Financial Management Series Financial Management Series Number 4Number 4

Impact FeesImpact Fees

Financial Management Series Financial Management Series Number 4Number 4

Impact FeesImpact Fees

Alan ProbstAlan ProbstLocal Government SpecialistLocal Government SpecialistLocal Government CenterLocal Government CenterUniversity of Wisconsin - ExtensionUniversity of Wisconsin - Extension

DefinitionDefinitionDefinitionDefinition

An An Impact FeeImpact Fee is a charge to new is a charge to new development for public improvements development for public improvements that serve that development or that that serve that development or that type of developmenttype of development**

*“Capital Budgeting and Finance: A Guide for Local Governments” A. John Vogt, ICMA*“Capital Budgeting and Finance: A Guide for Local Governments” A. John Vogt, ICMA

USEUSEUSEUSE

Impact fees offset the costs of Impact fees offset the costs of expanded public service and expanded public service and infrastructure often needed in infrastructure often needed in response to new real estate response to new real estate

developmentdevelopment

RationaleRationaleRationaleRationale

Considered “pay as you go” approach Considered “pay as you go” approach Proponents argue impact fees are Proponents argue impact fees are

fairer, more predictable, and encourage fairer, more predictable, and encourage planning for growthplanning for growth

Place the burden on those receiving the Place the burden on those receiving the benefitsbenefits

Opponents argue could deter Opponents argue could deter developmentdevelopment

How imposed?How imposed?How imposed?How imposed? Residential development impact fees Residential development impact fees

are commonly based on a specified are commonly based on a specified dollar amount per residential unitdollar amount per residential unit

Industrial and Commercial Industrial and Commercial development impact fees are development impact fees are commonly based on a per square foot commonly based on a per square foot of improved space basisof improved space basis

Who can impose?Who can impose?Who can impose?Who can impose?

Wisconsin counties may not impose Wisconsin counties may not impose impact feesimpact fees

Municipalities may impose within limitsMunicipalities may impose within limits

"Municipality" means a city, village, or "Municipality" means a city, village, or town town

Statutory AuthorityStatutory AuthorityStatutory AuthorityStatutory Authority

State Statutes 66: General Municipal State Statutes 66: General Municipal LawLaw SS. 66.0617 – Impact FeesSS. 66.0617 – Impact Fees http://www.legis.state.wi.us/statutes/Stat0066.http://www.legis.state.wi.us/statutes/Stat0066.pdfpdf

Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Changed some aspects of Impact feesChanged some aspects of Impact fees

Eliminated counties’ ability to impose Eliminated counties’ ability to impose impact feesimpact fees

Set 7 year time limit for using impact Set 7 year time limit for using impact fees, plus added potential 3 year fees, plus added potential 3 year extension (w/ municipal resolution)extension (w/ municipal resolution)

Municipality must illustrate extenuating Municipality must illustrate extenuating circumstances/hardship in meeting the 7 circumstances/hardship in meeting the 7 year limit in order to claim 3 year year limit in order to claim 3 year extensionextension

Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477

Capital costs further defined to Capital costs further defined to remove “vehicles” from eligibilityremove “vehicles” from eligibility

Athletic fields considered as part of Athletic fields considered as part of municipal “parks & playgrounds”municipal “parks & playgrounds”

Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477

Developer to pay impact fee within 14 Developer to pay impact fee within 14 days of the issuance of days of the issuance of building/occupancy permitbuilding/occupancy permit

Prohibits municipalities from imposing Prohibits municipalities from imposing fees or charges as a condition of plat fees or charges as a condition of plat approvals for a developmentapprovals for a development

Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477Wisconsin Acts 203 & 477

Revenue and expenditure totals for Revenue and expenditure totals for each impact fee must be reported as each impact fee must be reported as part of the annual budget summarypart of the annual budget summary

Revenues from Revenues from eacheach impact fee must impact fee must be placed in a separate account; be placed in a separate account; cannot be lumped into General Fundcannot be lumped into General Fund

What may be charged?What may be charged?What may be charged?What may be charged?

Municipalities may only charge for Municipalities may only charge for capital costscapital costs (what it costs you to (what it costs you to have them develop in your have them develop in your community)community)

Capital CostsCapital CostsCapital CostsCapital Costs

Costs to construct, expand or Costs to construct, expand or improve public facilitiesimprove public facilities

May include cost of landMay include cost of land

May include legal, engineering, May include legal, engineering, and design costsand design costs

Capital CostsCapital CostsCapital CostsCapital Costs Legal, engineering, and land cannot Legal, engineering, and land cannot

exceed 10% of capital costs directly exceed 10% of capital costs directly related to necessary improvementsrelated to necessary improvements

Does not include other non-capital Does not include other non-capital costs associated with public facilities costs associated with public facilities (ex. pays for fire house, not fire truck)(ex. pays for fire house, not fire truck)

Cannot be used to cover any school Cannot be used to cover any school district costs or existing deficienciesdistrict costs or existing deficiencies

