New development creates new costs for local governments. For every new development coming in, a city or town must consider the costs of providing it with utilities, solid waste and recycling services, roads and streets, stormwater transmission and flood control, recreational and educational facilities, and public safety. Historically, municipalities have paid the costs of these facilities and services upfront through property taxes as well as federal and state grants. Public resistance to taxes has grown, however, and outside support for local governments has declined, leaving local governments to turn to other options.
One increasingly important option — used in at least 29 states and in 59% of communities with more than 25,000 inhabitants — is the development impact fee. The fee seeks to recover the financial “impact” of new development for the local government.
Typically, development impact fees are required to be
- paid in advance, usually at the time of building permit or subdivision approval;
- dedicated to an identified use; and
- calculated based on the number of equivalent residential units in a structure.
In South Carolina, the Development Impact Fee Act, found at SC Code Section 6-1-910, authorizes local impact fees, but also significantly regulates them. The Act contains procedural safeguards, for example:
- Only a local government that has adopted a compliant comprehensive plan under the Comprehensive Planning Act may impose a development impact fee, with limited exceptions.
- Imposing a development impact fee requires the council to pass of an ordinance approved by a positive majority.
- A local government begins the process by passing a resolution directing its planning commission to conduct the necessary studies and to recommend an impact fee ordinance.
- When it receives the resolution, the planning commission must develop and recommend to the local government an impact fee ordinance. The planning commission must do so using the same procedures as those used to develop a comprehensive plan under the Comprehensive Planning Act.
Perhaps the most important requirement, however, is that the local government must have a capital improvements plan prepared, as well as an impact fee study to justify the fees that are enacted. Taken together, the plan and study should identify the infrastructure needs created by new development and allocate the costs among units of development subject to the fee.
In a recent, unreported decision of the South Carolina Supreme Court, Home Builders Ass’n of S.C. v. State from March 10, 2021, the Home Builders Association of South Carolina sued the state and York County, arguing that the Development Impact Fee Act was unconstitutionally vague in that it did not place a limit on the amount that a government can assess with development impact fees.
The Court disagreed. The ruling stated that the law is valid because it provides that development impact fees cannot exceed the proportional share of actual costs of any new facilities necessary for the new development. As noted by the court, “it is readily apparent that a rigid, one-size-fits-all cap — expressed in dollars — would not be workable.” Instead, the actual capital costs and proportional share determine the amount of the fee.
The critical requirements for imposing a development impact fee are
- to reliably predict the costs of infrastructure required by new development, and
- to fairly apportion those costs among units of new development.
In virtually every case, a local government seeking to impose a development impact fee will need to retain engineering and legal professionals to comply with the law.