Development Impact Fees

More Details on Impact Fees

• What is the legal basis of charging Impact Fees?
• How are Impact Fees different from taxes and why can't Impact Fee revenues be treated like tax revenues?
• What is an Infrastructure-Financing Plan?
• What is an Equivalent Dwelling Unit (EDU)?
• What are offsets, and how are offset calculations used in the plans?
• What are credits, and why are they important for those obtaining permits
  and paying fees?

2.1 What is the legal basis of charging Impact Fees?

A.R.S. Section 9-463.05 permits the City of Phoenix to levy impact fees. It also imposes restrictions:

1. Municipalities may only impose fees on developments that will benefit from the infrastructure improvements.

2. The funds collected must be placed in special interest-bearing accounts and used only for specific capital projects.

The City implements the program through individual infrastructure financing plans developed for a specific geographical area, usually within a village boundary. The legal framework is in the "Development Impact Fee Ordinance of the City of Phoenix" (Chapter 29 of the Phoenix City Code). The ordinance requires that before an impact fee can be assessed, an infrastructure financing plan must be prepared by staff and then adopted by Council. The ordinance also provides a basic format and definitions that must be used in each infrastructure financing plan.

2.2 How are Impact Fees different from taxes and why can't Impact Fee revenues be treated like tax revenues?

Impact fees are not a tax imposed on property owners, but are part of the development approval process. Requiring an impact fee from a developer before granting approval to build a structure is similar to requiring that the developer meet the site planning or zoning stipulations on the property.

• Impact fees can only be charged to developers or landowners who are proposing changes or improvements to their land (e.g. new structures, subdivisions, water/sewer hookups, etc.)

• Impact fees can only be charged to cover the cost of capital improvements that will benefit those who are paying the impact fees. For the City of Phoenix, this means that property owners can only be charged for improvements within their Infrastructure Financing Plan area (usually the village), or for infrastructure that is shown to provide a benefit to the property owners (e.g. a bridge outside of the area that serves traffic from the area).

• Impact fees cover new infrastructure or capital facilities that have been specified in the area's Infrastructure Financing Plan. (Capital facilities are long-term assets that generally provide services for more than ten years, and that always provide services for longer than a year.) Operating costs cannot be funded from impact fees.

• When calculating impact fees, all other sources of future revenue from the assessed properties, including property and sales taxes, must be included as offsets to the impact fees if they would reduce the amount necessary to fund the necessary infrastructure. For instance, if each home in a new development is assessed a secondary property tax to pay for a storm drainage facility, then each impact fee is reduced because of those future taxes (see offsets).

• Impact fees are collected for specific infrastructure needs, and all impact fee revenues are deposited into different accounts representing these requirements. These dedicated accounts (for example, an account for major streets for Desert View north of Jomax), cannot be used for any purpose other than that specified for the account.

Impact fees must be proportionate to the demand placed on city infrastructure by the developments being assessed, and there should be no discrimination in the way that the fees are imposed. For instance, a new development's fees for street improvements should be based on broad estimates of street usage for that development, and every new development should be assessed on that basis.

2.3 What is an Infrastructure-Financing Plan?

Infrastructure-Financing Plans are specific plans prepared for each village (or portion of each village that is subject to impact fees) that calculate the impact fees for that area. An Infrastructure Financing Plan includes the following types of information:

• Projections of future land use and population (see projection details)
  
  

• Estimates of infrastructure demand, based on standardized land-use categories
  
  

• Cost estimates of capital facilities for:

  • Equipment repair

  • Fire protection

  • Libraries

  • Major streets and bridges

  • Parks

  • Police

  • Solid waste disposal

  • Storm drainage (where applicable)

  • Wastewater

  • Water
    
    

• Standardized net capital facility costs for each infrastructure category

2.4 What is an Equivalent Dwelling Unit (EDU)?

Equivalent Dwelling Units (EDUs) are units of measure that standardize all land use types (housing, retail, office, etc.) to the level of demand created by one single-family housing unit.

For example, in the case of water capital facilities, one EDU is equivalent to the amount of water (gallons per day) provided to the average Phoenix single-detached household. A small business designed to use three times as much water as an average single-detached dwelling would have a demand of three EDUs in terms of a water facility; a large industrial complex that requires a thousand times as much water each day would have a demand of 1,000 EDUs.

EDUs for water facilities are based on the size of each user's water meter. EDUs for police and fire facilities are calculated on time spent on calls; street EDUs are based on traffic generation; parks and libraries are based on relative use between different land use types. An EDU for solid waste is based on solid waste pickup figures for different types of development.

2.5 What are offsets, and how are offset calculations used in the plans?

Offsets are revenues that future development will contribute to infrastructure funding. The Arizona legislation that permits the use of impact fees and the City of Phoenix ordinance that stipulates how impact fees should be calculated (see the legal basis for impact fees) both require that new development only pay for the difference between its share of the total projected capital facility costs and the present value of future taxes that will be paid by that development towards those capital facility costs. New development should not have to pay twice for the same facilities - what it will pay in taxes towards facilities, it should not have to pay in impact fees.

Offsets may be available to new developments from the following types of taxes and charges:

• Development occupation fees
  
  

• Secondary property taxes used to pay off bond principal and interest (capital facility debt)
  
  

• Arizona Highway-User Revenue Funds (taxes collected by the State on fuel and vehicles and partially distributed to cities and towns)
  
  

• Water and sewer rates (portion allocated to capital facilities)
  
  

• Solid waste fees (portion allocated to capital facilities)
  
  

• Sales taxes collected specifically for infrastructure provision or land acquisition

2.6 What are credits, and why are they important for those obtaining permits and paying fees?

Once a net fee has been calculated (net all offsets), the City estimates the value of developer contributions to public infrastructure. This value is a credit that reduces the developer's/landowner's impact fees. Street, water and wastewater credits are the most common types of credits claimed by developers of large commercial or residential projects because such projects often require significant expansions to the road network and water and wastewater networks. Credits for equipment repair, fire, police, library and solid waste facilities are more rarely obtained. Credits are usually based on costs identified in the Infrastructure Plan.