Financial Management Series Number 4 Impact Fees Alan Probst Local Government Specialist Local Government Center University of Wisconsin - Extension

DefinitionDefinition An Impact Fee is a charge to new development for public improvements that serve that development or that type of development* *“Capital Budgeting and Finance: A Guide for Local Governments” A. John Vogt, ICMA

USEUSE Impact fees offset the costs of expanded public service and infrastructure often needed in response to new real estate development

RationaleRationale Considered “pay as you go” approach Considered “pay as you go” approach Proponents argue impact fees are fairer, more predictable, and encourage planning for growth Proponents argue impact fees are fairer, more predictable, and encourage planning for growth Place the burden on those receiving the benefits Place the burden on those receiving the benefits Opponents argue could deter development Opponents argue could deter development

How imposed? Residential development impact fees are commonly based on a specified dollar amount per residential unit Residential development impact fees are commonly based on a specified dollar amount per residential unit Industrial and Commercial development impact fees are commonly based on a per square foot of improved space basis Industrial and Commercial development impact fees are commonly based on a per square foot of improved space basis

Who can impose? Wisconsin counties may not impose impact fees Wisconsin counties may not impose impact fees Municipalities may impose within limits Municipalities may impose within limits "Municipality" means a city, village, or town "Municipality" means a city, village, or town

Statutory Authority State Statutes 66: General Municipal Law  SS – Impact Fees  66.pdf 66.pdf 66.pdf

Wisconsin Acts 203 & 477 Changed some aspects of Impact fees  Eliminated counties’ ability to impose impact fees  Set 7 year time limit for using impact fees, plus added potential 3 year extension (w/ municipal resolution)  Municipality must illustrate extenuating circumstances/hardship in meeting the 7 year limit in order to claim 3 year extension

Wisconsin Acts 203 & 477  Capital costs further defined to remove “vehicles” from eligibility  Athletic fields considered as part of municipal “parks & playgrounds”

Wisconsin Acts 203 & 477 Developer to pay impact fee within 14 days of the issuance of building/occupancy permit Developer to pay impact fee within 14 days of the issuance of building/occupancy permit Prohibits municipalities from imposing fees or charges as a condition of plat approvals for a development Prohibits municipalities from imposing fees or charges as a condition of plat approvals for a development

Wisconsin Acts 203 & 477 Revenue and expenditure totals for each impact fee must be reported as part of the annual budget summary Revenue and expenditure totals for each impact fee must be reported as part of the annual budget summary Revenues from each impact fee must be placed in a separate account; cannot be lumped into General Fund Revenues from each impact fee must be placed in a separate account; cannot be lumped into General Fund

What may be charged? Municipalities may only charge for capital costs (what it costs you to have them develop in your community)

Capital Costs Costs to construct, expand or improve public facilities Costs to construct, expand or improve public facilities May include cost of land May include cost of land May include legal, engineering, and design costs May include legal, engineering, and design costs

Capital Costs Legal, engineering, and land cannot exceed 10% of capital costs directly related to necessary improvements Legal, engineering, and land cannot exceed 10% of capital costs directly related to necessary improvements Does not include other non-capital costs associated with public facilities (ex. pays for fire house, not fire truck) Does not include other non-capital costs associated with public facilities (ex. pays for fire house, not fire truck) Cannot be used to cover any school district costs or existing deficiencies Cannot be used to cover any school district costs or existing deficiencies

Capital Costs Capital Costs may include cost to construct, expand or improve public facilities such as: Wastewater/Water Infrastructure Parks, playgrounds, athletic fields Solid waste & recycling facilities Highways/other transportation facilities Drainage facilities Public Safety (fire protection, law enforcement emergency medical facilities) Libraries Associated land costs

Capital Costs Improvements must be directly related to (required for) new development

Steps to impose impact fees? 1. Perform a needs Assessment Must be available for public review at least 20 days before public hearingMust be available for public review at least 20 days before public hearing 2. Public Hearing 3. Pass Ordinance Ordinance must include appeals processOrdinance must include appeals process

Process of Cost Allocation Process of Cost Allocation Cost review (Needs Assessment) Provide cost review to developer and ask for feedback (Public Hearing) Written Agreement Terms (Ordinance) Understand unforeseen situations may arise (Appeals process)

Must Include: Inventory of existing public facilitiesInventory of existing public facilities Includes any existing deficienciesIncludes any existing deficiencies Establishes the rational relationship between the impact fee and the required upgradesEstablishes the rational relationship between the impact fee and the required upgrades (Note: Developers will resist impact fees that provide unnecessary improvements to public infrastructure) Needs assessment

Identifies new public facilities necessary because of the new land development Identifies new public facilities necessary because of the new land development Detailed cost estimate of capital costs including the estimated effect recovering the capital costs via impact fees will have on the municipalities affordable housing supply Detailed cost estimate of capital costs including the estimated effect recovering the capital costs via impact fees will have on the municipalities affordable housing supply Must be available for public review a minimum of 20 days prior to public hearing Must be available for public review a minimum of 20 days prior to public hearing

Public Hearing Public Hearing Public must be heard on impact fees Public must be heard on impact fees Public must have 20 days to review needs assessment prior to public hearing Public must have 20 days to review needs assessment prior to public hearing  On line version  Town Hall office copy  Library If Needs Assessment requires revisions, another public hearing is required with 20 days to review revision If Needs Assessment requires revisions, another public hearing is required with 20 days to review revision

