One-Time Impact Fees: The Multiplier Effect, Part 1

By: Jonathan Gemmen, Location Consultant with Austin Consulting

Whether it’s a “shop fee” charged at the car repair center or “process and handling” charges on a mail-order or internet purchase, retail and distribution outlets have found ways of passing on their fixed and operating costs to their customers. Similarly, local governments and municipal utilities providers have found one-time, up-front ‘impacts fees’ to be an efficient way of raising municipal revenues.

The “impact fee” concept has been around for a while, having gained popularity in areas that saw rapid growth and construction over the last two decades. For instance, when the brand-new neighborhood elementary school had a dozen temporary classroom trailers in its second year, it was an “easy sell” politically to pass an ordinance demanding a few (or sometimes several) thousand dollars in fees for the “impact” that each new house built would have on the community’s service infrastructure. In time, these fees were proportionally allocated and dispersed to supplement various types of services, such as: education, police, fire, EMT, parks and recreation, among other services. Payment of impact fees is typically required before a building permit or driveway permit (curb-cut) is issued. 

Additionally, transportation and utility impact fees were assessed to help fund larger capital improvements, such as a road widening or new wastewater treatment plant. These one-time, up-front fees became a means of achieving multiple goals: covering current or future capital improvement cost and/or paying down bonds, all without raising taxes on those already residing in the community. Those who own existing residential and commercial property in the community saw its value increase as a barrier of entry was created for new development.

When a relative few (i.e. home builders, among others) were called on to carry this burden, they promptly looked for others on which to spread this load. The impact fee concept soon carried over to new retail and commercial development, and in some communities, even to industrial development. With fewer, larger buildings now paying in, it was discovered that fees could be maximized by becoming a function of total square feet or number of parking spaces.

Many have made a Master’s thesis out of studying all aspects of development impact fees. The argument can be made that communities with such fees are responsibly budgeting for past capital expenditures or saving for deferred maintenance. Regardless, assessing only new development to pay for larger capital improvements that benefit everyone in the community is an effective means of chasing away future industrial expansion.

The last construction boom ended in 2007, but in most communities, one-time impact fees are still in effect. Uncovering hidden fees is paramount to Austin Consulting’s site due diligence analysis.

This is an important issue, so let’s continue this discussion next time.

Read: One-Time Impact Fees: The Multiplier Effect, Part 2