Department of Finance
Reference: Impact Fee Study Results
To: Mayor Gregory Mills and Members of City Council
Through: Michael P. Martinez, City Manager
Prepared By: Catrina Asher, Director of Finance
Date Prepared: April 23, 2024
PURPOSE
To share with City Council the results of the City’s Impact Fee Study and seek input on proposed fee changes for 2025.
BACKGROUND
What are Impact Fees and how are they used?
Impact fees are fees charged on new development to fund capital investment needed for a City to maintain a consistent level of service for the residents and businesses as the population grows. Impact fees are charged to builders and developers based on the type and size of the development (e.g. residential, retail, industrial, etc.). Fees may be charged for various service categories, including (but not limited to) parks and open space, general facilities, fleet and transportation. Only new development is subject to impact fees.
Impact fees are different than user fees or rates, such as building and inspection fees. Those user fees are designed to recover operational costs (a customer pays a fee and receives a service). Impact fees are for capital costs, not operational costs.
The use of impact fees is governed by the Colorado Revised Statutes (C.R.S.) and fees must be used on projects that expand service capacity. This may include expanding the vehicle or equipment fleet (e.g. additional snowplows to plow the additional roads created by development) or adding square footage to City facilities (e.g. additional office space to house additional Police staff needed to manage a growing community). Impact fees may not be used for operational costs, including repairs and maintenance or personnel costs.
What is an Impact Fee Study?
An Impact Fee Study uses a variety of data to project the projects or costs needed to maintain the City’s level of service (LOS) provided to residents and businesses. Using that information and applying industry standard calculations and analysis, a schedule of rates is developed for major land use types.
Community needs change over time, and therefore it is important to reassess impact fees periodically, with five years being the recommended interval. As some of the City’s impact fees have been in place for 10 years or more, City staff determined that an updated Impact Fee Study was needed.
Because of the complex nature of an Impact Fee Study, the City of Brighton issued a Request for Proposal (competitive solicitation) and selected Denver-based consultant Economic & Planning Systems, Inc. (EPS) to perform the study.
What is included in the City’s Impact Fee Study?
An Impact Fee Study may include a variety of fees for different service areas. The City’s Impact Fee Study was focused on fees that had been in place more than 5 years and service areas that had not been reviewed in the past.
Currently, the City charges impact fees for transportation, bridges, and parks and recreation. Additionally, impact fees are charged by the City’s utility operations. The City’s Parks & Recreation Impact Fees as well as Utility Impact Fees were reviewed within the last five years and were therefore not included in the scope of this study.
The City’s impact fees for transportation and bridges have been in place for more than 10 years, so those service areas have been included in the study. Additionally, City staff asked EPS to include a review of general facilities and fleet services to determine if impact fees might be warranted for expansion of these areas as the City continues to grow.
In summary, this study focused on fees for transportation, general facilities, and fleet and includes recommendations for new and/or updated fees in those areas.
CRITERIA BY WHICH COUNCIL MUST CONSIDER THE ITEM
Impact fees are governed by the Colorado Revised Statutes and are therefore limited in how they may be used. Use of these fees should be limited to those allowed under the C.R.S.
Impact fees can be an important funding source for future growth, requiring development to contribute to the expansion of capital facilities and equipment required by that development. The setting of fees should be done in a way that is justifiable, meaning that they are supported by a study that determines a maximum amount that can be charged. This maximum amount represents the full cost of growth in each service area based on the standard of maintaining service levels. A municipality may choose to set fees lower than the maximum, but not higher.
It may also be important to consider how fees may impact development by either encouraging or discouraging that development, and comparison to neighboring municipalities may provide helpful information in determining what rates to charge in various areas. The presentation attached provides information on rates charged by neighboring municipalities.
It is important to have all impact fees reviewed periodically, with a 5-year internal being a recommended industry practice.
FINANCIAL IMPACT
Impact fees can provide important funding for capital expansion as a municipality expands, allowing for service expansion to maintain service levels across a growing community. The recommendation adds new impact fees for general facilities and fleet which will support fleet expansion and facility expansion. Without these fees, necessary expansions would require diverting funds from ongoing operational funding sources, such as General Fund sales tax revenues that would otherwise be used for operational costs (repairs, maintenance, personnel, etc.).
STAFF RECOMMENDATION
Staff recommends resetting impact fees for transportation and adding fees for general facilities and fleet as calculated in the study. This recommendation includes a phase in period for new fees and indexing of fees to inflation. Refer to the presentation for fee recommendations and comparisons to neighboring communities.
Attachments:
Ø Presentation