OrdinanceOrdinance Cannot pass ordinance without Public Hearing Cannot pass ordinance without Public Hearing Specific language on how long impact fees may be held (7 years maximum*) Specific language on how long impact fees may be held (7 years maximum*) Specific procedure for process to appeal impact fees Specific procedure for process to appeal impact fees

OrdinanceOrdinance States impact fee amount Municipality may impose different impact fees on different types of land development Municipality may impose different impact fees on different types of land development Ordinance may delineate geographical zones within the municipality (Example: Development on slopes >20%) Ordinance may delineate geographical zones within the municipality (Example: Development on slopes >20%) Must show in Needs Assessment why differentiation necessary Must show in Needs Assessment why differentiation necessary

OrdinanceOrdinance Municipality may provide an exemption/reduction in impact fees for “Low-Income Housing” Municipality may provide an exemption/reduction in impact fees for “Low-Income Housing” Impact fees cannot be shifted from “low- income housing” development to any other areas in municipality Impact fees cannot be shifted from “low- income housing” development to any other areas in municipality

Standards for Impact Fee Impacts fees shall bear a “rational relationship” to the need for new, expanded or improved public facilities Impacts fees shall bear a “rational relationship” to the need for new, expanded or improved public facilities May not exceed the “proportionate share” of capital costs required to serve the land development when compared to the existing land uses within the municipality May not exceed the “proportionate share” of capital costs required to serve the land development when compared to the existing land uses within the municipality

Standards for Impact Fee Impact fees shall be reduced to compensate for other capital costs w/ respect to land development such as special assessments, land dedications, and fees in lieu of land dedications Impact fees shall be reduced to compensate for other capital costs w/ respect to land development such as special assessments, land dedications, and fees in lieu of land dedications Impact fees should be reduced to compensate for Federal/State assistance Impact fees should be reduced to compensate for Federal/State assistance Shall be payable in full, within 14 days of municipality issuing building/occupancy permit Shall be payable in full, within 14 days of municipality issuing building/occupancy permit

Impact Fees cannot: Cannot be imposed to prevent or inhibit development (If pattern of development is undesirable, revise the subdivision code) Cannot be imposed to prevent or inhibit development (If pattern of development is undesirable, revise the subdivision code) Cannot be used as a revenue source to cover existing deficiencies! Cannot be used as a revenue source to cover existing deficiencies!

Impact Fee Management Must be placed in a segregated, interest bearing account which is separate from other municipal funds Must be placed in a segregated, interest bearing account which is separate from other municipal funds Impact Fees revenues (and interest) may only be expended for capital costs for which the impact fees were imposed Impact Fees revenues (and interest) may only be expended for capital costs for which the impact fees were imposed Impact Fees not spent within 7 years (w/ up to 3 year extension), must be refunded to the current owner of the property to which the impact fee was imposed Impact Fees not spent within 7 years (w/ up to 3 year extension), must be refunded to the current owner of the property to which the impact fee was imposed

Special Assessments Special Assessments Special assessments (by law) can only be imposed to properties receiving special benefit Special assessments (by law) can only be imposed to properties receiving special benefit Applied towards existing development Applied towards existing development Pays for improvements that directly benefit a specific property(s) within the municipality Pays for improvements that directly benefit a specific property(s) within the municipality Special Assessments are made against the land being enhanced, and fixes as a lien on the land’s title Special Assessments are made against the land being enhanced, and fixes as a lien on the land’s title

Special Service Areas Another method of achieving similar results as impact fees and special assessments Another method of achieving similar results as impact fees and special assessments Developer places money in a fund controlled by municipality Developer places money in a fund controlled by municipality Municipality repays developer from fund when public facilities are completed Municipality repays developer from fund when public facilities are completed Not currently an option in Wisconsin Not currently an option in Wisconsin

SummarySummary Must meet the “test of reasonableness” Must meet the “test of reasonableness” Cannot be used to deter or prevent development Cannot be used to deter or prevent development Calculated in the municipality’s “Needs Assessment” Calculated in the municipality’s “Needs Assessment”

Summary Must be communicated through a municipal ordinance and passed following a public hearing specifically designed to hear comments on the reasonableness and allocation of the impact fees Must be communicated through a municipal ordinance and passed following a public hearing specifically designed to hear comments on the reasonableness and allocation of the impact fees May only be imposed to cover required capital costs associated with the development May only be imposed to cover required capital costs associated with the development

ReferencesReferences “Capital Budgeting and Finance: A Guide for Local Government”, A. John Vogt, ICMA, 2004 “Capital Budgeting and Finance: A Guide for Local Government”, A. John Vogt, ICMA, 2004 “The Why’s and How’s of Impact Fees?” Karl Green, Department of Community Resource Development, La Crosse County UW-Extension, 2007 “The Why’s and How’s of Impact Fees?” Karl Green, Department of Community Resource Development, La Crosse County UW-Extension, 2007 Ohm, Brian, Guide to Community Planning in Wisconsin, Chapter 7, chapter07/chap7_4-4.htm Ohm, Brian, Guide to Community Planning in Wisconsin, Chapter 7, chapter07/chap7_4-4.htm chapter07/chap7_4-4.htm chapter07/chap7_4-4.htm Robert Paolino, Legislative Brief 06-16, June, 2006 Wisconsin Legislative Reference Bureau Robert Paolino, Legislative Brief 06-16, June, 2006 Wisconsin Legislative Reference Bureau State Statute 66: State Statute 66: Wisconsin Act Wisconsin Act Wisconsin Act Wisconsin Act 477