In an effort to generate revenue without raising taxes, many municipalities on Long Island, and elsewhere in New York State, are turning to the use of various forms of land development fees to meet their fiscal challenges. In many cases, these fees can be legally and morally justified, such as when they offset the actual administrative costs of processing a land use application, or when a municipality must incur costs to provide additional public infrastructure and services to accommodate a new development. However, in their zeal to raise revenue, some local governments have ignored statutory and judicial authority that establish a narrow framework for collecting and using these fees, which may leave them exposed to a legal challenge.
In this post, which will be presented in multiple segments, we will highlight the various ways that local governments are using impact, administrative review and recording fees as a revenue-generating measure. We will review the propriety of these fees and discuss the potential impact that these fees can have on development, which is typically a good barometer of a community’s economic prosperity. We will also discuss who ultimately pays these fees that translate into higher housing and other costs.
Local Impact Fees
Impact fees are one-time payments required by local governments in connection with new developments for the purpose of defraying some of the cost of constructing or improving the public infrastructure needed to serve them. Where authorized, such fees are used to shift the financial burden for additional capital improvements and services from taxpayers to private developers who are the beneficiaries of those improvements and services.
To be valid, there must be a “rational nexus” between the impact fee imposed and the infrastructure needs created by the new development. To satisfy the nexus test, the development must create a need for the new infrastructure; and the fee amount must be based on the extent to which the development benefits from the infrastructure. In other words, an impact fee cannot exceed the pro rata or proportionate share of the anticipated costs of providing the new development with the necessary infrastructure.
Roughly half the states have enacted enabling legislation authorizing the imposition of impact fees. New York, however, is not among them. In fact, a number of decisions by New York Courts cast serious doubt on whether municipalities can enact local impact fee legislation pursuant to home rule powers, or otherwise impose such fees on developers.
In the only impact fee case to reach New York’s highest court, the Court of Appeals in 1989 invalidated the Town of Guilderland’s attempt to fund roadway and other transportation improvements under its Transportation Impact Fee Law (“TIFL”) in Albany Area Builder’s Association v. Town of Guilderland . While the Court did not actually rule on the validity of local impact fees, it concluded that the TIFL was impliedly preempted by the State Legislature’s uniform scheme to regulate highway funding set forth in the Town Law and Highway Law. This decision precludes the use of local impact fees to cover costs associated with roads, sewer, water hook-ups and other infrastructure for which State law already provides a comprehensive regulatory scheme for the financing of these improvements.
Notwithstanding the legal precedents, there are local governments on Long Island that continue to impose what amount to significant, but questionable, impact fees on developers. One such fee is the Town of Brookhaven’s Land Use Intensification Mitigation Fee. The stated purpose is to mitigate any land use intensification associated with the approval of a change of zoning classification from a more restrictive to a less restrictive use through the acquisition of open space. Depending on the existing and proposed zoning classifications and the size of the site, the law has the potential for imposing significant fees on developers and other landowners within the Town.
While the stated goals of this fee law are undoubtedly laudable, the absence of specific enabling legislation authorizing this fee makes Brookhaven’s law susceptible to legal challenge. A Court could find that the fees charged are not commensurate with the potential demand for additional open space created by the less restrictive zoning and, therefore, fails the “rational nexus” test. A Court may also find that the Town Law provisions authorizing a municipality to require that a parkland be set aside, or impose a fee in lieu of parkland, in connection with site plan and subdivision applications impliedly preempts the Town’s fee law. Of course, it is also possible that a Court could uphold this fee, and Brookhaven’s law may become a model for future local impact fees in New York State.
To date, these fees have not been challenged by developers, who instead are simply paying the fees and capitalize them into the land value. However, depending on the nature of the development, these fees are being passed along by developers to new owners and renters of residential, commercial, industrial, office and retail space, and also to consumers who must ultimately pay more for retail goods and services. While these fees make it easier for a municipality to balance its budget, this short-term benefit pales in comparison to the significant negative impact that these fees can have by driving up the cost of living on Long Island and frustrating the market’s ability to deliver much-needed affordable housing.
In the next segment of this post, we will look at administrative review fees, which are another revenue-generating device used by local governments related to the processing of land use applications that are being assessed on developers, often without regard to the legal limitations on such fees.