BFV Perspectives, Commercial Real Estate, | Apr 01, 2019

Impact Fees: What are Those?

If you are a real estate developer in the State of Georgia, chances are, at some point, a municipality will require that you pay an impact fee proportionate to the potential impact of your development on the existing public infrastructure.  The purpose of this blog is to reduce your chances of being surprised by impact fees by generally describing what they are and for what purposes may they be charged; who may charge them; and how they may potentially be reduced.

What are Impact Fees?

An impact fee typically is a one-time fee assessed by a local government to a property owner or developer to offset the impact of a development on the existing public infrastructure.  The fee is calculated based on a methodology that considers the cost of the new public infrastructure or facility and the size and scope of the proposed development. Public infrastructure can include roads, public safety facilities, schools, parks, and wastewater facilities.  In Georgia, impact fees may only be charged by local governments for the following seven types of facilities or services: (1) libraries; (2) recreation facilities; (3) water supply; (4) road and bridge infrastructure; (5) public safety; (6) wastewater management; and (7) stormwater management. The impact fees charged must not exceed the development’s proportionate share of the cost, or reasonably calculated estimate of the cost, of constructing the aforementioned systems or facility improvements.

Consider the following example: you are a developer and you intend to develop a new 250-lot single-family residential subdivision in a county in Georgia.  Assuming your development sells out, the 250 new homes will result in 250 new families.  These new families will increase the average daily trips on the road infrastructure in the area; increase inputs into the existing stormwater and sewer infrastructure; increase usage of the area’s recreational facilities; and increase the demand on public safety services.  The existing infrastructure will likely need to be expanded to accommodate the new development. Impact fees place the cost of that expansion on the developer because the proposed development will be the direct beneficiary of the expanded infrastructure.

Who May Charge Impact Fees?  

Impact fees are regulated at the state level in Georgia.  State law provides the authorizing legislation that allows local governments to charge impact fees provided the local government first satisfies certain conditions.  For example, local governments must first adopt a comprehensive plan that includes a capital improvements element, which must be updated annually.  Existing comprehensive plans may be updated to add a capital improvements element.

Can the Fees be Reduced?

Impact fees have the potential to add considerable costs to a proposed development.  These costs are ultimately passed along to the consumer.  If you have a development planned in one of the authorized

local governments, it is critical that you understand how your proposed development might be affected and plan accordingly.  However, under certain scenarios, proposed developments might be eligible for impact fee credits.

O.C.G.A. § 36-71-7 authorizes local governments to provide impact fee credits when a developer constructs improvements, or contributes or dedicates land or money to the local government for the system improvements in the category for which the fee is being charged.  The amount of the credits will be equal to the present value of the construction of the system improvements or the dedicated land.  If the developer constructs the system improvements, there potentially exists the ability to limit the construction costs that may in turn reduce the costs passed on to the consumer.  Further, based on the proposed layout of the development, the developer may be able to dedicate land to the local government and receive an impact fee credits equal to the present value of the land.

If you have a project located in a local government that is authorized to charge impact fees, know and understand your options early.  It may be possible to offset some or all of the impact fees with impact fee credits, which can go a long way to keep or make your project competitive.  The real estate attorneys at Berman Fink Van Horn P.C. can help you navigate the process.

Authored by Henry Bailey

BFV Perspectives, Commercial Real Estate, | Apr 01, 2019