There can be concerns regarding the effect that impact fees have on property markets, as it is an additional cost to development. This largely revolves around who ultimately bears the expense associated with impact fees: developers, homebuyers or landowners. For developers, the impact is an addition to the original cost of the project. Developers can also incur higher carrying costs when they take on additional debt to cover payment of impact fees long before a property is sold, as interest due on the loan adds up over a longer period of time. If developers pass these increased costs on to buyers through an increase in the price of new homes, granting fee waivers should offer relief to working families.
However, if developers pass the cost back to landowners by reducing the amount they will pay for undeveloped lots, or if they simply absorb the charge, granting impact fee waivers may not affect the cost of homes at all. The ultimate distribution of the added cost depends on how individual programs are structured and on the particulars of each local market.
?Rational nexus and proportionality
Impact fees are a type of exaction — a requirement that developers pay for, or provide, a public facility or public good in order to receive permission to undertake a proposed project. Other types of exactions include linkage fees or the dedication of land for a park, school or roads. The legal basis for imposing an exaction has been established through several U.S. Supreme Court cases, most notably Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 687 (1994). These cases have established two tests that must be met to ensure the legality of an impact fee: there must be a “rational nexus” between the imposition of the fee and the achievement of a legitimate public purpose, usually the need for new infrastructure to serve the development, and the amount of the fee must be “roughly proportionate” to the impact of the proposed development.
To meet the rational nexus test, a local government must be able to demonstrate there is a reasonable connection between the need for new public infrastructure to be funded by impact fees, the new development on which those fees are levied and the benefits obtained by the development as a result of paying the fees. Impact fee revenue can be used only to finance infrastructure and facilities that will benefit new development and must be spent within a reasonable time frame (most places require that fee revenue be spent within six years or refunded to the payer). To meet the proportionality standard, a local government must show that the impact fee amount is roughly proportional to the impact of the project; that is, that the fee is roughly related to the actual costs of new infrastructure associated with the proposed development.
State enabling legislation
In some states, specific enabling legislation has been passed to give local governments the authority to adopt impact fees; however, enabling legislation is not a required prerequisite for enactment of a fee in every state. In the 24 states that have not passed an enabling act, communities may use their home rule power, or authority established through case law or special legislative acts, to adopt impact fees.