This is the first of a series of articles on impact fees. There’s nothing simple about impact fees, they have multiple dimensions. A closer look at recent changes to Arizona mandating local accountability and transparency to the impact-fee process shows no two municipalities the same.
A development impact fee (DIF) is a form of financial extraction used to finance necessary public services for new growth, but there are differences from one place to another as to the methods for collecting such fees. In other words, a development impact fee is a financial tool to reduce the gap between the resources needed to build new public facilities or to improve ones in order to serve new residents and the money available for that purpose.
Adopted October 9, 2014 and effective as of December 23, 2014, the City of Tucson implemented a new schedule to phase-in higher impact fees over 18 months, scheduled to increase again on July 1, 2016. See City of Tucson – Development Impact Fee rate sheet HERE.
The following sample is for a 3,000-square-foot retail space in vanilla shell condition. The impact fees would be paid with the Certificate of Occupancy (COO), having been deferred by the builder at the time building permits were pulled. Other cities do this differently, but this is how it is done in Tucson. Depending on the Tucson service area, the impact fees will differ minimally and within only a few dollars of each other.
| Effective: 12/23/2014 through 6/30/2016 | |||
| Amount (Per 1000 Sq. Ft) |
Service Type | Service Area | Fee |
| $4,282.00 | Streets | Central | $12,846.00 |
| $38.00 | Parks | Central | $114.00 |
| $321.00 | Police | Central | $963.00 |
| $157.00 | Fire | Central | $471.00 |
| Admin Fee | $50.00 | ||
| Total | $14,444.00 | ||
Effective 7/01/2016
| Amount (Per 1000 Sq. Ft) |
Service Type | Service Area | Fee |
| $6,507.00 | Streets | Central | $19,521.00 |
| $38.00 | Parks | Central | $114.00 |
| $321.00 | Police | Central | $963.00 |
| $157.00 | Fire | Central | $471.00 |
| Admin Fee | $50.00 | ||
| Total | $21,119.00 |
See also Tucson Impact Fee Calculator HERE.
This means that until 6/30/2016 the tenant would pay $14,444 for impact fees, and after 7/01/2016 the same space / same tenant would pay $21,119 for impact fees. Compared to impact fees in Oro Valley of $8,577 ($5,867 less than current Tucson fees and $12,542 less after 7/01/2016) or impact fees in Marana where the same space / same tenant would pay $5,394 ($9,050 less at current Tucson fees and $24,611 less after 7/01/2016).
Impact fees were pioneered by local governments in the absence of explicit state enabling legislation, defended as an exercise of local government’s broad “police power” to protect health, safety and welfare of the community.
However, effective Jan 1, 2012, the state mandated accountability and transparency to the impact-fee process, requiring municipalities to create impact fee advisory committees comprised of a majority of members from the real estate, development, and homebuilding industries. Or waive the advisory committee and provide for a biennial audit of its land use assumptions, infrastructure improvements plan, and development impact fees. The new law modified ARS 9-463.05 as to the manner in which municipalities are permitted to charge and calculate development impact fees and the scope of “necessary public services”. In other words, municipalities can charge whatever they deem appropriate as long as it’s transparent.
This is how it gets implemented in Tucson, as example, using the City of Tucson – Development Impact Fee rate sheet HERE: If there is an existing office use, and the tenant is to upgrade the building to general retail, there would be an impact fee collected. Streets impact fee for Office is $3,797 / 1000-square-feet.; General retail is $4,282 / 1000-square-feet, therefore the difference in Streets' impact fee is $485 / 1000-square-feet and would be collected in conjunction with building permit fees. The other impact fee categories - Parks, Police and Fire - would be similarly adjusted. Additionally, tenant improvements do not increase the square footage of the business; by definition, the tenant improvements are confined to the existing interior of the building. The impact fees for any additional square footage for the new proposed use would also be calculated at the new (higher) use.
In other words, the first tenant pays the impact fees for a new Certificate of Occupancy and is not required for a later tenant of an existing building unless the occupancy classification changes for any portion of the building. However, if the TI is changed for a more intense use, as going from office to retail, the impact fee collected is the difference between the existing use and the new use.
In speaking with the City of Phoenix and Marana, we were told that both collect impact fees from the builder when building permits are issued. Oro Valley allows this at builder's option, to either pay with building permits or defer it to tenants with Certificate of Occupancy.
If you have issues with impact fees please let us know; we’ll try to address them in future articles. Email REDailynews@outlook.com