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HomeMy WebLinkAboutDevelopment of Impact Fees Rimrock CorporationRIM ROCK DEVELOPMENT OF IMPACT FEES COLLEGE STATION STAFF ORIENTATION 2222 Western Trails, Suite 103 PO Box 163643 Austin, Texas 78716 512-442-14351512-442-1436 (FAX) rimrok@earthHnk net 0 04-0165.01 DEVELOPMENT OF IMPACT FEES COLLEGE STATION STAFF ORIENTATION Prepared for: City of College Station 1101 Texas Avenue College Station, TX 77840-2499 979-764-3500 Prepared by: Rimrock Consulting Company PO Box 163643 Austin , Texas 78716 (512) 442-1435 September, 2005 © Rimrock Consulting Company. 2005 1.0 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY Fl!I! College Station Staff Orientation INTRODUCTION The ?0th Texas Legislature passed Senate Bill 336 (subsequently Chapter 395 of the Local Government Code) regulating various types of utility fees, defined in the legislation as "impact fees". Such fees include not only traditional impact fees, but also lot, acreage, frontage and other typical utility fees, as well as facility dedication requirements. The legislation laid out very specific requirements for the technical development of impact fees as well as the procedures necessary for enactment of impact fee programs. In 2001, an amendment was passed to Chapter 395 (SB243), which made various changes to the administrative and fee calculation requirements. The purpose of this report is to orient City officials and staff to the general environment in which impact fees are developed. Section 2.0 of this report presents the national legal context for fee development. Specific requirements of Chapter 395 are discussed in Section 3.0. Section 4.0 highlights a few technical and policy issues pertinent to impact fee programs for water and wastewater. Section 5.0 presents a particular fee development model -the Equity Residual Model --which responds to the requirements of Chapter 395 and constitutional issues. Section 6.0 addresses fee administration. Section 7.0 contains various administrative instruments and Section 8.0 contains a copy of Chapter 395 of the Texas Local Government Code. 1-1 ,.i //""'...._. City of College Station, Texas "*'' Development of Impact Fees 2.0 LEGAL CONTEXT OF IMPACT FEES 2.1 INTRODUCTION RIM ROCK CONSUL TING COMPANY The 70th Texas Legislature passed Senate Bill 336 (subsequently Chapter 395 of the Local Government Code) regulating various types of utility fees, defined in the legislation as "impact fees". Such fees include not only traditional impact fees, but also lot, acreage, frontage and other typical utility fees , as well as facility dedication requirements. The legislation laid out very specific requirements for the technical development of impact fees as well as the procedures necessary for enactment of impact fee programs. Impact fees in Texas are governed by Chapter 395 of the Texas Local Government Code (the Texas Impact Fee Act). Chapter 395 was not developed in a legal vacuum; rather, it embodies several decades of constitutional law precedent. For that reason, it is important to look beyond the specific requirements of Chapter 395 to understand the historical evolution of impact fees. This investigation will provide College Station with the background that will help it develop fees which not only meet State requirements but which can also withstand potential constitutional challenges. As with all matters of a complex legal nature, College Station should consult closely with its Attorney regarding specific local circumstances and legal interpretations, as this document does not present legal advice but rather a general background for City personnel. 2.2 LEGAL CONTEXT IN A NATIONAL PERSPECTIVE Although impact fees are a relatively new form of development exaction, they are the result of a long history of local subdivision regulation. It is important to understand this evolutionary development in order to appreciate the authority for this type of exaction as well as its limitations. Texas is one of an increasing number of states which has specific enabling legislation for impact fees; while Chapter 395 offers considerable definition to the specific requirements for fee development, it is also necessary to be aware of ongoing constitutional challenges to such fees (primarily in other states) to appreciate precedents established by the courts. 2.2.1 Impact Fees as a Form of Subdivision Exaction Historically, cities have had the authority to establish impact fees arising from their home rule authority and from the general state-delegated authority to regulate subdivisions. The authority to regulate the subdivision of land is an exercise of the state police power authority which is delegated to municipalities. The regulation of land subdivisions has been generally recognized as a valid exercise of the police power subject to the same basic standard of reasonableness enunciated by the U.S. Supreme Court in Village of Euclid v. Ambler Realty Co., (272 U.S. 365 (1926)), which stated that municipal zoning ordinances would be upheld unless found to be "clearly arbitrary and unreasonable, having no substantial relationship to the public health, safety, morals, or general welfare". The ultimate validity and enforceability of any impact fee ordinance rests, in an historical sense, upon its identity as an integral element of a city's broad, 2-1 ;;o., City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY well-recognized authority to control land use through police power zoning and subdivision regulation for the protection of the public health, safety, and general welfare. (Of course, in the State of Texas, cities have also been granted express powers to enact impact fees for water, sewer, local roadways, and drainage, while water districts have been granted similar powers.) The precise form of subdivision regulations and exactions has evolved over time from limited, on-site contributions of capital infrastructure, to include its current form of cash payments for major off-site facilities which benefit an entire community. In the beginning, subdivision regulations required that certain lands within the proposed development be dedicated for streets, roads, alleys, or other essential capital improvements specific to the development itself. This form of requirement later expanded in two ways: first, to address street and road requirements outside the development, and second , to address land dedications for supplemental purposes, including parks, open space, and educational uses. Payments "in lieu" of facility dedications were later exacted as a further refinement, especially for the support of educational, recreational, public safety and other services not entirely appropriate for land dedications. In many jurisdictions, in lieu payments have been replaced by impact fees which are generally considered to be more flexible mechanisms for distributing the costs of growth, especially for sewer and water and other off-site capital facilities. Despite its origins in subdivision regulation, in practice the calculation of impact fees takes a form more akin to environmental impact analysis and mitigation than typical subdivision regulation of area, height, etc. 2.2.2 Tests of Validity As the form of subdivision exactions evolved , legal theories were developed through case law to test the validity of these exactions, including impact fees. It is important to understand this evolution since Chapter 395 embodies the theoretical principles of these tests. 2.2.2.1 Privilege Theory Early challenges to subdivision regulation were disposed of in some jurisdictions on the grounds that the subdivision of one's property was a privilege conferred by the governing authority and was not an inherent right. Since the subdivider can always choose not to subdivide, the theory goes, he or she cannot claim to be harmed by restrictions imposed on the manner of subdivision. The privilege theory has been generally abandoned. 2-2 '· //"""'"'""' City of College Station, Texas W ' Development of Impact Fees 2.2.2.2 Specifically and Uniquely Attributable Test RIMROCK CONSULTING COMPANY Later, more restrictive standards were applied to subdivision exactions; there have been a range of standards applied to exactions, extending from the "specifically and uniquely attributable" test of reasonableness (the most restrictive test) to the "reasonably related" test, the most liberal standard. The "specifically and uniquely attributable" test was enunciated by the Illinois Supreme Court in Pioneer Trust & Savings Bank v. Village of Mount Prospect and focused on the authority's obligation to demonstrate a clear linkage between the need for capital expenditures and the growth directly attributable to subdivisions subject to the exaction (Pioneer Trust & Savings Bank v. Village of Mount Prospect, 176 NE 2d 799, (Ill. 1961 )). At about the same time, the "direct benefit" standard enunciated by the New York Supreme Court invalidated subdivision exactions unless it could be shown that funds collected from required payments for capital expenditures were specifically tied to a benefit directly conferred on homeowners in the subdivision which paid the fees (Gulest Associates, Inc. v. Town of Newburgh, 209 NY 52d 729 (Sup. Ct. 1960)). For example, a builder could only be charged a fee for the specific water lines, pump stations, treatment plant, etc., which provided service to his development. This highly restrictive test is no longer applied. 2.2.2.3 Rational Nexus Test Overly restrictive effects of "specifically and uniquely attributable" and "direct-benefit" standards led to the articulation of a more discretionary standard by the Wisconsin Supreme Court in Jordan v. Village of Menominee Falls (137 NW 2d 442, 1965, appeal dismissed 385 U.S. 4, 1966), which upheld a local ordinance requiring dedication or payment in lieu for educational and recreational facilities. The court softened considerably the municipality's burden of proof in demonstrating the specific relationship between the new development and the fee. However, it maintains the proportional linkage among service demand costs and service provision and the amount of fee charged. This test, the Dual Rational Nexus test or "reasonable connection" test, is in the current mainstream of court decisions and is reflected in the requirements of Chapter 395. (See Section 1.2.3.2 for detailed discussion.) 2.2.2.4 Reasonable Relationship Test Later, some courts moved toward an even more lenient standard which maintains that fees must "bear a reasonable relationship to the use of facilities by the future inhabitants of the subdivision" (Associated Home Builders of the Greater East Bay, Inc. v. City of Walnut Creek, 484 p. 2d 606 (Calif. 1971 )). This test does not require, as the rational nexus test does, that fee payments be proportionate to the costs actually caused by the new customer, but simply that the feepayer receive some benefits from funded facilities (although non-feepayers may also substantially benefit). Similarly, a California case (Home Builders and Contractors Association of Palm Beach County, Inc. v. The Board of County Commissioners of Palm Beach County, 446 So 2d 140 (Fla. 1983) held that "benefit accruing to the community generally does not adversely affect the validity of a development regulation ordinance as long as the fee does not 2-3 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY exceed the cost of the improvements required by the new development and the improvements adequately benefit the development which is the source of the fee". 2.2.2.5 Essential Nexus Test The "essential nexus" test was enunciated in Nollan et ux v. California Coastal Commission, 483 U.S. 825, 107 S. Ct. 3141 (1987). In this case, landowners wishing to rebuild a beachfront structure were required to dedicate a lateral beachfront easement in exchange for a building permit. The U.S. Supreme Court ruled that this exaction violated the Takings Clause of the Fifth Amendment because there was not a demonstrated "essential nexus" between the impact of the proposed development and the exaction. This newly-coined essential nexus test was not well-developed in the ruling, leading to considerable confusion about whether this were a new standard or a re-naming of the rational nexus or reasonable relationship test. The Court, in its opinion, stated, "we can accept, for purposes of discussion, the Commission's proposed test [the 'reasonably related test'] as to how close a 'fit' between the condition and the burden is required, because we find that this case does not meet even the most untailored standards". Thus, the Supreme Court enunciated, but did not define, the essential nexus test. 2.2.2.6 Rough Proportionality Test Another landmark case, Dolan v. City of Tigard, 854 P. 2d 437, 317 Ore. 110, 114 S. Ct. 2309 (1994), provides further definition, rejecting the extremes of both the specifically and uniquely attributable test, at one end of the spectrum, and generalized statements regarding connectivity at the other. Rather, the Court adopted a middle course, saying : We think the 'reasonable relationship' test adopted by a majority of the state courts is closer to the federal constitutional norm than either of those previously discussed. But we do not adopt it as such, partly because the term 'reasonable relationship' seems confusingly similar to the term 'rational basis' which describes the minimal level of scrutiny under the Equal Protection Clause of the Fourteenth Amendment. We think a term such as 'rough proportionality' best encapsulates what we hold to be the requirement of the Fifth Amendment. No precise mathematical calculation is required, but the city must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development. Practitioners most commonly utilize the Dual Rational Nexus Test as conforming to the Nol/an and Dolan decisions. 2.2.3 Key Legal Issues There are several key issues that College Station should be aware of in developing specific fees. Texas is one of a number of states which has specific enabling legislation related to impact fees; moreover 2-4 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY Chapter 395, for the most part, is consistent with mainstream court decisions related to such fees. Nevertheless, it would be prudent for any City contemplating the levying of impact fees to become familiar with standard constitutional challenges to such fees. 2.2.3.1 Fee vs. Tax Issue (Ultra Vires Challenge) As stated above, the power of a city to exact impact fees from private parties derives from its police power authority to regulate subdivisions. The historical evolution of such exactions began with mandatory requirements for dedicated streets, gutters, water and sewer lines, alleys, etc. within new subdivisions. Later, developers were allowed to make "in lieu" payments for such facilities rather than constructing them. Finally, these in lieu payments were broadened to incorporate off-site facilities which were required to serve the subdivision (as well as the greater community). These off-site in lieu payments are impact fees and are governed in Texas by Chapter 395. From a theoretical perspective, impact fees could be assessed either in the form of a tax or a fee. The distinction between taxes and fees relies on legislative intent; if the primary motivation behind a levy is purely the generation of revenue, it is a tax. Moreover, tax revenues may be spent to broadly benefit the community while fees are intended to cover the costs of providing benefits more specifically to the feepayer. Also, taxation authority generally must be expressly granted by state enabling legislation. This potential problem of an ultra vires challenge has been largely addressed by Chapter 395 in that it confers specific authority on cities and other utilities to levy impact fees, and then it further defines specific methodological approaches to fee calculation which tend to ensure impact fees are indeed "fees" related to specific costs imposed by the feepayer--rather than a general revenue-generating tax. One deficiency of Chapter 395 had been that it did not address the interaction of utility rates or property taxes with impact fees. In most cases, the assessment of an impact fee equal to the full capital cost of service, as technically had been permitted by the legislation, would result in excessive fee payments which might be contested as an unconstitutional tax on new development. This potential deficiency was remedied by the Texas Legislature in 2001 with SB243, which requires utilities to provide credits for rate and tax payments, or alternatively, to reduce impact fees by 50% as a proxy for a rate/tax credit. 2.2.3.2 Rational Nexus Although court decisions have been both more and less permissive, the most standard basis for determining a reasonable relationship between fees and benefits and costs is the "rational nexus" criteria (Snyder and Stegman, 1986). The rational nexus concept has two parts: the "demand" nexus and the "benefit" nexus. The "demand nexus" addresses the relationship between the fee payer and the facilities funded by fee payments. The demand nexus is sufficiently established, the Jordan decision, said, if the local authority can show that a series of subdivisions have generated the demand for facilities for the benefit of a stream 2-5 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY of new residents. Thus, utilities must be able to demonstrate that the feepayers have caused the need for the facilities funded by the fee. The technical requirements of Chapter 395 ensures that this test will be addressed. The "benefit nexus" part of the standard addresses the effects of the exaction --that is, the reasonable connection between the expenditure of impact fee funds and benefits accruing to the locality from which those funds were derived. In Jordan, the Wisconsin court held that this standard was met where the fees were to be used exclusively for site acquisition and the amounts collected from developments generating the demand were less than the amount spent by the authority in constructing additional facilities. (In other words, utilities cannot collect more than the total cost of the facilities being funded.) Contrary to the more restrictive "direct benefit" test, the fact that the general public might also partake of the benefits flowing from the exaction does not affect the reasonableness of the relationship. This same reasoning was adopted in an important Florida case, Contractors & Builders Assn. v. City of Dunedin (329 So 2d 314 (Fla. 1976) cert. denied 444 US 867 (1979)), as well as in Hollywood , Inc. v. Broward County (431 So 2d 606 (Fla 1983). Thus, the implication for utilities, in a very broad sense, is that an impact fee may collect some portion of the cost of facilities required to service new customers but not more than 100%. Those paying the fee must certainly receive service; however, it is unclear with what precision the fees collected from one subdivision must be directly assigned to some facility directly serving that subdivision. It is possible that a reasonable case could be made for a given subdivision contributing fees which are used for the expansion of the system as a complete, integrated whole, provided the subdivision receives complete array of fee-related services. Figure 2-1 illustrates the "rational nexus" legal test for fee formulation, showing the required linkages between the feepayer, the funded facility expansion and the fee amount. Both the demand nexus and the benefit nexus are shown. The arrows at the top of the figure illustrate the "Demand Nexus". The first arrow (1) shows that the feepayer must create a demand for facility expansion in order to be assessed a fee. That expanded capacity has a cost which must be calculated (2) and used as the basis for the fee to be paid. At the bottom of the figure is shown the "Benefit Nexus" which demonstrates the relationship between the paid fee and benefits which are provided to the feepayer. Arrow (3) illustrates that collected fees must be dedicated to funding the facility expansion for which the fees were collected. Finally, the expanded capacity must be provided back to the feepayer (4) in return for the fee payment. The courts are increasingly becoming involved in the methodologies by which impact fees and other assessments are determined, with especial focus on the benefit nexus (St. Johns County v. Northeast Florida Builders Association, 583 So. 2d 635(Fla.,1991 ); Volusia County v. Aberdeen at Ormond Beach, 760 So. 2d 126 (Fla., 2000)). In regard to water and sewer utilities, it is essential that an exceptions provision be included in impact fee ordinances to address extraordinary circumstances wherein a feepayer may not receive the full portion of benefits associated with the fee collected . 