Concept Misused: Impact Fees an Inexact Science

Atlanta officials should consider abandoning impact fees

Growth never strays far from Atlanta politics, and the flutter over the city’s impact fee ordinance is a case in point. It’s also a good example of why ideas good in theory sometimes crumble in the real world.

The concept behind the impact fee is simple and surprisingly noncontroversial. New growth requires new infrastructure and public services – roads, water, sewer, sidewalks, etc. Rather than have current residents and businesses pay for these investments, new residents and businesses – the ones who benefit directly – are assessed a one-time fee to cover them. About 20 counties and cities in Georgia, including Atlanta, levy fees.

The controversy emerges when this concept is put into practice. For one, what constitutes a public service is like an industrial-sized rubber band – it can expand to include almost anything.

One national study identified more than 22 categories of “public services” that have been financed by impact fees, including public art, community centers, land for city hall and low-income housing.

Georgia’s impact fee laws are not quite so charitable on the surface. Instead, the state gives local governments discretion over what parts of their jurisdictions can be covered by the fee and the types of projects that qualify.

Thus, Atlanta designated its entire city (more than 130 square miles) as a district for the purpose of collecting and distributing transportation fees. The revenues are used to fund projects as wide ranging as sidewalks, traffic signals and road interchanges. As a result, impact fees can finance minor improvements miles from the actual project.

Atlanta estimates it collects $3 million to $4 million per year to help finance transportation, parkland and public safety services such as police and fire. The vast majority of this money is generated in North Atlanta and Buckhead in particular. A substantial portion appears to be siphoned away from areas directly affected by the new development and spent in crosstown neighborhoods in south and west Atlanta.

But this violates the principles of the impact fee. Georgia law stipulates that impact fees be used to cover “that portion of the cost of system improvements which is reasonably related to the service demands and needs of the project.”

In other words, impact fees should pay the cost of new facilities to accommodate growth, not correct deficiencies in existing services or pay for their ongoing operations.

If the goal is to ensure that growth pays for itself, then officials in Atlanta and elsewhere should consider changing the way they price public services, particularly utilities such as water and sewer.

Private-industry prices for cable, telephone and electricity include all the capital costs, such as debt service and investments in new equipment, avoiding the need for the equivalent of an impact fee. The same approach can be applied to public services, particularly water, sewer and storm-water runoff.

Second, local governments need to abandon the service-area concept for setting impact fees. If they are levied at all, fees should be based on a specific assessment of their direct impact, recognizing that projects affect services and facilities at different scales and scope (e.g., projects affect sidewalks on a different scale than highway interchanges).

Third, many services could be provided privately, or at least financed by the new development through private contractors. This is certainly the case for many facilities, including sidewalks and parks.

The federal lawsuit introduced by Southeastern Legal Foundation for the Greater Atlanta Homebuilders Association and National Association of Office and Industrial Properties suggests the real estate community is right on this issue.

Local officials should strongly consider abandoning the impact fee concept as practiced, or dramatically realigning it to conform to its basic underlying principles.

Samuel Staley is director of urban and land use policy at Reason Foundation and co-editor of the book “Smarter Growth: Market-Based Strategies for Land-Use Planning in the 21st Century.”