Development Impact Fees to fund transportation

Development Impact Fees to fund transportation

By Chrissy Mancini Nichols

Feb 24, 2012

This post first appeared at

Did You Know? If approved, San Francisco’s expanded development impact fre program would generate $630 million over 20 years and attract $820 million more in other funding for public transit.

Local governments often fund roads, bridges and traffic signals with revenues from development impact fees. However, this innovative financing mechanism is rarely used to pay for new or expanded public transit. California and Florida are leading the way by developing more comprehensive development impact fee policies that allow these revenues to fund new public transit, sidewalks, bike lanes, trails – and roads and bridges.

What is a development impact fee? 

A development impact fee is a one-time charge to developers to defray or cover the costs of providing infrastructure needed to serve the people who live or work at a new residential or commercial development. Typically, the fee is assessed based on the square footage of the development, and most often revenues are used to build roads and water/sewer systems, but also sometimes parks, schools and transit. Including Illinois and Indiana, 28 states allow development impact fees for residential and commercial developments.

Trailblazers: San Francisco and Florida

San Francisco is a trailblazer in using development impact fees for transit. In 1981, recognizing that new office construction downtown would mean more commuters using transit, the San Francisco Board of Supervisors established the Transit Impact Development Fee (TIDF). The fee covers the marginal costs to move additional transit riders to and from newly constructed downtown office space. In 2004, the city expanded the use of the fee to include most non-residential developments city-wide, not just downtown.

Developers pay a one-time fee on all new commercial and office development on a square footage basis, ranging from $9.65 to $12.06 (indexed yearly to inflation). Funds support capital and operations, including new rolling stock (buses, streetcars, etc.), additional transit lines, increased service hours, and maintenance, repair and replacement. There is no time limit on using fee receipts.

The TIDF is a reliable source of revenue that has generated more than $100 million since its inception, to support projects such as expanding transit service hours in the South of Market neighborhood where many technology based firms operate outside the normal 9 to 5 office day.

San Francisco is reviewing its development impact fee policy to keep pace with changing transportation demand: The San Francisco Planning Commission just released the Transportation Sustainability Program, which proposes replacing the TIDF with a Transportation Sustainability Fee (TSF) on new development. TSF revenues could only be spent on projects that directly improve transit service and bicycle and pedestrian safety. Developers would receive discounts on the TSF if they build less car parking than allowable and/or construct small commercial developments on vacant land (known as “infill development”.) The fee would be expanded to residential buildings (except affordable housing) at $5.53 per sq. ft. The expanded TSF would generate $630 million over 20 years and attract $820 million more in other funding. This revenue will pay for “a comprehensive and strictly regulated $1.4 billion plan targeted at highly-efficient transportation system improvements,” including two Bus Rapid Transit lines, bike and pedestrian programs to shift mode share from auto, and converting existing diesel rolling stock to electric. The program is set to be voted on by the San Francisco Board of Supervisors in fall 2013.

On the opposite side of the country, the State of Florida recently recognized that allocating development impact fees only for road construction does not alleviate congestion. On June 1, 2009, SB 360 (the “Community Renew Act”) became law, requiring Florida to evaluate and consider the implementation of a mobility fee to replace the existing transportation concurrency system [Florida’s development impact fee program] because the program was “focused on expanding roadway capacity instead of extending mobility across all modes such as transit.”

The Florida Depts. of Community Affairs and Transportation propose basing the new mobility fee in part on vehicle miles travelled (VMT), rather than square footage, to account for the increase in transportation resulting from new development. This fee structure favors developments in urban areas, which tend to result in shorter car trips and more public transit trips. The state’s analysis suggests that mobility fees should be assessed at the county level, at minimum, to account for the regional nature of transit systems. In August 2011, Pasco County was the first in Florida to adopt a mobility Fee. By replacing traditional impact fees with mobility fees, the county has more leverage to allocate funds for mass transit, sidewalks, and trails.

Development impact fees for Chicago-area transit

The Illinois Highway Code (605 ILCS 5/Art. 5 Div. 9) allows counties between 400,000 and 1 million people to create Transportation Impact Districts (TIDs) to collect fees, but only for highway improvements. Under the law, persons who construct a new development that has either direct or indirect access to the county or state highway systems are subject to an impact fee if the county board uses the enabling legislation. Fees are assessed based on the amount of estimated new traffic generated by the development as well as the types of improvements needed to maintain a reasonable level of service on the existing highway system. Each TID has its own fund, and each fund’s monies must be spent on improvements within, or in areas immediately adjacent to, that TID. For example, in 2010, DuPage County development impact fees generated more than $400,000 in revenue for highways. Funds are allocated to DuPage’s Comprehensive Road Improvement Plan for Impact Fees focused primarily on highway and road development.

It’s worth noting that home rule entities in Illinois can impose impact fees for other types of infrastructure, such as water, sewer, stormwater, parks, fire, police, libraries and schools.

San Francisco and Florida are proving that development impact fees are a valuable tool for financing local infrastructure, including public transit, particularly when used as one tactic to advance a comprehensive mobility program. Fees can meet the transit demands of new residents and workers and curb congestion, while reducing the burden on the existing tax base. Using development impact fees to expand transit service in the Chicago region, for example in a bus rapid transit corridor, is a viable option to provide greater and more efficient transit access for resident and workers.

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