IMPACT FEES: Gaining popularity, but controversial
(from Maine Townsman, January 1999)
By Linda Lockhart, MMA Legislative Advocate
When the economy is good and development a reality rather than a goal, we have the luxury of complaining about the problems that accompany new development. Growth comes with public costs. Municipal funds are required to help finance roads, sidewalks, sewer and water facilities, and most controversial, school expansion. All of these components of infrastructure are required to serve the new development. Without impact fees, all of the costs must be borne by the existing tax base, rather than by the development imposing the cost pressures.
An impact fee is a one-time charge that requires developers to provide a proportionate share of the revenue needed for construction or expansion of capital facilities to serve new development. Having development pay all or part of its way is a familiar concept in land use planning and regulation. According to the U.S. Department of Housing and Urban Development, there are impact fees in all 50 states, with 16 having statewide legislation specifically authorizing their use. While impact fees for roads and sewer and water infrastructure are very common and well accepted, both in concept and in practice, the use of educational impact fees is hotly debated nationwide.
Most legal authorities require impact fees to meet three tests: the development must create a need for facilities, the fee should match the developers share of the costs of the facilities, and the fees must directly benefit the development. Most infrastructure funded by impact fees meets the test, but some would argue that the use of impact fees for school facilities fails one or more of the test components. In essence, the argument against education impact fees is that they are not fees at all, but are taxes. To counter the argument, educational impact fees have to be carefully constructed.
Maine law (30-A MRSA §4354) empowers municipalities to levy, receive and use development impact fees for infrastructure facilities including, but not limited to: wastewater collection and treatment facilities; municipal water facilities; solid waste facilities; fire protection facilities; roads and traffic control devices; and parks and other open space or recreational areas. While schools are not specifically included on this list, the statute does foresee other permissible infrastructure needs that could be financed by impact fees with the "not limited to" language. In a 1988 letter, James Lansing, writing as Assistant Attorney General, described the intent of the legislative committee that " municipalities that could demonstrate the impact of growth on schools could impose impact fees in that area."
Municipalities that are members of joint school administrative units and municipalities that receive a fluctuating State share of their school costs face particular difficulty projecting the impact of a project on the actual local costs of school construction, expansion or improvement.
Maines law requires that the fees meet these four tests:
1) The amount of the fees must be reasonably related to the developments share of infrastructure costs attributable to the development;
2) The collected fees must be separately held by the municipality and expended only for the attributable costs;
3) Municipal ordinance must establish a reasonable fee schedule linked to the capital investment component of the comprehensive plan; and
4) The ordinance must establish a refund mechanism for unexpended fees.
York Voters Approve Impact Fee
Facing increased school enrollment that would place the burden of infrastructure costs on current property taxpayers, York squared off with the issue of impact fees last year. At referendum last May, York voters approved the imposition of educational impact fees on new residential housing. The issue received a public airing in August of 1998, as York selectmen examined educational impact fees as a way to help pay for building more classroom space. Builders who would be asked to pay the fees voiced their objections.
Yorks educational impact fees were calculated through a six-step process:
1) Determine the increase in the capacity of the school system.
2) Determine the increase in the capacity of the school system required by new housing.
3) Determine the cost of the planned improvements per student from new housing.
4) Determine the average number of students from different types of housing units.
5) Credit the impact fee to account for future taxes paid.
6) Calculate the proposed impact fee (the adjusted impact fee is the difference between the calculated impact fee and present value of the tax payments).
The fees will be collected at the time of occupancy and will be based upon the number of bedrooms in each housing unit. The money collected should lighten the burden on taxpayers by helping to pay construction or renovation of schools undertaken specifically to accommodate an enrollment increase attributed to new housing. According to Town Manager Mark Green, all State contributions to school costs in York are for completed projects and no State funding is anticipated for the proposed new facilities.
Last fall, builders circulated a petition that asks York selectmen to reconsider their decision to charge impact fees. Dan Remmick, vice president for the York chapter of the Homebuilders Association of Maine, characterized the educational impact fee as "an unfair tax thats called a fee but reads like a tax." No petition has been submitted to date. Dan Fleishman, Southern Maine Regional Planning Commission, believes that the fact that builders chose to pursue repeal rather than litigation is a testament to the defensibility of Yorks impact fees.
Elsewhere in Maine
Freeport. Last spring, town officials in Freeport began researching a possible ordinance that would make new businesses and possibly new residential arrivals pay one-time impact fees to offset the cost of increased governmental services. A proposal, submitted for council consideration last fall by Freeport Councilor David Soley, envisions an impact fee of $2500 for each residential unit. Collected fees would be dedicated to an education trust fund earmarked for school construction. Freeport has asked its school committee and planning board to review the proposal and provide input. According to Town Manager Dale Olmstead, Freeport received a petition early in January, signed by 50 residents, urging the council to enact the school impact fee.
Brunswick. Brunswick has been very successful at imposing and collecting development impact fees since 1987, though its fee schedule does not include impacts on schools. Brunswick expects to conduct a major review of its impact fee ordinance this year.
Standish. The Town of Standish considered a comprehensive package early in 1996 but rejected the Municipal Capital Impact Fee Ordinance by a four to three vote, according to Town Manager Scott Cole. The composition of the Council changed a few months later and other priorities emerged, stalling the impact fee effort.
North Berwick. In the late 1980s, prior to enactment of the state law specifically allowing development impact fees, North Berwick approved an impact fee ordinance for infrastructure requirements including sewage disposal, schools, stormwater management, and public safety. No fees were ever charged or collected under the ordinance. Renewed interest in impact fees has prompted an update of the ordinance and revisions will go to town meeting this year.
Gorham. Gorhams Town Manager, David Cole, describes the towns basic philosophy that impact fees for education are too great of an administrative burden. The facts that fees must be carefully tracked and refunded if not expended within a reasonable time present particular problems.
South Portland. In 1988, shortly after enactment of the state law allowing impact fees, South Portland reviewed the issue, including drafting a school impact fee schedule. The review did not end with adoption of such fees, however, and South Portland currently charges impact fees for sewer extensions only.
This list of Maine municipalities considering or implementing school impact fees is not exhaustive. Many communities have begun exploring the topic. Some communities have ordinances that support a range of impact fees. Some communities have successfully collected impact fees while others have chosen not to implement their ordinances. The array of municipal responses to the issue is attributable to variations in municipal concerns, but also to the uncertainties inherent in this largely untested area. There are questions yet to be answered.
How municipalities that are members of school districts will hold new development responsible for the districts infrastructure requirements remains an unresolved issue, according to Dan Fleishman. Since the capital needs of a multi-municipality school administrative district (SAD) are not direct municipal infrastructure investments, the imposition of an impact fee would not be directly supported by statute. Other states have resolved this issue by enacting laws that allow school districts to impose educational impact fees on developers directly. However, the loss of local control that would be required by this level of direct district action would not be well tolerated in Maine.
The school impact fee controversy is quite young in Maine, but has been the subject of debate, campaign contributions, legislation and litigation in many other states.
Outside of Maine
Georgia. While acknowledging that the Georgia constitution and code do not allow for the authorization of local boards of education to receive and use development impact fees for school construction, the North Fulton Council of PTAs, and the Georgia Impact Fees for Education Coalition enacted resolves a year ago to request "the amendment of the Georgia Constitution and Code as necessary in order to provide authorization for local boards of education to levy, receive and use impact mitigation fees for school construction."
South Carolina. In South Carolina, school impact fees are a current reality. In Beaufort County, a $953 fee is charged on all new single and multi-family construction permits, with a sliding scale discount factor applied to the fee for low-income households.
