Understanding Impact Fees

As public service demands grow because of increasing population, inflation, rising real incomes, or other reasons, the local revenue base — taxes, grants, and user fees and charges — does not always grow fast enough to meet the increased public service demands. Many communities have turned to impact fees to construct public infrastructure systems on the assumption that new development must pay its way.

Impact fees are imposed by a local government on a new or proposed development project to pay for all or a portion of the costs of providing public services to the new development. This fee is levied on an upfront or front-end basis — usually at the time of building permit issuance or subdivision approval, or certificate of occupancy — and is prescribed by ordinance (although the dollar amount may or may not be specified).

However, the use of impact fees shifts much of the financial burden away from all public infrastructure users (i.e., the general public) to a narrow segment of the public — home builders and new home buyers.

This toolkit is a resource to explore impact fees and their potential effects on the local community, and to provide strategies for achieving balanced infrastructure financing solutions.