Impact Fees

Overview

Impact fees are used to finance new local infrastructure that is needed to accommodate population growth arising from new housing developments. It is important to note however, that the fees may disproportionately affect multifamily development because they are typically assessed on a per unit basis. These fees add to the overall construction costs, which can increase the price of housing or, more dramatically, reduce the overall construction of new housing. 

Background

Impact fees, which are also known as development fees, are taxes imposed by local governments on new development projects. Generally speaking, these fees are implemented to reduce the economic burden local jurisdictions face when adjusting to population expansion. Impact fees are designated to offset public spending on vital services, which are used by the population generated by the new development. 

The Florida Statutes section 163.31801 (2) defines impact fees as “an important source of revenue for a local government to use in funding the infrastructure necessitated by new growth” and falls under the home rule power of a local government. The Department of Housing and Urban Development (HUD) also attests to the utility of impact fee revenue when it states, “To assure adequate public facilities, impact fees are assessed and dedicated principally for the provision of additional water and sewer systems, schools, libraries, parks and recreation facilities, and other infrastructure made necessary by the presence of new residents in the area. The funds collected cannot be used for operation and maintenance, repair, alteration, or replacement of capital facilities.” 

Impact fees vary extensively depending on a variety of factors, including but not limited to, the local community’s needs, available resources, and whether or not the full cost of the public service will be offset by the fee revenue. In some cases, local governments will issue a flat fee across all housing types, while others will tailor a fee based on development types. It is important to note that impact fee assessment and collection is authorized by Florida law. As such, the Florida Statute provides some basic requirements for the adoption of impact fees, such as mandating the assessment’s calculation with recent and localized data and requiring the fees to be limited to the actual cost.  

Local governments often commission outside consultants to establish the cost of infrastructure associated with new development. By establishing the cost as a baseline, the local government will issue an impact fee to cover or subsidize the cost. Once these fees are put in place, they are routinely adjusted as costs fluctuate. For example, if a local government institutes a $150 flat rate impact fee for fire services in 2019, the municipality may assess the financial needs associated with the fire services in 2026 to justify raising or lowering the impact fee rates. 

Problem

Over the years, local governments have expanded their use of impact fees to cover more public services within the community. For example, impact fees were traditionally used for schools or emergency services, but now some communities have instituted park impact fees to fund recreational services.

Since impact fees are paid by the developer before the apartment community is constructed, these costs have a significant impact on the financial viability of a proposed project. In fact, according to an NMHC housing report, regulation imposed by local governments (including impact fees) “... accounts for 32.1 percent of multifamily development costs on average, and one-fourth of the time reaches as high as 42.6 percent.” Based on this statistic, it is logical to infer that overly burdensome impact fees could incentivize a developer to search for a different market for a proposed multifamily development to reduce project costs or generate a greater rate of return for the investors who are funding the apartment community construction project. 

In many cases, impact fees are imposed using a flat rate method where each housing unit is assessed the same fee. These flat fees can disproportionately and negatively impact apartments with hundreds of units. For example, the cost of an impact fee can rapidly escalate into hundreds of thousands of dollars for a single apartment community, due to the number of units alone, without any regard for the infrastructure that is or is not needed to support the new population generated by the development.

It is also a common misconception among local governments that apartment communities are a more significant strain on the local government’s infrastructure than other housing types, such as single family homes. This is simply unfounded and an incorrect assumption because apartments are fundamentally more efficient than single family homes, which are often further spread out and require significantly more infrastructure to support. According to the National Apartment Association’s U.S. Barriers to Apartment Construction Index report, “Apartments are also usually taxed at a higher commercial real estate tax rate, so a typical mixed-use development with retail, office, and apartments may subsidize the schools and other public services required by residents of low-density housing in the same community.” This is unfair for multifamily communities because they affect, or use, certain services less, compared with single-family homes. Their occupants will use less of the roadways, sewer and water lines, and waste collection and removal because overall, apartments are more efficient.

Florida Legislation Specifically Relating to Impact Fees

New impact fee legislation (HB 207, 2019) was recently passed by the Florida Legislature and signed into law by Gov. Ron DeSantis. HB 207 clarified the impact fee process by requiring the fees to be collected only when building permits are issued. This policy change created consistency and resolved confusion for multifamily housing developers who were previously complying with collection timelines that varied across the state. Most notably, HB 207 earmarked impact fee revenue for capital investments or improvements. This will ensure that local governments use impact fee revenue responsibly by spending it exclusively on infrastructure needs to support the population growth generated by a new development.

