HomeMy WebLinkAbout61-01 RESOLUTIONRESOLUTION NO. 61-01
A RESOLUTION TO ACCEPT THE TWO
REPORTS CONCERNING IMPACT FEES
PREPARED BY DUNCAN AND ASSOCIATES
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
FAYETTEVILLE, ARKANSAS:
Section 1. That the City Council of the City of Fayetteville, Arkansas
hereby accepts the two reports: Impact fee study: Policy Directions
Memorandum and Developmental Fee Survey; prepared by Duncan and
Associates for the City.
PASSED and APPROVED this / day of May, 2001.
a/1Am A 9in
Heather Woodruff, City Cler
APPROVED:
• • Tw
by
As:
submitted by
IMPACT FEE STUDY:
POLICY DIRECTIONS MEMORANDUM
FAYETTEVILLE, ARKANSAS
duncan
associates
in association with
Cooper Consulting Company
April 2001
submitted by
IMPACT FEE STUDY:
POLICY DIRECTIONS MEMORANDUM
FAYETTEVILLE, ARKANSAS
duncan associates
in association with
Cooper Consulting Company
April 2001
CONTENTS
INTRODUCTION 1
Summary of Findings and Recommendations 1
LEGAL FRAMEWORK 3
Exactions and Impact Fees 3
Rulings of the U.S. Supreme Court 8
Arkansas Statutes 9
Extraterritorial Jurisdiction 11
Arkansas Case Law 12
Conclusions 19
BACKGROUND 21
TYPES OF FACILITIES 26
Water 26
Wastewater 29
Parks 32
Major Roads 33
UST OF TABLES AND FIGURES
Table 1: FACILITIES ELIGIBLE FOR IMPACT FEES 7
Table 2: CAPITAL FUNDING BY SOURCE, 2000-2004 21
Table 3: CAPITAL EXPENDITURES, 2000-2004 22
Table 4: SALES TAX CAPITAL FUNDING, 2000-2004 22
Table 5: OUTSTANDING DEBT 23
Table 5: POPULATION GROWTH, 1990-1999 23
Table 6: RESIDENTIAL BUILDING PERMITS, 1996-1999 24
Table 7: NATIONAL AVERAGE IMPACT FEES 25
Table 8: CURRENT WATER CUSTOMERS 27
Table 9: POIENTIAL ANNUAL WATER IMPACT FEE REVENUES 29
Table 10: CURRENT WASTEWATER CUSTOMERS 30
Table 11: TREATMENT PLANT CAPACITY 31
Table 12: POTENTIAL ANNUAL TREATMENT PLANT FEES 32
Table 13: PARK DEDICATION REQUIREMENT/FEE-IN-LIEU 33
Figure 1: IMPACT FEE ENABLING ACTS 6
Figure 2: PLANNING AREA 24
Figure 3: WATER FACILITIES 26
Figure 4: WATER SUPPLY AND DEMAND FORECAST 28
Figure 5: WASTEWATER TREATMENT CAPACITY AND DEMAND, 1992-1996 . . 30
Figure 6: WATERSHEDS AND DIRECTIONS OF FLOWS 31
Figure 7: EXISTING MAJOR ROADS 34
INTRODUCTION
The purpose of this project is to assist the City of Fayetteville in developing a system of development
impact fees to ensure that new development pays a fair share of the cost of infrastructure needed to
serve it. The project has been divided into two phases. This first phase, termed a "feasibility study,"
reviews the legal framework, local data and potential fees, and determines in conjunction with local
officials the type of impact fee system that should be developed in the second phase.
This phase includes a review of applicable statutory and case law, and outlines the legal framework for
impact fees in Arkansas. We also analyze Fayetteville's current development exaction policies, existing
capital facilities and levels of service, growth projections, capital improvements programs, and existing
debt load as additional background data for the policy recommendations.
Another part of this phase of the project is a survey of impact fees and development exactions in
comparable communities. This is provided in a separate report.
The most critical policy issue to be decided is the types of impact fees that should be developed for the
City in Phase II The evaluation is based on selected criteria, including legal authority, general plan
implementation, net revenue potential over current exactions, fairness between existing and future
residents, equity between developers, regional competitiveness, and ease of administration.
