Development Impact Fees just to raise money is a Bad Idea

In the realm of municipal planning and infrastructure funding, Development Impact Fees (DIFs) serve a crucial purpose: to ensure that new developments contribute fairly to the infrastructure and public services they require. However, a growing concern in some jurisdictions is the inclination to raise these fees simply as a means of generating revenue without a well-founded nexus to actual project needs. This approach not only undermines public trust but may also run afoul of California’s Government Code Section 66000 et seq. (commonly referred to as GC6600), which governs the proper collection, use, and accountability of DIFs.

The Purpose of Development Impact Fees

Development Impact Fees are not general taxes. They are legally required to be justified through a clear relationship (or "nexus") between the development and the public infrastructure that the fees fund. Examples include roads, parks, police stations, and water facilities. These fees are based on planned capital improvements outlined in a city's Capital Improvement Plan or Fee Justification Study.

The Five-Year Commitment Under GC6600

One of the key accountability provisions under GC6600 is the five-year expenditure requirement. Specifically, Government Code Section 66001(d) mandates that if DIF funds are not expended or committed within five years of collection, the city must:

• Make formal findings that show a continuing need for the funds, or

• Refund the money to the current property owner.

  
  

This requirement reflects a legislative intent that DIFs are not meant to be indefinite or speculative savings accounts. They are to be timely deployed for the projects they were collected to support. Raising fees without a plan for specific, near-term capital investment not only jeopardizes compliance with this rule but can also result in financial and legal complications.

Risks of Raising Fees Without Purpose

1. Legal Exposure: Arbitrarily increasing fees without clear project commitments risks lawsuits under GC6600. Developers can challenge the fees if they perceive them as excessive or unjustified.

2. Loss of Public Trust: Stakeholders—including developers, residents, and elected officials—expect transparency and accountability. Raising fees “just because” can erode confidence in local government.

3. Refund Liability: Failing to use funds within the required timeframe could force agencies to issue costly refunds, reversing any short-term budgetary gains.

4. Stifled Development: Excessive or unpredictable fees can discourage new development, ultimately harming the local economy and reducing long-term revenue streams.

Conclusion

Raising Development Impact Fees should never be treated as a casual revenue strategy. Fees must be carefully calibrated to actual, planned needs and administered under the guiding principles of GC6600. The five-year expenditure rule is not merely a bureaucratic hurdle—it is a safeguard to ensure that fees serve their intended purpose: building the infrastructure necessary to support responsible growth.