2-6 '· ~....._ City of College Station, Texas W'-' Development of Impact Fees RIMROCK CONSUL TING COMPANY These are the legally-defined relationships to which the fee program must be addressed: ensuring that the basis for the fee does not exceed cost-of-service, is proportionate to capacity demand of feepayers and is nonpunitive (i.e., ensuring that the fee is equitable). FIGURE 2-1 RATIONAL NEXUS CLOSING THE "RATIONAL NEXUS" LOOP DEMAND NEXUS Capacity Demand (1) Capacity Cost Calculation (2) I I EEP:~D I:; ~~~ .... ~~T I Capacity Provided (4) Decicated Funding (3) BENEFIT NEXUS DEMAND NEXUS (1) Feepayer creates a demand for a specific increment of facility expansion. BENEFIT NEXUS (2) The cost of that expansion increment is calculated as basis for the fee. (3) Collected fee is dedicated to funding facility expansion for which the fee collected. (4) Facility expansion funded by the fee provides capacity to the feepayer which is proportionate to the amount of fee paid. Sot.mo: Rimrodt C<msu~hg Cony>any 2-7 '· ~....._ City of College Station, Texas W / Development of Impact Fees RIM ROCK CONSUL TING COMPANY Figure 2-2 illustrates further equity considerations which must be considered. The top register in Figure 2-2 shows utility cost recovery by customers prior to the enactment of an impact fee program. Through their rate payments, these customers pay for debt service for existing facilities which provide them with service and for renovation of those facilities. They also pay for operational expenses. Assuming that impact fees will insulate pre-fee customers from additional debt service for system expansion , rate payments by existing customers constitute their fair-share payments for services provided. The bottom register illustrates the inequitable position of new customers if they pay for their total cost share of the utility system in a cash fee. These new customers would also make rate payments (like all other utility customers) which would be used for existing system debt retirement and renovation as well as system operation. While the operations portion of the rate payments is appropriate, payments for debt retirement and renovation of the existing system are an inequitable subsidy of existing customers. In order to ensure that equity is achieved (i.e., rational nexus), new customers must either have a reduced impact fee or reduced rate payments. An additional equity complication involves facility contributions to the system by developers (the costs of which are then passed along to the ultimate feepayers). Unless an adjustment to the fee is made to compensate for these in-kind contributions, the feepayer will make an inequitably high system contribution. Such problems are generally handled with fee "offsets" or with reimbursements to developers to maintain the rational nexus while achieving full cost recovery for the utility. Chapter 395 prohibits feepayers from being charged a fee for the same facilities they contributed to the utility, thus providing for total cost equity. 2-8 ;;:... City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY FIGURE 2-2 NEXUS COMPLICATIONS AND FAIR SHARE PAYMENTS EXISTING USER PAYMENTS NEW USER PAYMENTS 2-9 FAIR SHARE PAYMENT FAIR SHARE PAYMENT Source: Rimrock Consulting Company 2.2.3.3 ~ City of College Station, Texas Development of Impact Fees Takings Issues RIMROCK CONSUL TING COMPANY Two cases in recent times have brought especial scrutiny to takings issues in regard to land use regulation in terms of assessments to offset impacts on the community (Nollan et ux. v. California Coastal Commission, 483 US 825, 107 S. Ct. 3141 (1987) and Dolan v. City of Tigard, 854 P. 2d 437, 317 Ore. 110, 854 P. 2d 437, 114 S. Ct. 2309 (1994)), and others have followed which have tried to interpret the rulings in these cases (Ehrlich v. Culver City, 12 Cal 4th 854; 911 P. 2d 4290; 50 Cal., (California, 1996). There has been lively discussion about the import of these cases in regard to impact fees, as compared to required property dedications as mitigation to community impacts suffered in the process of development. However, the requirements of Chapter 395 should substantially address most takings issues, which are centered around (a) whether the regulation "substantially advances legitimate state interests"; (b) whether there is an "essential nexus" between alleviating impacts on the community and the assessment; and (c) whether the assessment is proportional to the impacts. Land Dedications vs. Monetary Exactions. Although there is considerable debate on each side of the issue, recent cases suggest that takings challenges based on Nollan and Dolan may have greater probability of success when land dedications are required rather than monetary dedications. As stated in Rogers Machinery v. Washington County and City of Tigard, 181 Or. App. 369, 45 P. 3d 966 (2002): The Fifth Amendment is particularly protective of property against that form of encroachment, and physical invasion or diminutions of rights of exclusive possession have been deemed to be per se takings that entitle a property owner to compensation .... Such an invasion is unconstitutional 'without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner' .... The same is not true, however, of the second traditionally recognized type of government encroachment on property interests, namely, regulatory restrictions on property uses .... A court must engage in an essentially ad hoc, factual inquiry that considers whether the land use regulation 'substantially advance[s] legitimate state interests' and 'does not den[y] an owner economically viable use of his land' .... Thus, when the government regulates property without physically occupying, the Takings Clause is much less protective of the interests of the property owner and much more deferential to the public interests served. See also: McCarthy v. Leawood, 257 Kan. 566, 894 P. 2d 836 (1995); Home Builders Association of Central Arizona v. Scottsdale, 930 P. 2d 993, cert. den. 521 U.S. 1120 (1997); Garneau v. City of Seattle, 147 F. 3d 802 (9th Cir. 1998); San Remo Hotel v. City and County of San Francisco 41 P. 3d (2002); Home Builders Association of Metropolitan Portland v. Tualatin Hills Park and Recreation District, 62 P. 3d 404 (2002); Dudek v. Umatilla, 69 P. 3d 751 (Or. 2003). Notably, the Supreme Court of Texas stated "We do not read Dolan even to hint that exactions should be analyzed differently than dedications in determining whether there has been a taking" (Town of Flower Mound v. Stafford Estates Limited Partnership, 135 S. W.3d 620, 645-46 (2003)), noting that courts of last resort are more likely to apply Dolan to exactions. Legislative Acts vs. Adjudicative Decisions. Additionally, some courts (those listed above plus others) 2-10 ;;...., City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY have focused on whether exactions arise from a legislative act (such as a broadly applied ordinance without discretion in application) ratherthan an adjudicative decision (ad hoc negotiations with individual feepayers). (See Parking Association of Georgia v. City of Atlanta, 515 U.S. 1116 (1995)). For example, in the Scottsdale case, the Supreme Court of Arizona found: The adoption of Ordinance No. 1940 was a legislative act that came to the court cloaked with a presumption of validity .... Land use regulations of general application will be overturned by the courts only if a challenger shows the restrictions to be a legitimate state interest. ... Development or impact fees are presumed valid as exercises by legislative bodies of the power to regulate land use .. . . In Dolan, the Chief Justice was careful to point out that the case involved a city's adjudicative decision to impose a condition tailored to the particular circumstances of an individual case. Because the Scottsdale case involves a generally applicable legislative decision by the city, the court of appeal thought Dolan did not apply. We agree .... The reasoning behind the distinction between a legislatively applied exaction and an exaction imposed by adjudicative action was explained in Erhlich v. City of Culver City, 12 Cal 4th 854, 50 Cal Rptr 2d 242, 911 P. 2d 429, cert. den. 519 U.S. 929 (1996): [The risk of extortionate behavior on the part of government] diminishes when the fee is formulated according to preexisting statutes or ordinances, which purport to rationally allocate the costs of development among a general class of developers or property owners -indeed, as discussed above, the separation of powers doctrine clothes such a fee in a presumption of constitutionality. But when the fee is ad hoc, enacted at the time the development application was approved, there is a greater likelihood that it is motivated by the desire to extract the maximum revenue from the property owner seeking the development permit, rather than on a legislative policy of mitigating the public impacts of development or of otherwise reasonably distributing the burden of achieving legitimate government objectives. The Rogers Machinery case combined these takings issues, finding: Some courts have declared, seemingly categorically, that Dolan is limited to dedications of property and does not extend to nonpossessory exactions, such as the payment of fees. Other courts have rejected that view, holding that Dolan potentially can extend to monetary exactions, at least in some circumstances .... With near uniformity, lower courts applying Dolan to monetary exactions have done so only when the exaction has been imposed through an adjudicatory process; they have expressly declined to use Dolan 's heightened scrutiny in testing development or impact fees imposed on broad classes of property pursuant to legislatively adopted fee schemes. Thus, the Dolan-level scrutiny is more likely to be applied to impact fees when those fees are calculated on an ad hoc, rather than a routine, ordinance-driven basis. This serves as a caution to communities in the application of waivers and exceptions. In the Flower Mound case, the court was less willing to "adopt a bright-line adjudicative/legislative 2-11 ~ Cfty of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY distinction". In regard to this separation, the Texas Supreme court said, 2.2.3.4 We are not convinced. While we recognize that an ad hoc decision is more likely to constitute a taking than general legislation, we think it entirely possible that the government could "gang up" on particular groups to force extractions that a majority of constituents would not only tolerate but applaud, so long as burdens they would otherwise bear were shifted to others .... The Town argues that ifthe government is to be held to the stricter Dolan standard because it tries to tailor general requirements to individual circumstances-that is, because it sometimes grants variances -it will be less inclined to do so, thereby inflicting one-size-fits-all onto very different feet. But it is precisely for this reason that we decline to adopt a bright-line adjudicative/legislative distinction. The touchstone of the constitutional takings protections is that a few not be forced ... to bear public burdens which, in all fairness and justice, should be borne by the public as a whole. Due Process Increasingly, attention is being given in the courts to due process around the issue of waivers and exemptions (St. Johns Co. v. Northeast Florida Builders Association, Inc., 583 So. 2d 635 (Fla., 1991); Volusia County v. Aberdeen at Ormond Beach, 760 So. 2d 126 (Fla., 2000); Cherokee County v. Greater Atlanta Home Builders Association, 566 SE 2d 470 (Ga 2002). According to Tyson Smith of Freilich, Leitner, Anderson & Carlisle, national impact fee experts, exemptions should only be given if it can be shown that an impact fee does not apply because the applicant has no impact on the community (October, 2004, Address to National Impact Fee Roundtable). This should rarely happen in the case of water and sewer utilities, and can be addressed through use of an exceptions provision in utility rules or impact fee ordinances. On the other hand, Mr. Tyson encourages utilities to completely avoid waivers of fees, for reasons of essential fairness, fiscal integrity, effectiveness of the impact fee program and exposure to legal challenge. If waivers are desired, non-impact fee funds can be used to pay fees for the waivered party. 2.2.3.5 Apportionment of Costs The "reasonableness" element of the rational nexus standard is in essence the touchstone for challenges to the impact fee based on real or perceived inequities in the apportionment of charges and benefits among various classes of users. Several questions arise out of the equitable apportionment issue; only a portion of these issues are addressed by Chapter 395. A Utah case (Banberry Development Corporation v. South Jordan City, 631 P. 2d 899 Utah (1981 }, reiterated by Timothy Ross Lafferty v. Payson City, 642 P. 2d 376 Utah (1982)) provides a list of factors to be analyzed in apportioning costs between "old" and "new" customers. These include: Cost of existing capital facilities 2-12 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSULTING COMPANY Means of financing existing facilities (i.e., user charges, special assessments, bonded indebtedness, taxes, grants) Past and future contributions of the feepayers toward financing existing facilities Private contributions by feepayers of facilities normally financed publicly Extraordinary costs of serving feepayers Time-price differential in amounts paid at different times As determined in the Ban berry case, the interaction of fee payments with rates and other contributions must be acknowledged to avoid "double payments" by the feepayers. In Texas, the Legislature passed SB243, an amendment to Chapter 395 which requires rate/tax credits or alternatively, at least 50 percent fee reduction in lieu of rate/tax credit calculation. (See Section 5.0 for additional discussion.) 2.2.3.6 Geographic Aspects of Fee Application The perceived importance of geographic distribution of capital facilities varies among jurisdictions. In some cases, ordinances have been invalidated because proposed facilities were in a different part of town; in California, on the other hand, the State Supreme Court appears to be increasingly indifferent on this point. In Texas, Chapter 395 provides that fee analyses may be "prepared on a systemwide basis within the service area", and makes no requirement for geographic-specific costs for water and wastewater. On the other hand, nothing in Chapter 395 prohibits geographic considerations for water and sewer, if that distinction is desired by the City. 2.2.3.7 Protection of Public Health, Safety, and Welfare Despite the revenue potential of the impact fee, this mechanism must retain its identity as an exercise of a city's police power regulatory authority, directed toward the protection of public health, safety and welfare and not simply the naked generation of revenue. In other words, the City should be prepared to argue that, despite the revenue potential of the impact fee, it is an integral part -in intent and practical effect --of the City's regulatory regime for controlling land use for the general welfare of the community. This is supported by the Chapter 395 requirement that the fee have its ultimate origin in a system-wide land use plan and capital improvements plan . 2-13 ...,. City of College Station, Texas Development of Impact Fees 2.2.4 Summary of General Legal Context RIMROCK CONSUL TING COMPANY The sections above provide a general legal context for the development of an impact fee and suggest some legal constraints which College Station should consider in developing an impact fee. In summary, these parameters are as follows: An impact fee must relate to the protection of community health , safety, and general welfare; An impact fee should be based on full or partial cost of service; There must be equity to all users; Deviations from equity must be based on a carefully-defined public policy basis; Those who pay an impact fee must have created a demand for the facilities which are being funded by the fee; The fees collected must be used for the benefit of those who paid them; Fees assessed must be proportional to the cost of serving and benefits provided to the feepayer; Past and future rate/tax/facility contributions by feepayers must be acknowledged as a credit in fee calculations; and The City cannot impose punitive fees on any customer or class of customers. These guidelines should serve as a point of departure in setting community goals and objectives related to impact fees. 2-14 3.0 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY SPECIFIC REQUIREMENTS OF CHAPTER 395 The provisions of Chapter 395 are summarized below and put in the context of the legal framework discussed above. 