Summary of Findings and Recommendations
Our review of relevant statutory and case law demonstrates that cities in Arkansas clearly have the
authority to impose water and wastewater impact fees, to require dedication of land for community
facilities, and to require fees in lieu of land dedication. The City does not currently charge water or
wastewater impact fees, and these could be developed in Phase II The City already has a court -tested
park land dedication and fee -in -lieu requirement, which we could review and update in Phase II
Any other type of impact fee is on less firm ground, although roads would be the next best bet. The
City could consider adopting a land dedication/fee-in-lieu system for arterial and collector street right-
of-way (ROW) to replace the current system of roadway exactions. This would in some sense be a step
backward, however, as the City now requires half -street improvements to adjacent roadways in many
cases. Of all the facility types, a road impact fee would probably have the strongest chance of being
upheld by the Arkansas courts. There is also sufficient information and planning data to develop road
impact fees, but whether to include this in Phase II is a policy issue for the City Council.
The City had expressed an interest in exploring impact fees for a variety of other facilities, including fire
and police protection, solid waste, trails, fleet management and radio sites. Due to questions regarding
the authority of municipalities in Arkansas to use such techniques, we do not recommend proceeding
with development of any of these types of fees at this titne.
In summary, we would recommend that the City proceed with the development of water and
wastewater impact fees and an update of the existing park dedication and fee in -lieu requirements in
Phase II of this project. A water impact fee, covering the cost of distribution and storage facilities,
could generate up to $1 million annually, while an impact fee for the cost of the new wastewater
Fayetteville\IMPACTFEESTUDY—POLICYDIRECTIONS MEMORANDUM Aped 3,2001, Page 1
treatment plant could generate $2 million annually. An update to the park dedication and fee -in -lieu
requirements would not necessarily generate additional revenue, but could help to ensure that the
requirements reflect the existing level of service and the actual demand of new residential development
on the need for park facilities.
Fayetteville \IMPACT FEE STUDY—POUCY DIRECTIONS MEMORANDUM April 3,2001, Page 2
•
LEGAL FRAMEWORK
An impact fee is a form of "exaction," through which a developer or builder is required to contribute
to the costs of public improvements. Typically the fee is levied on some easily measurable unit of
activity, such as the construction of one dwelling unit or of a specified number of square feet of
commercial or industrial space. As the next section of this memorandum explains, such fees are a
logical outgrowth of long-standing exactions practice.
This section examines the legal issues involved in the implementation of impact fees in Arkansas' In
brief, any impact fee should have the following characteristics:
o The fee should be based on actual costs of public improvements, obtained from recent
experience in Fayetteville or, for facilities for which there are no recent, local figures, from
comparable markets;
o The cost calculations should exclude from (or credit against) the calculated cost of
improvements any funds likely to come from outside sources (such as the state gasoline tax) to
pay for the related improvements;
o The fee imposed on any development should not exceed the cost of providing the related public
improvements necessary to serve that development;
a No part of the fee should be based on the cost of curing existing capacity deficiencies or
inadequacies in current treatment levels;
o Following principles of municipal fund accounting, the fees collected should be maintained in
a fund designated only for use on improvements to be supported by the fee, serving the area
in which the fee is collected;
o There should be appropriate refund provisions in case the fees are not used for the intended
purposes within a reasonable time.
The importance of these characteristics will become clearer in the rest of this section.
Exactions and Impact Fees
Following the advent of zoning and subdivision controls, subdividers typically made only minimal
improvements to their projects. Projects were usually built where they could depend on existing parks
and schools. Streets were often simply graded, without such further improvements as curbs and gutters.
1 This chapter has been prepared for the use of the City of Fayetteville by Eric Damian Kelly, Ph.D., FAICP. Dr. Kelly
is both a lawyer and a planner, but he is not licensed to practice law in Arkansas and offers no formal legal opinion on
these matters. Dr. Kelly holds Master of City Planning and Juris Doctor degrees from the University of Pennsylvania
and a Ph.D. in public policy from The Union Institute Cincinnati Dr. Kelly maintains an active membership in the
Colorado bar, although in his cunent position he does not practice.
FayettevilleVMPACTFEE STUDY -POLICY DIRECTIONS MEMORANDUM April 3, 2001, Page 3
Local water companies often provided water lines, and many homes were built with septic systems.
