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In the overall value capture (VC) typology, developer-based VC techniques represent one of the most prevalent VC categories, which are based on various forms of exactions or contributions directly involving the developer community. Other more prevalent VC categories are:
Developer-based VC techniques generally take the form of either mandated or negotiated exactions (e.g., land dedication, in-kind or monetary contributions) or development impact fees (DIFs). Relative to TIF and SAD, VC from developer-based techniques can be more challenging and uncertain because they are often contested, especially when they are involuntary, as is the case with DIFs.
DIFs have expanded and evolved substantially throughout the United States over recent decades and currently appear in many different forms, covering a wide range of infrastructure types with varying degrees of applications around the country. These changes have taken place through legislation, regulation, and numerous court cases, resulting in the legal requisite involving essential nexus and rough proportionality tests before local governments can impose DIFs. Although the process has at times been challenging and complex with many debates over the specifics, in some ways, the underlying fee principles are now better defined and more straightforward than ever—perhaps one reason why DIFs have grown substantially in many communities.
DIFs are specifically designed for the public improvement needs of new developments that help local economic growth. Their uses are also focused specifically on off-site improvements outside the development project boundary, thus complementing other VC techniques, such as TIF and SAD, which focus more on on-site improvements in existing developments. Recognizing DIFs as an important infrastructure funding source, many local governments are now choosing to legislate a formal DIF program into local ordinance, rather than dealing with development project by project. In so doing, DIF programs are being inherently tied to local planning processes to help finance local capital improvement plans (CIPs) and to achieve long-term community planning objectives.
The goal of this primer is to provide basic information needed to better understand DIFs and how best they can be used to fund infrastructure projects. The primer is designed for local and regional governments and other public agencies—including State Departments of Transportation (DOTs), metropolitan planning organizations (MPOs), regional transit authorities, rural planning organizations, Tribal governments, and other infrastructure providers—who are responsible for critical infrastructure provisions and are facing major funding challenges.
This primer presents examples from different localities and States; however, because most recent statewide surveys and studies on DIFs are in California, this primer provides more detailed case examples from there. California and Florida use DIFs most often and are where the key DIF legal precedents had been set that led to the Nollan and Koontz landmark rulings.
