How Impact Fees Can Benefit Both Businesses and Communities

Many local governments depend upon impact fees as a means of funding infrastructure projects and expanding services that support their communities. These fees are a form of monetary exaction assessed on new developments, such as commercial or residential projects, and are intended to offset the costs of increased demands on public services, such as roads, water, and wastewater systems resulting from economic and population growth. 

Understanding Impact Fees

The State of Texas first implemented legislation authorizing local governments to assess impact fees on new development in 1987.  According to research from the  Texas Demographic Center  the state’s population growth rate of 15.9% is twice that of the nation average, with almost 4 million in added population from 2010-2020.  These population gains place a significant burden on municipalities to provide adequate services and capital improvement programs. Local governments rely on impact fees as a means of funding infrastructure projects and basic services that support thriving communities. Impact fees are an important source of revenue for local governments, but should be structured in a manner that is not overly burdensome on businesses.

The Role of Economic Development in Impact Fee Ordinance Development

Economic development is a critical factor in impact fee determination. Local governments often employ impact fees to encourage job creation and attract new businesses through targeted investment in infrastructure that facilitates access to previously unimproved land, increase the tax base, and improve the overall quality of life for the community.  While low impact fees may attract new businesses, they may also result in a strain on public services and infrastructure traditionally supported predominantly by property tax revenues. Impact fees should be set at a level that sustains development while ensuring the necessary public services are provided.

The Importance of Fairness in Impact Fees

Fairness in impact fee allocation is critical to ensuring new development does not place an undue burden on existing residents and businesses. When impact fees are not allocated fairly, businesses may choose to locate in areas where fees are lower, reducing the competitiveness of the community.

Impact fees should also take into account economic and social equity, not disproportionately impacting low-income communities.  Counties and municipalities can achieve this by offering fee waivers or discounts to affordable housing developers, by using impact fee revenue to fund affordable housing.   Additionally, local governments in the State of Texas may establish Tax Increment Reinvestment Zones (TIRZ)  by city ordinance or county order by earmarking revenues for qualified economic development projects or public improvements.  TIRZ are a Tax Increment Finance (TIF) tool that facilitates up-front commitment to public improvements within areas that are less attractive for investment or may otherwise hinder municipal growth.

Best Practices for Determining Impact Fees

Determining impact fees in a manner that is fair to business while stimulating economic growth and new construction is a complex process that requires a balancing of the needs of the community with those of businesses. Local governments can achieve this equilibrium by involving stakeholders in the process, conducting cost-benefit analyses, using data-driven approaches, and regularly updating impact fees in accordance with Chapter 395 of the Texas Local Government Code. Ultimately, the goal is to encourage economic development while ensuring necessary public services are provided in a fair and equitable manner. By doing so, local governments can promote economic growth, create jobs, and improve the quality of life for everyone in their communities.


Impact fees are an important tool for counties and municipalities to fund the necessary public services and infrastructure associated with new development. Critics will rightly point out that arbitrarily shifting the costs of infrastructure to developers through monetary exactions may discourage growth.  It is with this in mind that determination of impact fees, combined with non-monetary exactions, and the application of TIRZ/TIF are best effected with stakeholder input after due consideration of cost-benefit analysis. Fee scheduling must be transparent and complemented by other financial tools in a manner that is fair to businesses, stimulates economic growth, and reduces burdens upon the taxpayer.

At Front Line Advisory Group, we are providing change management services to help municipalities collect and analyze data, improve stakeholder communication, leverage technology, develop training plans, and more. We believe these are the most effective and affordable ways for municipalities to scale their capabilities. Contact us for more info at

Written by Roy Draa

Bonds Capital Improvement Programs Schedule

What are the most common reasons capital infrastructure projects go over schedule? What can I do to make it stop!

Capital infrastructure projects, the backbone of any thriving metropolis or region, often face unexpected delays that can trigger a domino...
Read More
Bonds Local Planning

Travis County Greenlights $509.5 Million Bond for Road and Park Upgrades

On August 15, the Travis County Commissioners passed a unanimous decision to incorporate a bond in the upcoming November election....
Read More
ISD Planning School Bonds Taxes

Taxpayer Tuesdays: A Comprehensive Insight into Dripping Springs ISD

Having had the opportunity to attend several of these insightful presentations in the past, our team can affirmatively state that...
Read More
Capital Improvement Programs CIP Planning Schedule

On the Right Track: Navigating Capital Improvement Bond Projects with Union Pacific

Capital infrastructure projects involving railroad property and right of way can be a complex and challenging endeavor. While these projects...
Read More
Development Services Planning Schedule

When is the Right Time for Municipalities to Engage a Program Management Consultant for Capital Infrastructure Bond Programs?

