Have you ever wondered if the impact fees your company is paying to various jurisdictions are going toward their intended purpose? Interestingly, they often are not.
Over the last 30 years, the Development Planning & Financing Group Inc. (DPFG) has been working with NAHB, HBAs and various home building companies in reviewing, critiquing, and determining the overall fairness and equity of the impact fees proposed by associated jurisdictions.
Over the last seven years, DPFG has conducted a number of in-depth audits of municipalities’ fee programs and we can now conclude greater transparency and oversight are needed related to the expenditure of fees.
Most jurisdictions attempt to utilize fees for the intended purposes. There does, however, appear to be an almost uniform disconnect between the departments that prepare the fee study (e.g., manager, public works and finance departments) and the departments and/or personnel that collect and expend impact fees (accounting and public works departments).
In states with no fee audit requirement, DPFG’s audit findings have found the misuse of impact fees in four general areas:
Most state impact fee statutes are vague and open to interpretation, which often leads to misuse.
A possible solution is enacting impact-fee enabling legislation that outlines specific rules and guidelines for the estimation, collection, and expenditure of impact fees. This legislation should also provide a means for independent third parties knowledgeable in impact fees, public infrastructure, accounting and finance to audit the jurisdiction’s expenditure of impact fees.
As a starting point, industry associations may want to consider a broader effort to implement more specific legislation related to the estimation, collection, and expenditure of impact fees. By providing more detailed guidelines and implementing regular peer reviews of fee accounts, both the public and private sectors can feel more confident that jurisdictions are utilizing impact fees for their intended purpose, which is to provide necessary infrastructure for new growth.
Carter T. Froelich, CPA, is managing principal of the Southwest and Mountain Regions of Development Planning & Financing Group Inc. This post was adapted from an article in the Fall 2018 issue of Best in American Living. Read the full article here.