Sewers were even provided by private parties in some early Arkansas developments.' Gradually, often
in response to citizen complaints, local governments would pave the streets, install curb, gutter and even
sidewalk, and, in some instances, even provide public sewer
During the 1950s, the system began to change, as local governments became increasingly frustrated at
having to provide public facilities at public expense for private developments on which the developers
had, presumably, made a profit. Thus, communities began to require that streets at least be paved and,
in many cases, that curb and gutter and sidewalks also be provided by the developer. Communities also
began to require that public water and sewer lines be installed under the new streets—sometimes as
"dry" lines for future use, where direct links to existing public services were not yet available. Many
communities began to require other, related public facilities, such as street signs and street trees.
It had become widely accepted by the 1960s and early 70s that land developers would provide all public
improvements within a subdivision that were designed to serve that subdivision. However, clearly the
improvements within a subdivision are only a part of the total public improvements that are needed or
affected by a new subdivision. Such off-site facilities as schools and parks typically serve residents of
a number of different subdivisions. Streets in new subdivisions will always connect to a network of
collector and arterial roads outside the subdivision. Similarly, most subdivisions tie into large networks
of sewer systems, water lines and drainage facilities.
It is useless to have roads and sewer and water lines existing in isolation within a subdivision. It is
essential not only to the community but also to the subdivider and to those who purchase lots or homes
from the subdivider that the larger network of roads and pipes not only exist, but that it be adequate
to serve the needs of the new subdivision, as well as the rest of the community. As communities grow,
country roads and commercial collectors that were once adequate to serve needs along them become
overwhelmed with traffic from new developments using those roads to connect to the larger road
network.
Early exactions for schools, parks and off-site facilities potentially serving more than the subdivision
or project on which they are levied fell into two categories: land dedication requirements and negodated
exactions. Land dedication requirements ultimately raised practical, legal and policy problems. Under
ordinances requiring developers to dedicate seven percent (or some other specified percentage) of their
property for park purposes, communities wound up with large inventories of small parcels that were
inefficient to develop and expensive to maintain if developed; those same communities sometimes had
to buy the parkland or school sites that they needed. Fayetteville's own park dedication requirement
has been considered by the Arkansas Supreme Court in Ci? of Fayetteville v. 113.1., Inc.' As a matter of
policy, land dedications for facilities such as trails sometimes fell unevenly on landowners, raising issues
of equity in public policy and equal protection under the law.'
2
See Pulaski Heights Sewerage Co. v. Loughborough, 95 Ark. 264, 129 S.W. 536 (1910)
3 Ciry of Frryettevilk v. LAI., Inc., 280 Ark. 484; 659 S.W.2d 505 (1983)
4
See, for example, No//an v. Califonun Coastal Commission, 483 U.S. 825 (1987), and Dolan v. Ciry ofTigard, 114 S. Ct. 2309
(1994), discussed below.
Fayettevil le\IMPACT FEE STUDY—POLICY DIRECTIONS MEMORANDUM April 3,2001, Page 4
In other cases, a community might have a plan for a park, a school or a major roadway affecting the site
of a proposed project. In those cases, communities sometimes required dedication of the site as a
condition of rezoning or subdivision approval. This raised serious questions of equity and equal
protection and ultimately ran afoul of the "rough proportionality" test established by the Supreme Court
in Dolan v. COI ofTigard, discussed below. In Cibl ofThgetteville v. I.B.I., Inc., the Arkansas Supreme Court
raised related concerns about the relationship between the fee and the eventual benefit to the developer
paying the fee.
The next generation of exactions for parks, schools and off-site improvements added a layer of fees in
lieu of dedication (often called simply "fees in lieu"), in which all development was made subject to the
exaction requirement but in which the local government could in appropriate cases substitute a fee equal
to a calculated or stipulated value of the land that would otherwise be dedicated. Such a fee was the
actual exaction proposed to be applied to the subdivider in COI ofFcgetteville v. I.B.I., Inc.
Another important thread in the history of impact fees involves charges imposed by providers of water
and sewer service for connecting to the system. Such charges can be traced back more than 90 years
in Arkansas,' and, much more recently, Obi of Madan v. Baioni (1983).6 Those cases are interesting in that
there seemed little question in the minds of the judges as to whether such a fee could be imposed; the
issue in these cases was how much the fee should be.
During the 1970s, building on the base of "fees in lieu" and on the long practice of charging fees for
the privilege of connecting to water and sewer lines, some communities began imposing calculated
impact fees on all new development. This approach resolves most of the policy and equity questions
at the local level and, if carefully done, falls squarely within the legal guidelines established by the U.S.