Municipalities have an intricate task ahead when considering the planning and implementation of a capital infrastructure bond program. It's a...
Read More
Development Services Planning

The Need for Role Differentiation: Separating the Construction Manager and Program Management Consultant in Capital Improvement Bond Programs

When it comes to capital improvement bond programs, the multifaceted and layered nature of these initiatives calls for an organizational...
Read More
Bonds Development Services

Georgetown’s November Bond Proposition: A Comprehensive Look at What’s on the Table

In a definitive step towards enhancing the city's infrastructure and operations, Georgetown City Council has approved a comprehensive $130 million...
Read More
Development Services

Building a Strong Team

Building a Strong Team: Mentorship Techniques for Development Services Managers As a municipal Development Services Manager, your role is vital...
Read More
Bonds Capital Improvement Programs CIP Planning

The Role of Program Management Consultants in Capital Improvement Bond Programs: Delivering Value to Taxpayers

As cities and counties around the globe grapple with the complexities of managing capital infrastructure bond programs, the role of...
Read More
Capital Improvement Programs Planning

Veterans are Ideal Project Managers for Capital Improvement Projects: The FLAG Advantage

The United States Government has spent years and millions of dollars to train and cultivate a culture of discipline, focus,...
Read More
Bonds Capital Improvement Programs

13 Ways to Maximize the Odds of Successfully Passing a Capital Improvement Bond – The First Time!

In an era of evolving urban landscapes and community growth, capital improvement bonds emerge as pivotal tools in financing infrastructural...
Read More
Economic Development

A Deeper Perspective: Owner’s Representative vs. Construction Manager and Construction Manager at Risk

Navigating the complex landscape of construction and capital improvement projects demands multiple layers of oversight. Among these, the roles of...
Read More
Bonds Capital Improvement Programs Development Services Economic Development Planning

The Essential Hallmarks of a High-Caliber Bond Program Management Consultant

A confluence of high stakes, multifaceted dynamics, and the intrinsic complexity of bond programs necessitates the leadership of an exceptionally...
Read More
Capital Improvement Programs CIP Economic Development

Striking the Right Balance: Leveraging Infrastructure Grant Programs with Transparency and Fiscal Discipline

Over the next five years, Texas is anticipated to receive approximately $27.5 billion in federal grant funding for highways and...
Read More
Capital Improvement Programs CIP Economic Development

Exploring Alternative Funding Options for Municipal Capital Improvement Projects

When municipalities embark on the journey of funding significant capital improvement projects, the default route often involves the issuance of...
Read More
Capital Improvement Programs CIP Economic Development

Building Better Communities: An Introduction to Successful Municipal Grant Writing

Writing grants for municipal projects is a critical function of local governmental planners that can lead to significant advancements in...
Read More
Capital Improvement Programs CIP CIP Budgetting

‘Quick Wins’ in Capital Improvement Programs: A Catalyst for Voter Confidence and Stakeholder Support

Capital Improvement Programs (CIPs) hold an integral position in the strategic planning and development initiatives of our communities. They incorporate...
Read More
Capital Improvement Programs CIP CIP Budgetting

The Art of Planning: A Comprehensive Guide to Creating a Capital Improvement Program Plan

In an era of rapid development and technological advancements, the thoughtful management of capital assets is more crucial than ever....
Read More
Capital Improvement Programs CIP CIP Budgetting

A Comparative Analysis: Construction Manager vs. Construction Manager at Risk in Capital Improvement Projects

As urbanization and development continue to rise globally, understanding the various roles in construction becomes increasingly important. This blog post...
Read More
Development Services Economic Development

Fueling Tomorrow: Leveraging Federal and Texas State Resources to Fund Economic Development

Texas Economic Development Corporations (EDCs) play an outsized role in driving economic growth and prosperity in their respective cities and...
Read More
1 2 3 6