Impact Fee Design

Encouraging Infill through Impact Fee Design

Marc Roberts, City Manager, City of Livermore

Impact Fees as Important Tool

A central challenge for many communities is trying to get denser infill projects to be financially feasible. While at first glance the regulations governing impact fees seem like a tight analytical box, within this framework there is flexibility to create a system that improves the financial feasibility of infill by differentiating infill project impacts (and fees) from greenfield development.

California State law (AB1600 and others) requires compliance with a number of detailed standards in setting, collecting, reporting upon and spending impact fees. Generally, fees must be reasonably related to the impacts created by a particular project, and collected fees must be utilized to address the impact(s) created. Fees must be proportionate to expected impacts, so discounts cannot be given to some users and made up from other users (i.e. users cannot be required to subsidize impacts from other developments). This article will not address impact fee waivers, since those waivers must, by law, be made up from other sources (grants, general fund moneys, etc.).

There are a wide variety of methods to set fair and effective fees. This article looks at varying just one concept of impact fee analysis to illustrate how fees affect infill development: in essence, how finely do you categorize uses and impacts?

Let’s look at transportation impact fees as one example. Traditionally, communities lump all residential units into a couple of broad categories regardless of where the uses are located. Having just one or two categories for residential fees means that smaller, denser, mixed use or residential uses with limited parking are treated similar to larger residential units in auto-oriented districts. This has the effect of over estimating impacts for denser, mixed use, parking constrained residential uses. This, in turn, causes impact fees to be set higher than needed for those uses, making infill projects relatively more difficult to build profitably.

What alternatives exist to address this issue?

Factoring Infill When Differentiating Fees

One approach is to group all types of uses within a geographic area (a downtown, for example) together to get an overall impact for a particular system, and then set just one impact fee for that system. For example, if a Specific Plan for an area permits a total of 1,000,000 square feet of commercial and residential uses combined and creates $10,000,000 of traffic impacts, legally a $10 per square foot fee could be levied for all types of development. Is this the most detailed assessment of impact by use that could be developed? Clearly, no. However, would it, at the extreme, be legally defensible as being “reasonably related to the impacts created?” Most likely. If the development of proposed commercial and residential uses was linked in some way by a Specific Plan (i.e., specifying required mixed use, shared facilities, etc.), this approach would absolutely be legal.

Another opportunity is to focus on class of use, like a downtown commercial designation. Differentiating downtown commercial uses from commercial uses elsewhere in the community could lead to lower fees for the downtown use. This is because downtown commercial uses often have a higher linked trip ratio. Multiple needs can be met in downtowns, and patrons tend to park once and visit multiple stores instead of visiting just one store and moving their car again and again. Downtown environments tend to be more walkable and parking more constrained as compared to typical, suburban shopping centers. This leads to fewer vehicle trips proportionally, and therefore lower impact fees per unit of demand.

At another extreme, a city could tailor an impact fee to differentiate uses associated with infill. For example, “a studio apartment, located within a mixed use development in a downtown suburban environment.” The advantage of this approach is that, like the previous example, it results in relatively lower fees for certain development on a “per unit of demand” basis, because the impact is proportionally less. In the example of the downtown studio apartment, the trip generation rate is lower, for example, on a per unit basis, so the transportation impact mitigation fee would be lower.

By utilizing this approach to group together or more finely delineate uses, a community can better address a variety of urban planning objectives. It is also perfectly legal to group certain impacts and finely delineate other types of impacts, as long as individual impact fees and the overall fee programs remain reasonably related to the impacts created by the respective uses.

A jurisdiction’s impact fee programs are an essential part of its urban design and community revitalization strategy. It is possible to design a fee program that is legal as well as nuanced enough to support infill development. Fee programs should be designed comprehensively with the same careful attention to project outcomes that you would include in comprehensive plans or design standards. Careful attention to fee design can effectively mitigate a major impediment to infill development.

Fees, Housing Type, and Place. Consider lower impact fees for infill housing near transit (illustrated at left) compared with suburban housing without nearby services (illustrated at right), as urban infill is generally associated with fewer impacts and greater community benefits. (Photo credit: Matt Taecker.)