Supreme Court and several state courts.
The law related to impact fees has evolved from litigation over local regulatory measures involving
dedication requirements, fees imposed in lieu of dedication, and impact fees, all of which are collectively
called "exactions." The first reported "impact fee" systems were developed in Florida to create a system
charge for roads, similar to the common system buy -in charges for water and sewer systems. However
, such fees were more difficult to implement than similar fees for utility services for two reasons -first,
road fees related to a general governmental service rather than to an enterprise that happened to be run
by the government; second, there was no specific, controllable event (like the physical connection to
the water system) which could be conditioned upon payment of the fee, except for the approval of a
development or subdivision or the later approval of a building permit or certificate of occupancy.
That distinction becomes more important later in this analysis, as it approaches more sophisticated and
complex issues of impact fee law. The early principles of that law, however, were applicable to all types
of impact fees. Specifically, the Florida courts developed a detailed series of legal guidelines for impact
fees in that state. The Florida cases established law as well as policy that have guided other courts and
even legislatures in addressing the issue. The landmark case on impact fees is Contractors dr Builders Assoc
5 Pularki Heights Sewerage Co. v. Loughborough, 95 Ark. 264,129 S.W. 536, (1910); and Hinton v. Bowman, 101 Ark. 306; 142
S.W. 174 (1911)
6 CiD, of Manon v. Baiotd, 312 Ark. 423; 850 S.W.2d 1(1983)
FayettevilleVmPAcT FEE STUDY -POLICY DIRECTIONS MEMORANDUM April 3, 2001, Page 5
of Pinellas Couto, vs. Cibl of Dunedin? In that 1976 case, the Florida court struck down a system
development fee, but in doing so it gave guidelines for designing an acceptable fee system. Those
guidelines were: the fee to be charged may not exceed the reasonable cost to the system of absorbing
the new users; the fees must be reserved for the purpose for which they are charged; the fees must
actually be used for the designated purpose and used in an area which will directly benefit (or absorb
the impacts from) the development on which the fees are imposed. A system in Broward County was
struck down by an appellate court in 1983 because fees from the entire county were collected in one
fund and there was no assurance that the fees collected would be used in the vicinity of the development
paying the fees, Also in 1983, a Florida court upheld a fee system in Palm Beach County, finding that
it passed the tests set out in the Dunedin and Broward County cases.' The Palm Beach County fee was
a road fee and was based on a complex formula related to traffic generation and road construction costs.
The fee was allocated to a road zone of about six square miles which included the proposed
development. The fee was to be used specifically to build roads.
The Florida cases remain important
today These cases are often cited in
litigation and articles today, but they
established the impact fee policy that
has guided other courts in considering
the issue of impact fees and that has
guided committees that have
developed impact fee legislation in a
number of states. To date, 23 states
have adopted impact fee enabling
legislation. These acts have tended to
embody the constitutional standards
that have been developed by the
courts. However, some states where
State Enabling Act
impact fees are popular, such as
Florida, still do not have impact fee
enabling legislation. One of the reasons that Florida does not have an impact fee enabling act is that
local governments felt that they had more freedom under Florida and national case law than they would
under an explicit enabling statute. Indeed, one of the provisions in most state enabling acts is a
limitation on the types of facilities for which impact fees can be assessed. The types of facilities that are
eligible for impact fees are listed in Table 1.
What is interesting about these new state statutes is that they have largely followed the tests evolving
from the Florida line of cases. Most contain requirements for the computation of the fees, based on
the actual costs of the facilities; some include detailed specifications about what planning and
management charges can be included. Several prohibit the use of the fees to cure existing deficiencies
in the system or to upgrade the level of service in developed parts of a community. All require that the
Figure 1
IMPACT FEE ENABLING ACTS
7 Contractors & Builders .Assoc of Pinellas County vs. City ofDunedin, 326 So 2d 314 (Fla 1976)
8 Holfrutood, Inc. v. Broward County, 431 So.2d 606 (Fla. 4th DCA 1983)
9 Homebuilders and Contractors .Assoc. of Palm Beach County vs. Board of County Commissioners, 446 So.2d 140 (Fla.App. 1983)
FayettevilleVMPACT FEE STUDY—POUCY DIRECTIONS MEMORANDUM April 3, 2001, Page 6
fees be segregated for actual use for the purpose for which they are collected. Virtually all require that
the fees be refundable if not actually used for that purpose.