3.1 DEFINITION OF "IMPACT FEE" The legislation specifically addresses impact fee regulations for water; wastewater; storm, flood and drainage; and local roadways with a life expectancy of three or more years. The law states that "Unless otherwise specifically authorized by state law or this chapter, a governmental entity or political subdivision may not enact or impose an impact fee". Legal opinion on the meaning of this phrase varies. One knowledgeable source maintains that this language, when considered with various definitions in the law, does not prohibit all other impact fees; rather this provision is interpreted to limit the applicability of the law's requirements to the infrastructure components listed above, leaving other potential fee programs unregulated (Shahady, 1987). On the other hand, another knowledgeable expert maintains that the opposite is true -that municipalities probably cannot impose fees for any other types of capital facilities (Morgan, et al., 1988). In practice, since Chapter 395 was passed, impact fees for facilities other than the four services above are virtually unknown. The only other type of capital facility addressed by the law is parks. The Chapter specifies that parkland dedication and in lieu fees are not considered to be "impact fees" under the legislation; thus they are neither prohibited nor regulated . Also, the following are not considered impact fees: 3.2 Right-of-way or easement required by ordinance for a development; On-site or off-site distribution, collection, drainage, streets, sidewalks and curbs required by ordinance for a new development; "Oversizing" or "subsequent user" fees placed in trust funds to reimburse developers for water or wastewater line oversizing; and Other pro rata fees for reimbursement of water or sewer mains or lines extended by the political subdivision. APPLICATION OF THE FEE Impact fees may be assessed by cities operating under general law, or special or home rule charter, and by special districts (municipal utility districts, road districts, etc.) for water, sewer, drainage and local roadways. County governments with jurisdictions of 2.2 million persons or greater (Harris County) and adjacent counties can collect impact fees for storm water, drainage and flood control. River authorities and the Edwards Underground Water District are authorized to collect impact-type fees under separate 3-1 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY legislation. Thus Chapter 395 confers specific authority (in addition to that which might be assumed under general subdivision regulatory authority) for fee collection. Water, sewer and drainage fees may be assessed in the utility service area inside the City and in the extraterritorial jurisdiction (ET J); fees may also be assessed to areas outside the ET J which are served by contract. Fees may be assessed and collected for "new development", which includes new land subdivision; redevelopment; or any use or expansion of use which increases the service demand of a property (including "cut-overs" from individual wells or septic systems). 3.3 COST-OF-SERVICE BASIS Chapter 395 is extensively devoted to specific requirements for performing technical studies by qualified professionals according to accepted engineering and planning standards. The specifics of these studies are highlighted below. 3.3.1 Service Area There must be a defined service area which will be subject to the fee. The fee may be applied within the City and within the extraterritorial jurisdiction for water and sewer. 3.3.2 Projections of Future Land Use or Population Growth Land use in the service area, in terms of land use character, density, intensity and population, must be projected for (1) full buildout, and (2) growth within at least the next ten years. The water and wastewater utilities are permitted to use growth projections for their entire jurisdiction (as is usually presented in a city master plan), without performing projections for the precise utility service areas which may be different than the jurisdictional boundaries. This planning information is to be used in developing the CIP to serve growth in the service area. It should be noted that service areas are likely to be different for each type of facility (water, sewer). 3-2 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY 3.3.3 Disaggregation of Costs for Existing and Future Customers The current utility system must be fully described, separating that part of the system's facilities needed for existing customers from the excess capacity remaining for new customers. Also, the CIP must differentiate between future projects (or portions of projects) needed to meet existing needs and to upgrade service to existing customers, from future projects needed to serve new customers. In this manner, costs for existing customers are separated from costs for future customers. The legal requirement for disaggregation of costs falls squarely within the requirements of the mainstream "rational nexus" test. 3.3.4 Unit Cost Calculation The study must select a measurement unit (e.g., gallons, housing units, LU E's) and determine how many units are required to serve various types of land use. Usage figures must be calculated separately for at least residential, commercial and industrial uses. 3.3.5 Fee Calculation The maximum fee which can be charged is the total cost of facilities specifically required for future customers divided by the unit usage for each future customer, less rate/tax credits. Chapter 395 also states that "Projected interest charges and other finance costs may be included in determining the amount of impact fees only if the impact fees are used for the payment of principal and interest on bonds, notes, or other obligations issued by or on behalf of the political subdivision to finance the capital improvements or facility expansions identified in the capital improvements plan .... " There is a diversity of legal opinion on this phrase. From a technical viewpoint, such charges must be carefully construed to retain the cost of service basis. This is a matter which should be addressed by the City's legal counsel. 3.3.6 System-Wide vs. Geographic-Specific Fees The law provides that the service analysis may be prepared on a system-wide basis; however, this provision seems to apply only to water and sewer service. This allowance of system-wide fee development seems to address the rational nexus standard rather than the more restrictive "specifically and uniquely attributable" test which requires geographic disaggregation. 3-3 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY 3.3.7 Facilities Which Can Be Included in the Fee Base The law provides that only facilities in the associated GIP can be funded by the fee. The requirement that fee-funded facilities must be in the GIP also cements the fee assessment to a comprehensive planning document, and thus implies a strong orientation to the city's overall approach to controlling land use for the purpose of public health, safety and welfare --i.e., the ultimate basis for the authority for such fee programs. 3.4 PROPORTIONALITY The technical approach outlined in the Chapter ensures that fees paid must be proportional to demand caused by the feepayer. The law also addresses "offsets" --a situation whereby a developer finances and constructs a facility which is normally funded in full or in part by the fee process, and either has the fee assessment reduced accordingly or receives reimbursement of costs. The law stipulates that "an owner may not be required to construct or dedicate facilities and pay impact fees for those facilities". Again , this provides for meeting the rational nexus test. 3.5 RATIONAL NEXUS 3.5.1 Rational Nexus: Demand Nexus The technical study provisions of Chapter 395 support the concept that feepayers will pay only for the demands they place on the system (averaged over a whole class of customers). 3.5.2 Rational Nexus: Benefit Nexus Chapter 395 contains numerous provisions to ensure that a feepayer receives the benefit of service for which the fee has been paid. Except for roadways, impact fees cannot be collected where service is not currently available except under specific conditions: The capital improvement for which the fee was collected 1s in the GIP , will begin construction within two years and will be completed in no more than five years; or The developer agrees to build/finance the facility for offset credit or reimbursement; or 3-4 City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY The landowner voluntarily asks to reserve future service. The law moreover stipulates that the feepayer must receive permanent use of services for which the fee was paid and that he must receive immediate service from any existing facilities with capacity to serve him. 3.6 TIMING OF FEE ASSESSMENT AND COLLECTION; GRANDFATHER PROVISIONS 3.6.1 Fee Assessment The Chapter distinguishes between the timing of fee assessment, when a determination is made about the fee amount per service unit which will be charged to a property, and the timing of actual fee collection. For land already subdivided and platted prior to the adoption of the fee , and for which a building permit is issued within one year after adoption of the City's impact fee: No fee can be collected. For land subdivided and platted subsequent to the adoption of the fee: Fees must be assessed before or at the time the subdivision plat is recorded . For property on which development will occur without platting: Fees can be assessed at any time during the development and approval process. These provisions pertain to fee assessment; for the most part, the maximum fee per unit will be determined at the time of plat recordation. After that assessment is made, "no additional impact fees or increases thereof shall be assessed against such tract for any reason , unless the number of service units to be developed on such tract increases". Initially, the overall effect of this provision seems to be onerous for the City if a subdivided parcel were not developed in a timely manner. Regardless of the passage of time and increases in cost over time, the City may be effectively prohibited from charging the developer the cost of service at the time he/she receives service; rather the City may be limited to charging the cost of service at the time the subdivision was platted, whether or not service was used at that time. Over time this is also likely to affect the real estate market since undeveloped properties with low fee assessments will become more valuable commodities. To avoid both the revenue loss and land speculation activities, the City may wish to carefully craft fees to account for the disparity between the cost of capital improvements at the time of assessment and that at the time of collection. 3-5 ;;:..,. City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY 3.6.2 Fee Collection Actual collection of fees is generally allowed at the time that a building permit is issued. However, when a municipality provides service in areas where it does not issue building permits, it may collect fees at the time of connection to the water or sewer system. Additionally, for any fee developed under Chapter 395, note the "grandfathering" provision for already- subdivided properties. The City would be unable to collect any fees from already-subdivided properties which receive a building permit within one year of the City's adoption of a fee. Thus, the new impact fee will likely produce little fee revenues during the first year it is in effect due to this grandfathering requirement. In addition to grandfathering provisions, there are other provisions of the Chapter which serve to protect developers or builders from unexpected fee expenses. The institution of a new impact fee or the updating of an old fee requires a lengthy study and public hearing process; the City's fee ordinance may not be passed as an emergency measure; and moratoria for the purpose of awaiting completion or updating of the fee ordinance are prohibited . Thus all developers should have ample notice and time to obtain subdivision approval and either avoid fee payment altogether (in the case of a new fee) or grandfather their fee assessment at an old, presumably lower, fee amount (in the case of fee updates). Therefore, any program to partially fund capital facilities with a fee program will take a period of time to effectively collect funds and will be unlikely to achieve significant immediate results. Nevertheless, over a longer period of time, impact fees should still be effective as one of several funding sources for capital improvements. 3.7 USE OF FUNDS Impact fees must be deposited in individual dedicated accounts (i.e., one each for water and sewer) with earned interest becoming a part of the dedicated funds. Expenditures may be made only for the uses for which the fees were collected. Expenditure of fee funds is specifically prohibited for: Either capital or interest payment for any facility not identified in the CIP (including, presumably, non-CIP approach mains or other major facilities not identified in the CIP); Repair, operation or maintenance expenses; or Upgrading, updating, expanding or replacing existing facilities to meet stricter standards or provide better service to existing customers. These provisions are generally required as a part of meeting the rational nexus test to ensure that feepayers receive specific benefits from fee payment and that fee revenues are not diverted to pay for 3-6 1"1.. A"""'..._. City of College Station, Texas W / Development of Impact Fees RIMROCK CONSUL TING COMPANY facilities or other purposes which do not benefit new customers. They also further tie fee funds to the adopted planning documents (i.e., CIP) of the City by prohibiting expenditures on facilities not in the CIP. 3.8 REFUNDS Chapter 395 also addresses refunds of unused or overcharged fees. All funds must be expended within 10 years of collection or the remaining fees, plus interest, must be refunded to the current property owner or to the political subdivision which paid the fee . This implies considerable record keeping efforts on the part of utilities. However, in practical terms, utilities typically spend all fee revenues in a timely manner. Another circumstance requiring a refund is if a feepayer is denied immediate service (when existing service is available) or if the City does not begin and complete construction within the time period stipulated above. In those instances, the feepayers may request and must receive a refund, plus interest. Again, these provisions provide checks to ensure that feepayers actually receive benefits from their payments. Moreover, it discourages fee collection when there is no significant need over the longer-term for growth-related CIP expenditures, which supports the "demand nexus" test. 3.9 PUBLIC PROCESS The law contains extensive provisions related to the public process required to enact, revise and update an impact fee. Generally, these provisions include: Technical planning and engineering studies concerning land use and population projections, facility needs and cost allocation. Public availability and review of all assumptions and data. Public hearings to review all aspects of fee formulation when a new fee is developed. Published notice of hearings. Appointment of an advisory committee (which may be the Planning Commission), including real estate representatives and a representative from the ET J. Any lawsuit opposing the fee ordinance must be filed within 90 days of ordinance adoption. 3-7 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY Cities/utilities are required to review their ordinances every five years and determine whether there is a need to update the fee or any of its underlying assumptions. If the City Council determines that no update is necessary, it must publish a public notice so stating. However, if any party requests that a full update be performed, the City must comply. 3.10 SUMMARY OF CHAPTER 395 ANALYSIS In summary, The City is regulated in its authority to charge impact fees A detailed technical study is required to initiate a new fee and any time the fee is updated (including service area definition, growth projections, GIP development, cost allocation, unit usage determination, etc.). Fees per unit "run with the plat" since they are set at time of platting; unless fees are also collected at platting, this could result in considerable losses for the City since actual cost of service may be much higher when service is ultimately provided than it was when the land was platted. Careful fee construction may avoid this undercollection. The maximum allowable fee under Chapter 395 is the full capital cost per unit, less rate/tax credits The City must create an advisory committee which contains both real estate representatives and a representative of the ET J (when fees will be charged in the ET J). Fees which are not expended on appropriate GIP projects within 10 years must be refunded, plus interest. Feepayers must receive immediate service, if capacity is available, otherwise they must receive service in five years or less. Developers must be reimbursed or receive fee offsets for contributed GIP facilities. 