Impact Fee Study Components

This page contains answers to frequently asked questions about the components of impact fee studies.

What key policy decisions need to be made during an impact fee study?
In drafting an impact fee study, the community must make local policy decisions relating to facilities, methodology, exemptions, offsets, benefit areas, and percent cost recovery.


What criteria should be used in the selection of facilities?
In deciding which facilities to adopt impact fees for, the following criteria should be considered: 1) statutory limitations, 2) other funding options, 3) availability of plans and data, 4) current levels of service, 5) political support, and 6) revenue potentials.


What facilities can impact fees be used to pay for?
The type of facilities that an impact fee may be assessed for depends on local legal authority. In states with enabling acts, facilities are often limited to basic services, such as water, wastewater, roads and drainage. In states with more liberal home rule authority, however, facilities are often unlimited as long as a nexus can be determined.


What are some innovative impact fee techniques being used today?
Seeking to address housing affordability issues, more fees now recognize size differences in residential units. Two other trends are the reduction or elimination of fees in areas with limited or no growth-related facility needs, such as in central cities; and the recognition of variable cost differentials such as distance (trip length) and density.


What are benefit districts?
Benefit districts are territorial divisions within which collected fees must be spent.


What are assessment districts?
Assessment districts are territorial divisions within which fee schedules may vary.


How frequently should an impact fee study be updated?
Most state enabling acts stipulate an update time limit. If none are required, updates every three to five years are recommended to keep facility costs and data up-to-date.


Can impact fee revenues be spent on operating and maintenance costs?
No. Impact fees can only be spent on capacity-enhancing capital facilities.


How are impact fees calculated?
Determination of an impact fee begins with calculating demand-to-capacity ratios for different capital facilities and then estimating the number and cost of facilities that will be necessary for meeting a prescribed level of service for a growing population.


How are various land uses assessed?
Impact fees are assessed based on the facility demand of the proposed use as measured by its type, size and location. Residential uses are usually differentiated by type or size of unit (bedrooms or floor area) and non-residential uses by amount of floor area.


What is a level of service?
A level of service is a measure used to characterize the operating conditions and performance of a public facility or service. The term is most commonly applied to traffic operations, where designations go from A (best) to F (worst).


What is an existing deficiency?
An existing deficiency is an existing inadequacy in the condition or performance of a public facility or service with respect to the adopted or desired level of service.


May a lesser impact fee be charged than is recommended in a study?
Yes. Since a city is not required to impose impact fees, it may also choose to set its fees below the level necessary to fully recover necessary facility improvements. However, if a reduction is made the percent should be the same for all uses to maintain “fair share” relationships.


What is the difference between standards-driven and improvements-driven fee methodologies?
Standards-driven impact fees are based on the cost of existing or desired levels of service (e.g. 5 acres of parks per 1,000 residents). Improvements-driven impact fees are determined by allocating the cost of specific planned improvements needed to serve a specific amount of new development over a specific period of time. Standards-driven impact fees are alternatively referred to as demand-, consumption- or incremental-driven fees; and improvements-driven impact fees are also called plan-driven fees. T he word "based" is also often used interchangeably with the word "driven."