U.S. Department of Housing and Urban Development Office of Policy Development and Research Visit PD&R’s Web Site www.huduser.org to find this report and others sponsored by HUD’s Office of Policy Development and Research (PD&R). Other services of HUD User, PD&R’s Research Information Service, include listservs; special interest reports, bimonthly publications (best practices, significant studies from other sources); and access to public use databases. Call the HUD User hotline at 1-800-245-2691, option 1, for help accessing the information you need. IMPACT FEES AND HOUSING AFFORDABILITY A Guidebook for Practitioners Prepared for: U.S. Department of Housing and Urban Development Washington, DC Prepared by: Newport Partners, LLC Davidsonville, MD and Virginia Polytechnic Institute and State University Alexandria, VA June 2008 About the Guidebook This Guidebook was prepared by Liza K. Bowles of Newport Partners, LLC and Arthur C. Nelson of Virginia Polytechnic Institute and State University under contract to the Department of Housing and Urban Development. It draws heavily on various research papers prepared under subcontract to Newport Partners. These papers and their authors are listed here: • The Past, Present and Future of Impact Fees, August 2005, prepared by James C. Nicholas, University of Florida; • State Impact Fee Enabling Acts and Housing Affordability, February 2005, prepared by Arthur C. Nelson, Ph.D., Professor and Director of Graduate Studies in Urban Affairs and Planning, Virginia Polytechnic Institute and State University, and Clancy Mullen, Duncan Associates; • Proportionate Share Impact Fees and Housing Affordability, January 2006, prepared by Arthur C. Nelson, Ph.D., Professor and Director of Graduate Studies in Urban Affairs and Planning, Virginia Polytechnic Institute and State University; and Liza K. Bowles and David J. Dacquisto, Newport Partners; and, • Infrastructure Financing Techniques: Impact Fees and Alternatives, June 2005, prepared by Arthur C. Nelson, Ph.D., Professor and Director of Graduate Studies in Urban Affairs and Planning, Virginia Polytechnic Institute and State University. • The case study material was developed by Bowles and Dacquisto of Newport Partners in conjunction with Nicholas, Nelson, Mullen and Juergensmeyer. Full copies of the briefing papers as well as additional resource material prepared under this project are available at HUD’s Regulatory Barriers Clearinghouse http://www.huduser.org/rbc/. Acknowledgements In addition to the authors listed here, we would like to acknowledge the help of Lorie Ebersberger for cover design, Kermit Baker for thoughtful review and input, Matthew Hawkins for preparation for publication and Ed Stromberg of HUD for his timely and constructive review and support throughout the project. We would also like to thank the following impact fee experts for serving as a review group on the Guidebook and offering additional insights and information: L. Carson Bise II, AICP Vice President TischlerBise 4701 Sangamore Road S240 Bethesda, MD 20816 Ray Burby University of North Carolina New East Building Campus Box-3140 Chapel Hill, NC 27599-3140 Ken Szymanski, AICP Executive Director Charlotte Apartment Association & Apartment Association of North Carolina 2101 Rexford #330E Charlotte, NC 28211-3499 Robert P. Wallace, P.E., AICP Vice President Tindale-Oliver & Associates, Inc. 3660 Maguire Blvd. Suite 103 Orlando, FL 32803 Mark White White & Smith, LLC Planning and Law Group 1125 Grand Blvd. Suite 1500 Kansas City, MO 64106 Finally, we acknowledge the constructive review by David Crowe (who also provided data on the relationship between house size and occupants per unit by unit type) and Paul Emrath, both of the National Association of Home Builders. NOTICE This report was prepared as an account of work sponsored by the U.S. Department of Housing and Urban Development. Views and opinions expressed herein are the responsibility of the authors. References herein to any product, process or system do not constitute an endorsement, but are included solely because they are considered essential to the object of the report. TABLE OF CONTENTS Executive Summary .......................................................................................... i Introduction .................................................................................................... 1 Chapter 1 - Impact Fees - Past, Present and Future ............................................. 7 The Need for Infrastructure Financing Tools ................................................................... 7 The Proliferation of Impact Fees ................................................................................... 12 General Trends in Impact Fees..................................................................................... 14 Chapter 2 - Capital Facility and Infrastructure Financing Options........................ 17 Principles of Efficient Facility Pricing ............................................................................. 17 General Financing Options............................................................................................ 20 Principal Revenue Methods .......................................................................................... 22 Policy-Making Criteria ................................................................................................... 28 Alternative Funding Decision Charts ............................................................................. 32 Decision Chart 2.1 Public Safety Facilities .................................................................... 33 Decision Chart 2.2 Water-Based Utilities ...................................................................... 34 Decision Chart 2.3 Public Amenity Facilities ................................................................. 35 Decision Chart 2.4 Transportation................................................................................. 36 Chapter 3 - The Role of the State .................................................................... 37 Review of State Enabling Acts ...................................................................................... 37 Impact Fee Statutes and Affordable Housing................................................................ 40 Chapter 4 - Impact Fees and Housing Affordability ........................................... 43 Review of Impact Fee Cost Variables ........................................................................... 43 Description of Square Footage Valuations Using Impact Fees ..................................... 48 Elements of Program Design ........................................................................................ 54 Decision Chart 4.1 Designing a Level of Service (LOS) Area ....................................... 62 Decision Chart 4.2 Designing for Affordable Housing ................................................... 63 Decision Chart 4.3 Including Situation Specific Reductions .......................................... 64 Decision Chart 4.4 Assessing Appropriate Revenue Credits ........................................ 65 Specific Housing Affordability Measures as Part of Impact Fee Policy.......................... 66 Decision Chart 4.5 Affordable Housing ......................................................................... 70 Chapter 5 - Case Studies............................................................................... 71 Atlanta, Georgia ............................................................................................................ 71 Albuquerque, New Mexico ............................................................................................ 78 Alachua County, Florida ................................................................................................ 87 Chapter 6 - Summary and Conclusions ........................................................... 93 APPENDICES ................................................................................................ 95 Appendix A. The Relationship between Impact Fees, Planning and Exactions............ 95 Appendix B. Special Assessment Districts ................................................................... 99 Appendix C. Land Purchase Option Contract Language Accounting for Impact Fees at the Purchase of Land ........................................................................ 101 Appendix D. Proportionate Share Impact Fees and Housing Affordability ................. 103 LIST OF TABLES Page TABLE 1-1. METROPOLITAN POPULATION, CITIES & POPULATION PER CITY 1980 - 2000 ............ 7 TABLE 1-2. AVERAGE IMPACT FEES BY TYPE ...................................................................... 12 TABLE 1-3. AVERAGE TOTAL NON-UTILITY IMPACT FEE SINGLE FAMILY HOME........................ 12 TABLE 1-4. CONSTANT SAMPLE IMPACT FEE ....................................................................... 13 TABLE 1-5. PALM BEACH COUNTY SCHOOL IMPACT FEE....................................................... 16 TABLE 1-6. CANTON PARK IMPACT FEES............................................................................. 16 TABLE 2-1. ANNUAL CAPITAL FACILITY AND SERVICE DELIVERY COSTS 1,000 HOUSING UNITS CONSTRUCTED AT DIFFERENT DENSITIES, LOUDOUN COUNTY, VIRGINIA ........................ 18 TABLE 2-2. ECONOMIC CHARACTERISTICS AND PREFERRED FUNDING FOR SELECTED MAJOR FACILITIES ................................................................................................................. 21 TABLE