Examples of Florida Impact Fees and Waiver Programs

Florida was one of the first states to accept impact fees, therefore many counties throughout the state have adopted an impact fee collection program. In 2017, the Office of Economic and Demographic Research found that 35 counties and 194 municipalities have some form of residential impact fee collection. Below are a few examples of how these fees are used throughout the State:

Hillsborough County: 

Hillsborough County has an affordable housing relief program for developments that include affordable housing. It is important to note that affordable multifamily developments are provided up to 90% relief for park, fire, and mobility impact fees.

Collier County: 

The county has a deferral program for affordable rental apartments, which provides a deferral from the payment of the impact fees for a term of 10 years. Water, wastewater, schools, and fire impact fees are not deferred under this program. 

*This information is provided as a source for background information. The fee schedule is at the discretion of the county and can be changed at any time. This information was obtained as of Oct. 9, 2019.  

Alachua County: 

Alachua County’s impact fees are calculated by square footage rather than per unit. 

*This information is provided as a source for background information. The fee schedule is at the discretion of the county and can be changed at any time. This information was obtained as of Oct. 9, 2019.  

Miami-Dade County: 

Developments that provide affordable housing are exempt from police, road, park, and fire & emergency services. Fire impact fees are paid to the county for all municipalities (except Miami, Miami Beach, Hialeah, Coral Gables and Key Biscayne, because they have their own fire departments). 

*This information is provided as a source for background information. The fee schedule is at the discretion of the county and can be changed at any time. This information was obtained as of Oct. 9, 2019.  

2015 National Impact Fee Survey

The link below will take you to a 2015 report compiled by Duncan Associates. While dated, this report provides an outline of the various impact fees and overall fee totals for jurisdictions around the nation. You will find a detailed chart for multifamily rates in Florida jurisdictions on Page 14. This chart uses a baseline to determine the impact fee rates. The rates are based on a 1,000 sq ft. two-bedroom unit within a 240-unit multifamily community. For a more detailed look at impact fee rates across the nation, including Florida, click here. 

While this chart is not reflective of current impact fee rates, it provides a helpful visual when trying to understand the significant role these costs can play in a multifamily construction project. For example, Orange County’s impact fees totaled $7,032 per housing unit in 2015. This means a multifamily construction project with 240 units in 2015, would have paid a total of $1,687,680 in impact fees alone. 

Alternative Solutions

Two common approaches are recommended to reduce the potentially adverse effects of flat rate impact fees on multifamily housing, and affordable housing, in particular. The first is to calculate the fees based on the unit size in square feet, and the second is to waive or defer the impact fees on affordable housing, altogether. By calculating the unit size over a flat rate, the fees are proportionally distributed and therefore, can be more equitable for multifamily developments. This practice will ensure multifamily projects are not overly cost burdened with fees that can stifle or deter development. Similarly, the practice of waiving or reducing impact fees for construction projects that contain affordable housing units can incentivize the construction of affordable housing, which the state is in desperate need of.  

Potential Strategy

The potential strategy for responding to an impact fee ordinance depends on a variety of factors. Important questions to consider before you determine a strategy include: 

• Does the local government already have an existing impact fee in place?
• Does the proposed ordinance increase or decrease an existing fee?
• Are there any exclusions or impact fee waivers in place for affordable housing or workforce housing?
• What will the impact fee be used for?
• Are there other policy issues of concern that the association is working on with the local government at this time that could be negatively impacted by engaging on this particular issue?

When meeting with local policymakers who are interested in instituting a new impact fee, it is best to provide them with alternative solutions such as the examples provided above. In the event the local government is looking to increase an impact fee, the best strategy to employ is to educate the individual elected officials on the financial impact this proposed increase would have on individual apartment communities, the cost of housing, and housing supply. This strategy could also include advocating for an impact fee waiver or reduction for affordable housing units, unless this development incentive already exists. 

One way to educate local officials is to create a spreadsheet that outlines how the increase would affect developments of various sizes, such as 100-unit, 200-unit and 300-unit apartment communities (unit examples should be reflective of properties in the municipality's jurisdiction). Your spreadsheet could also compare the municipality’s impact fee rates with those in neighboring jurisdictions. 

Additional questions to consider when analyzing the impact fee in your region and developing a strategy for the association’s response:

• Is the impact fee flat-rate or dynamic in its calculation?
• Does the fee proportionally reflect the cost of the infrastructure or capital improvements that are needed to support population growth?
• Is the proposed fee going to be used for new infrastructure or capital improvements as required by Florida law?
• Is there a program in place to waive or reduce impact fees?