q. (1967), at 885.
11Hagman, Urban and Land Development, p. 904.
^Paul Downing and James Frank, Recreational Impact Fees: A Discussion of the Issues and a Survey of Current Practice in the United States, with Guide lines for Florida Applicat ion, Policy Sciences Program, Florida State University, August 1982, p. 10.
Porter, P. 34.
Downing and Frank, Recreational Fees, p. 10.
Juergensmeyer and Blake, at 419.
16Ira Heyman and Thomas Gilhool, "The Imposing Increased Community Costs on New Through Subdivision Exactions," 73 Yale L.J.
Constitutionality of Suburban residents 1119, 1149 (1964).
Ibid, at 1151.
280 N.W. 2d 97 (S.D. ctions, User fees, and
____ Zoning and Planning Law Handbook,
York: Clark Boardman Company,
1979), as cited Assessments: ed.
d by Dona Id G. Hagman,
What Are th e Limits?"
Frederic A. Strom (New
Ibid, p. 58.
Paul Downing, James Frank, and Elizabeth Lines, Community lerience with Fire Impact Fees: A Nat ional Study, Policy
Sciences Program, Florida State University, 1985, P.
Interview with John A. Humphreys, AICP, Planning Director, Department of Community Development, Town of Breckenridge, Colorado, 19 September 1985.
^From a lecture by Herb Smith, AICP, Planning, University of Colorado at Denver, Planning Policy," 22 February 1983.
College of Design and from "Fundamentals of
22Jay Sheen, "Development Fees: St Reasonableness," Utah L. Rev. (1982),
24Hagman, "Exactions, User Fees, and Assessments," p. 57. 25 ibid, pp. 54-55.
2Ibid, p. 55.
Urban Land Institute, from an adopted Statement of Concern and Subsequent Policy Statement, "Financing Local Infrastructure in a Time of Fiscal Constraint: Issues and Reccommended
Actions," 1984 Zoning and Planning Law Handbook, ed. J. Benjamin Gailey (New York: Clark Boardman Company, Ltd., 1984), p. 156.
Ibid, p. 156,
^Downing and Frank, Recreational Impact Fees, p. 18.
Ibid, chapter II, generally.
31 Ibid, pp. 29-33.
Ibid, chapter II, generally.
33Ibid, p. 29.
341_b_id, p. 28.
Ibid, chapter II, generally.
33Paul Downing, James Frank, and Elizabeth Lines, Community Experience with Sj; weyr Impact Fees: A National Study, Policy Sciences Program, Florida State University, 1985, pp. 5-7.
37Ibid, P- 8 and Table I.
38Ibid P- 10.
39 Ibid, P- 11.
40Ibid, P- 10.
41 Ibid, PP . 15-18.
42 Downi ng, Frank, and Lines,
Fire Impact Fees,
43Ibid, chapter 2, generally.
44Ibid, p. 9.
45 Ibid, p. 12. 46Ibid, p. 12. 4^Porter, p. 34.
Stevenson Weitz, "Impact Fees: There is No Free Lunch," nr.ing, June 1984, p. 27.
Janet A. Cornish, "Butte Plan Leads to Positive Action," The Western Planner, vol. 8, no. 2, March-April 1985, p. 1.
Steve House, Director, Dept, of Community Development, Commerce City, Colorado, memo of April 1985, regarding seminars attended during the Montreal 1985 APA convention.
James Frank, "How Road Impact Fees are Working in Broward County," Planning, June 1984, p. 27.
Ibid, p. 25
^Richard H. Jackson, Land Use in America (New York: Winston & Sons, 1981), p. 123.
^Bureau of the Census, U.S. Dept, of Commerce, 11 lustrative Projections by Age, Race, and Sex: 19 75 to 2000 13 (1979), as cited by Sheen, at 549.
^Heyman and Gilhool, at 1121.
Hagman, "Exactions, User Fees, and Assessments," p. 60
57Randy Harrison, "Mandated Costs, Limited Revenue Complicate Waster and Sewer Needs," Colorado Municipalities, January-February 1983, p. 5.
58Gerard Froh, "Cities Can't Count on Bonds to Fix What Ails Them," Planning, May 1981, p. 16.
59Ibid, p. 17.
DUJuergensmeyer and Blake, at 417.
