Impact Fees

If you’re involved in property development you’ve probably heard of impact fees and you probably don’t like them. But are impact fees good or bad policy and why? has a nice, brief piece that helps frame the issue:

Local budgets are typically stretched tight and are unable to handle increased expenditures. Unfortunately, a local government’s general funds do not necessarily increase in proportion to growth. The result is often increased taxes without increased services. Impact fees offer localities a means to recover some of the costs associated with growth. But the fees do not typically cover all of the expenses from infrastructure upgrades. Municipalities are often just supplementing their budgets with them. Overall, impact fees facilitate a better quality of life for the entire community without imposing a higher tax (typically property tax) burden on residents.

Still, despite their benefits, impact fees are not without their problems. The most common complaint is that impact fees create a drag on the local economy. Developers object to impact fees on the ground that they have adverse effects on the housing market. Although impact fees are levied on developers, most developers acknowledge that they pass the costs along to the homebuyer in the form of higher home prices. As a result, some fear that the burden of impact fees will be on low- and moderate-income homebuyers and will perhaps even price those buyers out of the market. Furthermore, impact fees are regressive in that they are applied uniformly as a fee rather than according to the property’s value.