Capital CostsCapital CostsCapital CostsCapital Costs

Capital Costs may include cost to construct, Capital Costs may include cost to construct, expand or improve public facilities such as:expand or improve public facilities such as:

Wastewater/Water InfrastructureWastewater/Water Infrastructure Parks, playgrounds, athletic fieldsParks, playgrounds, athletic fields Solid waste & recycling facilitiesSolid waste & recycling facilities Highways/other transportation facilitiesHighways/other transportation facilities Drainage facilitiesDrainage facilities Public Safety (fire protection, law enforcement emergency Public Safety (fire protection, law enforcement emergency

medical facilities)medical facilities) LibrariesLibraries Associated land costsAssociated land costs

Capital CostsCapital CostsCapital CostsCapital Costs

Improvements must be directly related to (required for) new development

Steps to impose impact fees?Steps to impose impact fees?Steps to impose impact fees?Steps to impose impact fees?

1.1. Perform a needs AssessmentPerform a needs Assessment• Must be available for public review at Must be available for public review at

least 20 days before public hearingleast 20 days before public hearing

2.2. Public HearingPublic Hearing

3.3. Pass OrdinancePass Ordinance• Ordinance must include appeals Ordinance must include appeals

processprocess

Process of Cost Allocation Process of Cost Allocation Process of Cost Allocation Process of Cost Allocation

• Cost review (Needs Assessment)Cost review (Needs Assessment)

• Provide cost review to developer and ask Provide cost review to developer and ask for feedback (Public Hearing)for feedback (Public Hearing)

• Written Agreement Terms (Ordinance)Written Agreement Terms (Ordinance)

• Understand unforeseen situations may Understand unforeseen situations may arise (Appeals process)arise (Appeals process)

Must Include:Must Include:• Inventory of existing public facilitiesInventory of existing public facilities• Includes any existing deficienciesIncludes any existing deficiencies• Establishes the Establishes the rational relationshiprational relationship

between the impact fee and the required between the impact fee and the required upgradesupgrades

(Note: Developers will resist impact fees that (Note: Developers will resist impact fees that provide provide unnecessaryunnecessary improvements to public improvements to public infrastructure)infrastructure)

Needs assessmentNeeds assessmentNeeds assessmentNeeds assessment

Needs assessmentNeeds assessmentNeeds assessmentNeeds assessment

Identifies new public facilities necessary Identifies new public facilities necessary because of the new land developmentbecause of the new land development

Detailed cost estimate of capital costs Detailed cost estimate of capital costs including the estimated effect recovering the including the estimated effect recovering the capital costs via impact fees will have on the capital costs via impact fees will have on the municipalities affordable housing supply municipalities affordable housing supply

Must be available for public review a Must be available for public review a minimum of 20 days prior to public hearingminimum of 20 days prior to public hearing

Public HearingPublic Hearing Public HearingPublic Hearing Public must be heard on impact feesPublic must be heard on impact fees Public must have 20 days to review needs Public must have 20 days to review needs

assessment prior to public hearingassessment prior to public hearing On line versionOn line version Town Hall office copyTown Hall office copy LibraryLibrary

If Needs Assessment requires revisions, If Needs Assessment requires revisions, another public hearing is required with 20 another public hearing is required with 20 days to review revision days to review revision

OrdinanceOrdinanceOrdinanceOrdinance

Cannot pass ordinance without Public Cannot pass ordinance without Public HearingHearing

Specific language on how long impact Specific language on how long impact fees may be held (7 years maximum*)fees may be held (7 years maximum*)

Specific procedure for process to Specific procedure for process to appeal impact feesappeal impact fees

OrdinanceOrdinanceOrdinanceOrdinanceStates impact fee amountStates impact fee amount

Municipality may impose different impact Municipality may impose different impact fees on different types of land fees on different types of land developmentdevelopment

Ordinance may delineate geographical Ordinance may delineate geographical zones within the municipality zones within the municipality (Example: (Example: Development on slopes >20%)Development on slopes >20%)

Must show in Needs Assessment why Must show in Needs Assessment why differentiation necessarydifferentiation necessary

OrdinanceOrdinanceOrdinanceOrdinance

Municipality may provide an Municipality may provide an exemption/reduction in impact fees for exemption/reduction in impact fees for “Low-Income Housing” “Low-Income Housing”

Impact fees cannot be shifted from “low-Impact fees cannot be shifted from “low-income housing” development to any income housing” development to any other areas in municipalityother areas in municipality

Standards for Impact FeeStandards for Impact FeeStandards for Impact FeeStandards for Impact Fee

Impacts fees shall bear a “rational Impacts fees shall bear a “rational relationship” to the need for new, relationship” to the need for new, expanded or improved public facilitiesexpanded or improved public facilities

May not exceed the “proportionate May not exceed the “proportionate share” of capital costs required to share” of capital costs required to serve the land development when serve the land development when compared to the existing land uses compared to the existing land uses within the municipalitywithin the municipality

