Impact Fees

ABC Construction Corp. sought a permit to begin construction of 25 residences in the Southwell Hills Community, located in the County of Rockland. The development is situated in a neighborhood full of older houses. The local government authority conditioned the issuance of its building permit upon payment by ABC of certain impact fees.

What Are Impact Fees?

Impact fees are charges that are assessed by local government authorities against property under development in an effort to recover the costs that have been incurred by the local government authorities in providing the necessary services to the newly developed property. The issue of impact fees is governed by local law.

What Types of Services do Impact Fees Fund?

Typically, impact fees fund public services and may include:

• water service;
  
• sewer service;
  
• road construction;
  
• schools;
  
• parks;
  
• street improvements; and
  
• environmental initiatives.

How Is the Amount of Impact Fees Determined?

The local government authority considers the proposed development and determines to what extent additional facilities will be required to sustain the appropriate level of services. Impact fees are based upon the estimated cost of the additional facilities.

Who Pays the Impact Fees?

Usually, the developer of a property pays the impact fees; however, it is almost always the case that the developer recovers its expenditure of funds by passing the cost on to those who purchase properties in the new development.

As the law governing impact fees differs depending on the locality, local law must be consulted for further details.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.