As the local case citations in the preceding section and the discussion below suggest, the evolution of
exactions law in Arkansas has paralleled these developments, referring to some of the leading cases from
other jurisdictions in establishing principles similar to those set out in the Florida cases.
State
Table 1
FACILITIES ELIGIBLE FOR IMPACT FEES
Storm
Roads Water Sewer Water
Parks
Fire
Police
Solid
Library Waste
School
Arizona (cities) • •
Arizona (counties) • •
California •
Georgia •
Hawaii • • • •
Idaho • •••
Illinois •
Indiana • N •
Maine • • L • •
Nevada •
New Hampshire
New Jersey
New Mexico
Oregon •
Pennsylvania •
Rhode Island •
South Carolina • •
Texas • •
Utah •• •
Vermont • • • 1 • • • • • •
Virginia I .
Washington • • • I •
1
West Virginia • • • • •
Wisconsin (cities) • • • • • • • 1•
Wisconsin (counties) • • • • • • • •
•
• • • •
• • • •
• • • • • • .
• • •
• • • •
•
•
•
-1-M-11•••••
SourceAriz Rev Stat Ann § 9-463.05 (cities), 9-11-1101 et seq. (counties); Cal. Gov't Code, § 66000 et seq.; Colo. Rev. Stat.,
§ 29-1-801 et seq.*: Ga. Code Ann.. § 36-71-1 et seq.; Haw. Rev. Stat., § 46-141 et seq.; Idaho Code, S 67-8201 et seq.; 605 III.
Comp. Stat. Ann., § 5-901 et seq.; Ind. Code Ann., 5 36-7-4-1300 et seq.; Me. Rev. State. Ann,, Title 30-A, § 4354* Nev Rev Stat
§ 2788; N.H. Rev. Stat. Ann., 5 674:21; NJ. Perm. Stat., § 27:1C-1 et seq.; 5 40:551142; New Mexico Stat. Ann., § 5-8-1 et seq.;
Or. Rev. State, § 223.297 et seq.: Pa. Stat. Ann., Title 53, § 10501-A et seq.; General Laws of Rhode Island, §45-22.4; Code of
Laws of S.C.. § 6-1-910 et seq.; Tex. Local Gov't Code Ann.. Title 12. § 395.001 et seq.: Utah Code. 5 11-36-101 et. seq.; Vt. Stat.
Ann.. Title 24, § 5200 et seq.; Va. Code Ann., S 15.1498.1 et seq.; Wash. Rev. Code Ann., § 82.02.050 et seq.; W. Va. Code, §
7-20-1 et seq.; Wis. Stets., 5 66.55
FayettevilleWPA CT FEE STUDY—POUCY DIRECTIONS MEMORANDUM April 3,2001, Page 7
Rulings of the U.S. Supreme Court
The most important recent legal development regarding development fees is the 1994 decision of the
U.S. Supreme Court in Dolan v. Obi of Tigard In that case, the Court held that Tigard, Oregon's,
requirement that Florence Dolan dedicate land to the city for use as a floodway, a greenway and a bike
path amounted to an unconstitutional taking of her land. The case arose when Dolan applied for a
building permit to expand an existing hardware and plutnbing supply store from 9,000 square feet to
17,000 square feet and to pave a 39 -car parking lot. The project conformed with existing zoning, but
the city imposed the exactions as conditions on the issuance of a building permit.
This was the first exactions case to be decided by the Court since its 1987 ruling in No//an v. California
Coastal Commission. The Nollans wanted to demolish an existing single-family dwelling and replace it
with another, larger, single-family dwelling on valuable beachfront property. Their proposal conformed
with local zoning and subdivision regulations, but it also required approval under the state's coastal zone
regulatory program. The Coastal Commission was willing to approve the building permit, but it
conditioned issuance of the permit on the dedication of a trail across the Nollans' beach, connecting
into a larger trail system. In that case, the U.S. Supreme Court created the "rational nexus" test,
suggesting that there was in fact no "rational nexus," or reasonable connection between the proposal
to replace one house with another and the need for additional trails in the area.
