Financial Management Series
Number 4
Impact Fees
Alan Probst
Local Government Specialist
Local Government Center
University of Wisconsin - Extension
Definition
An Impact Fee is a charge to new
development for public improvements
that serve that development or that
type of development*
*“Capital Budgeting and Finance: A Guide for Local Governments” A. John Vogt, ICMA
USE
Impact fees offset the costs of
expanded public service and
infrastructure often needed in
response to new real estate
development
Rationale
Considered “pay as you go” approach
 Proponents argue impact fees are
fairer, more predictable, and encourage
planning for growth
 Place the burden on those receiving the
benefits
 Opponents argue could deter
development

How imposed?

Residential development impact fees
are commonly based on a specified
dollar amount per residential unit

Industrial and Commercial
development impact fees are
commonly based on a per square foot
of improved space basis
Who can impose?

Wisconsin counties may not impose
impact fees

Municipalities may impose within limits

"Municipality" means a city, village, or
town
Statutory Authority
State Statutes 66: General Municipal
Law

SS. 66.0617 – Impact Fees

http://www.legis.state.wi.us/statutes/Stat00
66.pdf
Wisconsin Acts 203 & 477
Changed some aspects of Impact fees
 Eliminated counties’ ability to impose
impact fees
 Set 7 year time limit for using impact
fees, plus added potential 3 year
extension (w/ municipal resolution)
 Municipality must illustrate extenuating
circumstances/hardship in meeting the
7 year limit in order to claim 3 year
extension
Wisconsin Acts 203 & 477
 Capital costs further defined to
remove “vehicles” from eligibility
 Athletic fields considered as part of
municipal “parks & playgrounds”
Wisconsin Acts 203 & 477

Developer to pay impact fee within 14
days of the issuance of
building/occupancy permit

Prohibits municipalities from imposing
fees or charges as a condition of plat
approvals for a development
Wisconsin Acts 203 & 477

Revenue and expenditure totals for
each impact fee must be reported as
part of the annual budget summary

Revenues from each impact fee must
be placed in a separate account;
cannot be lumped into General Fund
What may be charged?
Municipalities may only charge for
capital costs (what it costs you to
have them develop in your
community)
Capital Costs
 Costs
to construct, expand or
improve public facilities
 May
 May
include cost of land
include legal, engineering,
and design costs
Capital Costs
 Legal,
engineering, and land cannot
exceed 10% of capital costs directly
related to necessary improvements
 Does
not include other non-capital
costs associated with public facilities
(ex. pays for fire house, not fire truck)
 Cannot
be used to cover any school
district costs or existing deficiencies
Capital Costs
Capital Costs may include cost to construct,
expand or improve public facilities such as:








Wastewater/Water Infrastructure
Parks, playgrounds, athletic fields
Solid waste & recycling facilities
Highways/other transportation facilities
Drainage facilities
Public Safety (fire protection, law enforcement emergency
medical facilities)
Libraries
Associated land costs
Capital Costs
Improvements must be directly
related to (required for) new
development
Steps to impose impact fees?
Perform a needs Assessment
1.
•
Must be available for public review at
least 20 days before public hearing
Public Hearing
Pass Ordinance
2.
3.
•
Ordinance must include appeals
process
Process of Cost Allocation
• Cost review (Needs Assessment)
• Provide cost review to developer and ask
for feedback (Public Hearing)
• Written Agreement Terms (Ordinance)
• Understand unforeseen situations may
arise (Appeals process)
Needs assessment
Must Include:
• Inventory of existing public facilities
• Includes any existing deficiencies
• Establishes the rational relationship
between the impact fee and the required
upgrades
(Note: Developers will resist impact fees that
provide unnecessary improvements to public
infrastructure)
Needs assessment



Identifies new public facilities necessary
because of the new land development
Detailed cost estimate of capital costs
including the estimated effect recovering the
capital costs via impact fees will have on the
municipalities affordable housing supply
Must be available for public review a
minimum of 20 days prior to public hearing
Public Hearing
 Public must be heard on impact fees
 Public must have 20 days to review needs
assessment prior to public hearing
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
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On line version
Town Hall office copy
Library
 If Needs Assessment requires revisions,
another public hearing is required with 20
days to review revision
Ordinance

Cannot pass ordinance without Public
Hearing

Specific language on how long impact
fees may be held (7 years maximum*)

Specific procedure for process to
appeal impact fees
Ordinance
States impact fee amount
 Municipality
may impose different impact
fees on different types of land
development
 Ordinance may delineate geographical
zones within the municipality (Example:
Development on slopes >20%)
 Must
show in Needs Assessment why
differentiation necessary
Ordinance
 Municipality
may provide an
exemption/reduction in impact fees for
“Low-Income Housing”
 Impact
fees cannot be shifted from “lowincome housing” development to any
other areas in municipality
Standards for Impact Fee

Impacts fees shall bear a “rational
relationship” to the need for new,
expanded or improved public facilities

May not exceed the “proportionate
share” of capital costs required to
serve the land development when
compared to the existing land uses
within the municipality
Standards for Impact Fee

Impact fees shall be reduced to compensate
for other capital costs w/ respect to land
development such as special assessments,
land dedications, and fees in lieu of land
dedications
 Impact fees should be reduced to
compensate for Federal/State assistance
 Shall be payable in full, within 14 days of
municipality issuing building/occupancy
permit
Impact Fees cannot:

Cannot be imposed to prevent or inhibit
development (If pattern of development is
undesirable, revise the subdivision code)

Cannot be used as a revenue source to
cover existing deficiencies!
Impact Fee Management

Must be placed in a segregated, interest
bearing account which is separate from other
municipal funds
 Impact Fees revenues (and interest) may
only be expended for capital costs for which
the impact fees were imposed
 Impact Fees not spent within 7 years (w/ up
to 3 year extension), must be refunded to the
current owner of the property to which the
impact fee was imposed
Special Assessments
Special assessments (by law) can only be
imposed to properties receiving special
benefit
 Applied towards existing development
 Pays for improvements that directly
benefit a specific property(s) within the
municipality
 Special Assessments are made against the
land being enhanced, and fixes as a lien
on the land’s title

Special Service Areas

Another method of achieving similar results
as impact fees and special assessments
 Developer places money in a fund controlled
by municipality
 Municipality repays developer from fund
when public facilities are completed
 Not currently an option in Wisconsin
Summary

Must meet the “test of reasonableness”

Cannot be used to deter or prevent
development

Calculated in the municipality’s “Needs
Assessment”
Summary

Must be communicated through a municipal
ordinance and passed following a public
hearing specifically designed to hear
comments on the reasonableness and
allocation of the impact fees

May only be imposed to cover required capital
costs associated with the development
References
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“Capital Budgeting and Finance: A Guide for Local
Government”, A. John Vogt, ICMA, 2004
“The Why’s and How’s of Impact Fees?” Karl Green,
Department of Community Resource Development, La Crosse
County UW-Extension, 2007
Ohm, Brian, Guide to Community Planning in Wisconsin,
Chapter 7,
http://www.lic.wisc.edu/shapingdane/resources/planning/library/book/
chapter07/chap7_4-4.htm
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Robert Paolino, Legislative Brief 06-16, June, 2006 Wisconsin
Legislative Reference Bureau
State Statute 66: http://www.legis.state.wi.us/statutes/Stat0066.pdf
2005 Wisconsin Act 203
2005 Wisconsin Act 477