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Impact Fees/Nexus Studies

Impact Fees, which we typically associated with Real Estate Development have been are being assesses across the United States with some jurisdictions initiating such programs two decades ago, while others are still in the process of implementing these offsetting sources of revenue. The need for structured impact fees arose from the 1970’s and 1980’s as a combination of factors including inflation, higher interest rates, stagnating income, and increases in property taxes created an environment of general revolt against high property taxes across the nation. This culmination created local budgetary constraints for many local governments as property tax limitations were enacted forcing the need for other means of finance-specially ones associated with service requirements for new developments. Across the nation, wide arrays of “innovative” methods were created by developers and local government to address these shortfalls, some of which required new limiting legislation.

The implementation of impact fees by local jurisdiction including municipalities, counties, and special district, is governed by the state legislature. This is done to ensure that new developments provide for needed public facilities (i.e. public protection, transportation, and parks & recreation) without placing an undue burden on the existing tax paying base. A core concern is also to ensure that developers are not burdened into providing in elevating the Cities overall Level of Service (LOS) making one of the most crucial parts of Impact Fee Nexus Studies the determination of Level of Service (LOS) standard for applicable facilities.

As it can be imagined, the legal framework required in establishing Development Impact Fees requires a series of concurrent and consecutive efforts to ensure legally defensible local ordinances in imposing and collecting Development Impact Fees.

Each state has its own legislative standards for the establishment of Development Impact Fees; however, many share the notion of new development paying for its share of added services. The process involved in evaluating and establishing Development Impact Fees in the State of Georgia is examined.

State of Georgia In the late 1980’s, the Georgia General Assembly recognized the requirement for an equitable program for planning and financing public facilities needed to serve new growth and development. Georgia Development Impact Fee Act (DIFA), O.C.G.A. § 36-71 enacted in 1990 addressed the need to accommodate orderly growth/development while protecting the public health, safety, and general welfare of the citizens of the State. Under the provision, Municipalities and counties are authorized to impose by ordinance development impact fees in offsetting the incremental increase in needed public facilities created by proposed developments. The DIFA describes public facilities to include:
  • Water supply production, treatment, and distribution facilities;
  • Waste-water collection, treatment, and disposal facilities;
  • Roads, streets, and bridges, including rights of way, traffic signals, landscaping, and any local components of state or federal highways;
  • Storm-water collection, retention, detention, treatment, and disposal facilities, flood control facilities, and bank and shore protection and enhancement improvements;
  • Parks, open space, and recreation areas and related facilities;
  • Public safety facilities, including police, fire, emergency medical, and rescue facilities; and Libraries and related facilities.
Georgia’s Department of Community Affairs (DCA) is responsible for the administration and compliance of DIFA as prescribed under the Development Impact Fee Compliance Requirements (Chapter 110.12.2). The provisions provided by DIFA prescribe all aspects of establishing, collecting, and ensuring that impact fees are collected in a manner commensurate with the development’s added burden on to public facilities. The focus of impact fees is not the improvement of the agency’s current service structure, but rather ensuring adequate facilities to serve the new growth. As an example, DIFA (§ 36-71-4) specifically states that “a development impact fee shall not exceed a proportionate share of the cost of system improvements, and development impact fees shall be calculated and imposed on the basis of service areas.” The balance between allowing municipalities to impose impact fees and the legislative requirement to ensure appropriate allocation of such funds provides a means of ensuring future service demand needs and orderly developments to proceed. Part I: Impact Fee Assessment The first step involved in the assessment of Impact Fees is understanding the jurisdiction’s current and projected future demographics. The most vital demographic dimension as it relates to Impact fees are:
  • Population
  • Housing
  • Employment
In order to properly assess the demand for future services in a jurisdiction, future population, housing, and employment growth as a function of new development are essential to forecast. Population/housing projections provide the basis for the resident population of the jurisdiction, while employment forecasts offer daytime population counts. The need for effective projections is a function of the services each category utilizes. As an example, the number of housing units provides the basis to calculate needs associate with households such as public protection, library, and parks & recreation. Employment driven daytime population forecasts will draw on public protections services, but will have minimal effect on parks & recreation. Total population counts account for service demands associate with per capita drivers. The above analysis will also allow for the potential creation of service area boundaries associated with each specific category. Once the above analysis is completed, then all existing eligible impact fee categories are explored/inventoried to ascertain the level and inclusion of each based on the following conditions being met:
  • Facility Control – Which agency owns/operates the facility?
  • Facility Capacity – What is the current level of service provided by the facility?
  • Capital Improvements – Will service needs be met by existing excess capacity or through expansion of capital facilities?
  • Service Area – Who will be served by what facility?
For example, if the City’s library is part of the countywide system, then condition one above will not be aligned with impact fees to be imposed by the City. The authority to impose such fees is more likely associated with the County government. On the other hand, police protection is part of the City’s recently acquired responsibility and therefore qualifies as a City controlled facility. The current level of service (LOS) is then determined since the same level of service must be offered to new developments and existing recipients. Next, the facility capacity will be examined to determine the current capacity, expansion plans, and future demand based on level of service to determine impact fee eligibility (if any) of additional capacity. The final test is the area of service which in the case of police protection is Citywide. In this fashion, each facility is “tested” for its eligibility. Once a facility meets the above four conditions, then each facility will be evaluated based on cost parameters. Eligible facilities with outstanding bonds or loans will be identified including all relevant factors such as outstanding debt, maturity, interest, payment schedule/amount, and other pertinent information. Based on the above research, a Impact Fee Assessment Report is prepared and typically includes the following structure:
  1. Summary
    1. Report
    2. Recommendations (Written & Exhibit)
  2. Introduction
    1. Impact Fees Legislation
    2. Impact Fee Definition & Eligibility
    3. Capital Improvement Element Discussion
  3. Population and Employment Projections
    1. Population & Households
    2. Employment & Daytime Population
    3. Combined Population
    4. Area of Service
  4. Assessment of Impact Fees
    1. Public Protection
      1. Police
      2. Fire
    2. Public Works
    3. Parks & Recreation
    4. Library
  5. Level of Service
  6. Service Area Boundaries
  7. Inter-governmental Cooperation
  8. Exemptions
    1. Affordable Housing
    2. Economic Development
  9. Appendix
If the above yield applicable development impact fees for the proposed jurisdiction, the following steps are taken to created necessary local ordinances and implement the development impact fees for future development: Part II: Capital Improvement Element Part III: Impact Fee Ordinance Part IV: Impact Fee Implementation The last three stages of the process involve a variety of presentation, public meeting, ordinance related processes, and staff training in the proper implementation of development impact fees.
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All States have varying forms of procedures associate with the assessment of Development Impact Fees. If your City, Town, County, or Special District located anywhere in the United Sates or Canada is interested in exploring Development Fee Option, Affiliated Research Economic is here to assist. Please feel free to contact us.