The Five Findings for Development Impact Fees

Most every municipal finance officer is aware of the five findings (in Government Code §66000) required to adopt development impact fees.  If not, here they are:

1. The purpose of the fee.

2. The use of the fee.

3. The relationship between the use of the fee and type of development paying the fee.

4. The relationship between the need for the public facility and the type of development project.

The relationship between the amount of the fee and the cost of the portion of the facility attributed to the specific development project.

This all sounds like the beginning of a very technical report, and yeah, it is. But if done right, the City Attorney will love the results, the council will understand and adopt them, and the development community will continue to be able to do what they do best, which is develop.  But the findings aside, what about the rest of us, the ones who have to help calculate the fees and then apply them properly?  I say “us” because truly, no DIF consultant can complete the process alone.  We need a great deal of input from staff otherwise the report simply can’t be completed.   So, I’ll try to demystify the whole process.

In its most simple form, an impact fee is the identification of a numerator and a denominator that when placed in their proper places results in a DIF fee.

Initially you have to know the magnitude of the development increases to your agency.  Planning staff will need to provide their best estimate of what is on the ground now, such as 12,375 detached dwelling units.  Then you estimate how many more can be expected, for example, the zoning code will allow the construction of 8,750 additional detached dwellings.  For those of you scoring that at home, that’s about a 71% increase in demand for every service the City provides, including law enforcement, fire suppression/medic, circulation system, storm drainage capacity, parks, community centers and the list goes on.  Planning would also need to give you that same data for the broad land-uses of detached dwelling units, attached dwelling units, mobile home units, commercial lodging, retail/service/office, and industrial uses. These six land-uses will cover most of the agency’s land uses.

The next step is to identify the nexus, that mathematical thing that most precisely identifies demand from any given infrastructure, such as calls-for-service for police and fire services, daily trip-miles for the circulation system, impervious surface rain run-off for storm drainage, and number of new residents for community centers and parks.  This is often called the existing Level of Service (LOS).  Then, apply the nexus to the developed and undeveloped parcels in the six land uses and determine the increase in demand on each infrastructure.

Now, assuming that the City does not care to see its current levels of service decrease, the staff will need to identify what additional infrastructure is needed to merely continue to be able to accommodate new development, and here is the key word in all of DIF calculation.  We believe that the word accommodate best describes the process.  DIFs are not meant to be punitive, they are not taxes, and they are not placed in the General Fund for general purposes.  DIFs are specific collections to be used ONLY for those items City staff identified in the DIF Report to accommodate the very development they wish to undertake. Without them most cities will have to severely limit growth to whatever that agency can absorb in a single year, and that will not be much.

These projects are due to increases in capacity.  Because of development there are more park acres to accommodate the new residents, more lane-miles to accommodate the new business-related daily trip miles, and new Police Officers are needed to respond to the new calls-for-service expected from all new development, which leads to a need for an expansion to the police station.  So, begin using the word accommodate whenever you are discussing continued development with anyone.

On the downside? Realistically this process pretty well excludes replacement of that sixty year old fire station, and not because of new development, but simply because it’s just plain old.  That is not the development communities fault, it’s just old.  You’ll have to find money to rebuild it elsewhere.

Hey, just follow the five findings.