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Development Impact Fees and Other Devices

  • Author(s): John Delafons
  • et al.
Abstract

Introduction

This report deals with the methods that have been evolved in the USA for reallocating the costs of development infrastructure (roads, water supply, and other facilities) between the public and private sectors.

In the past it has been assumed that the public sector should meet most of these costs, recouping them by means of general and local taxation and user charges. In both America and the UK, housebuilders and other developers have generally been expected to provide on-site services (local estate roads, link-up to mains water and drainage, car parking ,etc.), but the public sector has been responsible for off-site provision -- major roads, water supply, sewerage, and a range of other physical infrastructure and community facilities. But it is not inevitable that all of these costs should be met by the public sector. It can be argued that there is a good case for those costs being met, at least in part, by the landowners, developers, and employers who will benefit from them.

The problem is to find practical and consistent methods of allocating those costs and of requiring developers and others to meet them or to provide the necessary facilities themselves. In the UK there has been some movement in this direction in recent years, mainly by means of planning agreements under Section 52 of the Town and Country Planning Act 1971.* Such agreements have been limited in extent and not applied in any comprehensive or consistent manner. The Water Act 1989 introduced provisions enabling water companies to levy charges towards the capital cost of new installations, and there are provisions concerning highways in earlier legislation. But there has been no general application of the principle that "the developer pays." In the USA, on the other hand, there has been a long tradition of requiring developers to provide roads, parks, local school sites, and various other facilities within their developments.

In recent years this type of requirement has been extended to a wider range of purposes (e.g. traffic lights, school buildings). Smaller developers can make payments in lieu of actual provision. But many American cities and counties have gone well beyond much on-site requirements. In these cities, developers are now expected to contribute towards the costs of off-site roads, bridges, intersections, water mains and sewerage, storm water drainage, high schools, major open space, public car parking, libraries -- even "law and order." some cities have extended the concept so as to require office developers to contribute to the provision of public transport (mass transit), low-cost housing, and child-care facilities.

Various novel methods have been developed for achieving this. The most widespread is the concept of "development impact fees," which prescribe a standard scale of charges for new development. There is a variety of other fiscal devices for similar purposes. In addition, some cities are making extensive use of "Development Agreements" which, instead of standard fees, rely on negotiated agreements with individual developers. Some local governments use all these methods, and new measures are constantly being devised.

This is what this report is about. I now briefly summarize its structure and content.

Part One deals in detail with development impact fees, since this is the most widely used method of charging developers for the costs of the infrastructure needs that their development generates. Chapter 1 explains the concept of impact fees and illustrates their use. This is intended as an "appetizer" for what follows. Its intention is to explain the context within which impact fees and similar devices have evolved, the scale and pace of development, and the changing climate of local government finance. The miscellaneous information that it displays is drawn from a wide variety of sources, from scholarly books to newspaper cuttings. It is impressionistic and serves to demonstrate that, while much of the language of land-use planning in America will be familiar to the British reader, the context within which it operates is something different.

Chapters 3 to 6 are the meat of Part One. In these chapters I set out the concept of impact fees as it has developed in the somewhat demanding judicial atmosphere that prevails in most states, where the Courts are very protective of private property rights and tend to take a cautious view of fiscal and regulatory innovations. To safeguard against the risk of successful legal challenge, the proponents of impact fees have adopted a belt-and-braces approach, and the result is a distinctly complex and demanding process for devising and validating impact fees. It is necessary to set out the lineaments of the system in this fairly detailed manner, as it provides the basis from which a somewhat simpler approach could be developed. It was reassuring to find that in California, where impact fees originated and are most widely used, the courts have taken a less rigorous approach to impact fees. Provided they can be satisfied that appropriate legislative or regulatory powers exist for the purpose, that the fees adopted have a rational basis and are reasonable in relation to the relevant expenditure, and that they are administered in a consistent and equitable manner, they do not demand an unrealistic degree of precision in the methods of calculation and attribution. I think that in the UK our approach would be similar, but it is useful to be aware of the more theoretical formulation.