3-8 4.0 .:oi.. City of College Station, Texas Development of Impact Fees RIMROCK CONSULTING COMPANY POLICY DECISIONS OF IMPACT FEE FORMULATION Several policy and technical decisions must be made in the course of developing an impact fee. These include: Definition of service area System-wide vs. geographic-specific fees Selection of a unit measurement as the basis for fee assessment Identification of the specific types of facilities to be funded by the fee Eligibility and exemptions Level of cost recovery desired Fee offset approach Wholesale and master-metered customers Fire Flow Meters 4.1 SERVICE AREA DEFINITION As a first step in the impact fee study, the boundaries of the service area in which water and sewer fees will be applied must be defined. The purpose of this potential service area designation is to define the area of growth for which the fee is developed, to estimate service demand arising from that particular growth, and to develop a capital improvements program to meet those service needs. Thus development of a CIP for a defined service area ensures that impact fees will be closely tied to the other planning and regulatory documents of the City and that the rational nexus tests will be addressed. The delineation of the service area primarily serves to guide the CIP derivation and unit costing. It is not strictly binding on the City management in regard to future flexibility on service area decisions; the impact fee service area boundary does not impose any additional obligation on the City to serve a particular development at a particular point in time, nor does it restrict the City from serving areas which were not anticipated during the impact fee study. It is unclear, however, whether the City could impose impact fees in areas which were not specifically identified as a potential service area during the fee development. Because the exact location offuture growth will be, to some degree, unknowable, it would be best to include all areas of potential growth in the foreseeable future to avoid possible future questions about whether the 4-1 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY fee is applicable to any given area. This approach will result in a larger CIP than might otherwise be developed, but since the fee is calculated on a per-unit basis, a larger CIP, per se, should have little impact on the fee magnitude. An exception to this, however, relates to whether a new service area might have unique service requirements and costs which would tend to make the average cost increase. For example, service to the entirety of a drainage basin might be a reasonable service area assumption. On the other hand, proposing a potential service area extending into new and unserved basins could imply higher per-unit costs associated with pump-overs of sewage or construction of new treatment facilities not otherwise needed. The City will have to carefully balance these considerations in the determination of the service area used in fee calculation. In defining utility service areas, it should also be remembered that in five years the City must decide if any factors used in the fee formulation have substantially changed, and if so, a full update process will be needed. At minimum, the service area should be the City's best approximation of the possible boundaries of its service within the next ten years, with the possibility of amending those at regular updates. Chapter 395 stipulates that the City may apply its impact fee ordinance within the City limits, within the extraterritorial jurisdiction (ET J), and to customers with which they have a service contract. Thus, the service area adopted must acknowledge any limits to the future City limits or ET J and must recognize any existing or future contracted service outside those limits. 4.2 GEOGRAPHIC CONSIDERATIONS Chapter 395 does not require that water and sewer fees be disaggregated into service subareas, although geographically disaggregated fees are permissible. Thus, the costs of the system may be pooled and shared equally among all feepayers, or alternatively, costs may be specifically allocated to various subregional service areas if certain facilities can be uniquely assigned to serving specific areas. In either case, the direct linkage between feepayer and fee amount and funded facility must be maintained. 4.2.1 Pooled Costs Pooled costs can be justified from several perspectives. First, from the perspective of an individual customer, the location of treatment plant, size and placement of lines, method of wastewater disposal, etc. are discretional decisions made by the City. For example, whether an individual lives close to a treatment plant or several miles distant is determined more by discretional decisions by the City than by service demands of a customer. It is possible that two customers in generally identical geographic 4-2 '· fi""t--.. City of College Station, Texas W ' Development of Impact Fees RIMROCK CONSUL TING COMPANY locations with similar system demands could have significantly different individual costs of service due to these discretionary siting and design decisions. Moreover, the water utility of many cities, in particular, is designed with features to ensure system-wide reliability. This is especially illustrated by the fact that special mains are often installed to allow various treatment facilities to serve several areas of the city. Moreover, many systems are "looped" to provide somewhat redundant transmission facilities. These system reliability aspects make it difficult or impossible to assign certain costs by geographic area. Additionally, in some instances there are facilities which serve functions for various geographic areas and therefore present geographically unallocatable costs. For example, a sludge treatment facility might treat sludges from various wastewater treatment plants and thus from several geographic areas. In summary, because (1) many siting and design decisions are discretionary rather than locational; (2) systems are often designed with redundant facilities for system reliability; and (3) some facilities have no geographic-specific service area, it can be argued that each utility operates as a complete, integrated system. Therefore, any customer which receives service from such a system may reasonably be considered to be receiving sufficient benefit from the payment of an impact fee, thus meeting the benefit nexus of the rational nexus test. An argument against pooled costs can best be made when customers in various areas impose truly unique and distinct costs upon the utility due to topography or other factors making service more costly, which are not the result of discretionary engineering decisions about technical approaches to service delivery. 4.2.2 Geographic-Specific Costs The pros and cons of geographic-specific costs mirror those of pooled costs. A favorable aspect is that the linkage between a customer's specific demands and specific costs may be much stronger than with pooled costs, especially under conditions discussed above when engineering discretion does not determine the cost differential. Also, some court rulings have required a very strict linkage between specific facilities and fees such that the customer could only be required to pay for the specific lines, etc. that provided that customer with service --as opposed to a pooled service cost. However, that type of strict nexus interpretation is outside of the mainstream of court opinions and such strict linkage is not required by Chapter 395. Nevertheless, where notable cost differentials occur --as in differences in topography or soils --cities would be justified in developing geographic-specific fees. On the negative side, geographic-specific fees are more complex to calculate and administer. At its logical extreme, geographic-specific costs would require a different fee for each user, depending on line 4-3 ii:"lol City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY lengths utilized. Obviously, some level of pooled average costs must be used for the fee. Among those costs which could most easily be segregated are wastewater capital costs for a particular drainage basin, facility costs (particularly lines) according to broad soil classifications, and approach main costs for a defined array of developments in a particular location . 4.3 UNIT MEASUREMENT I LEVEL OF SERVICE During the impact fee study, units of measurement must be selected for two separate purposes --for system-wide demand projections and CIP development, and for individual demand determination and fee sizing for each feepayer. This unit of measurement may be any logical and technically defensible basis such as meter size, dwelling units, acreage, square footage, employees, or other standard. In choosing units of measurement, a balance must be achieved among the goals of (1) using readily available data to project demand; (2) matching actual demand of a project to the fee paid to preserve rational nexus; and (3) achieving administrative ease in assessing the fee. The first factor in particular may vary widely depending on what point in time the demand is to be determined. For example, during this study, the Consultants will have to determine overall demand for a given period of time. Available information may be in the form of population projections, land use acreage projections, utility connection forecasts or other form of growth projections. Any of these can be used for the sole purpose of determining overall system demand and designing an appropriate CIP. However, these same rather gross measures may not be the most appropriate technique for assessing a fee amount to a particular customer. Section 4.3.1 below discusses the interchangeability of various unit usage statistics; Section 4.3.2 describes some of the types of statistics which may be developed and utilized and gives the pros and cons of each. Section 4.3.3 presents "level of service" concepts. 4.3.1 Conversions of Unit Usage Statistics Theoretically speaking, there is no reason why projections of overall utility demand and projections of demand for a single customer should not use the same unit measurement. As a practical matter however, there is always a conversion process whereby the same growth phenomenon is expressed through a variety of measures. For example, the community may have a land use plan , and projections of utility demand may be made directly from projections of each land use. Most likely, however, residential land uses will be converted into population or connection projections and a standard usage statistic per capita or per household will be used to project residential demand. For nonresidential land uses, acreage or square footage may be used as a unit usage statistic (again involving a conversion calculation from acreage to square footage). Or, alternatively, "nested" per-capita figures will be used , wherein overall 4-4 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY demand is based on population alone, with some amount of nonresidential use assumed per person to accommodate both residential and nonresidential consumption with a single demand factor. All of these techniques are commonly used by planning and engineering professionals and are more or less reasonable, depending upon local circumstances. Moreover, this variety of usage statistics and conversion techniques maximizes the planner's flexibility in determining demand, allowing use of readily available local information in whatever form it is available. During the course of the Chapter 395 study, it will be necessary to make some conversion between the overall demand projections of the "land use assumptions" and the CIP development and the individual fee calculation . It is likely that the exact same units of measurement will not be directly used in all aspects of the study. What is important, however, is that the conversion process be clearly presented to show that the impact fee is consistent with the planning and CIP data. If that conversion process is consistent and reasonable, there should be ready translation between one element of the Chapter 395 study and another, although demand may be expressed on a per-acre basis in one instance and on a per-LUE basis in another. Also, some unit measurements are intended to be more specific than others. One of the most specific types of unit measurements for utility use is an accounting of water-using orwastewater-producing fixtures (such as faucets, dishwashers, waste disposers, etc.) While this type of measurement might be highly indicative of the usage of an individual customer, using such units to predict system-wide demand and to develop a CIP would be impractical. 4.3.2 Examples of Unit Usage Measurements for Water and Sewer Impact Fees Some common unit measurements, in roughly ascending order of precision are discussed in this section. 4.3.2.1 Per Capita Perhaps the most aggregate form of unit usage statistic is a population-based measure of demand. It is also one of the most available forms of information and most widely used techniques for projecting usage. When an estimate of current or historical population is compared to water demand or wastewater flow, a demand per capita is derived. This per capita statistic includes both residential and nonresidential service usage, thus it represents a "nested" usage figure. Use of per capita standards to project utility demand is most appropriate when no substantial change in land use mixture is expected in the service area over a sustained period. If such land use changes are anticipated, somewhat more detailed information on the particular land use shifts and land-use-specific demand figures would be needed. Per capita figures can easily accommodate assumptions about potential water conservation by simply showing a declining usage per capita over time. 4-5 .:.... City of College Station, Texas Development of Impact Fees RIMROCK CONSULTING COMPANY The most positive aspects of per capita figures are their simplicity and ready comprehension . On the negative side, under significantly changing conservation or land use patterns a constant "nested" per capita assumption over time could result in significant forecast error. Per capita statistics are best used for estimated demand in large geographic areas; they have little usage for fee assessment, since "nested" per capita figures would not correctly assess demand for either a particular residential or nonresidential customer. 4.3.2.2 Acreage Acreage alone provides no practical indication of demand. If land use for that acreage is known , however, estimates of demand per acre can be made based upon similar existing land uses and their average demand per acre. Statistics of this type are most useful in providing estimates of overall utility demand based on a particular mixture and magnitude of future land uses. As discussed above, this technique becomes necessary in the event of changing land use mixtures over time. However, the more detail which is included in system-wide projections, the more likely significant error will occur. Demand forecasts based on acreage of various land uses has more detail than per capita statistics and thus has greater chance of including an erroneous assumption of either land use mix or unit usage by land use type over time. System demand calculated on a per-acre basis should always be compared to demand calculated on a per capita basis to assess the reasonableness of the results; drastic changes in per capita use over time must be readily explainable by the land use mixture changes. Caution should be exercised in using zoning as an indicator of land use demand. Quite often, zoning gives no accurate presentation of either existing or future land uses --particularly where cumulative zoning occurs. A lot zoned commercial may actually have residential uses. Moreover, portions of the utility service area may be unzoned --such as in the ET J. Per acre statistics are not only used for estimating system-wide demand, but they are often used for individual fee assessment. Fees which are collected at building permit issuance can be based on more precise determinations of service demand than acreage. 4.3.2.3 Building Square Footage Square footage may be a proxy for demand for nonresidential uses, but the wide variety of commercial/industrial uses makes this a generally imprecise measurement unless somewhat detailed subcategories are established. For example, a warehouse has considerably less service demand than an office building. Thus it is possible to develop varying fee structures based on different subcategories of nonresidential use to increase the precision of this type of measurement. 4-6 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY Bu ilding square footage is used to estimate nonresidential system-wide demand by either assuming a particular floor-to-area (FAR) ratio (in which case demand could simply be determined directly from acreage) or assuming a particular square footage per employee (where demand could be directly determined from employees). Thus, the use of square footage in estimating system-wide demand is usually a derivative practice. Individual demand is commonly determined by square footage of different building types. These measures are based on research into demand arising from a sample of similar buildings. Provided the sample of similar land uses is reasonably designed, individual fees based on square footage would fairly represent an average demand cost for that type of use. 4.3.2.4 Operational Measures: Employment/Enrollment/Seating, Etc. For nonresidential uses, demand may be based on any number of detailed operational factors particular to the type of use. These factors may include number of employees, number of students or residents, seating in restaurants, theaters or churches, etc. These types of measurements attempt to estimate demand from indicators of the types of activities which occur in the structure. They may either be used for more detailed land-use-based projections of system-wide demand, or they may be used as indicators of use for a particular development. To the extent that a precise land use is known for various properties, they may be very appropriate measures. Nevertheless, these indicators contain multiple assumptions and thus have greater potential for error; thus, a broader system-wide method (such as a per capita approach) should also be applied as a point of reference in determining the reasonableness of the results from such detailed unit statistics. It is likely that operational measures would be more useful in individual fee determinations rather than in system-wide projections. 4.3.2.5 Dwelling Units Similar to square footage for nonresidential uses, dwelling units (DU) may be a proxy for demand for residential land uses. This statistic is derived from projections of residential acreage or of population , and thus is not particularly useful in developing system-wide demand forecasts (i.e, system demand could be more easily determined directly from acreage or population). On the other hand, a dwelling unit measure is commonly used in assessing demand of an individual residential customer. In order for dwelling units to be most accurate in determining demand (and assessing fees), different usage statistics should be developed for various densities and types of housing -such as single-family, duplex, low-and high- density multifamily, institutional, etc .. 4-7 4.3.2.6 i;:o.,. City of College Station, Texas Development of Impact Fees Linear Feet of Road Frontage RIMROCK CONSULTING COMPANY Linear feet (If) of road frontage is a common unit measurement in many cities, arising from similarly-based assessments for roadways. Properly used , it is only one element in any determination offee amount and relates most strictly to utility line cost rather than to capacity needs. Essentially, frontage feet is a proxy for acreage in defined areas where lot sizes are approximately the same and land use is similar. For example, a residential area of quarter acre lots would have a certain demand which could either be divided by the number of units, the number of connections, lot area or any other similar measurement which apportioned demand to each customer. Any of these divisors would result in approximately the same unit costs because of the homogeneity of the development. Front footage (with limitations for corner lots) would have the same type of cost allocation result. Another manner in which linear front footage is used is in calculation of a fair share of cost allocation on a given length of pipe serving a development, with the assumption that each customer should reasonably pay for the additional length of pipe needed to serve his or her property. In these instances however, front footage is not a determinant of demand, per se, but simply one of the factors used in apportioning line costs; the actual demand of a development is determined by other means and is also incorporated into the cost allocation through the pipe diameter. Thus, in general, linear footage can be used as a proxy for demand in homogeneous developments, but it is generally not useful by itself where there are land use mixtures or variable lot sizes and shapes. It is also not used in determining system-wide demand. 