Impact fees: Fees can finance infrastructure improvements
mpact fees are one-time charges applied to offset the additional public service costs of new devel- opment. Tey are usually applied at the time building permits are issued and are dedicated to provision of additional services – such as water and sewer systems, roads, parks and recreation facilities – made neces- sary by the additional residents. Te amount of the fee must be clearly linked to the added service cost, not some arbitrary amount. Te fees are intended to supple- ment the property tax revenues and bond proceeds local governments normally use to finance major infra- structure. Te practice assumes that the new infrastructure benefits most taxpayers, not just the new ones. For this reason, fees are to be based only on the extent to which the new taxpayers benefit from the infrastruc- ture. In doing so, the fees shift some of the cost of constructing infrastruc- ture from the general property tax base to the proposed development project generating the demand for the infrastructure. In 1991, Indiana enacted an im- pact fee statute that allows Indiana communities to impose impact fees to pay for capital costs and improve- ments to infrastructure to serve new development. Under the Indiana statute, capital improvements must be within an “impact zone” and are strictly limited to: 1) a sanitary sewer system or wastewater treatment facil- ity, 2) a park or recreational facil- ity, 3) a road or bridge, 4) a flood control facility, 5) a water treatment facility. Te statute provides a frame- work that local units of government must follow if they wish to adopt an impact fee. Impact fee ordinances cover both residential and business property developments. Tere are requirements that Indi- ana communities must meet before an impact fee ordinance is adopted and fees may be collected. Te plan-
ning unit must have adopted a comprehensive plan for the entire jurisdiction that the impact fee ordinance will affect. And an impact fee advisory committee must also be formed to guide the decisions of the adopting unit. Impact fees can be controversial because although they do not alter the amount or quality of service, they do affect who may pay for them. Existing residents can say no to tax increases needed for new fa- cilities that will primarily be serving new residents. Impact fees may also contradict a community’s overall vision for economic development. As impact fees are implemented where new development is projected, the new development could instead be con-
structed just out side the impact fee jurisdiction, creating undeveloped gaps and contributing to sprawl. Ad- ditionally, impact fees may deter new development entirely if businesses may choose to locate in a commu- nity without impact fees. In many other states the use of impact fees are not as limited to the uses in the Indiana statute. Examples of capital improvements from other states’ impact fee statutes may include schools, fire and police facili- ties, libraries, public buildings, open space and farmland preservation.
• Is it fair for existing property owners to have property tax increases to pay for the services demanded by new residents of new development?
Farmland preservation: I
Farmland Trust, between 1982 and 2007, Indiana converted more than 503,000 acres from farmland to developed uses. Of those converted acres, about 354,000 acres were considered prime farmland. In the current economic environment it is difficult, if not impossible, to argue for new funding for programs to pre- serve prime farmland from develop- ment. One idea used in other parts of the country to preserve open space is through a transferrable state income tax credit. Landowners who agree not to develop their land and to place it in a permanent conserva- tion easement are able to earn up to a predetermined individual limit of state income tax credits that they can use themselves or sell to other
Tax credits can help preserve open space taxpayers. Te state can put an upper limit on the total available amount of conservation tax credits in any given year. Any amount used under this system would represent a loss of state revenue for the year the state income tax credit is applied. Another approach would be to apply the value of the conserva- tion easement as a local property tax credit. Te total amount of the easement could be applied as a credit against current property taxes of the property or spread over several years’ worth of tax liability. Application of property tax credits in this approach would reduce the tax burden for the property owner but would shift the burden of the tax credits to other property taxpayers within the juris- diction. Finally, another approach would be to apply the value of the con- servation easement as a permanent property levy reduction. Te perma-
ndiana is ranked second in the U.S. in percentage of soils con- sidered to be prime farmland. According to the American
• Should Indiana consider providing these voluntary incentives to farm property owners who wish to preserve their land’s agricultural use?
• Should the burden for the preserva- tion of farmland come from the state or local government?
• Are there other farmland preser- vation approaches that should be considered?
nent conservation easement would be recorded as a part of the property deed, thereby reducing the value of the property for development pur- poses. Te reduction in value should show up as a permanent reduction in the property’s assessed value. Tis approach would represent a loss of property tax revenue to local govern- ment purposes which would not be shifted to other property taxpayers.
• Should the Indiana impact fee stat- ute be amended to include capital improvements beyond the roads, sewer and water facilities, flood control, storm water facilities, and parks and recreation outlined in the current statute?
• Should the use of impact fee rev- enue be strictly limited to capital improvements within a geographic “impact zone” even if the result of the new development creates new demand for capital improvements elsewhere in the community?
• Should the Indiana impact fee stat- ute allow impact fees to be targeted to specific types of development, i.e., residential developments, business office parks, commercial shopping space, etc?
February 11, 2011
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