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Impact Fees: What They Are, Who Pays Them, How Much They Pay

| September 30, 2012

impact fees definition history purpose

Someone’s got to pay for that impact. (Ken Hodge)

Impact fees are a one-time tax imposed on all new residential and commercial construction by local governments to defray the cost of growth’s “impact” on vital services such as schools, parks, roads, ambulance and fire service and other infrastructure needs.

The rationale behind impact fees is this: new construction means new residents. New residents increase the burden on local services—roads, parks, fire and rescue, schools, water and sewer hook-ups. To pay for that “impact,” governments impose impact fees. So anyone building a new home or a new business pays a park impact fee, a school impact fee, and so on. Impact fees are especially prevalent in Florida, Texas and other low-tax states where the tax structure doesn’t provide enough revenue through other sources to pay for growth. Florida pioneered the use of impact fees in the late 1970s.

Impact fees are generally accepted except by developers and some real estate professionals, who call impact fees a “hidden tax” that slows or discourages growth by pricing people out of homes: if the price of a home is $10,000 or $15,000 greater than it would be without impact fees, some homeowners who might otherwise have been able to afford a house consequently would not.

Impact fees are taxes. They are hidden only in so far as they fall into a large category of “fees” that local governments impose that are indistinguishable from taxes. Semantics aside, they’re not quite hidden: Governments clearly advertise them and, iof course, impose them at the time of construction.

The evidence, however, is strongly against the argument that impact fees either slow or discourage growth: Florida’s highest-growth decades followed the imposition of impact fees in the late 1970s. And Flagler County led the nation as the fastest-growing county for several years during the middle of the 2000s despite relatively steep impact fees.

Impact fees may well spur growth and increase home values: while it’s true that impact fees will add to the cost of a house, and that cost will be passed on to home-owners, the higher value of the new house will also improve the values of existing, neighboring homes. In that sense, impact fees raise the value of homes. Existing residents who have presumably paid their impact fee will also be appreciative of a government that keeps their other taxes relatively low, while generating revenue through one-time impact fees on new residents and businesses.

Absent alternative means of paying for growth, the absence of impact fees would artificially lower the price of new construction by shifting the burden of growth’s cost onto existing homes or creating considerable deficits between the impact of growth and available services, thus lowering the quality of life–and with it, home values and the attractiveness of a locality, which would potentially hurt further construction and home-ownership.


Local governments are not allowed to spend revenue from impact fees on anything other than what the fees are slated for. For example, in 2012, the Flagler County School Board was collecting about $500,000 worth of impact fees per year. It had collected about $3.5 million since finishing to pay for its last new school. That $3.5 million was sitting in an escrow account, untouchable until the district has the need for a new school (what it calls new student stations). That could be a few years: in 2012, the district’s population was flat, and its school buildings were only at 75 percent capacity. Builders and developers argued that the district should stop collecting the fee. The school district argued that growth will return, and a new school would be needed, making the continuing collection of money necessary.

But none of the money in the impact fee escrow account may be used, meanwhile, for other needs. That goes for other governments’ various impact fee funds.

Impact fees vary depending on where the fees are imposed. The amounts vary by government. But for a single-family house in Flagler County, the school impact fee is the same throughout, at $3,600. The transportation impact fee is $2,827 in Palm Coast, but $1,438 in the county and in Bunnell. Palm Coast has the highest total impact fees, at $15,270–though again, those fees did not discourage home-builders from over-building in Palm Coast, and making the city one of the nation’s ground zeros in the housing bust.

Below is a general schedule of impact fees in Flagler County, followed by the current, detailed schedule of impact fees in Palm Coast.

2012 Impact Fees for a Single Family House in Flagler County, Bunnell, Flagler Beach and Palm Coast

Flagler County School BoardSchools$3,600
BunnellWater$1,800
Sewer$1,800
Transportation$1,438.10*
Schools$3,600
Total Impact Fees in Bunnell:$8,638.10
Flagler BeachWater$1,891.60
Sewer$2,733.20
Transportation$1,438.10*
Parks and Recreation$268.45*
Schools$3,600
Total Impact Fees in Flagler Beach:$9,931.35
Flagler CountyTransportation$1,438.10*
Parks and Recreation$268.45*
Schools$3,600
Total Impact Fees in Flagler County:$5,306.55
Palm CoastParks and Recreation$1,208
Fire and Rescue$189.75
Transportation$2,827.56
Water$2,430
Sewer$2,480
Water and Sewer Required Hookup Charge$2,535
Schools$3,600
Total Impact Fees in Palm Coast:$15,270.98
(*) The Flagler County Commission on Oct. 1, 2012, suspended the transportation and park impact fees for two years.