4.3.2.7 Living Unit Equivalent (LUE) A living unit equivalent (or dwelling unit equivalent) is a derivative measurement intended to establish a common measurement unit for all types of land uses. An LUE is equivalent to the amount of demand typically produced by a single-family residence using a 5/8" or 3/4" water meter. Demand is directly calculated by some other unit statistic (such as land use acreage, population, etc.) and translated into LU E's. Thus an LUE is not a unit usage statistic per se, but rather a translation of such statistics into a common denominator. 4-8 4.3.2.8 ......, City of College Station, Texas Development of Impact Fees Water Meter Size RIMROCK CONSULTING COMPANY Water meter size is frequently used to indicate demand for an individual customer. Projections of customers (i.e., connections) by water meter size may be used to also project system-wide demand. Water meter size is a generally good indicator for both residential and nonresidential water demand. The reason for this is that a meter is a physical element which constrains the upper limits of demand from a particular connection. Moreover, meters can be maintained and controlled by the utility, thus allowing the monitoring of the accuracy of meter sizing. The utility can require any necessary replacement of meters which can be shown to have been sized too small for a development and collect additional impact fees required by the change in meters. Typically, the City's smallest water meter would be the base unit for impact fee assessment (that is, one living unit equivalent). The ratio of each larger meter's continuous- duty maximum flow rate to the rate of the base meter would determine the fee multiplier and the scale for other calculations relating to this fee. Because water meter size translates demand into a common measurement for all land uses, the use of water meter size allows equitable cost assignment to each of the three customer classes identified in Chapter 395 (residential, commercial and industrial) without administrative complexity. An LUE conversion table, based on water meter size, is shown in Table 4-1. Typically, some concern is expressed that water meters are not always a reasonable means of calculating wastewater flows, particularly for certain consumptive types of commercial/industrial users (restaurants, car washes, canneries, etc.). Experience has indicated that few such customers choose to have a separate wastewater meter because of the installation and maintenance expense incurred. Given the potential that some consumptive commercial and industrial customers may be considerably overcharged for sewer capacity demand when water meter size is used for calculating wastewater impact fees, it is important to provide for exceptional (and equitable) treatment of these customers. Specifically, individual wastewater customers should be permitted to present data, prepared by a professional engineer, documenting expected wastewater flow significantly below that indicated by meter-size determinations for a lower sewer fee. 4.3.2.9 Pipe Size Water distribution pipe size is similar to water meters in its usefulness in determining demand for a particular water connection. However, the potentially large amount of excess capacity in the minimum sizes of sewer collection lines presents potential problems of pipe sizes which are not representative of actual wastewater flows. 4-9 4.3.2.10 ~ Cfty of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY TABLE 4-1 LUE EQUIVALENCIES FOR VARIOUS TYPES AND SIZES OF WATER METERS CONTINUOUS METER METER DUTY MAXIMUM RATIO TO TYPE SIZE RATE 5/8" METER fa om) SIMPLE 5/8" x 3/4" 10 1.0 SIMPLE 3/4" 15 1.5 SIMPLE 1" 25 2.5 SIMPLE 1-1/2" 50 5.0 SIMPLE 2" 80 8.0 ------------------1------------------------------------------------ COMPOUND 2" 80 8.0 -----------------· 1----------------------------------------------- TURBINE 2" 100 10.0 COMPOUND 3" 160 16.0 -----------------&...---------------------------------------------- TURBINE 3" 240 24.0 COMPOUND 4" 250 25.0 ------------------1----------------------------------------------- TURBINE 4" 420 42.0 COMPOUND 6" 500 50.0 ---------------------------------------------------------------- TURBINE 6" 920 92.0 COMPOUND 8" 800 80.0 ---------------------------------------------------------------- TURBINE 8" 1600 160.0 COMPOUND 10" 1150 115.0 ------------------~---------------------------------------------- TURBINE 1 O" 2500 250.0 TURBINE 12" 3300 330.0 SOURCE: AWWA Standards C700, C701, C702, C703. Fixture Calculations Although not useful in determining system-wide demand, an inventory of water-using and wastewater- discharging facilities may provide the most accurate indicator of actual demand from an individual development. Such an inventory is inherent in the determination of water meter size and line sizes. However, both meters and lines contain excess capacity which is generally never used either because the development's resident/user does not have the fixtures to allow such maximum use or because usage habits are simply less than capacity. Thus, fixture calculations would closely estimate actual, rather than potential, demand and usage. While highly precise, this approach has high administrative cost for both 4-10 ii:"lll City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY the City and for the feepayers since it requires a detailed inventory and review of that inventory. It also requires frequent updating when a customer purchases additional fixtures after payment of the original fee. 4.3.2.11 Summary Table 4-2 summarizes the relative attributes of various service unit measurements. TABLE 4-2 SUMMARY OF SERVICE UNIT ATTRIBUTES FOR WATER AND WASTEWATER UTILITIES APPROPRIATENESS FOR: SERVICE UNIT ADMINISTRATIVE MEASUREMENT EASE/ INDIVIDUAL FEE ASSESSMENT APPROACH DATA SYSTEM AVAILABILITY DEMAND NON- RESIDENTIAL RESIDENTIAL Per Capita • • 0 0 Acreage/Land Use • • 0 • Building Square Footage 0 0 0 e Operational Measures 0 0 0 e Dwelling Units e 0 • 0 Road Frontaqe e 0 e 0 LUE e e • • Water Meter Size e e • • Pipe Size e 0 e e Fixture Calculations 0 0 • • KEY: •Good e Fair 0 Poor 4.3.3 Level of Service For water and wastewater facilities, a level of service must be established for each type of facility included in the fee. Some facilities are designed for average day demand (water supply), some for peak day demand (water treatment) and some for peak hour (distribution lines), for example. The City's engineers must 4-11 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY establish what design criteria are needed for each type of facility in order to set fees consistent with cost incurrence. Once the design criteria have been established, City engineers and planners must adopt a "level of service" for each facility. In essence, this is a measurement of the number of gallons of capacity needed for each new development in water treatment facilities, storage capacity, wastewater treatment, etc .. Chapter 395 requires that unit usage standards be developed "in accordance with generally accepted engineering or planning standards and based on historical data and trends applicable to the political subdivision in which the individual unit of development is located during the previous 10 years". 4.4 TYPES OF FACILITIES FUNDED BY THE FEES Chapter 395 applies to fee monies or contributions which fund all water and sewer capital facilities with a few specific exceptions. Exempted from the Chapter 395 process are: Dedication of rights-of-way or easements, or construction or dedication of on-site or off-site water distribution or wastewater collection when these dedications and construction are required by valid ordinances and are necessitated by and attributable to new development; Lot or acreage fees to be placed in trust funds for the purpose of reimbursing developers for oversizing or constructing water or sewer mains or lines; and Other pro rata fees for reimbursement of water or sewer mains or lines extended by the political subdivision. Otherwise, Chapter 395 governs all "charge[s] or assessment[s] imposed by a political subdivision against new development in order to generate revenue for funding or recouping the costs of capital improvements or facility expansions necessitated by and attributable to ... new development". On the other hand, the City is not required to charge a fee for any type of facility --whether it be lines or other capital facility. Thus, the Advisory Committee and Staff need to determine what types of facilities the City should fund with impact fees, either including or excluding such facility categories as treatment, storage, pumpage and transmission/collection. Whatever type of facilities are chosen for impact fee funding, however, must be funded with a Chapter 395-regulated fee. It may be desirable to give special consideration to the treatment of line costs in developing a fee program. Conceptually, linework can often be divided into the major transmission or collection lines which bring service to broad regions of the service area in comparison to "approach mains" which bring service to smaller defined developments. The former array of lines can be viewed as major facilities which are related to the utility's ability to make service broadly available, while the latter are often considered the responsibility of the developer or customer. In reality, the distinction between these two types of lines may 4-12 '· //""'.....,.. City of College Station, Texas W -' Development of Impact Fees RIMROCK CONSUL TING COMPANY be fuzzy. Nevertheless, the City and the Advisory Committee may want to attempt such a distinction for several reasons: (1) approach mains have highly variable costs per unit, depending on their distance from existing major lines; (2) funding of approach mains is a riskier venture since the ability to utilize their full capacity is dependent on the market success of individual customers; (3) extension of approach mains can result in a less compact and efficient system if development is not contiguous to the existing system; and (4) the City may want to collect approach main fees (or dedications) earlier in the development process consistent with the time at which the City incurs these costs and in light of the somewhat risky nature of such development. Thus, the City may want to finance major lines differently from approach main lines and should consider this in determining whether to include all line work in the fee and whether to disaggregate line costs into major line and approach main components for separate fee determination. Some of the various approach main funding techniques are (1) development of a system-wide average fee for approach ma ins; (2) development of an approach main impact fee which is specific for a geographic area served by a specific line; or (3) establishment of a fee program which is exempt from Chapter 395 regulation . Each of these approaches has varying characteristics relative to precise cost recovery, administrative ease, City risk exposure and consistency with broad community goals. Any determination of facilities to be included in fee calculation should be made with the desired funding approach in mind. 4.5 ELIGIBILITY AND APPLICATION CONSIDERATIONS The Committee, in consultation with the City's attorney, needs to address whether fees for water and wastewater are to be assessed to all new development or whether exceptions will be made on some public policy basis. For example, a common consideration is whether a wastewater fee should be assessed to septic tank cutovers --customers who are connecting onto the City system after previously being served by a private septic system. Because these cutover customers do not have the opportunity to finance theirfee payments in home mortgages (as residents of newly constructed housing do), a one- time cash impact fee can be a particular burden for these customers unless some financing system for payment is arranged. Moreover, some communities consider that public health considerations are so great as to justify fee exemptions for these customers. The City may also wish to consider whether a full fee should be paid by all customers in the same manner or in the same proportion. For example, some cities wish to assess lower fees to low-cost housing residents. Others choose to assess a lower percentage of the full fee to residential customers (or exempt them altogether) as compared to commercial/industrial users (and vice versa for communities which determine that an overall community economic benefit is derived by special considerations for businesses). In any case, the exempted fee revenues cannot be recovered by charging higher fees to other feepayers; rather, tax or rate revenues or other source must be used. When considering differential treatment for various customer classes or for uniquely-situated customers, the ordinance may benefit by containing language referring to the public welfare as a reason for such differential treatment, to help avoid legal challenges. 4-13 4.6 .:-.. City of College Station, Texas Development of Impact Fees LEVEL OF COST RECOVERY RIMROCK CONSULTING COMPANY The consultant's cost of service study will calculate the maximum legal fee. The committee and staff should consider whether the city should collect the maximum possible fee or something less, due to potential economic effects or other community concern. 4.7 FEE OFFSET APPROACHES The Advisory Committee and Staff need to consider how to administer an "offset" policy. When a feepayer funds or constructs a facility which is contained in the CIP and which is a part of the cost basis for the fee calculation, that owner may not also be required to pay a fee for the same facility. Assuming that costs are passed along from the developer to the builder to the owner of the property, such credits must also follow the same progression. That is, a developer may put in various facilities but the builder may be the entity paying the fee due to the timing of fee collection ; in this instance the builder would receive the fee credit (but presumably paid for the facility dedications in the purchase price). As one means of crediting the developer for such contributions, the legislation allows the City to enter into contracts with developers, who are compensated for their dedications through "credits" against the impact fees due from their developments and through future reimbursements from impact fees paid by subsequent users of the excess capacity of the dedicated facilities. Specifically, the law states that: ... impact fees may be assessed, but shall not be collected , in areas where services are not currently available unless ... the political subdivision agrees that the owner of a new development may construct or finance the capital improvements or facility expansions and agrees that the costs incurred or funds advanced will be credited against the impact fees otherwise due from the new development or agrees to reimburse the owner for such costs from impact fees paid from other new developments which will use such capital improvements or facility expansions, which fees shall be collected and reimbursed to the owner at the time the other new development records its plat. One fairness problem which might arise would be if the facility dedicated by a developer exceeded the impact fees otherwise due from the development. In this case, the builder or ultimate owner would receive a fee credit, but might pay, through the purchase price, forthe extra costs beyond the impact fee amount. The developer would thus receive compensation twice -once through the purchase price and once from the City through subsequent user impact fee payments. It is important to note that irrespective of the time at which the City typically collects impact fees, fees for subsequent users of privately-contributed water and sewer facilities must be passed through at time of plat, whether or not the City actually collects the fees from these subsequent users at that time or later. The ordinance should be carefully worded by the City Attorney to establish a system of credits or offsets. 4-14 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSULTING COMPANY 4.8 WHOLESALE AND MASTER-METERED CUSTOMERS 4.8.1 Wholesale Customers Particular equity problems are presented by service to wholesale customers. In the larger meter sizes, it is possible to serve many more households behind the master meter than what is indicated in the LUE conversion table shown in Table 4-1. If a City has wholesale customers it serves by contract, it may not be able to impose an impact fee in the same manner as it does other customers. This may result in outside-City customers paying less of an impact fee than customers inside the City, causing serious equity concerns. There are various challenges in applying impact fees to wholesale customers. For one thing, the wholesale customer may already have a sizable water meter in place to accommodate its future customers and the City might not have any means of collecting fees for growth (particularly if the wholesale customer is outside the city's ET J). Moreover, the water/sewer service contract may not allow for impact fees. In many cases, the wholesale utility may have no ability to pass impact fees on to its customers without itself going through the Chapter 395 process. Finally, many cities have differential utility rate structures for wholesale customers. In these cases the City should be particularly careful about the interaction of rates and fees in order to not over-collect for capital costs. There are various provisions the City might make in its impact fee ordinance regarding either existing or future wholesale customers: Make no particular reference to wholesale customers Exempt wholesale customers from payment for specified reasons Assess a different fee for wholesale customers Provide that it shall be the City's policy to revise its contracts with wholesale customers to charge them for new development in their service areas in a manner similar to retail customers. 