Financial Management Series Number 4 Impact Fees

1. Financial Management Series Number 4Impact Fees Alan Probst Local Government Specialist Local Government Center University of Wisconsin - Extension

2. Definition An Impact Fee is a charge to new development for public improvements that serve that development or that type of development* *“Capital Budgeting and Finance: A Guide for Local Governments” A. John Vogt, ICMA

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

4. Rationale • Considered “pay as you go” approach • Proponents argue impact fees are fairer, more predictable, and encourage planning for growth • Place the burden on those receiving the benefits • Opponents argue could deter development

5. How imposed? • Residential development impact fees are commonly based on a specified dollar amount per residential unit • Industrial and Commercial development impact fees are commonly based on a per square foot of improved space basis

6. Who can impose? • Wisconsin counties may not impose impact fees • Municipalities may impose within limits • "Municipality" means a city, village, or town

7. Statutory Authority State Statutes 66: General Municipal Law • SS. 66.0617 – Impact Fees • http://www.legis.state.wi.us/statutes/Stat0066.pdf

8. Wisconsin Acts 203 & 477 Changed some aspects of Impact fees • Eliminated counties’ ability to impose impact fees • Set 7 year time limit for using impact fees, plus added potential 3 year extension (w/ municipal resolution) • Municipality must illustrate extenuating circumstances/hardship in meeting the 7 year limit in order to claim 3 year extension

9. Wisconsin Acts 203 & 477 • Capital costs further defined to remove “vehicles” from eligibility • Athletic fields considered as part of municipal “parks & playgrounds”

10. Wisconsin Acts 203 & 477 • Developer to pay impact fee within 14 days of the issuance of building/occupancy permit • Prohibits municipalities from imposing fees or charges as a condition of plat approvals for a development

11. Wisconsin Acts 203 & 477 • Revenue and expenditure totals for each impact fee must be reported as part of the annual budget summary • Revenues from each impact fee must be placed in a separate account; cannot be lumped into General Fund

12. What may be charged? Municipalities may only charge for capital costs (what it costs you to have them develop in your community)

13. Capital Costs • Costs to construct, expand or improve public facilities • May include cost of land • May include legal, engineering, and design costs

14. Capital Costs • Legal, engineering, and land cannot exceed 10% of capital costs directly related to necessary improvements • Does not include other non-capital costs associated with public facilities (ex. pays for fire house, not fire truck) • Cannot be used to cover any school district costs or existing deficiencies

15. Capital Costs may include cost to construct, expand or improve public facilities such as: Wastewater/Water Infrastructure Parks, playgrounds, athletic fields Solid waste & recycling facilities Highways/other transportation facilities Drainage facilities Public Safety (fire protection, law enforcement emergency medical facilities) Libraries Associated land costs Capital Costs

16. Capital Costs Improvements must be directly related to (required for) new development

17. Steps to impose impact fees? • Perform a needs Assessment • Must be available for public review at least 20 days before public hearing • Public Hearing • Pass Ordinance • Ordinance must include appeals process

18. Process of Cost Allocation • Cost review (Needs Assessment) • Provide cost review to developer and ask for feedback (Public Hearing) • Written Agreement Terms (Ordinance) • Understand unforeseen situations may arise (Appeals process)

19. Needs assessment Must Include: • Inventory of existing public facilities • Includes any existing deficiencies • Establishes the rational relationship between the impact fee and the required upgrades (Note: Developers will resist impact fees that provide unnecessary improvements to public infrastructure)

20. Needs assessment • Identifies new public facilities necessary because of the new land development • Detailed cost estimate of capital costs including the estimated effect recovering the capital costs via impact fees will have on the municipalities affordable housing supply • Must be available for public review a minimum of 20 days prior to public hearing

21. Public Hearing • Public must be heard on impact fees • Public must have 20 days to review needs assessment prior to public hearing • On line version • Town Hall office copy • Library • If Needs Assessment requires revisions, another public hearing is required with 20 days to review revision

22. Ordinance • Cannot pass ordinance without Public Hearing • Specific language on how long impact fees may be held (7 years maximum*) • Specific procedure for process to appeal impact fees

23. Ordinance States impact fee amount • Municipality may impose different impact fees on different types of land development • Ordinance may delineate geographical zones within the municipality (Example: Development on slopes >20%) • Must show in Needs Assessment why differentiation necessary

24. Ordinance • Municipality may provide an exemption/reduction in impact fees for “Low-Income Housing” • Impact fees cannot be shifted from “low-income housing” development to any other areas in municipality

25. Standards for Impact Fee • Impacts fees shall bear a “rational relationship” to the need for new, expanded or improved public facilities • May not exceed the “proportionate share” of capital costs required to serve the land development when compared to the existing land uses within the municipality

26. Standards for Impact Fee • Impact fees shall be reduced to compensate for other capital costs w/ respect to land development such as special assessments, land dedications, and fees in lieu of land dedications • Impact fees should be reduced to compensate for Federal/State assistance • Shall be payable in full, within 14 days of municipality issuing building/occupancy permit

27. Impact Fees cannot: • Cannot be imposed to prevent or inhibit development (If pattern of development is undesirable, revise the subdivision code) • Cannot be used as a revenue source to cover existing deficiencies!

28. Impact Fee Management • Must be placed in a segregated, interest bearing account which is separate from other municipal funds • Impact Fees revenues (and interest) may only be expended for capital costs for which the impact fees were imposed • Impact Fees not spent within 7 years (w/ up to 3 year extension), must be refunded to the current owner of the property to which the impact fee was imposed

29. Special Assessments • Special assessments (by law) can only be imposed to properties receiving special benefit • Applied towards existing development • Pays for improvements that directly benefit a specific property(s) within the municipality • Special Assessments are made against the land being enhanced, and fixes as a lien on the land’s title

30. Special Service Areas • Another method of achieving similar results as impact fees and special assessments • Developer places money in a fund controlled by municipality • Municipality repays developer from fund when public facilities are completed • Not currently an option in Wisconsin

31. Summary • Must meet the “test of reasonableness” • Cannot be used to deter or prevent development • Calculated in the municipality’s “Needs Assessment”

32. Summary • Must be communicated through a municipal ordinance and passed following a public hearing specifically designed to hear comments on the reasonableness and allocation of the impact fees • May only be imposed to cover required capital costs associated with the development

33. References • “Capital Budgeting and Finance: A Guide for Local Government”, A. John Vogt, ICMA, 2004 • “The Why’s and How’s of Impact Fees?” Karl Green,Department of Community Resource Development, La Crosse County UW-Extension, 2007 • Ohm, Brian, Guide to Community Planning in Wisconsin, Chapter 7, http://www.lic.wisc.edu/shapingdane/resources/planning/library/book/chapter07/chap7_4-4.htm • Robert Paolino, Legislative Brief 06-16, June, 2006 Wisconsin Legislative Reference Bureau • State Statute 66:http://www.legis.state.wi.us/statutes/Stat0066.pdf • 2005 Wisconsin Act 203 • 2005 Wisconsin Act 477