61Ann Schrader, "City Faces $12 Million Loss in Federal Aid; Revenue-Sharing Program in Peril," The Denver Post, 8 May 1985, metro sec., p. 3A, col. 6.
^2Joni Blackman, "City Faces Shortfall of $25 Million in 86; Denver Faces Financial Crisis," The Denver Post, 13 May
1985, sec. 1, pp. 1A and 7A.
^Dennis Polhill, "How do We Tackle The Infrastructure Problem?" Colorado Municipalities, January-February 1983, p. 16.
64Froh, p. 16.
65Polhil1, p. 16.
66Ibid, p. 16.
7ULI Policy Statement, "Financing Local Infrastructure," p. 157.
^Ibid, p. 158.
69Polhil1, p. 16.
Harrison, p. 7.
7^Ibid, p. 7.
72Polhill, p. 19.
79Land Use Planning Report, "NLC Survey Shows Cities Facing Bleak' Outlook," 10 January 1983, p. 4.
^Ellickson, at 451.
Steve House memo, see supra note 50.
76Currier, p. 274.
77Ibid, p. 277.
78Ellickson, at 482.
79 631 P.2d 899 (Utah, 1981).
Hagman, "Exactions, User Fees and Assessment," p. 50.
8^Heyman and Gilhool, at 1131.
Jan Rundus, "The Permissible Scope of Compulsory Requirements for Land Development in Colorado," University of Colorado Law Review, 54 (1983), 466.
83Ibid, at 466.
84 631 P.2d at 904.
85 272 U.S. 365, 287 (1926).
88Ellickson, at 455.
87Heyman and Gilhool, at 1145.
88Currier, p. 276.
89Sheen, at 554-555.
99Sheen, at 554.
93Hagman, "Exactions, User Fees and Assessments," p. 63.
Ibid, p. 66.
94 438 U.S. 104, 98 S. Ct. 2646, 57 L.Ed.2d 631.
Hagman, "Exactions, User Fees and Assessments," pp 64-65.
These six measures for ensuring the capitalization of regulatory costs into lower land values are stated briefly by Weitz, see supra note 53. The elaboration and commentary on these suggestions are in addition to Weitz's text.
97Weitz, p. 13.
93Sheen, at 553.
Juergensmeyer and Blake, at 416.
199Heyman and Gilhool, at 1141.
101 Ibid, at 1124.
102 Ibid, at 1137.
103Ibid, at 1137.
104Rundus, at 447.
105Hagman, "Exactions, User Fees, and Assessments," p. 73. *-93Juergensmeyer and Blake, at 423.
107Downing and Frank, Recreational Impact Fees, p. 13.
Juergensmeyer and Blake, at 423.
109Currier, p. 281.
Hagman, "Exactions, User Fees, and Assessments, generally.
Juergensmeyer and Blake, at 426,
Ibid, at 427.
Hagman, "Exactions, User Fees, and Assessments," p. 48
Juergensmeyer and Blake, generally,
Currier, p. 284.
George Steinlieb, et. al., Hous ing Deve1opment and icipal Costs, New Brunswick, N.J.: Center for Urban Tolley
Research, 1972, Chapter 4
Hagman, "Exactions, User Fees, and Assessments," p. 60
Downing and Frank, Recreational Impact Fees, p. 69
Heyman and Gilhool, at 1124-1127
22 111. 2d 375, 176 N.E.2d 799 (1961).
122Ibid, at 802
Longbridge Builders, Inc. v. Planning Board, 52 N.J. 348, 245 A.2d 336, 337 (1968).
34 Cal.2d 31, 207 P.2d 1, (1979), as interpreted by
Sheen, at 563,
125 4 Cal. 3d 633, 484 P.2d 606, 94 Cal. Rptr. 630 (1971)
126see supra note 124, at 7,
Sheen, at 562.
See supra note 125; 4 Cal. 3d, at 634.
176 N.E.2d at 801-802, as cited by Johnston, Jr., at 908,
225 N.Y.S.2d 538 (App. Div. 1962), 209 N.Y.S.2d 729 (Sup. 1960), as cited by Heyman and Gilhool, at 1136.
Sheen, at 563.
18 N.Y.2d 78, 218 N.E.2d 673, 271 N.Y.S.2d 955 (1966) See note 130, supra.
Gulest, as interpreted by Johnston, Jr., at 920.
135 96 111. App. 3d 1001, 422 N.E.2d 231, 235-236 (1981), as ed by Sheen, at 563.
