Impact fees

What are impact fees?

Local governments often charge impact fees to help fund infrastructure improvements. They typically collect these fees from developers, because new construction requires the expansion and upgrade of services to support the additional population and structures. The fees pay for road repairs, new water and sewer lines, schools construction, parks and trails, traffic upgrades, and other services.

Deeper definition

City, state and country governments use impact fees to help defray the financial burden that would otherwise fall on existing taxpayers from new developments. Using impact fees is a relatively new approach and differs from the traditional strategy of distributing the financial burden across the entire tax base, which often does not generate enough money to pay for upgrades.

Local governments consider several factors when calculating impact fees, including how much money is needed to build new public facilities, which facilities may need upgrades, and other potential sources of funding for improvements.

Impact fees are typically one-time charges, calculated based on the size of the new development and its cost. Some governments have a set rate per square foot. For example, Oklahoma City levies between 24 cents and 33 cents per square foot on new construction, depending on factors such as whether the development is in a suburban or inner-city area.

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Impact fee example

A housing developer wants to build a new subdivision with 2,000 homes, and the local school district will need to build a new school to support hundreds of additional students. The city may also need to build new roads to provide access to the development and cope with the increase in traffic that will occur once new residents move in.