Impact fee

An impact fee is a fee that is imposed by a local government within the United States on a new or proposed development project to pay for all or a portion of the costs of providing public services to the new development. Impact fees are considered to be a charge on new development to help fund and pay for the construction or needed expansion of offsite capital improvements. These fees are usually implemented to help reduce the economic burden on local jurisdictions that are trying to deal with population growth within the area.

Impact fees were first implemented in Hinsdale, Illinois in 1947. To finance a water treatment plant expansion, the Hinsdale Sanitary District president John A. McElwain implemented a "tap-in" fee of $50 per new residential sewer line. The sanitary district was sued by the Illinois Home Building Association, but the district prevailed. The case was appealed to the Illinois Supreme Court and that court ruled that impact fees are legal if used for capital expenditures, but not legal if used for operating expenses.

Impact fees became more widely accepted in the United States in the 1950s and 1960s. First used to help fund capital recovery fees for water and sewer facilities, then in the 1970s, with the decline of available Federal and State grants for local governments, their use increased and expanded to non-utility uses including roads, parks, schools, and other public services. Finally, in the 1980s the impact fee became a universally used funding approach for services and started to include municipal facilities such as fire, police, and libraries. After court cases in states such as Florida and California approved their legal use, many other states enacted laws which approved the use of impact fees by local jurisdictions.

Impact fees have developed as an offspring of in lieu fees but have had a more significant effect on funding infrastructure. In some cases, the use of the impact fee has developed its own phrase of “growth should pay its own way”.

The use of impact fees originated in environmental law practices and in lieu fees. In Lieu fees are different from impact fees and are not as flexible because they relate only to required dedications where they can be appropriately used. Because the use of the in lieu fee may not always be efficient, planners and cities are now turning to impact fees as a more appropriate way to collect money for facilities and services. Impact fees can be more easily applied to needed infrastructure or facilities while in lieu fees cannot. Impact fees can be applied before new development is started or completed, which may allow costs to be transferred to future residents in the area. Another advantage of using an impact fee compared to the in lieu fee is that it can be applied to any new construction from single family homes, apartments, and even commercial development. In lieu fees may not always be as easily applied to any specific zone. Finally, impact fees can be implemented earlier than in lieu fees so that the capital need matches the need for services.

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