28 Wis.2d 608, 611, 137N.W.2d 442, 444 (1965).
Jordan, as cited by Juergensmeyer and Blake, at 430.
I33 113 Cal. App. 3d 491, 170 Cal. Rptr. 247 (1980), as cited Sheen, at 563.
23 N.J. 357, 129 A.2d 265 ( 1957), as cited and
interpreted by Currier, pp 281-282.
140 80 N.J. 165, 402 A.2d (1979), as interpreted by Sheen, at
141 311 So.2d 371 (Fla. Dist. Ct. App. 1975). For a more iled analysis of the facts of this and the subsequent Florida act fee cases, see either Currier, pp 282-289; or Downing and nk, Recreational Impact Fees, chapter IV, generally.
329 So.2d 314 (Fla. 1976), and C ^ t_y of Â£ uji Â£ d ^ n v Contractors and Builders Association of Pinellas County, 312
So.2d 763 (Fla. Dist. Ct. App. 1975).
143 312 So.2d 763, at 766.
. 82-659 cited by
(Fla. Dist. Ct. Currier, p.288.
4th Dist., Oct. 12,
145Ibid, as cited by Currier, p. 288.
146 606 P.2d 217 (Utah 1979); 614 P.2d 1157 (1980). For a
detailed account of these Utah cases, see Rundus, pp 462-468; Currier, pp 289-295; or especially Sheen, generally.
147 606 P.2d 217 (Utah 1979), at 220-221.
148 631 P.2d 899, 904 (Utah 1981).
149Ibid, at 904.
133Rundus, at 461.
1 R 1
See supra note 82, and accompanying text.
152 642 P.2d 376 (Utah 1982).
153 663 P.2d 95 (Utah 1983), as cited by Currier, p. 292.
^4Kitty Hawk, 154 Colo. 535, 543-544 (1964)
Colo. Rev. Stat. 31-12-121 (Supp. 1982), and 31-12-
4) through -112.
Colo. Rev. Stat. 29-30-104(1) (Repl. Vol. 1977).
157 188 Colo. 1, 532 P. 2 d 720 ( 1975), as cited and
interpreted by Rundus, at 445.
Ibid, at 723; as cited by Rundus, at 455.
192 Colo. 305, Rundus, at 457.
312, 557 P.2d 1186, 1191 (1976), as cited
*'^Micheal M. Schultz, rovement Requirements,"
esq., "Standard for The Goal Miner, June
3^Colo. Rev. Stat. 30-28-133(4)(a) (1973), as cited by the court in Cimarron Corp. v. Board of County Commissioners, 193 Colo. 164, 563 P.2d 946 (1977), as related by Rundus, at 456.
162 626 P.2d 668 (Colo. 1981). 163Ibid, at 674.
Downing and Frank, Recreational Impact Fees, p. 94. 165Ibid, p. 75.
Currier, Barry A. "Legal and Practical Problems Associated With Drafting Impact Fee Ordinances," Institute Planning, Zoning, and Eminent Domaine, New York, Matthew Bender Publ., 1984.
ley, Benjamin J., ed. 1984 Zoning and Planning Law Handbook. New York, Clark Boardman Company, Ltd., 1984.
Hagman, Donald G. Public Planning and Control of Urban and Land Development: Cases and Materials. St. Paul, West Publish-
ing Company, 1980, second addition.
Jackson, Richard H. Land Use In America. New York, V. H. Winston & Sons, 1981.
Steinleib, George, et a 1. Housing Development and Municipal Costs. New Brunswick, Center for Urban Policy Research, 1972.
Strom, Frederick A., ed. 1983 Zoning and Planning Law Handbook. New York, Clark Boardman Company, Ltd., 1983.
Cornish, Janet A. "Butte Plan Leads to Positive Action," The Western Planner. Vol. 8, No. 2, March-April 1985, pp. 1-3.
Frank, James. "How Road Impact Fees are Working in Broward County," Planning, June 1984, pp. 24-27.
Froh, Gerard, "Cities Can't Count on Bonds to Fix What Ails Them," Planning, May 1981, pp. 16-17.
Harrison, Randy. "Mandated Costs, Limited Revenues Complicate Water and Sewer Needs," Colorado Municipalities. January-February 1983, p. 4-7.
