An impact fee (which we call an exaction fee throughout this video) is a fee local governments impose on a new development. The fee is intended to pay for all or a portion of the cost for the cities to provide public services to the development. (Think water towers, roads, sewage pumps, etc.).
In theory, it makes sense: the local governments in states who approve exaction fees estimate a cost to fund the services. Then, it's set aside for when the local government needs to use it.
However, even if the estimations are correct, the funds only solve what we call the "first cycle issue." This means that the funds may cover the cost to build the infrastructure—but the fees won't cover the cost to maintain the services in the decades that follow.
In this video, you'll learn why local governments shouldn't rely on exaction fees to fund services, including:
- How exaction fees justify unproductive developments.
- How exaction fees discourage affordable housing.
- How exaction fees miss the core issue of developing unproductive developments.