Understanding Development Impact Fees

If you are considering a development in a growing community, you may come up against development Impact Fees. They are one-time fees that are associated with the infrastructure that is required for a new development. They are not considered a tax.

These fees may cover any of the following services:

• Water, sewer, and utilities

• Schools and library services

• Roads

• Parks

DIF must be used directly to develop these types of services-they cannot be used to support existing ones. The idea of an Impact Fee is that new members of a community pay for the services that they will use instead of the tax burden of providing those services falling on existing members of the community. IF are a popular device in areas of rapid growth where an existing population is struggling to keep up the infrastructure for the new population.

These fees can also help communities avoid uncontrolled urban sprawl. By requiring higher fees for property that is further away from the urban center and thus further away from the infrastructure hub, communities reduce the risk that developers will skip over closer land that is closer to the urban center. Developers then may be more likely to develop the desired property closer to the city center. IF also have advantages for developments. They can ensure that a new development receives the needed infrastructure before the development is complete.

Each state has varying laws about exactly how impact fees can be structured and utilized. If you are considering a development in an area where IF are in use, you may want to contact a lawyer who specializes in these fees. A lawyer can make sure that the IF you are required to pay stand up to state laws. IF require a highly trained local government staff for the IF to be properly planned and implemented-the way the fee is implemented may not always be legal. Often times, IF can be taken to court in states where there is not a set precedent on the powers a community has to levy IF.

While each state has varying laws governing the use of impact fees, there are some general legal boundaries for DIF. They must:

• Be roughly proportional to the cost of the infrastructure work completed

• Apply to all new developments within a community

• Be issued by a local government body that has the power under their state legislature to enact such fees

A real estate lawyer who specializes in IF in your area can help you determine if an impact fee is legitimate and fair. If you are a developer in an area with IF, you will have to decide how you will offset the fees. You will either have to absorb some of the impact fee cost or pass on the fee to your buyers. In a high demand area, you may be able to easily pass on the impact fee to your buyers, but you should check out your competition first-you may be near the impact fee boundary and thus in competition with other builders and housing prices that are lower because they do not reflect an impact fee.

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