Netter, Edith. "Developers Balk at Subdivision Exactions," Planning, January 1984, p. 9.
"NLC Survey Show Cities Facing 'Bleak' Outlook," Land Use Planning Report. 10 January 1983, p. 4.
Polhill, Dennis. "How Do We Tackle The Infrastructure Problem?" Colorado-Municipal ities. January-February 1983, pp. 16-20.
Porter, Douglas R. "Exactions An Inexact Science," Urban Land. January 1983, pp. 34-35.
Schultz, Michael M. "Standard For Valid Subdivision Improvement Requirement," The Goal Miner. June 1985, pp. 9-10.
Weitz, Stevenson. "Impact Fees: There is No Free Lunch,"
Planning. July 1984, pp. 12-14.
LAW REVIEWS/LEGAL JOURNALS:
Ellickson, Robert C. "Suburban Growth Controls: An Economic and Legal Analysis," Yale Law Journal 86 (1977), 388-511.
Heyman, Ira Michael and Thomas K. Gilhool. "The Constitutionality of Imposing Increased Community Costs on New Suburban Residents Through Subdivision Exactions," Yale Law Journal 73 (1964), 1119-1157.
Johnson, John D., Jr. "Constitutionality of Subdivision Control Exactions: A Quest for a Rationale," Cornell Law Quarterly
52 (1967), 871-925.
Juergensmeyer, Julian Conrad and R. Mason Blake. "Impact Fees: An Answer to Local Governments' Funding Dilemma," Florida State Law Rev. 9 (1981), 415-445.
Rundus, Jan. "The Permissible Scope fo Compulsory Requirements For Land Development in Colorado," Univ. of Colo. Law Review 54 (1983), 447-468.
Sheen, Jay. "Development Fees: Standards To Determine Their Reasonableness," Utah Law Review 3 (1982), 549-569.
Downing, Paul and James Frank. Recreational Impact Fees: A Discussion of Current Practice in the United States, With Guidelines For Florida. Policy Sciences Program, Florida State University, 1982.
Downing, Paul, James Frank, and Elizabeth Lines. Community Experience With Fire Impact Fees: A National Study. Policy Sciences Program, Florida State University, 1985.
Blackman, Joni. "City Faces Shortfall of $25 Million in '86; Denver Faces Financial Crisis," The Denver Post 13 May 1985, Sec. 1, pp. 1A and 7A.
Schrader, Ann. "City Faces $12 Million Loss in Federal Aid; Revenue-Sharing Program in Peril," The Denver Post 8 May 1985, Metro Sec., p. 3A, Col. 6.
Associated Home Builders of Greater East Bay, Inc. v. City of Walnut Creek, 484 P.2d 606 (Calif., 1971).
Ayres v. City Council of Los Angeles, 207 P.2d 1 (Calif., 1949).
Banberry Development Corp. v. South Jordan City, 631 P.2d 889
Bethlehem Evangelical Lutheran Church v. City of Lakewood, 626 P.2d 668 (Colo., 1981).
Billings Properties, Inc. v. Yellowstone County, 394 P.2d 182 (Mont. 1964).
ward County v. Janis Development Co., 311 So.2d 371 (Fla. Dist. Ct. App., 1975).
1 v. City of West Jordan, 606 P.2d 217 (Utah, 1979); 614 P.2d 1157 (Utah, 1980).
Cimarron Corp. v. Board of County Commissioners of El Paso, 563 P.2d 946 (Colo., 1977).
City of Brookings v. Associated Developers, Inc., 280 N.W.2d 97 (S.D., 1979).
City of Colorado Springs v. Kitty Hawk Development Co., 154 Colo. 535 (1964).
Contractors and Builders Association of Pinella County v. City of Dunedin, 329 So.2d 314 (Florida, 1976).
Daniels v. Borough of Point Pleasant, 129 A.2d 265 (N.J., 1957).
Deerfield Estates, Inc. v. Township of East Brunswick, 286 A.2d 498 (N.J., 1972).
Gulest Associates v.Town of Newburgh, 209 N.Y.S.2d 729 (N.Y., 1960).
Hollywood, Inc. v. Broward County, 431 So.2d 606 (Fla. Dist. Ct. Appl., 1983).
Homebuilders and Contractors Assn, of Palm Beach County v. Board of County Commissioners of Palm Beach County, No. 82-659 (Fla. Dist. Ct. Appl., 4th Dist., Oct. 12, 1983).
