In recent, years, the use of impact fees has been spreading across the country. An idea that originated in Florida and California as a novel way to finance infrastructure has mushroomed. Once impact fees became rooted in these two areas, it did not take long for other municipalities around the United States to see the political ease of “taxing” by fee — new housing and development (the funds are paid before the new residents or tenants move in) rather than raising taxes on everyone. Before too long, courts across the nation began finding local impact fee ordinances to be illegal or unconstitutional.
- Impact fees imposed for infrastructure services that will benefit the whole community are discriminatory if they are levied only on new homeowners and tenants. Alternative sources of funding, such as gasoline taxes to pay for roads,are available and will more fairly distribute the cost of services among those who use them.
- It is important to make sure that fees earmarked for building certain infrastructure are used for that purpose and in the community they were intended to support. Those monies should not go into a general fund.
- Impact fees place a disproportionate burden on lower-income households. For example, suppose a household with an annual income of $34,500 is buying a $100,000 house with a $90,000 mortgage at 8.0 percent. A $3,700 increase in house price due to an impact fee would require an increase of 3.7 percent in downpayment and $360 more annually in house payments, which is 1.0 percent of the family’s income. In a household with an income of $69,000 buying a $200,000 house with the same mortgage terms, the same rise in price would cause the same increase in annual payments, an increase equaling 0.5 percent of that family’s income.
- When impact fees are designated to pay for facilities planned for the future, the buyer is paying not just for available facilities, but also for projected infrastructure. Fees are often collected from a constituency that may not enjoy the benefits for which it paid. The average turnover in home ownership is six years. Many times it takes longer than six years to build infrastructure and develop services.
- It is important to make sure that a jurisdiction is capable of maintaining a facility (or service) once it is built. Sometimes fees are collected for building facilities, but a fiscal crisis occurs and the government finds that it cannot maintain those facilities.
- Because impact fees may result in stifling economic development and limiting growth, the goal of raising additional revenue through impact fees may be attained only in the short term. In addition, if growth is limited by impact fees, the direct and indirect benefits of growth – such as a larger property tax base, increased employment opportunities, increased disposable income, increased sales and other tax revenues – also will be limited.
- In many areas, new homes are bought by existing residents who have been financing infrastructure through property taxes, etc., and who are creating no new burden on the community’s infrastructure.
- Impact fees often result in “double taxation” of buyers or renters of new housing. At least some of the infrastructure that existing residents use will be paid for by new residents out of their property taxes. But if new development has to pay fully for new infrastructure, then it is subjected to “double taxation” if it also pays for existing infrastructure by servicing bonds through property taxes.
Information from National Association of Home Builders “Impact Fee Handbook,” 1996, and from “The Builders’ Guide to the APA Growing Smart Legislative Guidebook.”