What is an Impact Fee?

An impact fee is an amount of money that a local municipality or other government might charge to a potential developer in a land use agreement or similar situation. Impact fees provide for a balance against any costs to the community from a specific local development plan. These kinds of agreements have been used for many years in the administration of cities, counties and other municipalities.

An impact fee is basically an extra cost that a local government levies against the developer, usually because they foresee some kind of negative impact from the development. Some public administrators don’t believe that impact fees are often necessary, and some argue that they can hurt the commercial growth of a community. In some cases, it’s the local residents who argue for an impact fee, especially if they see their property values being affected by a proposed development.

Some kinds of additional agreements can be substituted for impact fees. In agreements known as “in lieu” fees, the developer can choose to give over either an impact fee or a specific land parcel to the municipality in return for plan approval. This is a common kind of agreement, and not something that developers often protest against. Lots of developers see it as part of the common cost of building in a community.

Impact fees are commonly applied to items that the local government believes will create a benefit to residents. In many cases, the local government asks for the impact fee from a developer to be applied to something like a water or sewer plant expansion, or park development, where local residents will benefit. When locals and their governments don’t see eye to eye on these benefits, protracted arguments in public meetings may result.

Local government administrators and executives learn about the use of impact fee agreements and other land use agreements as part of their education in taxation and urban planning. Generally, the final decision on impact fee agreements goes to a board of commissioners or council members, or in the case of local township municipalities, to a board of supervisors. The board votes, and the administrator or executive is responsible to carry out the results of their decision.

Developers routinely present proposals to local government and public meetings. They may talk to the board directly about various fees and how they will affect their development. These presentations are a key chance for dialogue between the government board and the developer’s representatives.

A final land use agreement may include a specific impact fee. These detailed plans allow for the actual initiation of a development. Lots of details about benefit to the community will be included in a final land use agreement.