4.8.2 Master-Metered Customers Another concern relates to multifamily (apartment) customers. Oftentimes, a master meter will be placed on an entire apartment building. Because larger meter sizes represent some economies in regard to 4-15 ;;;..,, City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY peaking, a master-metered apartment complex will be assessed a lower impact fee than a similar apartment building with individually metered units. Much study has been performed on this issue, with the result that each community either chooses to charge master-metered apartments in the same manner as all other customers, or it assigns a number of LUE's to each unit based on water use relative to a typical residential meter, often 0.5 or 0.7 LUE's per unit. Many cities that use the water meter for fee sizing apply that same measure to master-metered developments as well, reasoning that the master meter sizing has taken into account demand requirements for the development and the master meter serves as a physical limitation for water use above that permitted by the meter size . 4.9 FIREFLOW METERS Cities may not wish to assess a fee for fire demand meters due to the public safety aspects of adequate fire flow capacity. Moreover, the fire flow capacity is generally never (or very infrequently used), thus it places little if any real demand on the utility system. The opposing viewpoint is that facilities must be oversized to some extent to accommodate fireflow needs of its larger customers. 4-16 ,.i //""'....._ City of College Station, Texas W / Development of Impact Fees RIMROCK CONSUL TING COMPANY CHAPTER 395. FINANCING CAPITAL IMPROVEMENTS REQUIRED BY NEW DEVELOPMENT IN MUNICIPALITIES, COUNTIES, AND CERTAIN OTHER LOCAL GOVERNMENTS SUBCHAPTER A. GENERAL PROVISIONS § 395.001 . Definitions In _this chapter: ( 1) "Capital improvement" means any of the following facilities that have a life expectancy of three or more years and are owned and operated by or on behalf of a political subdivision: (A) water supply, treatment, and distribution facilities; wastewater collection and treatment facilities; and storm water, drainage, and flood control facilities; whether or not they are located within the service area; and (8) roadway facilities. (2) "Capital improvements plan" means a plan required by this chapter that identifies capital improvements or facility expansions for which impact fees may be assessed. (3) "Facility expansion" means the expansion of the capacity of an existing facility that serves the same function as an otherwise necessary new capital improvement, in order that the existing facility may serve new development. The term does not include the repair, maintenance, modernization, or expansion of an existing facility to better serve existing development. (4) "Impact fee" means a charge or assessment imposed by a political subdivision against new development in order to generate revenue for funding or recouping the costs of capital improvements or facility expansions necessitated by and attributable to the new development. The term includes amortized charges, lump-sum charges, capital recovery fees, contributions in aid of construction, and any other fee that functions as described by this definition. The term does not include: (A) dedication of land for public parks or payment in lieu of the dedication to serve park needs; (B) dedication of rights-of-way or easements or construction or dedication of on-site or off-site water distribution , wastewater collection or drainage facilities, or streets, sidewalks, or curbs if the 8-1 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSULTING COMPANY dedication or construction is required by a valid ordinance and is necessitated by and attributable to the new development; (C) lot or acreage fees to be placed in trust funds for the purpose of reimbursing developers for oversizing or constructing water or sewer mains or lines; or (D) other pro rata fees for reimbursement of water or sewer mains or lines extended by the political subdivision. However, an item included in the capital improvements plan may not be required to be constructed except in accordance with Section 395.019(2), and an owner may not be required to construct or dedicate facilities and to pay impact fees for those facilities. (5) "Land use assumptions" includes a description of the service area and projections of changes in land uses, densities, intensities, and population in the service area over at least a 10-year period. (6) "New development" means the subdivision of land; the construction, reconstruction, redevelopment, conversion , structural alteration, relocation, or enlargement of any structure; or any use or extension of the use of land; any of which increases the number of service units. (7) "Political subdivision" means a municipality, a district or authority created under Article Ill, Section 52, or Article XVI , Section 59, of the Texas Constitution, or, for the purposes set forth by Section 395.079, certain counties described by that section. (8) "Roadway facilities" means arterial or collector streets or roads that have been designated on an officially adopted roadway plan of the political subdivision, together with all necessary appurtenances. The term includes the political subdivision's share of costs for roadways and associated improvements designated on the federal or Texas highway system, including local matching funds and costs related to utility line relocation and the establishment of curbs, gutters, sidewalks, drainage appurtenances, and rights-of-way. (9) "Service area" means the area within the corporate boundaries or extraterritorial jurisdiction, as determined under Chapter 42, of the political subdivision to be served by the capital improvements or facilities expansions specified in the capital improvements plan, except roadway facilities and storm water, drainage, and flood control facilities. The service area, for the purposes of this chapter, may include all or part of the land within the political subdivision or its extraterritorial jurisdiction, except for roadway facil ities and storm water, drainage, and flood control facilities. For roadway facilities, the service area is limited to an area within the corporate boundaries of the political subdivision and shall not exceed six miles. For storm water, drainage, and flood control facilities, the service area may include all or part of the land within the political subdivision or its extraterritorial jurisdiction , but shall not exceed the area actually 8-2 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY served by the storm water, drainage, and flood control facilities designated in the capital improvements plan and shall not extend across watershed boundaries. (10) "Service unit" means a standardized measure of consumption, use, generation, or discharge attributable to an individual unit of development calculated in accordance with generally accepted engineering or planning standards and based on historical data and trends applicable to the political subdivision in which the individual unit of development is located during the previous 1 O years. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 1989, 71st Leg., ch . 566, § 1 (e}, eff. Aug. 28, 1989. Amended by Acts 2001, 77th Leg ., ch. 345, § 1, eff. Sept. 1, 2001 . SUBCHAPTER B. AUTHORIZATION OF IMPACT FEE § 395.011 . Authorization of Fee (a) Unless otherwise specifically authorized by state law or this chapter, a governmental entity or political subdivision may not enact or impose an impact fee. (b) Political subdivisions may enact or impose impact fees on land within their corporate boundaries or extraterritorial jurisdictions only by complying with this chapter, except that impact fees may not be enacted or imposed in the extraterritorial jurisdiction for roadway facilities. (c) A municipality may contract to provide capital improvements, except roadway facilities, to an area outside its corporate boundaries and extraterritorial jurisdiction and may charge an impact fee under the contract, but if an impact fee is charged in that area, the municipality must comply with this chapter. Added by Acts 1989, 71st Leg., ch . 1, § 82(a}, eff. Aug. 28, 1989. § 395.012. Items Payable by Fee (a) An impact fee may be imposed only to pay the costs of constructing capital improvements or facility expansions, including and limited to the: (1) construction contract price; 8-3 ~ City of College Station, Texas Development of Impact Fees (2) surveying and engineering fees; RIMROCK CONSUL TING COMPANY (3) land acquisition costs, including land purchases, court awards and costs, attorney's fees, and expert witness fees; and (4) fees actually paid or contracted to be paid to an independent qualified engineer or financial consultant preparing or updating the capital improvements plan who is not an employee of the political subdivision. (b) Projected interest charges and other finance costs may be included in determining the amount of impact fees only if the impact fees are used for the payment of principal and interest on bonds, notes, or other obligations issued by or on behalf of the political subdivision to finance the capital improvements or facility expansions identified in the capital improvements plan and are not used to reimburse bond funds expended for facilities that are not identified in the capital improvements plan. (c) Notwithstanding any other provision of this chapter, the Edwards Underground Water District or a river authority that is authorized elsewhere by state law to charge fees that function as impact fees may use impact fees to pay a staff engineer who prepares or updates a capital improvements plan under this chapter. (d) A municipality may pledge an impact fee as security for the payment of debt service on a bond, note, or other obligation issued to finance a capital improvement or public facility expansion if: (1) the improvement or expansion is identified in a capital improvements plan; and (2) at the time of the pledge, the governing body of the municipality certifies in a written order, ordinance, or resolution that none of the impact fee will be used or expended for an improvement or expansion not identified in the plan. (e) A certification under Subsection (d)(2) is sufficient evidence that an impact fee pledged will not be used or expended for an improvement or expansion that is not identified in the capital improvements plan. Added by Acts 1989, 71st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 1995, 74th Leg ., ch . 90, § 1, eff. May 16, 1995. § 395.013. Items Not Payable by Fee 8-4 '· //"""....._ City of College Station, Texas W / Development of Impact Fees Impact fees may not be adopted or used to pay for: RIMROCK CONSUL TING COMPANY (1) construction, acquisition, or expansion of public facilities or assets other than capital improvements or facility expansions identified in the capital improvements plan; (2) repair, operation, or maintenance of existing or new capital improvements or facility expansions; (3) upgrading, updating, expanding, or replacing existing capital improvements to serve existing development in order to meet stricter safety, efficiency, environmental, or regulatory standards; (4) upgrading, updating, expanding , or replacing existing capital improvements to provide better service to existing development; (5) administrative and operating costs of the political subdivision , except the Edwards Underground Water District or a river authority that is authorized elsewhere by state law to charge fees that function as impact fees may use impact fees to pay its administrative and operating costs; (6) principal payments and interest or other finance charges on bonds or other indebtedness, except as allowed by Section 395.012. Added by Acts 1989, 71 st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. § 395.014. Capital Improvements Plan (a) The political subdivision shall use qualified professionals to prepare the capital improvements plan and to calculate the impact fee. The capital improvements plan must contain specific enumeration of the following items: (1) a description of the existing capital improvements within the service area and the costs to upgrade, update, improve, expand, or replace the improvements to meet existing needs and usage and stricter safety, efficiency, environmental, or regulatory standards, which shall be prepared by a qualified professional engineer licensed to perform the professional engineering services in th is state; (2) an analysis of the total capacity, the level of current usage, and commitments for usage of capacity of the existing capital improvements, which shall be prepared by a qualified professional eng ineer licensed to perform the professional engineering services in this state; 8-5 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (3) a description of all or the parts of the capital improvements or facility expansions and their costs necessitated by and attributable to new development in the service area based on the approved land use assumptions, which shall be prepared by a qualified professional engineer licensed to perform the professional engineering services in this state; (4) a definitive table establishing the specific level or quantity of use, consumption, generation, or discharge of a service unit for each category of capital improvements or facility expansions and an equivalency or conversion table establishing the ratio of a service unit to various types of land uses, including residential, commercial , and industrial; (5) the total number of projected service units necessitated by and attributable to new development within the service area based on the approved land use assumptions and calculated in accordance with generally accepted engineering or planning criteria ; (6) the projected demand for capital improvements or facility expansions required by new service units projected over a reasonable period of time, not to exceed 1 O years; and (7) a plan for awarding: (A) a credit for the portion of ad valorem tax and utility service revenues generated by new service units during the program period that is used for the payment of improvements, including the payment of debt, that are included in the capital improvements plan; or (8) in the alternative, a credit equal to 50 percent of the total projected cost of implementing the capital improvements plan. (b) The analysis required by Subsection (a)(3) may be prepared on a systemwide basis within the service area for each major category of capital improvement or facility expansion for the designated service area. (c) The governing body of the political subdivision is responsible for supervising the implementation of the capital improvements plan in a timely manner. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 345, § 2, eff. Sept. 1, 2001 . § 395.015. Maximum Fee Per Service Unit 8-6 '· //"""-.... City of College Station, Texas W ' Development of Impact Fees RIM ROCK CONSUL TING COMPANY (a) The impact fee per service unit may not exceed the amount determined by subtracting the amount in Section 395.014(a)(7) from the costs of the capital improvements described by Section 395 .014(a)(3) and dividing that amount by the total number of projected service units described by Section 395 .014(a)(5). (b) If the number of new service units projected over a reasonable period of time is less than the total number of new service units shown by the approved land use assumptions at full development of the service area, the maximum impact fee per service unit shall be calculated by dividing the costs of the part of the capital improvements necessitated by and attributable to projected new service units described by Section 395.014(a)(6) by the projected new service units described in that section . Added by Acts 1989, 71st Leg ., ch. 1, § 82(a), eff. Aug . 28 , 1989. Amended by Acts 2001, 77th Leg ., ch . 345, § 3, eff. Sept. 1, 2001 . § 395.016. Time for Assessment and Collection of Fee (a) This subsection applies only to impact fees adopted and land platted before June 20, 1987. For land that has been platted in accordance with Subchapter A, Chapter 212, or the subdivision or platting procedures of a political subdivision before June 20, 1987, or land on which new development occurs or is proposed without platting, the political subdivision may assess the impact fees at any time during the development approval and building process. Except as provided by Section 395.019, the political subdivision may collect the fees at either the time of recordation of the subdivision plat or connection to the political subdivision's water or sewer system or at the time the political subdivision issues either the building permit or the certificate of occupancy. (b) This subsection applies only to impact fees adopted before June 20, 1987, and land platted after that date. For new development which is platted in accordance with Subchapter A, Chapter 212, or the subdivision or platting procedures of a political subdivision after June 20, 1987, the political subdivision may assess the impact fees before or at the time of recordation . Except as provided by Section 395.019, the political subdivision may collect the fees at either the time of recordation of the subdivision plat or connection to the political subdivision's water or sewer system or at the time the political subdivision issues either the building permit or the certificate of occupancy. (c) This subsection applies only to impact fees adopted after June 20, 1987. For new development which is platted in accordance with Subchapter A, Chapter 212, or the subdivision or platting procedures of a political subdivision before the adoption of an impact fee, an impact fee may not be collected on any service unit for which a valid building permit is issued within one year after the date of adoption of the impact fee. 8-7 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (d) This subsection applies only to land platted in accordance with Subchapter A, Chapter 212, or the subdivision or platting procedures of a political subdivision after adoption of an impact fee adopted after June 20, 1987. The political subdivision shall assess the impact fees before or at the time of recordation of a subdivision plat or other plat under Subchapter A, Chapter 212, or the subdivision or platting ordinance or procedures of any political subdivision in the official records of the county clerk of the county in which the tract is located. Except as provided by Section 395.019, if the political subdivision has water and wastewater capacity available: (1) the political subdivision shall collect the fees at the time the political subdivision issues a building permit; (2) for land platted outside the corporate boundaries of a municipality, the municipality shall collect the fees at the time an application for an individual meter connection to the municipality's water or wastewater system is filed; or (3) a political subdivision that lacks authority to issue building permits in the area where the impact fee applies shall collect the fees at the time an application is filed for an individual meter connection to the political subdivision's water or wastewater system. (e) For land on which new development occurs or is proposed to occur without platting, the political subdivision may assess the impact fees at any time during the development and building process and may collect the fees at either the time of recordation of the subdivision plat or connection to the political subdivision's water or sewer system or at the time the political subdivision issues either the building permit or the certificate of occupancy. (f) An "assessment" means a determination of the amount of the impact fee in effect on the date or occurrence provided in this section and is the maximum amount that can be charged per service unit of such development. No specific act by the political subdivision is required. (g) Notwithstanding Subsections (a)-(e) and Section 395.017, the political subdivision may reduce or waive an impact fee for any service unit that would qualify as affordable housing under 42 U.S.C. Section 12745, as amended, once the service unit is constructed. If affordable housing as defined by 42 U.S.C. Section 12745, as amended, is not constructed, the political subdivision may reverse its decision to waive or reduce the impact fee , and the political subdivision may assess an impact fee at any time during the development approval or building process or after the building process if an impact fee was not already assessed . Added by Acts 1989, 71 st Leg ., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 1997, 75th Leg., ch. 980, § 52, eff. Sept. 1, 1997. 