Impact Fees Gain Popularity
(from Maine Townsman, June 1987)
by Stephen C. Butler, Senior Planner, Greater Portland Council of Governments

Communities in Maine and across the United States have been grappling with the local costs associated with new development. The demand for new roads, parks, sewers and school classrooms has often outstripped the ability of the municipalities to raise the revenues to provide these needed public facilities. As a result, impact fees have been receiving more and more widespread attention.

What is an Impact Fee

In terms of a working definition, an impact fee is a one-time fee charged to a new development by a municipality to pay for off-site public improvements that are required to accommodate the new development. The purpose of such a fee is to have a developer of a development project pay a proportionate, or "fair," share of the costs that result from his or her development.

Impact fees have been used nationally for a wide variety of off-site improvements, such as parks, open space, recreational facilities, roads, intersection improvements, drainage systems, sewer and water lines, sidewalks, libraries and schools.

Not a New Concept

Although they appear to be a new concept, impact fees are actually an extension of the subdivision dedication requirements that are commonly applied to developments in Maine. Developers are often required by towns and cities to construct streets, sewers and stormwater drains in new subdivisions and then dedicate these improvements to the municipality for public use and maintenance. Impact fees take this traditional process a step further by assessing a fee in accordance with a predetermined, standard formula.

While there is no specific state enabling legislation for impact fee systems, many legal commentators feel that impact fees can be imposed through the power granted to municipalities through Maine’s "home rule" provisions.

How Impact Fees Work

An impact fee is meant to be a cash payment to be applied to the acquisition of necessary public improvements, although the direct provision of the needed amenities is usually allowed as an alternative. It should only be used for capital items, such as land, buildings and major equipment, and not used to pay for operating or maintenance costs. In addition, the fees should only be levied on new development, and the money collected should be used for new improvements and not to correct existing deficiencies.

There should be a reasonable connection or "rational nexus," between the impact fee and the new development upon which the fee is being levied. This test has two components. First the amount charged should be a proportionate share of the total cost of providing facilities for the paying development. Second, there should be a logical connection between the type, number, location and timing of public improvements provided by the impact fee and the benefits to be received by the development’s inhabitants.

It is important to note that impact fees are not a tax, since the impact fee is to be specifically used for a designated municipal capital improvement and is directly related to the costs resulting from a particular development. Taxes, on the other hand, are used for general revenue purposes and are usually not assessed in proportion to the use of municipal facilities and services by the individual taxpayer.

A common response to any discussion of impact fees is that the developers will not tolerate impact fees and will sue any municipality that has the audacity to implement such a system. The national experience, however, shows that developers accept impact fee programs that are well defined, are the result of a good planning process, have reasonably calculated fees and are evenly administered.

General Steps Involved in Developing an Impact Fee System

Developing a good impact fee system is a painstaking process, with multiple steps that have to be taken. The temptation will be to keep the calculation of impact fees simple and easily understood. These are laudable goals, but should not result in an overly simplified system that doesn’t equitably distribute the costs between new and existing development. In general, a municipality should:

  1. Inventory amount, location, usage and condition of existing public improvements (if not already in Comprehensive Plan or Capital Improvements Program).
  2. Estimate the demand or need for new public improvements, using such measures as trip generation rates for roads and local acreage rates for parks and open space.
  3. Estimate the cost of needed public improvements, such as road costs per mile and cost per acre for open space.
  4. Calculate the individual demand that would result from a particular new development.
  5. Estimate the cost of needed improvements from the individual new development.
  6. Apportion costs of needed improvements to determine the appropriate fee amount to be levied on the new development.
  7. Adjust the impact fee amount to account for other revenue sources.

Tips to Remember

Conclusion

There are several sources of assistance available to communities such as COG’s, RPC’s, and local planning staff. Creation of an impact fee system is not a task that a municipality should take lightly. It will take a lot of time and energy to develop a system that meets the needs of a community, and is fair, equitable and legally defensible. Given the end result of a method for better distributing the costs of development between the public and private sectors through, the effort in developing and operating an impact fee program may be well worth it.