Article

Impact fees: Funding the infrastructure for community growth

Aug. 19, 2025 · Authored by Justin D. Hoagland

Many municipalities can charge developers/property owners impact fees to offset the capital costs for public facilities needed due to new development. The local government units can charge for improvements such as transportation infrastructure, sewage and water facilities, parks and recreation, fire and police facilities and libraries. Specific uses are governed by the statutes in each state, and currently, over half the states have legislation related to impact fees. While the bill in each state can vary widely, impact fees are usually based on a specified dollar amount per new residential unit and a square foot or expected usage basis (for sewer and water improvements) for industrial or commercial properties. 

While creating a new impact fee differs by state, the municipality generally must identify future capital expenditures and calculate a fee based on a rational or reasonable relationship between the impact fee, the new development and the capital improvement. Once adopted, collected fees are placed in separate accounts to pay for future capital improvements or to refund past capital improvements. Each state has requirements related to the timing of spending and refunds for enhancements that are not made within a reasonable period. 

Common reasons to consider new impact fees or conduct a review of existing fees include: 

• Capital improvements are being planned in the next ten years 
• Recently completed planning studies (Parks and Open Space Plan, Comprehensive Plan, TIF Project Plan, Water Study, etc.) call for new improvements or new development 
• Actual capital costs differ from the basis for existing fees 
• Concerns about how the impact fees affect economic or community development initiatives 
• Uncertainty about collecting fees for improvements made some time ago 

Texas adopted the first general impact fee enabling act in 1987, and the use of impact fees has spread widely throughout the United States. They are instrumental in areas where declining federal and state funding for local governments and the growth-related costs of infrastructure and public services are significant. While impact fees can bring in substantial revenue, they should not be the sole funding mechanism for infrastructure growth. Balancing impact fees with other financing mechanisms is essential to ensure that these fees do not solely burden development. In addition, municipalities must monitor their existing fees to ensure compliance with spending and refund provisions and to update capital costs and fees appropriately. However, impact fees are a critical tool for funding the infrastructure associated with municipal growth and should be considered as a tool to achieve these objectives in the coming years.