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Understanding Roadway Impact Fees

The reduced availability of funds for the expansion of cities’ roadway network has hindered many cities from upgrading infrastructure to meet increasing travel demands resulting from new growth. One method to alleviate this funding issue is for a city to collect impact fees from new development to help fund expansion of the network. What is unique and perhaps controversial about impact fees is that they often finance roadway improvements that are outside the development itself. However, when considering traffic implications created from a system standpoint, impact fees provide a means by which infrastructure may keep pace with such development.

Roadway Impact Fee Basics

Legal Background

Texas initially authorized the use of impact fees with the passage of Senate Bill 336 during the 1987 legislature. Now codified in Chapter 395 of the Texas Local Government Codes, the legislation authorizes cities to collect fees from new developments to finance new construction or expansion of capital improvements such as water treatment and distribution facilities, storm and wastewater facilities, and roadway facilities. The law stipulates that all fees collected from new development must not exceed the maximum amount calculated by the methodology described therein.

The law also mandates that impact fee systems be updated periodically to ensure that the appropriate cost per service unit is established. As new roadway improvements are completed, actual costs are inserted into the cost per service unit calculation to reflect a more accurate reading of service area costs, as opposed to estimated costs that were established at the onset of the impact fee system. Additionally, new capital improvement projects can be added to the system.

In September 2001, Chapter 395 was amended, which called for several technical and administrative changes including the following:

  • Expansion of the permissible service area structure for roadway facilities from three to six miles;
  • A credit for the portion of ad valorem tax revenues generated by improvements over the program period, or the credit equal to 50 percent of the total projected cost of implementing the capital improvements plan;
  • A city's share of costs on the federal or Texas highway system, including matching funds and costs related to utility line relocation, the establishment of curbs and gutters, sidewalks, drainage appurtenances, and rights-of-way;
  • Increase in the time period of update of impact fee land use assumptions and capital improvements plan from a three- to five-year period;
  • Changes in compliance requirements as they relate to annual reporting; and
  • Consolidation of the land use assumptions, capital improvements and impact fee hearings.

Roadway Impact Fees Advantages and Disadvantages

Methodology

The technical analysis and background for impact fee calculations is based on the requirements stated in Chapter 395. The tasks involved are as follows:

  1. Establish Capital Improvement Advisory Committee (CIAC) to provide input and recommendations during the study.
  2. Collect data to establish the basis for subsequent analyses.
  3. Establish roadway impact fee service areas.
  4. Establish service units for roadway impact fee calculations. This is typically vehicle-miles of travel in the PM peak hour.
  5. Conduct a roadway inventory of city thoroughfares to determine lane geometries, roadway classifications and segment lengths.
  6. Evaluate the existing roadway network to determine roadway capacity, current utilization, and if any capacity deficiencies exist within each impact fee service area.
  7. Calculate new vehicle-miles of demand (over a 10-year planning period) for each service area based on population and employment growth (Land Use Assumptions report).
  8. Prepare a roadway impact fee capital improvements plan (IFCIP) based on needs from projected growth, analysis of existing system deficiencies, and input from the CIAC and City Staff.
  9. Prepare roadway costs associated with construction, engineering, right-of-way, and project financing for capital improvement projects.
  10. Calculate the cost of capacity supplied, cost attributable to new development and the maximum cost per service unit for each service area.
  11. Apply a credit of 50 percent to the cost of the IFCIP and calculate a discounted cost per service unit to meet Chapter 395 requirements. (In the alternative, conduct a finance analysis to determine the actual credit from ad valorem tax increases by new development.)
  12. Prepare a report to document the procedures, findings and conclusions of the study.

Freese and Nichols Assistance in Impact Fee Studies

Freese and Nichols has been assisting Texas communities in the development and update of impact fees since the inception of capital improvements financing legislation in 1989. Our experience with such studies extends to large and small municipalities throughout the state and spans all facets of infrastructure programming. As illustrated, Freese and Nichols has performed numerous impact fee studies for client cities in North Texas alone. The depth and experience our team offers enables efficient analysis of technical and policy elements of impact fee programs. Our intimate knowledge of Chapter 395, Texas Local Government Code, enables us to streamline procedural processes while at the same time recommending structural system enhancements. Our practical experience in policy development enables us to recommend mechanisms to create a new program or strengthen an existing program’s administration, as well as best practices to bolster system application and ordinance creation or updates. Finally, our strength in all facets of capital improvements programming and implementation provide value-added service for its use with impact fee studies.

For more resources or information regarding roadway impact fees, please contact Transportation Planning Manager Eddie Haas or Transportation Planning Engineer Daniel Herrig.

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