8-8 '· fi""'......, City of College Station, Texas W -' Development of Impact Fees RIMROCK CONSUL TING COMPANY Amended by Acts 2001, 77th Leg., ch. 345 , § 4, eff. Sept. 1, 2001 . § 395.017. Additional Fee Prohibited; Exception After assessment of the impact fees attributable to the new development or execution of an agreement for payment of impact fees, additional impact fees or increases in fees may not be assessed against the tract for any reason unless the number of service units to be developed on the tract increases. In the event of the increase in the number of service units, the impact fees to be imposed are limited to the amount attributable to the additional service units. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug . 28, 1989. § 395.018. Agreement With Owner Regarding Payment A political subdivision is authorized to enter into an agreement with the owner of a tract of land for which the plat has been recorded providing for the time and method of payment of the impact fees. Added by Acts 1989, 71st Leg ., ch . 1, § 82(a), eff. Aug . 28, 1989. § 395.019. Collection of Fees if Services Not Available Except for roadway facilities, impact fees may be assessed but may not be collected in areas where services are not currently available unless: (1) the collection is made to pay for a capital improvement or facility expansion that has been identified in the capital improvements plan and the political subdivision commits to commence construction within two years, under duly awarded and executed contracts or commitments of staff time covering substantially all of the work required to provide service, and to have the service available within a reasonable period of time considering the type of capital improvement or facility expansion to be constructed, but in no event longer than five years; (2) the political subdivision agrees that the owner of a new development may construct or finance the capital improvements or facility expansions and agrees that the costs incurred or funds advanced will be credited against the impact fees otherwise due from the new development or agrees to reimburse the owner for such costs from impact fees paid from other new developments that will use such capital improvements or facility expansions, which fees shall be collected and reimbursed to the owner at the time the other new development records its plat; or 8-9 '· ~""""' City of College Station, Texas W'/ Development of Impact Fees RIMROCK CONSUL TING COMPANY (3) an owner voluntarily requests the political subdivision to reserve capacity to serve future development, and the political subdivision and owner enter into a valid written agreement. Added by Acts 1989, 71st Leg ., ch . 1, § 82(a), eff. Aug. 28, 1989. § 395.020. Entitlement to Services Any new development for which an impact fee has been paid is entitled to the permanent use and benefit of the services for which the fee was exacted and is entitled to receive immediate service from any existing facilities with actual capacity to serve the new service units, subject to compliance with other valid regulations. Added by Acts 1989, 71 st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. § 395.021 . Authority of Political Subdivisions to Spend Funds to Reduce Fees Political subdivisions may spend funds from any lawful source to pay for all or a part of the capital improvements or facility expansions to reduce the amount of impact fees. Added by Acts 1989, 71 st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. § 395.022. Authority of Political Subdivision to Pay Fees Political subdivisions and other governmental entities may pay impact fees imposed under this chapter. Added by Acts 1989, 71 st Leg., ch. 1, § 82(a), eff. Aug . 28, 1989. § 395.023. Credits Against Roadway Facilities Fees Any construction of, contributions to, or dedications of off-site roadway facilities agreed to or required by a political subdivision as a condition of development approval shall be credited against roadway facilities impact fees otherwise due from the development. Added by Acts 1989, 71 st Leg ., ch. 1, § 82(a), eff. Aug. 28, 1989. § 395.024. Accounting For Fees and Interest 8-10 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (a) The order, ordinance, or resolution levying an impact fee must provide that all funds collected through the adoption of an impact fee shall be deposited in interest-bearing accounts clearly identifying the category of capital improvements or facility expansions within the service area for which the fee was adopted. (b) Interest earned on impact fees is considered funds of the account on which it is earned and is subject to all restrictions placed on use of impact fees under this chapter. (c) Impact fee funds may be spent only for the purposes for which the impact fee was imposed as shown by the capital improvements plan and as authorized by this chapter. (d) The records of the accounts into which impact fees are deposited shall be open for public inspection and copying during ordinary business hours. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. § 395.025. Refunds (a) On the request of an owner of the property on which an impact fee has been paid, the political subdivision shall refund the impact fee if existing facilities are available and service is denied or the political subdivision has, after collecting the fee when service was not available, failed to commence construction within two years or service is not available within a reasonable period considering the type of capital improvement or facility expansion to be constructed, but in no event later than five years from the date of payment under Section 395.019(1). (b) Repealed by Acts 2001 , 77th Leg., ch. 345, § 9, eff. Sept. 1, 2001. (c) The political subdivision shall refund any impact fee or part of it that is not spent as authorized by this chapter within 1 O years after the date of payment. (d) Any refund shall bear interest calculated from the date of collection to the date of refund at the statutory rate as set forth in Section 302.002, Finance Code, or its successor statute. (e) All refunds shall be made to the record owner of the property at the time the refund is paid . However, if the impact fees were paid by another political subdivision or governmental entity, payment shall be made to the political subdivision or governmental entity. 8-11 City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (f) The owner of the property on which an impact fee has been paid or another political subdivision or governmental entity that paid the impact fee has standing to sue for a refund under this section. Added by Acts 1989, 71 st Leg ., ch. 1, § 82(a), eff. Aug . 28 , 1989. Amended by Acts 1997, 75th Leg., ch . 1396, § 37, eff. Sept. 1, 1997. Amended by Acts 1999, 76th Leg ., ch . 62, § 7.82, eff. Sept. 1, 1999; Acts 2001 , 77th Leg., ch . 345, § 9, eff. Sept. 1, 2001 . SUBCHAPTER C. PROCEDURES FOR ADOPTION OF IMPACT FEE § 395.041 . Compliance With Procedures Required Except as otherwise provided by this chapter, a political subdivision must comply with this subchapter to levy an impact fee. Added by Acts 1989, 71 st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. § 395.0411 . Capital Improvements Plan The political subdivision shall provide for a capital improvements plan to be developed by qualified professionals using generally accepted engineering and planning practices in accordance with Section 395.014. Added by Acts 2001, 77th Leg ., ch . 345, § 5, eff. Sept. 1, 2001 . § 395.042. Hearing on Land Use Assumptions and Capital Improvements Plan To impose an impact fee, a political subdivision must adopt an order, ordinance, or resolution establishing a public hearing date to consider the land use assumptions and capital improvements plan for the designated service area. Added by Acts 1989, 71st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 345, § 5, eff. Sept. 1, 2001 . § 395 .043. Information About Land Use Assumptions and Capital Improvements Plan Available to Public 8-12 i;oo. City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY On or before the date of the first publication of the notice of the hearing on the land use assumptions and capital improvements plan, the political subdivision shall make available to the public its land use assumptions, the time period of the projections, and a description of the capital improvement facilities that may be proposed. Added by Acts 1989, 71st Leg ., ch. 1, § 82(a}, eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 345, § 5, eff. Sept. 1, 2001 . § 395.044. Notice of Hearing on Land Use Assumptions and Capital Improvements Plan (a) Before the 30th day before the date of the hearing on the land use assumptions and capital improvements plan, the political subdivision shall send a notice of the hearing by certified mail to any person who has given written notice by certified or registered mail to the municipal secretary or other designated official of the political subdivision requesting notice of the hearing within two years preceding the date of adoption of the order, ordinance, or resolution setting the public hearing. (b) The political subdivision shall publish notice of the hearing before the 30th day before the date set for the hearing, in one or more newspapers of general circulation in each county in which the political subdivision lies. However, a river authority that is authorized elsewhere by state law to charge fees that function as impact fees may publish the required newspaper notice only in each county in which the service area lies. (c) The notice must contain: (1) a headline to read as follows: "NOTICE OF PUBLIC HEARING ON LAND USE ASSUMPTIONS AND CAPITAL IMPROVEMENTS PLAN RELATING TO POSSIBLE ADOPTION OF IMPACT FEES" (2) the time, date, and location of the hearing; (3) a statement that the purpose of the hearing is to consider the land use assumptions and capital improvements plan under which an impact fee may be imposed; and · (4) a statement that any member of the public has the right to appear at the hearing and present evidence for or against the land use assumptions and capital improvements plan. 8-13 ....,,_ City of College Station, Texas Development of Impact Fees RIMROCK CONSULTING COMPANY Added by Acts 1989, 71 st Leg ., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 345, § 5, eff. Sept. 1, 2001 . § 395.045. Approval of Land Use Assumptions and Capital Improvements Plan Required (a) After the public hearing on the land use assumptions and capital improvements plan , the political subdivision shall determine whether to adopt or reject an ordinance, order, or resolution approving the land use assumptions and capital improvements plan. (b) The political subdivision , within 30 days after the date of the public hearing , shall approve or disapprove the land use assumptions and capital improvements plan. (c) An ordinance, order, or resolution approving the land use assumptions and capital improvements plan may not be adopted as an emergency measure. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch . 345, § 5, eff. Sept. 1, 2001 . § 395.0455. Systemwide Land Use Assumptions (a) In lieu of adopting land use assumptions for each service area, a political subdivision may, except for storm water, drainage, flood control, and roadway facilities, adopt systemwide land use assumptions, which cover all of the area subject to the jurisdiction of the political subdivision for the purpose of imposing impact fees under this chapter. (b) Prior to adopting systemwide land use assumptions, a political subdivision shall follow the public notice, hearing, and other requirements for adopting land use assumptions. (c) After adoption of systemwide land use assumptions, a political subdivision is not required to adopt additional land use assumptions for a service area for water supply, treatment, and distribution facilities or wastewater collection and treatment facilities as a prerequisite to the adoption of a capital improvements plan or impact fee, provided the capital improvements plan and impact fee are consistent with the systemwide land use assumptions. Added by Acts 1989, 71 st Leg., ch . 566 , § 1 (b), eff. Aug. 28, 1989. 8-14 ,, ~......, City of College Station, Texas W'-' Development of Impact Fees § 395.047. Hearing on Impact Fee RIMROCK CONSUL TING COMPANY On adoption of the land use assumptions and capital improvements plan, the governing body shall adopt an order or resolution setting a public hearing to discuss the imposition of the impact fee. The public hearing must be held by the governing body of the political subdivision to discuss the proposed ordinance, order, or resolution imposing an impact fee. Added by Acts 1989, 71 st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 345, § 5, eff. Sept. 1, 2001 . § 395.049. Notice of Hearing on Impact Fee (a) Before the 30th day before the date of the hearing on the imposition of an impact fee, the political subdivision shall send a notice of the hearing by certified mail to any person who has given written notice by certified or registered mail to the municipal secretary or other designated official of the political subdivision requesting notice of the hearing within two years preceding the date of adoption of the order or resolution setting the public hearing. (b) The political subdivision shall publish notice of the hearing before the 30th day before the date set for the hearing, in one or more newspapers of general circulation in each county in which the political subdivision lies. However, a river authority that is authorized elsewhere by state law to charge fees that function as impact fees may publish the required newspaper notice only in each county in which the service area lies. (c) The notice must contain the following: (1) a headline to read as follows: "NOTICE OF PUBLIC HEARING ON ADOPTION OF IMPACT FEES" (2) the time, date, and location of the hearing; (3) a statement that the purpose of the hearing is to consider the adoption of an impact fee; (4) the amount of the proposed impact fee per service unit; and 8-15 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (5) a statement that any member of the public has the right to appear at the hearing and present evidence for or against the plan and proposed fee. Added by Acts 1989, 71st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 345, § 5, eff. Sept. 1, 2001 . § 395.050. Advisory Committee Comments on Impact Fees The advisory committee created under Section 395.058 shall file its written comments on the proposed impact fees before the fifth business day before the date of the public hearing on the imposition of the fees. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001, 77th Leg., ch . 345, § 5, eff. Sept. 1, 2001 . § 395.051 . Approval of Impact Fee Required (a) The political subdivision, within 30 days after the date of the public hearing on the imposition of an impact fee, shall approve or disapprove the imposition of an impact fee. (b) An ordinance, order, or resolution approving the imposition of an impact fee may not be adopted as an emergency measure. Added by Acts 1989, 71st Leg ., ch. 1, § 82(a), eff. Aug . 28, 1989. Amended by Acts 2001 , 77th Leg ., ch . 345, § 5, eff. Sept. 1, 2001 . § 395 .052. Periodic Update of Land Use Assumptions and Capital Improvements Plan Required (a) A political subdivision imposing an impact fee shall update the land use assumptions and capital improvements plan at least every five years. The initial five-year period begins on the day the capital improvements plan is adopted. (b) The political subdivision shall review and evaluate its current land use assumptions and shall cause an update of the capital improvements plan to be prepared in accordance with Subchapter B.1 8-16 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY Added by Acts 1989, 71st Leg ., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 345, § 6, eff. Sept. 1, 2001. § 395.053. Hearing on Updated Land Use Assumptions and Capital Improvements Plan The governing body of the political subdivision shall, within 60 days after the date it receives the update of the land use assumptions and the capital improvements plan, adopt an order setting a public hearing to discuss and review the update and shall determine whether to amend the plan. Added by Acts 1989, 71st Leg ., ch . 1, § 82(a), eff. Aug. 28, 1989. § 395.054. Hearing on Amendments to Land Use Assumptions, Capital Improvements Plan, or Impact Fee A public hearing must be held by the governing body of the political subdivision to discuss the proposed ordinance, order, or resolution amending land use assumptions, the capital improvements plan, or the impact fee. On or before the date of the first publication of the notice of the hearing on the amendments, the land use assumptions and the capital improvements plan , including the amount of any proposed amended impact fee per service unit, shall be made available to the public. Added by Acts 1989, 71st Leg., ch . 