Palm Coast Impact Fees, 2012

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6 Responses for “Impact Fees: What They Are, Who Pays Them, How Much They Pay”

  1. Charlie Ericksen, Jr says:

    I would add but a few comments about your article. In “most cases”, the impact fees are a “one time fee”, but some counties/cities enact a new adjusted impact fee, when the replacement resident/occupant has a different business than the original one. In many cases, they calculate, that the new business creates an additional “impact” on the traffic/road use/parking and then inform the proposed new occupant of an addition fee..This can and has resulted in the proposed new occupant backing out of the new space. I am aware of a specialist practice MD wanting to take over the space of a General practice provider, and being told, that his office would create more patients, and traffic, thus additional “impact fees”. This has occurred even with different types of restaurants…..Bottomline, it’s not just an upfront fee, for a “new” business.. It has been a repetitive tax on the same property..

    • Magnolia says:

      Mr. Ericksen, maybe it is time to adjust the way these fees are charged, rather than do away with them altogether?

      Currently we have no solid business base. Throwing the taxes to the residents, which in the case of Palm Coast are already either under foreclosure or stressed with limited retirement funding will bring you a ghost town. That doesn’t make a damn bit of sense to me.

      Those who planned for retirement here haven’t really planned for anything under your rules.

  2. DWFerg says:

    Again I say, trade upfront impact fees collected for increased annual assessments of the Taxable Base value by an amount equal to the existing Impact Fee TAX—In this way, money is collected over the course of an annuity type schedule in perpetuity, which over time may exceed the total of the upfront fee. Clearly, I am in favor of the suspension of the upfront payment of the impact fee, and might even buy a newly constructed house in Palm Coast with this 7 % discount on a $200,000 new house investment

  3. Brewer says:

    Impact fees are meant to pay for the development’s impact to existing infrastructure. In other words it is a way to recoup the cost of public improvements that have been built. When Flagler County Schools impact fee revenue exceeded the cost of its current facilities, it would have been correct to begin scaling back its impact fee assessments. Alternatively, it could have began assessing “proportionate fair share” payments to build a new school if the impact of the development was going to generate students beyond the existing capacity of the schools. Proportionate fair share payments are meant to pay for the development’s impact to future infrastructure. Both impact fees and proportionate fair share payments should not be collected at the same time – it is either one or the other.

    Not sure I completely understand DWFerg’s proposal although reducing the upfront cost of fees can help with the financing and thus total cost of a project. If you were going to attempt to assess impact fees over time, the time period would have to be specified whether it is a five, ten, or thirty year period. Of course, this would require the government to risk collecting that revenue after improvements have been made and impacts generated. If the improvements are already available, as in the case of impact fees, then it is probably not a good idea to further delay the payment for that capacity. It needs to be built into the cost of the homes or commercial space being sold.

  4. Brewer says:

    Charlie, you are right that sometime a change in use requires an adjustment to the impact fees collected. This is particularly true with transportation impact fees. In general, however, this should not often be the case as development projects should have taken in consideration a variety of uses that will be located in the development and the impact of those uses. Some local governments are very liberal (or even deceitful) in their allowance of uses after a development project has been approved and constructed. For example, during the permitting of the project and the calculation of impact fees, the development will be approved for a very low intensity development. Once fees have been collected and the development is constructed, the developers will want to bring in occupants with a use of much greater intensity while not paying any additional impact fees. Some local governments who don’t actually collect impact fees for themselves or maintain the infrastructure that will be used have no problem allowing this practice as it lowers the cost of development in their town and encourages businesses to locate there while the cost of this practice doesn’t hit their bottom line. Impact fees should represents a collection of revenue based on the impact to existing infrastructure. If that impact changes because of a change in use, then it can be appropriate to make an adjustment to the impact fees collected. If this is occuring more than once or twice for the same property, there is a problem.

    • Charlie Ericksen, Jr says:

      Thanks Brewer..The MD situation was in West Pointe Plaza, which has a combination of small businesses. But to be able to calculate the difference between a “specialist” and a “generalist” activity in a medical practice sounds fishy.. Thanks for your input, it helps explain some missing items..

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