CA Impact Fees

CivicMic is working with Santa Clara Valley Water District ("SCVWD") to provide important information to stakeholders so that they could participate in the collaborative governance process. In this article, CivicMic provides a brief overview of CA impact fees.

What are Impact Fees?

Impact fees are fees that are imposed on property developers by municipalities and government agencies for new infrastructural developments and public facilities. They are typically a one-time payment and are meant to offset the financial impact of the new developments. These fees are an important tool for local governments to provide basic infrastructural and quality of life investments in communities that support new development. For example, impact fees can pay for firefighting, facilities, parks, vehicles, and equipment to maintain service levels and protect the lives and property within new structures, including Accessory Dwelling Units “ADUs”. Revenues from impact fee programs are legally required to only be used for infrastructure systems serving the development projects they are attached to.

Short Legislative History of CA Impact Fees

Impact fees were originally called extractions and were first adopted in the 1920s as financing alternatives to taxes. Their purpose was to mitigate the impact new development had on communities. In the late 1970s, after Proposition 13 passed, many government agencies relied heavily on impact fees as a funding source to mitigate the impact resulting from new developments. Consequently, developers lobbied for and passed Assembly Bill 1600 “AB 1600” also known as the California Mitigation Fee Act to curtail the use of these fees. The legal requirements for the enactment of the development of an impact fee program are set forth in Government Code §§ 66000-66025 (the "Mitigation Fee Act"), the bulk of which were adopted as 1987s AB 1600 and thus are commonly referred to as “AB 1600 requirements.” The Mitigation Fee Act imposed certain requirements for an impact fee to be considered viable and made it subject to legal scrutiny.

What Requirements Do Agencies or Municipalities Need to Meet to Impose Impact Fees?

Agencies and municipalities imposing the fee must:

1. Determine the purpose of the fee.
2. Identify how the fee will be used and what public facility or infrastructural improvement will be financed.
3. Establish a reasonable relationship between the fee's use and the prospective development project that it would be used to finance.
4. Show the reasonable relationship between the public facility to be constructed and the type of development.
5. Account for and spend the fees collected only for the purposes and projects specifically used in calculating the fee.

The Importance of a Fee Study

It is important for a City or government agency to have a professional prepare a fee study in order to determine what could be funded through impact fees. A fee study provides the quantified basis for the imposition of fees.

There are two main goals of the fee study:

1. To provide the City or agency with the legal justification to impose the fee. A fee study demonstrates the required nexus between the impact created by new development and the amount of the fee.
2. To quantify the projected impact that new development will create on infrastructure.

The outcome of the fee study will determine the maximum fee amount per residential and/or non-residential unit that can be charged to new development. The local government agency may review the outcomes of the fee study and decide to charge the maximum fee amount, or a lower amount based on local economic development policies, or other important policy directives.

Benefits of Impact Fees

• No Voter Requirement: Unlike many other funding mechanisms, there is no voter requirement necessary for the adoption of impact fees.
• Lighten Burden on Taxpayer Revenue Sources: If an impact fee is approved to fund new development’s fair share of capital improvements, the burden of paying for this infrastructure shifts from taxpayer revenue to the development.
• Accommodate Growth: Cities, counties, and districts gain access to funds to accommodate the growth associated with new development.

Challenges of Impact Fees

• Increased Cost for Developers: Since impact fees shift the development costs from taxpayer revenue to development, the project becomes more costly to the developers or landowners.
• Consistent Reporting: Municipalities and agencies must create and maintain annual and 5-year reports documenting the impact of the new development and various costs.
• Funding Limited to Capital Facilities: The revenue received cannot be used for operational costs.