Cost Accounting in Local Government

Development Impact Fees for a Built-Out City

Here is my daily mantra: Development Impact Fees (henceforth DIFs) are not intended to be punitive. They are merely intended to accommodate additional development by insuring that the City has the necessary infrastructure to meet the additional service demands of that new development. For cities with large, vacant parcels requiring hundreds of millions of dollars in infrastructure, the choice is unambiguous: adopt DIFs or be unable to allow or accommodate large-scale development.

Recently however, I have been contacted by a number of what would be referred to as mature cities about the application of DIFs to their agency.

Clearly, DIFs have become a standard slice of any City’s revenue pie and there are few compelling reasons to allow already limited General Fund revenues to be used to finance capital projects that are required to merely accommodate new development. Frankly, your existing citizens/business ownersdeserve better protection from that.

New Developments

But as I have discovered, new demands from development can happen anywhere. Cities we used to refer to as built-out, aren’t! The prime factor would probably be the revitalization of the mixed use concept where some older, smaller homes, or dated single story retail uses are razed and replaced by multi-story buildings with office/retail use on the first floor and attached housing on the upper floors (with lots of coffee houses). An extreme example would be the City of Anaheim’s Platinum Triangle, which involves the removal of 200 plus acres of industrial uses and the construction of 16,000 attached dwelling units. Is there an impact? Probably, given that industrial uses tend to cause the least impact per acre, and certainly less than an acre of seven story attached dwellings. How much impact? In terms of police and fire there is plenty of impact, and we proved it.

And that is the point, what is the impact and can we quantify it (in the most common denominator – money) in a way that the reasonable person would agree. Anecdotal arguments do not do this. For the sake of brevity, additional units in our recent client cities of Newport Beach and Whittier have proven to create additional infrastructure demands. In both cases the additional units are in a quantity that will require more infrastructure capacity.


Up-sizing of residential dwellings may be a different matter. Our gut feeling may tell us that tearing down a 1,200 square foot single story detached dwelling and replacing it with a new 3,600 square foot three story detached dwelling would create much more demand, with the need for additional public safety, street and storm drainage capacity, etc. But, as gut feelings are very hard to introduce as evidence, can we prove it? Do you have statistics that indicate that larger homes are more likely to be broken into? Or, since it is new and has state-of-the-art locks and a security system, is it less likely to be broken into? Since it meets newer construction codes, is it less likely to cause a fire? If the building pad remains at 1,200 square feet, the storm drainage run-off remains the same. The most detailed studies of traffic demand, conducted by the gurus of traffic measurement, the Institute of Transportation Engineers, indicates that a detached dwelling generates an average of 9.55 trip-ends per day. The ITE does not, however, make any distinction between large homes and small homes, thus no decision can be made regarding traffic impact. The U.S. Census data does not address the size of residential dwellings and the number of occupants, so it is difficult to demonstrate the need for more parkland. So, unless and until we can prove otherwise, a detached dwelling is a detached dwelling is a detached dwelling.

When to use a DIF

Are DIFs worth considering? Of course they are, and here is a simple process to help you make the decision to use them. First, ask the planning function to identify how much development is expected over say, 10, 15 or 20 years, per the General Plan. You may be surprised by the fact that such data is not readily available and they may need some prodding. Second, present the planning data to the infrastructure managers and ask them if the existing capacity of the various infrastructures can accommodate that new development. If not, and new infrastructure capacity is required, then an impact fee may be in order. Lastly, determine if more capacity can be acquired or constructed, as that is not always the situation, (i.e. no land available for more parks, no room for additional lane miles, etc.).

DIFs are a reasonable demand upon new development, but if you are requiring someone to contribute tens of thousands of dollars into infrastructure, you ought to be able to back it up. Actually, it’s the law (Government Code ‘66000, the relevant part about two pages).

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