When new development comes to town, it brings new people, new businesses, and new opportunities. It also brings new demand for schools, roads, parks, fire stations, and treatment facilities. Who’s going to pay for it? If there is no plan, the burden unfairly falls on your existing residents.
That’s where impact fees can help. Designed to ensure that growth funds its own infrastructure needs, they are a critical funding tool for local governments. Yet, despite their importance, they’re often misunderstood. Here, we take on the three biggest myths about impact fees and propose best practices to help you make the most of them.
Some agencies hesitate to implement impact fees because they worry about fairness or fear political backlash. With homes becoming less and less affordable, plenty of special interest groups take shots at impact fees and agencies that charge them.
Here’s the truth: What will it cost the community if residents cannot send a kid to school, take a walk in a park, or get an ambulance or a fire engine when their life is in danger?
Let’s take California, for example. The State’s Mitigation Fee Act was specifically designed to empower local governments to fund essential public infrastructure. Without impact fees, existing residents and ratepayers must foot the bill for new development – nothing gets built. Impact fees help ensure that those who benefit from municipal services actually help pay for them.
No city, county, or district should be ashamed to collect fair impact fees to fund essential public facilities.
Best Practices:
1. Educate Your Stakeholders. Clearly communicate that impact fees ensure growth pays its fair share and prevents service level declines.
2. Develop a Strong Nexus Study. A good nexus study should properly calculate the fees and demonstrate that they are legal and equitable. If you need to a good Nexus Study RFP template, you can find a good one here.
3. Be Transparent. Public outreach and education campaigns help dispel fears and highlight the benefits of impact fees for the community. When you follow the rules for fair impact fees, you have nothing to hide.
Impact fees are like gardens: you can’t just plant flowers and walk away.
Over time, development patterns change, costs rise, and facility needs evolve. If your impact fees aren’t regularly updated, you’ll soon find that they no longer provide adequate funding. Tomorrow’s infrastructure can’t be built with yesterday’s dollars.
Best Practices:
1. Do Regular Reviews. The law requires nexus studies to be updated from time to time. In California, you much do it at least every eight years, but best practice is to reassess your impact fees at least every five years—or sooner if major changes occur.
2. Monitor Construction Costs. Construction costs can change quickly. Ensuring fees reflect current costs and updating them for inflation prevents revenue shortfalls.
3. Adjust for Land Use Changes. When development patterns shift, your impact fee programs should be adjusted accordingly.
Ignoring impact fee compliance is like skipping a dental exam—eventually, it’s going to get you in trouble. Different states have different rules, but in general the law requires annual and five-year reports detailing fee revenues and expenditures, as well as on-going transparency practices.
Ignoring compliance can lead to audits, legal challenges, and even forced fee refunds.
Best Practices:
1. Appoint an Impact Fee Champion. Designate a staff member or consultant to oversee impact fee compliance and reporting.
2. Create a Compliance Calendar. Monitoring important deadlines helps ensure that things don’t fall through the cracks.
3. Leverage Technology. Use a digital record management system for efficient fee collection, record-keeping, and reporting.
Final Thoughts
Impact fees are a powerful tool for critical infrastructure funding. By implementing a well-structured impact fee program, updating it regularly, and staying on top of compliance, your district can maximize revenues while ensuring fair and legally defensible allocation of costs.
If this seems like a lot, you are not alone. We often talk to cities, counties, and districts who feel lost in trying to navigate the impact fee maze. That is why we developed software to make it much easier. FeeMaster helps public agencies manage impact fees better.
Growth is coming—make sure you have the right tools to keep up!
Looking to do an RFP for your impact fee nexus study? Save time and get better results with our free, customizable RFP template. Designed for local governments, this easy-to-use Word template covers all essential aspects of an impact fee program design and update. Get yours today and streamline your RFP process!
Run Your Impact Fees Like a Pro
Mt. 25:21
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