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Impact Fees: The Basics

Impact fees are charges assessed by local governments to cover the infrastructure costs associated with new development. These one-time expenses are typically levied upon issuance of building permits to help ensure that public facilities and services — including water and sewer systems, parks and schools — have adequate capacity and infrastructure to meet the demands imposed by the new development. While impact fees are initially charged to the developers of new homes, the cost of the fees may be passed on to the occupants in the form of higher home prices or rents.

Many communities use impact fees to ensure that new development “pays for itself.” Commonly levied on the developers of new homes, impact fees can range from a low of a few hundred dollars to a high of hundreds of thousands of dollars per home. Revenue collected from the fees is used to cover the initial cost of extending water, sewer, roads and other public services infrastructure to new homes, as well as to build facilities necessitated by the new development, such as new fire stations and schools.

Local communities typically engage in an extensive planning and analysis process to determine which facilities impact fees should be adopted for, the amounts at which fees should be set and to ensure the new fees are legally defensible. In many cases, this process results in the adoption of impact fee schedules that are uniformly applied to neighborhoods across the entire jurisdiction. However, provided that impact fees meet legal criteria, localities have some degree of flexibility in structuring fee schedules and can use this authority to help encourage new development in targeted areas that includes affordable homes.

Uniform impact fee policies, while relatively simple to administer, can often be refined to more accurately reflect the actual cost of development. New construction in outlying areas, for example, often requires the extension of new roads and sewer lines, construction of fire or police stations to serve new demand and other public services as determined by the community.

Impact fees are also often assessed on a flat, per-unit basis within a development; for example, the same impact fee may be charged for a small townhome and a spacious single-family residence even though their “impact” differs. While simple to administer, this approach increases the cost of producing a modestly priced home by a greater proportion than that of a higher-cost home, even though the family purchasing the higher-cost home is likely to be in a better position to absorb the price increase. In addition, smaller homes built at higher densities or closer to existing infrastructure generally place a lesser demand on roadways and other services funded through impact fees, a disparity that is not reflected by a flat-fee system.

Key Resources

Duncan Associates’ Online Impact Fee Resource . Chicago, IL: Duncan Associates.

Field Guide to Private Transfer and Development Impact Fees. 2015. Washington, DC: The National Association of Realtors.

A Summary of State Legislation to Encourage Innovative Infrastructure Finance Options. 2012. Prepared for the National Association of Home Builders by the National Conference of State Legislatures.

Infrastructure Finance: Does Your State Encourage Innovation? 2012. Washington, DC: National Association of Home Builders.

Infrastructure Solutions — Best Practices from Results-Oriented States. 2012. Washington, DC: National Association of Home Builders.

Impact Fees and Housing Affordability — A Guide for Practitioners. 2008. By Liza K. Bowles and Arthur C. Nelson. Prepared for the U.S. Department of Housing and Urban Development.

Building for Tomorrow: Innovative Infrastructure Solutions. 2007. Washington, DC: National Association of Home Builders.

Impact Fees and Smart Growth in Sacramento. 2007. By Desmond Parrington. City of Sacramento. Presentation prepared for 2007 National Impact Fee Roundtable.

Planning Implementation Tools: Impact Fees. 2007. University of Wisconsin Center for Land Use Education.

Impact Fees and Housing Affordability. 2005. By Vicki Been. Cityscape 8(1): pp. 139-185.

The Effects of Impact Fees on Multifamily Housing Construction. 2005. By Gregory Burge and Keith Ihlanfeldt. Florida State University DeVoe Moore Center and Department of Economics. Prepared for the 2005 Florida State University Critical Issues Symposium “State and Local Government Regulations and Economic Development,” March 4-5, 2005.

Paying for Prosperity: Impact Fees and Job Growth. 2003. By Arthur C. Nelson and Mitch Moody. Washington, DC: The Brookings Institution.

The Case for Multifamily Housing. 2003. By Richard M. Haughey. Second Edition. Washington, DC: Urban Land Institute.

An Empirical Investigation of the Effects of Impact Fees on Housing and Land Markets. 2002. By Keith R. Ihlanfeldt and Timothy M. Shaughnessy. Working Paper. Cambridge, MA: Lincoln Institute of Land Policy.

How Development Impact Fees Affect Residential Development. 2002. By John G. Rappa. OLR Research Report. Connecticut General Assembly.

Another Cost of Sprawl – The Effects of Land Use on Wastewater Utility Costs. 1998. New York, NY: National Resources Defense Council

APA Policy Guide on Impact Fees. 1998. Washington, DC: American Planning Association.

Practical Issues in Adopting Local Impact Fees. 1993. By Jerry Kolo and Todd J. Dicker. State and Local Government Review 25(3): pp. 197-206.

Introduction to Impact Fees Guidebook. N.D. Georgia Department of Community Affairs, Office of Planning and Environmental Management.

Cost of Development Element. N.D. City of Phoenix .

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