Standards for Impact FeeStandards for Impact FeeStandards for Impact FeeStandards for Impact Fee Impact fees shall be reduced to compensate Impact fees shall be reduced to compensate

for other capital costs w/ respect to land for other capital costs w/ respect to land development such as special assessments, development such as special assessments, land dedications, and fees in lieu of land land dedications, and fees in lieu of land dedicationsdedications

Impact fees should be reduced to Impact fees should be reduced to compensate for Federal/State assistance compensate for Federal/State assistance

Shall be payable in full, within 14 days of Shall be payable in full, within 14 days of municipality issuing building/occupancy municipality issuing building/occupancy permitpermit

Impact Fees cannot:Impact Fees cannot:Impact Fees cannot:Impact Fees cannot:

Cannot be imposed to prevent or inhibit Cannot be imposed to prevent or inhibit development development (If pattern of development is (If pattern of development is undesirable, revise the subdivision code)undesirable, revise the subdivision code)

Cannot be used as a revenue source to Cannot be used as a revenue source to cover existing deficiencies!cover existing deficiencies!

Impact Fee ManagementImpact Fee ManagementImpact Fee ManagementImpact Fee Management

Must be placed in a segregated, Must be placed in a segregated, interest interest bearingbearing account which is separate from other account which is separate from other municipal fundsmunicipal funds

Impact Fees revenues (and interest) may only Impact Fees revenues (and interest) may only be expended for capital costs for which the be expended for capital costs for which the impact fees were imposedimpact fees were imposed

Impact Fees not spent within 7 years (w/ up to Impact Fees not spent within 7 years (w/ up to 3 year extension), must be refunded to the 3 year extension), must be refunded to the current owner of the property to which the current owner of the property to which the impact fee was imposedimpact fee was imposed

Special AssessmentsSpecial Assessments Special AssessmentsSpecial Assessments

Special assessments (by law) can only be Special assessments (by law) can only be imposed to properties receiving special imposed to properties receiving special benefit benefit

Applied towards existing developmentApplied towards existing development Pays for improvements that directly Pays for improvements that directly

benefit a specific property(s) within the benefit a specific property(s) within the municipalitymunicipality

Special Assessments are made against the Special Assessments are made against the land being enhanced, and fixes as a lien land being enhanced, and fixes as a lien on the land’s titleon the land’s title

Special Service AreasSpecial Service AreasSpecial Service AreasSpecial Service Areas Another method of achieving similar results Another method of achieving similar results

as impact fees and special assessmentsas impact fees and special assessments Developer places money in a fund controlled Developer places money in a fund controlled

by municipalityby municipality Municipality repays developer from fund Municipality repays developer from fund

when public facilities are completedwhen public facilities are completed Not currently an option in WisconsinNot currently an option in Wisconsin

SummarySummarySummarySummary

Must meet the “test of reasonableness”Must meet the “test of reasonableness”

Cannot be used to deter or prevent Cannot be used to deter or prevent developmentdevelopment

Calculated in the municipality’s “Needs Calculated in the municipality’s “Needs Assessment”Assessment”

SummarySummary Must be communicated through a municipal Must be communicated through a municipal

ordinance and passed following a public ordinance and passed following a public hearing specifically designed to hear hearing specifically designed to hear comments on the reasonableness and comments on the reasonableness and allocation of the impact feesallocation of the impact fees

May only be imposed to cover required capital May only be imposed to cover required capital costs associated with the developmentcosts associated with the development

ReferencesReferencesReferencesReferences ““Capital Budgeting and Finance: A Guide for Local Capital Budgeting and Finance: A Guide for Local

Government”, A. John Vogt, ICMA, 2004Government”, A. John Vogt, ICMA, 2004 ““The Why’s and How’s of Impact Fees?” Karl Green,The Why’s and How’s of Impact Fees?” Karl Green,

Department of Community Resource Development, La Crosse Department of Community Resource Development, La Crosse County UW-Extension, 2007County UW-Extension, 2007

Ohm, Brian, Guide to Community Planning in Wisconsin, Ohm, Brian, Guide to Community Planning in Wisconsin, Chapter 7, Chapter 7, http://www.lic.wisc.edu/shapingdane/resources/planning/library/book/chaptehttp://www.lic.wisc.edu/shapingdane/resources/planning/library/book/chapter07/chap7_4-4.htmr07/chap7_4-4.htm

Robert Paolino, Robert Paolino, Legislative Brief 06-16Legislative Brief 06-16, June, 2006 Wisconsin , June, 2006 Wisconsin Legislative Reference BureauLegislative Reference Bureau

State Statute 66:State Statute 66: http://www.legis.state.wi.us/statutes/Stat0066.pdfhttp://www.legis.state.wi.us/statutes/Stat0066.pdf 2005 Wisconsin Act 2032005 Wisconsin Act 203 2005 Wisconsin Act 4772005 Wisconsin Act 477