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Independent Audits of Impact Fee Receipts

Your public agency is experiencing development, so, to get out in front of it:

1. You have a development impact fee calculation and nexus report completed.

2. You adopt a Development Impact Fee (DIF) Schedule by ordinance/resolution.

3. You set up proper fund accounting.

4. You impose impact fees on development according to the above steps.

5. You spend impact fee receipts on various capital projects.

Out of the woods? Not yet. The big question (and issue) is are you doing Step 5 properly? I mean, ask yourselves, what does compliance with Steps 1 to 4 matter, if Step 5 is not undertaken properly?

As a consultant that helps you with steps 1 and 2 above, I frankly often don’t know about Step 5 because we leave after Steps 1 & 2. We do have some sage parting words of advice for you, like, you need to follow what capital projects the report dictates you can spend the impact fee receipts on. That isn’t always clear to some. As an example, I worked with a city a number of years ago and received a call later from a finance manager who asked me, “Can we use the police impact fees on the purchase of a helicopter?” I said, “Sure, if you can find the word helicopter anywhere in the report.” But I knew they could not because it was never discussed or listed as a police impact need. So, nope.

All manner of pressure was placed upon that finance manager to somehow “approve” the purchase of a helicopter, even to the point of being unfairly tagged as an obstructionist. I also surprisingly got blow-back from the police management staff. I can only imagine what other “requests” were made of the finance staff to merely spend money on whatever some infrastructure manager deems important at that point in time, regardless of whether or not it was identified in the report as an impact fee generated project. There are probably many times when the executive staff may “suggest” to a finance manager to find the money for “X” from the impact fees during the budget process, even though “X” was never identified as an impact fee growth generated project, or maybe worse yet, “X” is a replacement project.

Government Code §66023 states that someone can request an independent audit of how the collected impact fee receipts were expended. Thus, your finance staff is the key staff that can keep you out of trouble should an audit be requested. So, include them in the process of approving Impact Fee expenditures. I anticipate that we all will see more §66023 requests in the future. I know of a few now and word tends to spread, fast. So be prepared and do your annual Development Impact Fee Collection and Use Report to the level of detail to avoid such scrutiny by being as transparent as you can. In short, you can have the most valid impact fee calculation and nexus report available, but if you don’t follow what the report said, you open up yourselves to potential litigation.

Let’s be honest here, some of you are collecting in the tens or hundreds of millions of dollars in impact fees, and that fact alone deserves a level of respect and time commitment to indicate you intend to do it properly and wish to continue to collect these revenues. So, in the end, get a calculation and nexus report done, follow it to the “T” and then report what you did. Easy peasy.

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