Jenad, Inc. v. Village of Scardale, 218 N.E.2d 673 (N.Y. 1966).
Jordan v. Village of Menomenee Falls, 137 N.W.2d 442 (Wise., 1965).
Kings Mill Homeowners Association v. City of Westminster, 192 Colo. 305; 557 P.2d 1186 (Colo., 1976).
Lafferty v. Payson City, 642 P.2d 376 (Utah, 1982).
Liberty v. California Coastal Commission, 170 Cal. Rptr. (1980).
Patterson v. Alpine City, 663 P.2d 95 (Utah, 1983).
Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed. 2d 631.
Pioneer Trust and Savings Bank v. Village of Mount Prospect, 176 N.E.2d 799 (111. 1961).
Plote, Inc. v. Minnesota Alden Co., 422 N.E. 231 (111., 1981).
Stroud v. City of Aspen, 532 P.2d 720 (Colo., 1975).
Village of Euclid v. Amber Realty Co., 272 U.S. 365, 287 (1926).
West Park Avenue., Inc. v. Township of Ocean, 224 A.2d 1 (N.J., 1966).
White Birch Realty Corp. v. Gloucester Township Municipal Utility Authority, 80 N.J. 165, 402 A.2d (N.J., 1979).
Wood Brothers Homes, Inc. v. City of Colorado Springs, 568 P.2d 487 (Colo., 1977).
N.R.P.A. Recreation representative impact fee
Standards formulas in use
and some and schedules
Parks and Recreation Standards*
Acres/ 1000 people
Vest Pocket Parks
Neighborhood Parks 2.5 District Parks 2.5 Large Urban Parks 5.0 Regional Parks 20.0
Size Population Served
Range Served Area
up to 1 acre 500-2,500 sub neighborhood
20 acres 2,000-10,000 1/4 to 1/2 mile
20-100 10,000- 1/2 to
acres 50,000 3 miles
100+ one for within 1/2 hr
acres each 50,000 driving time
250+ entire within 1/2 hr
acres region driving time
* Source: National Recreation and Parks Administration, "National Park and Open Space Standards
A Three-Step Average Unit Cost Fee Formula, For A Facility Need Based On A Per Capita Unit of Demand
st: Estimate total population of proposed development
number of proposed population per
new dwelling units dwelling unit
Second: Estimate amount of facility needs generated,
development population (in thousands)
needed per 1000 person Third: Estimate the fee amount.
acres of facility
total acres of facility needed for development
total acres of facility needed for the development
;e acquisi cost/acre
\ fee for
J = the
tion > / development
This generalized formula approach may be adpated for other service systems, where the unit of demand is not on a per capita basis.
FIRE IMPACT FEES:
Two Systems; A Fixed Schedule and a Formula
The most popular form of fire impact fee was found to be one with a fixed schedule. An example of this type of fee structure is that of Stuart, Florida which charges according to the following:
TYPE OF CONSTRUCTION
1. Residential Dwelling units
2. Hotels, motels, industrial buildings, commercial buildings and all other non-residential structures
POLICE PROTEC- TION FIRE PROTEC- TION PARKS AND RECREATIONAL SERVICES TOTAL
$65.00 per unit $55.00 per unit $185.00 per unit $305.00 per unit
7.2C per square foot 6.3C per square foot 3.5S per square foot 17.0C per square foot
representative fee formula is the one employed by Monterey,
California, having a
ee = fire flow demand X cost factor
Fire flow demand is the fire flow required by Insurance Services Office (I.S.O.) standards for the particular building size, construction type and occupancy.
Cost factor is cost per unit of fire flow to provide the water supply improvements necessary to achieve required fire flow.
Fire Impact Fees, p.ll.
A formula-driven sewer impact fee, used by Grand Junction, Colorado.
Formula for Plant Investment (P.I.F.)
