Skip to content
0

Impact Fees

Gain insight into the nuances of impact fees in Wisconsin.

Overview of impact fees

Generally speaking, “impact fees” are financial contributions — money or land, for example — imposed by communities on developers or builders to pay for capital improvements within the community which are necessary to service/accommodate the new development.

Impact fees, however, must be reasonable. To ensure fairness, impact fees can only be assessed (1) for capital improvements that are a direct consequence of the new development and (2) in an amount not exceeding the proportionate share required to serve the new development. In other words, a developer cannot be required to pay a disproportionate share of improvements that also benefit other persons, such as a bridge on the other side of town.

Impact fee definitions

General (Wis. Stat. § 66.0617(2)(b))

The amount of an impact fee imposed by a municipality shall be reduced to compensate for any other costs of public facilities imposed by the municipality on developers to provide or pay for capital costs

Public Hearing Notice (Wis. Stat. § 66.0617(3))

Before enacting an ordinance that imposes impact fees, or amending an existing ordinance that imposes impact fees, a municipality shall hold a public hearing on the proposed ordinance or amendment.

Public Facilities Needs Assessment (Wis. Stat. § 66.0617(4)(a)(1)-(3))

Before enacting an ordinance that imposes impact fees, a municipality shall prepare a needs assessment for the public facilities for which it is anticipated that impact fees may be imposed. The public facilities needs assessment shall include the following:

  1. An inventory of existing public facilities, including an inventory of any deficiencies in quality or quantity of existing facilities, for which it is anticipated that an impact fee may be imposed.
  2. An identification of new public facilities or necessary improvements to existing facilities that will be required because of land development for which it is anticipated impact fees will be imposed.
  3. A detailed estimate of the capital costs of providing the new public facilities or the improvements or expansions in existing public facilities, including an estimate of the cumulative effect of all proposed and existing impact fees on the availability of affordable housing within the municipality.
Differential Fees, Impact Fee Zones (Wis. Stat. § 66.0617(5))

(a) An ordinance enacted under this section may impose different impact fees on different types of land development

(b) An ordinance enacted under this section may delineate geographically defined zones within the municipality and may impose impact fees on land development in a zone that differ from impact fees imposed on land development in other zones within the municipality. The public facilities needs assessment that is required shall explicitly identify the differences between the zones in the amount of impact fees imposed.

Standards for Impact Fees (Wis. Stat. § 66.0617(6))

Impact fees imposed by an ordinance enacted under this section:

(a) Shall bear a rational relationship to the need for new, expanded or improved public facilities that are required to serve land development

(am) May not include amounts for an increase in service capacity greater than necessary to serve the development for which the fee is imposed

(b) May not exceed the proportionate share of the capital costs that are required to serve land development

(c) Shall be based on actual capital costs or reasonable estimates of capital costs for new, expanded or improved facilities

(d) Shall be reduced to compensate for other capital costs imposed by the municipality with respect to land development to provide or pay for public facilities, including special assessments, special charges, land dedications or fees in lieu of land dedications or any other items of value

(e) Shall be reduced to compensate for moneys received from the federal or state government specifically to provide or pay for public facilities for which the impact fees are imposed

(f) May not include amounts necessary to address existing deficiencies in public facilities

(fm) May not include expenses for operation or maintenance of a public facility

(g) Must be paid by the developer in full upon the issuance of the building permit by the municipality. If the fees exceed $75,000, a developer may defer payment of impact fees for a period of 4 years from the date of the issuance of the building permit or until 6 months before the municipality incurs the costs to construct the public facilities related to the development, whichever is earlier.

Low-cost Housing (Wis. Stat. § 66.0617(7))

An ordinance enacted under this section may provide for an exemption from, or a reduction in the amount of, impact fees on land development that provides low-cost housing, except no amount of an impact fee reduction or exemption may be shifted to any other development in the land development in which the low-cost housing is located or to any other land development in the municipality.

Impact Fee Reports (Wis. Stat. § 66.0617(7r))

At the time that the municipality collects an impact fee, it shall provide the to the developer an accounting of how the fee will be spent.

Requirements for Impact Fee Revenues (Wis. Stat. § 66.0617(8))

Impact fee revenues and interest earned on impact fee revenues may be expended only for the particular capital costs for which the impact fee was imposed.

Refund of Impact Fees (Wis. Stat. § 66.0617(9))

Impact fees that are not used within 8 years after they are collected shall be refunded to the payer of the fees with the interest accrued. Impact fees related to lift stations or the collection and treatment of sewage must be refunded if not used in 10 years.

A municipality that enacts an impact fee ordinance under this section shall specify a procedure under which a developer upon whom an impact fee is imposed has the right to contest the amount, collection or use of the impact fee to the governing body of the municipality.

Why communities impose impact fees

Communities use impact fees, as opposed to other sources of revenue, to fund capital improvements for three primary reasons:

  1. Many communities either have underestimated their actual growth or failed to engage in long-range fiscal planning for capital improvements altogether. Accordingly, because these communities have not adequately planned for growth, they need additional sources of revenue, such as impact fees, to fund those capital improvements that are necessary to accommodate growth.
  2. Many other sources of revenue have dried up as options for local governments. Over the last several years, fiscal responsibility has shifted from federal and state governments to local units. For example, municipalities are now required to share more of the burden for transportation costs than in the past.
  3. Finally, some contend that the burden of paying for capital improvements should be borne by new development because new residents will be the ones who will put pressure on the existing facilities.

Impact fees and REALTOR® impact

Although they are an effective means to generate income for the community, impact fees increase the cost of housing. When a community imposes an impact fee on new development, the actual costs are passed on to the purchaser through increased lot prices. As lot prices increase, the number of people who are able to afford the lots decreases. In addition, if the impact fees are too high, prospective homebuyers will look to other communities with lower prices. Accordingly, by reducing the number of prospective buyers who are either able or willing to pay for the increased lot prices, impact fees can have a devastating impact on local real estate markets.

Despite claims by local neighborhood groups, new residents are not the only ones affected by impact fees. According to Planning Magazine, 50-75% of new homes are purchased by existing residents looking to trade up within the same community. Accordingly, impact fees often penalize longtime tax-paying residents for wanting to stay in the community.

Additional resources