What is a Defensible Impact Fee Nexus?

AB-1600 (1989), later Chaptered as Government Code 66000, identified and codified the process and nexus effort required to calculate and adopt a set of Development Impact Fees (henceforth DIFs).  Nolan and Dolan were court cases that identified some specific nexus tests (for DIF calculation and application fairness) to apply to your DIFs. Many local governments didn’t get it.

Along came AB-602 which was pretty much a restatement of nexus requirements outlined in AB-1600, with a few minor additions. Many local governments still didn’t get it.  

More recently the Sheetz vs. El Dorado County lawsuit, lost spectacularly by the County (and the LOCC), basically stated that there must be an essential nexus embodied within the impact fee calculation. Still many local governments didn’t get it.

But I’m thinking this nexus thing seems to be pretty important.

I’d suggest that if your public agency enjoys collecting millions of dollars in DIFs to deal with the additional demand upon the agency’s infrastructure and would like to continue to do so, you ought to make sure you meet these often-mentioned nexus requirements.  I’ll simplify the requirements to two nexus tests. Simply stated, local government agencies wishing to impose, collect and use DIFs have to demonstrate that conditions (DIFs) required to obtain a land-use approval must have an essential nexus (relationship) to the government’s land-use interest and a rough proportionality between the demands upon the property owner and the proposed development’s impacts of the proposed land use on government infrastructure. 

Test #1 - The essential nexus means that there must be a relationship between the fee being charged. Simple enough, a Storm Drainage Collection and Storage DIF is needed to manage/control the flow of rainwater during a storm.  Thus a Storm Water DIF to collect DIF revenues for Storm Water Control projects. Check. 

Test #2 – The rough proportionality means that there must be a relationship between the land-use fee being charged versus the combined additional demand from all other land-uses that contribute to that same need for additional Storm Water Control projects. In this case, a Storm Water Drainage Collection and Storage DIF, rain water run-off is best determined by a list of coefficient of drainage rates in a County Hydrology Report which is calculated by land-use. The logic is that if a an acre of land-use X generates more storm water run-off that say an acre of land-use Y, land-use X will drive up the cost of the Storm Drainage Master Plan projects more so than land-use Y.  Fairly, land-use X should pay a proportional amount greater than that of land-use Y.  They should not be equal. Check.

Simple?  Sort of, now let’s talk a bit more about the nexus. 

So the key a good legally supportable nexus is to use the best (and more often than not, the most difficult) nexus possible. In most cases there is an easy nexus and a more difficult (but accurate) one. As an example, I have come across some readings and DIF calculation reports that heavily depend upon the concept of EDU’s or better known as Equivalent Dwelling Units. In them the authors somehow estimate how many “persons” (i.e. employees, customers or residential inhabitants) there are per land-use and then use it to “determine” new demand.  I have found this applied to police, fire, circulation and most oddly, storm drainage infrastructure). This is an absolutely poor excuse for a legally supportable nexus for most infrastructures (excluding the quality of life infrastructures of parks, libraries, etc.).

Here is an example of poor application of the “people” EDU process. Industrial land-uses tend to have high number of “persons” due to demands for employees. One such DIF EDU-based study indicated that industrial land-uses had twice the number of persons per acre than an acre commercial/retail uses. Using this EDU method, Industrial uses would incur Fire/Medic Rescue calls-for-service twice that of retail/commercial. Long term RCS studies with clients over thirty years have indicated that industrial uses are typically the lowest demand generator of fire calls-for-service.  RCS (and our clients) have determined this by looking further into actual fire calls-for-service data available through the agency’s NFIRS annual reporting data by land-use.  We do this also for police calls from the City’s actual calls for service over the previous twelve months.

Does better take more time?  Probably so, but I feel that your city attorney would rather take better into a courtroom than easy and quick.