North Carolina. The county commissioners in Chatham County are considering school impact fees. Such fees have been levied since 1993 in Orange County and are hailed by many, especially parents, as a good way to help reduce school crowding and to partially place one of the biggest costs of growth on newcomers. Builders protest the fees as unfair because they target their customers, who dont always have children and arent necessarily newcomers. Affordable housing advocates criticize the fees as well, claiming that they hit low-end home buyers the hardest.
California. In 1998, Californias Legislature authorized school impact fees, though some California school districts have been assessing school impact fees at least since 1987. In Menlo Park, before building permits can be issued, applicants must contact the Sequoia Union High School District, pay any fees required, and receive a receipt or exemption form from the school district. A "Developer Fee Summary Sheet" from Long Beach describes a school fee of $.30 per square foot for commercial development and $1.84 per square foot for residential development.
In a legal challenge to the school impact fee, a California court determined that the fees were a "valid exercise of the police power if the local entity demonstrated a reasonable relationship between the fee imposed and the need for increased facilities created by the development." Western California LTD v. Dry Creek
Florida. Early in 1998, St. Johns County commissioners considered increasing impact fees from $1,983 to $2,747 per unit, as recommended by consultants to keep pace with costs. The St. Johns County school system reportedly receive $600,000 per year from the established impact fee.
New Hampshire. Last year, the Town of Windham, New Hampshire passed an amendment to its zoning ordinance that enacts public school impact fees pursuant to New Hampshire enabling law. This ordinance enables assessment of "an equitable share of growth-related capital facility costs of school capacity to new housing development in proportion to the demands created by that development." As of the first week in January 1999, Windham had collected $250,000 in impact fees, levied at the rate of $2,200 per house. Windham developers have not protested the new fee or threatened litigation.
Colorado. School impact fees have been controversial in Colorado. Recent impact fee legislation stemmed in part from lawsuits filed by developers challenging the constitutionality of impact fees. The 1996 amendment to the Public School Finance Act of 1994 prohibits local governments or school districts from using impact fees or other similar development charges to fund capital projects or other facilities. Following the amendment, impact fees or other similar development charges or fees are specifically excluded for funding of school projects.
Massachusetts. In 1997, a Massachusetts court (Marguerite v. Town of Franklin) held that the school impact fee constituted an invalid and unauthorized tax. Reasoning that because those residents who pay the school impact fee do not receive a particularized benefit from the services provided, the expansion of the public school system, the court said the feed failed its test for distinguishing valid user fees from impermissible taxes.
Legal challenges in Maine
In Downey v. Wells Sanitary District, 561 A.2d 174, (Me. 1989), developers contested the application of impact fees to finance sewer expansion. The Downey court determined that distinctions in fees assessed to users were constitutional as long as they were rationally related to the objective of the regulation and not arbitrary, unreasonable, or irrational. Not all classifications which treat individuals differently are a denial of equal protection. "A number of jurisdictions permit the cost of expansion to be borne by new users." Maines Law Court decided, "[w]e can find no constitutional violation in doing so here..."
Maines impact fee statute is quite clear in authorizing the imposition of such fees, as long as they meet the four criteria established by the law: reasonable fees related to the impact of development, supported by the communitys investment plan, separately accounted for, and refundable.
As Maine courts sort through legal challenges to school impact fees, they are likely to focus on the first standard: are the impact fees reasonable and directly related to the impact of the development on the municipal infrastructure?
As courts did in Massachusetts, Maine courts are likely to look closely at the "particularized benefit" issue, examining whether those who pay the costs are the ones who benefit from the expenditures. If the direct connection between the fee and the benefit cannot be drawn, the fee looks more like a tax. While fees can be levied directly against the beneficiaries of a service, Maines constitution requires that taxes be imposed uniformly.
Whether or not to pursue impact fees for education or for any other capital expenditure necessitated by new development must be determined by municipalities in the context of local goals, needs and attitudes. The entire issue of impact fees is one about which reasonable people can, and do disagree. As Dan Fleishman of the Southern Maine RPC advises, municipalities that chose to develop and implement these fees should "do their homework" and design fees that satisfy Maines statute as well as local needs.