Best planning and implementation toolbox

Impact Fees:

Purpose of Tool:
An impact fee places the cost of improvements upon new developments that will require said improvements. These improvements can either be internal or external to the new development, depending upon need. The primary purpose of impact fees is to mitigate the impacts that new developments have on the community. Although regulations concerning impact fees vary by state and local jurisdiction, in general, impact fees must:

a. Be reasonably connected to the need for new or improved facilities associated with the new development
b. Benefit the payer of the fee in some way
c. Be calculated by a set formula that fairly assesses the amount of the fee

The State of Texas adopted the first impact fee enabling act in the United States in 1987. Impact fees existed in some form before that, but were called “Capital Recovery Fees” or “Road Escrow Fees.” Since then, almost all other states have adopted similar enabling legislation.

Benefits of Using Tool:
There are several advantages for local governments that utilize impact fees. First, impact fees provide an alternate source of funding for capital improvements. This is especially critical as state and federal funding for infrastructure is becoming scarcer, as well as the public having a greater sensitivity to raising taxes. In addition, impact fees are generally deemed an equitable method to mitigate the impact of new development, as neither existing businesses/residents nor the government itself is required to pay for the costs associated with the new development. Furthermore, impact fees are equitable in that the fees may be split and proportioned among multiple developments. Finally, because impact fees pay for capital improvements, these improvements may encourage additional economic development by attracting further residential and commercial development because of new facilities.

Steps Involved to Use Tool:
In the State of Texas, Local Government Code 395 provides parameters for the establishment of impact fees. In Texas, a local government must adhere to the following procedure to impose impact fees:
  • The local government establishes a capital improvements advisory committee. This committee prepares a scope for the proposed impact fee ordinance.
  • The committee then prepares Land Use Assumptions (LUA) and a Capital Improvements Plan (CIP) for a 10-year period. These studies analyze the projected growth of the area as well as anticipated capital improvement needs of the community. The CIP that is required to prepare an impact fee program is different than traditional CIP programs in that it requires the local government to define an appropriate level of service.
  • The local government holds public hearings for the LUA and CIP. The impact fee ordinance must be adopted within 30 days of these hearings.
  • The advisory committee is required to semi-annually review the progress of the CIP and other plans affecting the impact fee program. The LUA and CIP must be updated every three years.

    Special Requirements to Use Tool:
    In Texas, eligible activities for impact fees include facilities for water supply, treatment, and distribution; stormwater, drainage, and flood control; wastewater collection and treatment; and roadways. Impact fees for construction or expansion of these facilities are limited to the cost of construction, surveying, engineering, land acquisition, and finance costs including interest.  Specifically, impact fees cannot be exacted for:
  • Projects not included in the CIP, including any payment or interest
  • Repair, operation or maintenance of other capital improvements
  • Upgrading existing facilities to serve or enhance service to existing development
  • Administrative costs of operating the impact fee program
  • Roadways in the federal or state highway systems

    There is some controversy as to whether developers simply pass along the cost of impact fees to those buying homes or other property. While there is not a clear answer, some local governments have ceased impact fee collection once an area has sufficient infrastructure, fearing that impact fees may detract new businesses or developments from building in the area, or that they may hinder the development of affordable housing.

    Specials Resources Needed to Use Tool:
    In order to implement impact fees in Texas, local governments are required to complete the LUA and CIP mentioned above. These resources are helpful for calculating projected population and employment growth, as well as planning for capital needs in the long-term.

    Communities / Agencies that Have Used Tool:
    College Station, Texas collects impact fees for water and sewer lines. The City has designated five (5) impact fee areas: four (4) for water and one (1) for sewer, in the southern portion of the City. Impact fees are collected from developers at the time building permits are issued.  Contact:

    Carol Cotter - PE - Senior Assistant City Engineer
    College Station Public Works Department
    1 Texas Avenue
    College Station, Texas 77840
    (979) 764-3570 

    In July 2008, Fort Worth, Texas adopted a transportation impact fee program to fund construction of roads and bridges in newly developing areas. There is a flat fee for single-family residences, and varying fees for non-residential development (service, retail, warehouse, etc.) based upon square footage of the development. To streamline the process for developers, the City’s website features a copy of the Transportation Impact Fee Ordinance as well as online estimator to determine the cost of the impact fees.  Contact:

    Fort Worth Planning and Development
    City Hall, Lower Level
    1000 Throckmonton Street
    Fort Worth, Texas 76102

    Metrics to Use to Monitor Tool Effectiveness:
    Local governments can use impact fees for a variety of capital improvements. Therefore, there are no standard metrics on how they improve quality of life.

    List of Resources to Obtain Additional Info:
  • Texas Local Government Code Chapter 395. Financing Capital Improvements Required by New Development in Municipalities, Counties, and Certain Other Local Governments (PDF): 
  • An Overview of Impact Fees in Texas (PDF): 
  • – FAQ: 
  • Use of Impact Fees and Pro Rata Fees in Texas: A Comparison (PDF): 
  • College Station, Texas Impact Fees: 
  • Fort Worth, Texas Transportation Impact Fees: