Negotiated exactions involve payments made by a developer as a condition for receiving municipal approvals. Negotiated exactions are determined on an ad hoc basis for individual projects, usually as part of the development approval process. They often take the form of one-time land transfers or cash payments but may also involve construction activities or the provision of public services. Exactions have been used to contribute to the financing of transit stations, local roads, sidewalks, streetlights, and local water and sewer lines.
In cases when a planned development is large and will be constructed over many years, the developer and local jurisdiction may enter into a development agreement that includes negotiated exactions. These agreements often involve the negotiated dedication of land and facilities by developers under a formal agreement or contract. 1
In some settings, developer exactions are also referred to as cash proffers or developer contributions. Exactions are similar to development impact fees, but the contribution is negotiated between developers and the local jurisdiction rather than according to a predetermined, formulaic process used with impact fees. In some cases the exaction may be required in order for the developer to gain planning approvals. In others the exaction may be voluntary, or may hinge on the public sector agreeing to modify a public project in ways that would benefit the complementary private development.
Exactions are an attractive strategy for deriving additional investment in needed infrastructure in high-growth areas and where a jurisdiction's fiscal capacity is limited. They work best in situations where the private development and the public transportation improvements are mutually beneficial. A typical example might involve a private developer agreeing to contribute to a new transit station. In this case, the transit station would provide improved access to the development, and the development would generate additional transit trips.
1 Negotiated exactions are addressed in FHWA's Real Estate Acquisition Guide for Local Public Agencies and 23 CFR 710.505. Failure to adhere to the requirements of Title 23 could jeopardize Federal funding.