What is an Impact Fee?
Real estate developers pay an impact fee to cities or other municipalities to the town's cost of building the infrastructure to a private real estate development.
How Does an Impact Fee Work?
Let's say Company XYZ wants to open a new store location at 123 . Company XYZ stores are very popular, and the opening is expected to draw a of traffic from customers and employees. The city council decides that Company XYZ must pay a $500,000 impact fee to the cost of widening and improving the sewer lines to accommodate the new store.
Why Does an Impact Fee Matter?
Impact fees are a tool for shifting part of the cost of providing new infrastructure to a community. Sometimes impact fees can be paid with contributions of land or other assets rather than cash. Once in a while, and depending on the law, impact fees are refundable if the infrastructure costs are less than the fee.
Impact fees can be contentious, particularly if the municipality wants to require the owner to give up part of its land for public use (this can be a violation of the Fifth Amendment of the U.S. Constitution). Additionally, if they are too high, businesses might move elsewhere, taking jobs and their with them.