impact fees: overview » legal issues

This page discusses some of the basic legal requirements and tests associated with the imposition of impact fees. These include:

Rational nexus and proportionality

Impact fees are a type of "exaction" -- a requirement that developers pay for, or provide, a public facility or public good in order to receive permission to undertake a proposed project. Other types of exactions include linkage fees or the dedication of land for a park, school, or roads. The legal basis for imposing an exaction has been established through several United States Supreme Court cases, most notably Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 687 (1994). These cases have established two tests that must be met to ensure the legality of an impact fee: there must be a "rational nexus" between the imposition of the fee and the achievement of a legitimate public purpose (usually, the need for new infrastructure to serve the development) and the amount of the fee must be "roughly proportionate" to the impact of the proposed development.

To meet the rational nexus test, a local government must be able to demonstrate that there is a reasonable connection between the need for new public infrastructure to be funded by impact fees, the new development on which those fees are levied, and the benefits obtained by the development as a result of paying the fees. Impact fee revenue can only be used to finance infrastructure and facilities that will benefit new development, and must be spent within a reasonable time frame (most places require that fee revenue be spent within 6 years or refunded to the payer). To meet the rough proportionality standard, a local government must show that the impact fee amount is roughly proportional to the impact of the project; that is, that the fee is roughly related to the actual costs of new infrastructure associated with the proposed development.

For more information see Practical Issues in Adopting Local Impact Fees. 1993. By Jerry Kolo and Todd J. Dicker. State and Local Government Review 25(3): pp. 197-206.

Click here to continue learning about proportionate impact fee schedules.

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State enabling legislation

In some states, specific enabling legislation has been passed to give local governments the authority to adopt impact fees; however, enabling legislation is not a required prerequisite for enactment of a fee in every state. In the 24 states that have not passed an enabling act, communities can use their home rule power, or authority established through case law or special legislative acts, to adopt impact fees.

For more details about state enabling acts for the imposition of impact fees see Impact Fees: Equity and Housing Affordability. A Guide for Practitioners. 2008. By Liza K. Bowles and Arthur C. Nelson. Prepared for the U.S. Department of Housing and Urban Development, Chapter 3.

Continue learning about fee reductions and waivers, or click here to learn more about state enabling legislation in general.

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