1, § 82(a), eff. Aug . 28, 1989. § 395.055. Notice of Hearing on Amendments to Land Use Assumptions, Capital Improvements Plan, or Impact Fee (a) The notice and hearing procedures prescribed by Sections 395.044(a) and (b) apply to a hearing on the amendment of land use assumptions, a capital improvements plan, or an impact fee. (b) The notice of a hearing under this section must contain the following: (1) a headline to read as follows: "NOTICE OF PUBLIC HEARING ON AMENDMENT OF IMPACT FEES" (2) the time, date, and location of the hearing; 8-17 '· fi°""'.,..... City of College Station, Texas W'' Development of Impact Fees RIMROCK CONSUL TING COMPANY (3) a statement that the purpose of the hearing is to consider the amendment of land use assumptions and a capital improvements plan and the imposition of an impact fee; and (4) a statement that any member of the public has the right to appear at the hearing and present evidence for or against the update. Added by Acts 1989, 71st Leg., ch . 1, § 82(a), eff. Aug . 28, 1989. Amended by Acts 2001, 77th Leg., ch. 345, § 7, eff. Sept. 1, 2001. § 395.056. Advisory Committee Comments on Amendments The advisory committee created under Section 395.058 shall file its written comments on the proposed amendments to the land use assumptions, capital improvements plan, and impact fee before the fifth business day before the date of the public hearing on the amendments. Added by Acts 1989, 71st Leg ., ch . 1, § 82(a), eff. Aug. 28, 1989. § 395.057. Approval of Amendments Required (a) The political subdivision, within 30 days after the date of the public hearing on the amendments, shall approve or disapprove the amendments of the land use assumptions and the capital improvements plan and modification of an impact fee . (b) An ordinance, order, or resolution approving the amendments to the land use assumptions, the capital improvements plan, and imposition of an impact fee may not be adopted as an emergency measure. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. § 395.0575. Determination That No Update of Land Use Assumptions, Capital Improvements Plan or Impact Fees is Needed (a) If, at the time an update under Section 395.052 is required , the governing body determines that no change to the land use assumptions, capital improvements plan, or impact fee is needed , it may, as an alternative to the updating requirements of Sections 395 .052-395.057, do the following: 8-18 ;;:oo. City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (1) The governing body of the political subdivision shall, upon determining that an update is unnecessary and 60 days before publishing the final notice under this section, send notice of its determination not to update the land use assumptions, capital improvements plan, and impact fee by certified mail to any person who has, within two years preceding the date that the final notice of this matter is to be published, give written notice by certified or registered mail to the municipal secretary or other designated official of the political subdivision requesting notice of hearings related to impact fees. The notice must contain the information in Subsections (b)(2)-(5). (2) The political subdivision shall publish notice of its determination once a week for three consecutive weeks in one or more newspapers with general circulation in each county in which the political subdivision lies. However, a river authority that is authorized elsewhere by state law to charge fees that function as impact fees may publish the required newspaper notice only in each county in which the service area lies. The notice of public hearing may not be in the part of the paper in which legal notices and classified ads appear and may not be smaller than one-quarter page of a standard-size or tabloid-size newspaper, and the headline on the notice must be in 18-point or larger type. (b) The notice must contain the following: (1) a headline to read as follows: "NOTICE OF DETERMINATION NOT TO UPDATE LAND USE ASSUMPTIONS, CAPITAL IMPROVEMENTS PLAN, OR IMPACT FEES"; (2) a statement that the governing body of the political subdivision has determined that no change to the land use assumptions, capital improvements plan , or impact fee is necessary; (3) an easily understandable description and a map of the service area in which the updating has been determined to be unnecessary; (4) a statement that if, within a specified date, which date shall be at least 60 days after publication of the first notice, a person makes a written request to the designated official of the political subdivision requesting that the land use assumptions, capital improvements plan , or impact fee be updated, the governing body must comply with the request by following the requirements of Sections 395.052-395.057; and 8-19 ;;ooi, City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (5) a statement identifying the name and mailing address of the official of the political subdivision to whom a request for an update should be sent. (c) The advisory committee shall file its written comments on the need for updating the land use assumptions, capital improvements plans, and impact fee before the fifth business day before the earliest notice of the government's decision that no update is necessary is mailed or published. (d) If, by the date specified in Subsection (b)(4), a person requests in writing that the land use assumptions, capital improvements plan, or impact fee be updated, the governing body shall cause an update of the land use assumptions and capital improvements plan to be prepared in accordance with Sections 395.052-395.057. (e) An ordinance, order, or resolution determining the need for updating land use assumptions, a capital improvements plan, or an impact fee may not be adopted as an emergency measure. Added by Acts 1989, 71st Leg., ch . 566, § 1(d), eff. Aug. 28, 1989. § 395.058. Advisory Committee (a) On or before the date on which the order, ordinance, or resolution is adopted under Section 395.042 , the political subdivision shall appoint a capital improvements advisory committee. (b) The advisory committee is composed of not less than five members who shall be appointed by a majority vote of the governing body of the political subdivision. Not less than 40 percent of the membership of the advisory committee must be representatives of the real estate, development, or building industries who are not employees or officials of a political subdivision or governmental entity. If the political subdivision has a planning and zoning commission , the commission may act as the advisory committee if the commission includes at least one representative of the real estate, development, or build ing industry who is not an employee or official of a political subdivision or governmental entity. If no such representative is a member of the planning and zoning commission, the commission may still act as the advisory committee if at least one such representative is appointed by the political subdivision as an ad hoc voting member of the planning and zoning commission when it acts as the advisory committee. If the impact fee is to be applied in the extraterritorial jurisdiction of the political subdivision , the membership must include a representative from that area. (c) The advisory committee serves in an advisory capacity and is established to: (1) advise and assist the political subdivision in adopting land use assumptions; 8-20 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (2) review the capital improvements plan and file written comments; (3) monitor and evaluate implementation of the capital improvements plan; (4) file semiannual reports with respect to the progress of the capital improvements plan and report to the political subdivision any perceived inequities in implementing the plan or imposing the impact fee ; and (5) advise the political subdivision of the need to update or revise the land use assumptions, capital improvements plan, and impact fee. (d) The political subdivision shall make available to the advisory committee any professional reports with respect to developing and implementing the capital improvements plan. (e) The governing body of the political subdivision shall adopt procedural rules for the advisory committee to follow in carrying out its duties. Added by Acts 1989, 71st Leg ., ch . 1, § 82(a), eff. Aug. 28, 1989. SUBCHAPTER D. OTHER PROVISIONS § 395.071 . Duties to be Performed Within Time Limits If the governing body of the political subdivision does not perform a duty imposed under this chapter within the prescribed period, a person who has paid an impact fee or an owner of land on which an impact fee has been paid has the right to present a written request to the governing body of the political subdivision stating the nature of the unperformed duty and requesting that it be performed within 60 days after the date of the request. If the governing body of the political subdivision finds that the duty is required under this chapter and is late in being performed, it shall cause the duty to commence within 60 days after the date of the request and continue until completion. Added by Acts 1989, 71 st Leg ., ch . 1, § 82(a), eff. Aug . 28, 1989. § 395.072. Records of Hearings A record must be made of any public hearing provided for by this chapter. The record shall be maintained and be made available for public inspection by the political subdivision for at least 1 O years after the date of the hearing. 8-21 """" City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY Added by Acts 1989, 71st Leg., ch. 1, § 82(a}, eff. Aug. 28, 1989. § 395.073. Cumulative Effect of State and Local Restrictions Any state or local restrictions that apply to the imposition of an impact fee in a political subdivision where an impact fee is proposed are cumulative with the restrictions in this chapter. Added by Acts 1989, 71 st Leg., ch. 1, § 82(a}, eff. Aug . 28, 1989. § 395.074. Prior Impact Fees Replaced by Fees Under This Chapter An impact fee that is in place on June 20, 1987, must be replaced by an impact fee made under this chapter on or before June 20, 1990. However, any political subdivision having an impact fee that has not been replaced under this chapter on or before June 20, 1988, is liable to any party who, after June 20, 1988, pays an impact fee that exceeds the maximum permitted under Subchapter B by more than 10 percent for an amount equal to two times the difference between the maximum impact fee allowed and the actual impact fee imposed, plus reasonable attorney's fees and court costs. Added by Acts 1989, 71st Leg ., ch. 1, § 82(a}, eff. Aug . 28, 1989. § 395.075. No Effect on Taxes or Other Charges This chapter does not prohibit, affect, or regulate any tax, fee, charge, or assessment specifically authorized by state law. Added by Acts 1989, 71st Leg., ch . 1, § 82(a}, eff. Aug. 28, 1989. § 395.076. Moratorium on Development Prohibited A moratorium may not be placed on new development for the purpose of awaiting the completion of all or any part of the process necessary to develop, adopt, or update land use assumptions, a capital improvements plan, or an impact fee. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 441, § 2, eff. Sept. 1, 2001 . 8-22 ~ City of College Station, Texas Development of Impact Fees § 395.077. Appeals RIM ROCK CONSUL TING COMPANY (a) A person who has exhausted all administrative remedies within the political subdivision and who is aggrieved by a final decision is entitled to trial de novo under this chapter. (b) A suit to contest an impact fee must be filed within 90 days after the date of adoption of the ordinance, order, or resolution establishing the impact fee. (c) Except for roadway facilities, a person who has paid an impact fee or an owner of property on which an impact fee has been paid is entitled to specific performance of the services by the political subdivision for which the fee was paid. (d) This section does not require construction of a specific facility to provide the services. (e) Any suit must be filed in the county in which the major part of the land area of the political subdivision is located. A successful litigant shall be entitled to recover reasonable attorney's fees and court costs. Added by Acts 1989, 71st Leg ., ch . 1, § 82(a), eff. Aug . 28, 1989. § 395.078. Substantial Compliance With Notice Requirements An impact fee may not be held invalid because the public notice requirements were not complied with if compliance was substantial and in good faith. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug . 28, 1989. § 395.079. Impact Fee for Storm Water, Drainage, and Flood Control in Populous County (a) Any county that has a population of 3.3 million or more or that borders a county with a population of 3.3 million or more, and any district or authority created under Article XVI , Section 59, of the Texas Constitution within any such county that is authorized to provide storm water, drainage, and flood control facilities, is authorized to impose impact fees to provide storm water, drainage, and flood control improvements necessary to accommodate new development. (b) The imposition of impact fees authorized by Subsection (a) is exempt from the requirements of Sections 395.025, 395.052-395.057, and 395.07 4 unless the political subdivision proposes to increase the impact fee. 8-23 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (c) Any political subdivision described by Subsection (a) is authorized to pledge or otherwise contractually obligate all or part of the impact fees to the payment of principal and interest on bonds, notes, or other obligations issued or incurred by or on behalf of the political subdivision and to the payment of any other contractual obligations. (d) An impact fee adopted by a political subdivision under Subsection (a) may not be reduced if: (1) the political subdivision has pledged or otherwise contractually obligated all or part of the impact fees to the payment of principal and interest on bonds, notes, or other obligations issued by or on behalf of the political subdivision; and (2) the political subdivision agrees in the pledge or contract not to reduce the impact fees during the term of the bonds, notes, or other contractual obligations. Added by Acts 1989, 71st Leg., ch. 1, § 82(a), eff. Aug . 28, 1989. Amended by Acts 2001 , 77th Leg., ch. 669, § 107, eff. Sept. 1, 2001 . § 395.080. Chapter Not Applicable to Certain Water-Related Special Districts (a) This chapter does not apply to impact fees, charges, fees, assessments, or contributions: (1) paid by or charged to a district created under Article XVI, Section 59, of the Texas Constitution to another district created under that constitutional provision if both districts are required by law to obtain approval of their bonds by the Texas Natural Resource Conservation Commission; or (2) charged by an entity if the impact fees, charges, fees, assessments, or contributions are approved by the Texas Natural Resource Conservation Commission. (b) Any district created under Article XVI, Section 59, or Article Ill, Section 52, of the Texas Constitution may petition the Texas Natural Resource Conservation Commission for approval of any proposed impact fees, charges, fees, assessments, or contributions. The commission shall adopt rules for reviewing the petition and may charge the petitioner fees adequate to cover the cost of processing and considering the petition . The rules shall require notice substantially the same as that required by this chapter for the adoption of impact fees and shall afford opportunity for all affected parties to participate. Added by Acts 1989, 71 st Leg., ch . 1, § 82(a), eff. Aug. 28, 1989. Amended by Acts 1995, 74th Leg., ch. 76, § 11 .257, eff. Sept. 1, 1995. 8-24 ,., ~""""' City of College Station, Texas W ' Development of Impact Fees RIMROCK CONSUL TING COMPANY § 395.081 . Fees for Adjoining Landowners in Certain Municipalities (a) This section applies only to a municipality with a population of 105,000 or less that constitutes more than three-fourths of the population of the county in which the majority of the area of the municipality is located. (b) A municipality that has not adopted an impact fee under this chapter that is constructing a capital improvement, including sewer or waterline or drainage or roadway facilities, from the municipality to a development located within or outside the municipality's boundaries, in its discretion, may allow a landowner whose land adjoins the capital improvement or is within a specified distance from the capital improvement, as determined by the governing body of the municipality, to connect to the capital improvement if: (1) the governing body of the municipality has adopted a finding under Subsection (c); and (2) the landowner agrees to pay a proportional share of the cost of the capital improvement as determined by the governing body of the municipality and agreed to by the landowner. (c) Before a municipality may allow a landowner to connect to a capital improvement under Subsection (b), the municipality shall adopt a finding that the municipality will benefit from allowing the landowner to connect to the capital improvement. The finding shall describe the benefit to be received by the municipality. (d) A determination of the governing body of a municipality, or its officers or employees, under this section is a discretionary function of the municipality and the municipality and its officers or employees are not liable for a determination made under this section. Added by Acts 1997, ?5th Leg., ch. 1150, § 1, eff. June 19, 1997. § 395.082. Certification of Compliance Required (a) A political subdivision that imposes an impact fee shall submit a written certification verifying compliance with this chapter to the attorney general each year not later than the last day of the political subdivision's fiscal year. (b) The certification must be signed by the presiding officer of the governing body of a political subdivision and include a statement that reads substantially similar to the following: "This statement certifies compliance with Chapter 395, Local Government Code." 8-25 ~ City of College Station, Texas Development of Impact Fees RIMROCK CONSUL TING COMPANY (c) A political subdivision that fails to submit a certification as required by this section is liable to the state for a civil penalty in an amount equal to 1 O percent of the amount of the impact fees erroneously charged. The attorney general shall collect the civil penalty and deposit the amount collected to the credit of the housing trust fund . Added by Acts 2001, 77th Leg., ch . 345 , § 8, eff. Sept. 1, 2001 . 8-26