What Developers Should Ask About Impact Fee Assessments

April 3, 2012


The authority of local governments to manage the demands of new growth varies from state to state. In New Hampshire, our Legislature has adopted enabling statutes to provide its municipalities temporary and longer-term growth management tools`1` that allow towns and cities to either control or shift growth-related costs of new or improved capital facilities to new development.

`2` More specifically, the latter allows a proportional share of off-site improvement costs that arise in relation to a particular project’s geography, provided rational nexus is demonstrated, to be assessed to that development,`3` as well as authority to adopt an impact fee ordinance as part of the community’s zoning in order to assess more broadly based impact fees`4` on all new development. This article discusses RSA 674:21(V) relating to the adoption of impact fee ordinances as well as the collection and administration of those fees, and why homebuilders and developers should be asking more questions.

Enabling Statutes

Enabling statutes in the zoning context grant municipalities the authority to enact certain regulatory schemes`5` to control the use of land falling within their jurisdictional boundaries. Most enabling legislation imposes restrictions on that authority to ensure the public interest furthered by that statute does not offend private property rights. New Hampshire’s impact fee statute is one example of a detailed enabling statute because it authorizes the adoption and implementation of impact fee ordinances by towns and cities, but it includes a number of restrictions, discussed in more detail below.

RSA 674:21(V)(a)-(j)

As of November 1, 2011, the NH Office of Energy and Planning estimated that 81 of the New Hampshire State’s 234 municipalities had adopted impact fee ordinances. Although intended as a mechanism to shift a locally defined portion of new or expanded capital facilities to new development, this statute is very often misunderstood and therefore, misapplied. To the detriment of homebuilders and developers, misapplication of impact fee ordinances has been perpetuated by our willingness to just pay those assessments, without questioning their factual basis.

Although few among the development community deny that growth sometimes does impose additional demands on municipalities, measurement of those demands is complex and constantly changing, which explains why impact fee ordinances must be consistently monitored or this regulatory tool will be transformed into unauthorized tax. Since regular oversight is the exception rather than the rule, it is important to carefully examine the basis of all impact fee assessments.

Before an impact fee ordinance is adopted, the municipality must have adopted a master plan and implemented a capital improvements plan.`6` Impact fees may only be assessed to offset the growth related cost of capital facilities owned or operated by the municipality. They may not be used to repair, replace, or maintain existing facilities or to alleviate existing resident demands.

Any remaining cost must be borne by existing residents and is usually the subject of a warrant article voted on by the legislative body, within which this cost sharing should be explained, but more often is overlooked. Impact fees may not be used to maintain or repair existing town facilities or to expand facilities for new growth that has already taken up residency.

When appropriation is deferred, impact fee assessments are often calculated by consultants who rely upon estimated costs found in the town’s capital improvement plan and third-party demographic studies, which constantly change. For this reason, regular monitoring is critical to ensure the ordinance continues to appropriately reflect the community’s growth. The value in this methodology is the analysis itself, not the conclusions it reaches. And outcomes reached should not be blindly followed since those outcomes become dated shortly after they are reached. This is addressed by careful administration and monitoring.

Once collected, impact fees must be held in separate accounts apart from the general fund because until the legislative body appropriates its share of the identified capital cost, these fees belong to the fee payer. If the voters fail to appropriate the non-growth related share of that capital cost within six years, the town is obligated to return that impact fee with interest.`7` Although most ordinances refer to this statutory requirement, few take affirmative action to return expired impact fees.

Again, once an appropriation has been approved by the voters, the final cost of that capital facility crystallizes so the amount attributable to new growth can be confirmed. This is important because once that balance is paid in full, impact fee collections for that capital facility should cease, although this is often overlooked, perpetuating the collection of impact fees when they are no longer due.


Questions Developers Should Ask

Our Supreme Court has stated growth control tools should have concrete guidelines to enable effective regulation and timing of development to ensure compliance with enabling statutes. When they do not, they are subject to public and judicial scrutiny and may be struck down as unlawful. When towns apply growth control on an ad hoc basis, the purpose of enabling legislation is circumvented.`8`

Towns and cities have an ongoing obligation to provide adequate municipal services to their residents, whether those residents are new, existing, or due to arrive.`9` The Legislature has granted municipalities the authority to adopt growth control tools to either control the influx of new residents,`10` or to shift the cost of growth related capital improvements to those new residents prior to, or in anticipation of, their arrival.`11` Further, if a project pays an impact fee, growth control`12` may not be applied.`13` Growth management is not an easy task but towns may not build a moat along their boundaries and refuse to confront the future by engaging in ad hoc growth control.`14`

In addition, given the uncertain facts upon which demographic studies necessarily rely to measure population trends, impact fee methodologies must be continually monitored with an eye toward their elimination and to ensure they do not run afoul of the statute.`15` Absent this ongoing oversight, an impact fee ordinance is subject to being struck down as not within bounds of the statute, especially if it is found to have exceeded its regulatory purpose and become an unauthorized tax. Such a finding will do more harm than good to the town.

Having been the applicant before the local board, hoping for a final approval, I can attest to the angst felt when faced with what appears to be an arbitrary or unreasonable impact fee or off-site improvement assessment as a condition of my approval. When one’s very livelihood is at stake and the only choice is costly litigation, it is very difficult to rise to this challenge, knowing courts generally defer to municipalities. However, not questioning those assessments often allows this innovative cost-sharing mechanism to be abused and perpetuates it misapplication in contravention of the statute.

In light of the recent trend toward providing more affordable housing and perhaps a less frenzied pace in construction, it is incumbent upon homebuilders and developers to read RSA 674:21(V) and ask questions when faced with what appears to be an unfair impact fee assessment to confirm the statute is being used as a regulatory tool and not as a way to shore up declining municipal revenues.