The basic plant investment fee (B.P.I.F.) = $500.00
P.I.F. = (B.P.I.F.) X (E.Q.U.)
where (E.Q.U.) = Equivalent residential units
The equivalent residential units (E.Q.U.) is determined by using the following values as applied for the types of use in which the building, premise or lot is to be used:
A. Any single-family above 1.00
B. Multiple-family dwellings 0.72 X number of single family units C. Hotels and motels: a. No restaurants or kitchens 0.35 X number E.Q.U.
of rooms E.Q.U.
b. With kitchenettes 0.43 X number of rooms c. With restaurants use above then add restaurants from below E.Q.U.
a. 24-hour operation 0.21 X number of seats b. 12-hour or less operation 0.14 X number E.Q.U.
of seats E.Q.U.
c. Bar, no food 0.04 X number of seats E. Schools: a. No food or showers 0.04 X number of E.Q.U.
student capacity b. Add to a. for cafeterias 0.02 X number of student capacity c. Add to a. for showers 0.02 X number of student capacity d. Boarding schools 0.27 X number of student E.Q.U.
F. Service stations:
Without wash rack, 1.00 E.Q.U.
With wash rack 2.3 per rack E.Q.U.
G. Shopping centers and stores: .35 X number of
thousand square feet of store space E.Q.U.
H. Travel trailer park (K.O.A., etc.): .45 X
number of trailer parking spaces E.Q.U.
Sewer impact fee formula (cont.)
I. Churches and assembly halls, theaters and
arenas: 0.01 X number of seating capacity E.Q.U.
J. Drive-in theaters: 0.02 X number of car spaces E.Q.U.
K. Factory, warehouses and offices (not including
industrial waste): 0.05 X number of employees E.Q.U.
L. Hospital: 0.89 X number of bed spaces E.Q.U.
M. Institution nursing home: 0.36 X number of
N. Laundry coin-operated: 0.90 X number of
washing machines E.Q.U.
O. Mobile home parks: 0.67 X number of lots or
P. Car Wash: 2.3 X number of bays
Q. Fast food take out (walk up or drive up):
Open 12 hours or more each day, 0.10 X number
of employees E.Q.U.
Open less then 12 hours per day, 0.06 X
number of employees E.Q.U.
:ed schedule sewer impact fee used by Colorado Springs, ado:
For each single-family wastewater service:
Inside Corporate Limits Outside Corporate Limits
For each dwelling unit of all common wall multi-family residential construction, which may be described as an apartment, condominium, townhouse, stacked housing or other name form for multi-family housing, permanent or transient, and for each dwelling unit in a mobile home park, as defined is Section 14-1-109, which shall be collected prior to issuance of a building permit:
Inside CorDorate Limits
Outside CorDorate Limits
3. Each commerical wastewater service shall be charged at the effective rate for single-family wastewater service, as defined above, for each fifteen (15) fixture unit equivalents, as set out in Section 12-5-513 of the City Code.
4. Each service connection in a mobile home subdivision as defined in Section 14-1-109 of the City Code shall be charged at the effective rate for single-family wastewater service, as defined above.
A Comprehensive Fixed Schedule of Impact Fees; used by
the City of Loveland, Colorado.
TABLE 17. SUMMARY OF CAPITAL EXPANSION FEE CALCULATIONS
Service Residential (Per Unit) Commercial (Per Sq. Ft.) Institutional (Per Sq. Ft.) Industrial (Per Acre)
Parks & Recreation $ 736
Fire Protection 98 $0.07 $0.07 $ 746
Law Enforcement 24 0.02 0.02 179
Library 121 --
Museum 58 --
General Government 271 0.19 0.20 2,024
Streets 229 0.65 0.59 1,601
Total $1,537 $0.93 $0.88 $4,550
System documentation for the Loveland, Colorado, Capital Expansion Fee (CEF) system (this step-hy-step approach was repeated seven times to set the fee amount for each of the assessment areas set forth in the fixed schedule of fees).
Total Future Capital Costs
(as laid out in the CIP)........................... &
Less* Betterment and Replacement Costs (costs attributable to improving and/or replacing the service system's existing capital facility investment.......................
Gross Capital Expansion (Growth) Costs............ Â£
Total Capital Expansion Costs......................
Plus/Minus* Present Value of Excess Existing (available) Capital Capacity/
Value of Capital Capacity Dificiency...............+/
Minus: External and/or debt financing
sources (subventions, gate fees, bonds)............
Net Expansion-Related Capital Costs................
Estimate the Proportion of Net Costs that is Attributable to
Each Sector (resid ./commrc. ).....^
Divide Each Sector's Costs by
the Amount of Capacity (in terms
of dwelling units or square foot,
as per adopted service standards).. ________ ....
Total Individual Impact Fee for this service system by dwelling
unit and square footage............^________ .... $