Chapter 7 indulges in a digression housing, suggesting that the costs of infrastructure and the level of fees could be moderated if Americans were less prodigal in their use of land and applied more effectively what they know about land-use planning or, in their terms, "growth management" (which can mean either facilitating or restricting development). There is more about housing in Part Two.

Part One concludes with a case study of Raleigh, North Carolina, and its recent experience in introducing an impact fees system.

Part Two of the report reviews more briefly a a variety of other methods, both traditional and novel, of exacting or soliciting contributions from developers to the provision of infrastructure and community facilities.

I deal first with the longest established forms of developer contributions: those implemented through traditional subdivision regulations. Secondly I deal with "contract zoning," another adaptation of a traditional regulatory system, which relates to variances granted to exchange for some undertaking given by the developer. I then consider the much more recent "linkage programmes," which are in some respects similar to impact fees but where the concept has been extended beyond what is normally regarded as infrastructure to include the provision by office developers of low-cost housing -- and child-care facilities. I describe separately arrangements that require housebuilders to include a proportion of low-cost housing to their projects or, more often, offer zoning incentives to do so. I include a short note on excise taxes as an alternative to impact fees. I explain the concept of the Special Assessment District, where a supplementary local tax is levied on occupiers in a specific area to pay for services that benefit solely that area. This mechanism has been extended in some states to facilitate developments on the scale of a new town, and I describe the Florida legislation. I deal more fully with the scope for negotiated agreements with developers, which are favoured by many experienced local government officials and major developers, as it is a much more flexible method and offers more scope for the exercise of negotiating skills on both sides than a standard fees scale. I describe the Californian legislation. In Chapter 8 I deal with various methods used in California to finance transportation systems. Chapter 7, on Development Agreements, is particularly relevant to the US situation and the possible reform of Section 52/1971.

All these methods are in use in the US, and they demonstrate that a developer is pursuing his project usually needs the co-operation of the local authority and other bodies, both in securing his building permit and in ensuring that his development is adequately serviced. He may prefer a predictable scale of fees and to know in advance that will be required of him; but he may also be prepared to negotiate a higher contribution, especially if he needs a higher standard of provision or seeks higher priority among competing projects.

Part Three provides a general assessment of what has gone before, and offers some conclusions on its relevance to the US and a possible legislative approach to recasting Section 52 to provide for both Development Agreements and Developer Contributions in a form compatible with UK conditions.

In conclusion, I should emphasize that this is not a work of scholarship and therefore lacks entirely the scholarly apparatus of footnotes and bibliography. I have freely pillaged (but I hope not plagiarized) a wide range of materials generally without acknowledgement. But, so far as I am aware, there is no single publication that deals with all the varieties of systems described in this report. It is, of course, written by a visitor to the US and from a British perspective. But in my own experience it is always interesting to see how someone from another country describes processes with which one is familiar: even their errors and omissions can prove instructive.

The work on this report was done during my tenure of a Nuffield and Leverhulme Travelling Fellowship in 1989-90 while on secondment from the Department of the Environment. I readily record my appreciation of the Fellowship programme, which affords the opportunity to those in government service to combine their experience of practical administration with the benefits of new experience. In the course of my fellowship I prepared a second report on Aesthetic Control: methods used in the USA to control the design of buildings. Both reports are being published by IURD, and both deal with the relationship between public and private interests in the development process.

Although I cannot attempt here to acknowledge all those who have helped me in the course of this study -- academic colleagues, developers, realtors, homebuilders, city, county, state, and federal officials, and many others -- I must express my thinks to my two main hosts, Professor Michael Stegman, Director of the Department of City and Regional Planning at the University of North Carolina at Chapel Hill, and Professor Peter Hall, Director of the Institute of Urban and Regional Development in the University of California at Berkeley. I worked for several weeks at both of these institutions and had every assistance from them. I must also thank Dr. Derek Nicholls, the Director of the Department of Land Economy at Cambridge University in England, where I now enjoy similar facilities.

Finally, I should record that the contents of this report are the author's responsibility and do not necessarily reflect the view of the Department of the Environment. It is published with the Department's permission as a contribution to debate on the subject.

J.D. November 1990 Department of Land Economy CAMBRIDGE CB3 9BP England

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