In Dolan, the Supreme Court expanded upon the rational nexus test, adding to it a requirement that
there be a "rough proportionality" between the impact of a proposed development and the burden of
the exaction imposed on it. In Dolan, there clearly was a rational nexus the expansion of a commercial
enterprise is bound to lead to some increase in runoff and some increase in traffic, probably even in
bicycle and pedestrian traffic. Thus, the City of Tigard satisfied the basic requirement of the Nollan test.
The Supreme Court sought more.
The City of Tigard's goal in seeking trail dedication was to develop a trail network as part of its
transportation system. That is a perfectly reasonable public goal. The problem was not with the goal.
The problem was with its implementation. The City did not seek an impact fee. It wanted land. The
amount of land it wanted had nothing to do with the probable trail usage of customers of the hardware
store. It was not even based on the probable traffic generation of customers of the hardware store.
That might have provided a reasonable basis for dedication, if the City had argued that it had a public
policy of encouraging at least XX percent of all trips to be by bicycle or foot and that some bicycle and
foot traffic would thus be imputed to every traffic generator. That is not what the City did,
however at least not initially. What it did was to map its trails. The Dolans' hardware store lay along
a mapped trail. The City needed the land to link up the trail. The amount of land and the route of the
land that the city sought in the dedication was based on the trail routing and design, not on traffic
impact.
Tigard's city staff ultimately computed some traffic generation figures for the hardware store and even
argued that some trips might be by bicycle. The argument failed, as it should have. All of that figuring
was spurious. There is every indication that the city would have sought precisely the same exaction for
the trail if the hardware store expansion had been 1/10 the proposed size or twice the proposed size.
The City wanted that land, because it provided a key link in the trail regardless of the extent of the
impact of the proposed development.
Fayetteville\IMPACT FEE STUDY—POLICY DIRECTIONS MEMORANDUM Apnl 3,2001, Page 8
The Supreme Court has not invalidated all forms of exactions. In Dolan, it simply clarified its earlier
holding in No//an, adding to it a requirement that exactions should bear a "rough proportionality"
between the exaction and the impact of the proposed development. The Court suggested that the
calculation of proportionality should be based on an "individualized determination." That is exactly
what an impact fee system does An impact fee system takes the individualized facts of a proposed
development and computes the estimated traffic impact of that development (an individualized
determination) and then bases the fee on that computation (giving us something that we hope is actually
better than a "rough" proportionality). Although critics of the Dolan decision have argued that it can
be interpreted as requiring a complete impact study of every development, there is nothing in the
Court's language to indicate that. In fact, given the anti -regulatory bias of some members of the Court,
it seems likely that they would find the simplicity of an impact fee system far preferable to a regulation
that required complex impact assessments of every project.
Arkansas Statutes
Cities in Arkansas have relatively broad general authority to manage their own affairs. By statute, cities
in Arkansas with a population greater than 2,500 people (defined as "cities of the first class" under Ark.
Code Ann. §14-37-104) have been given authority "to perform any function and exercise full legislative
power in any and all matters of whatsoever nature pertaining to its municipal affairs including, but not
limited to, the power to tax."' The preceding section defines "municipal affairs" essentially by
exclusion, saying that such affairs include "all matters and affairs of government germane to, affecting
or concerning the municipality or its government" except for a list of 15 excluded items. That list
ranges from those to be expected—governmental tort immunity, public meetings, and regulation of
alcohol and gambling to some surprising ones like hours and vacation policies for governmental
employees but none of the items on the list relate to the subject of development exactions or fees.
Thus, by omission from this broad enactment, municipalities in Arkansas appear to retain broad
authority to deal with the issues of financing the costs of growth.
In addition, the state has given municipal governments express authority regarding the construction,
opening and laying out of streets and public grounds (Ark. Code Ann. 514-54-601); drainage of property
(Ark. Code Ann. 514-54-601); to construct and acquire waterworks and "prevent the pollution of
water," which presumably authorizes the operation of sewage collection and treatment systems (Ark.
Code Ann. §14-54-702). The statute providing authority to local governments to act broadly in dealing
with municipal affairs has apparently been subsequently clarified with language making it clear that
"emergency medical services, ambulances and emergency medical technicians" fall within the scope of
municipal affairs.
Most directly relevant to this memo is the more specific authority given to municipalities to "control
the development of land." (Ark. Code Ann 514-56-417). It is important to note that, like many early
subdivision acts, the Arkansas law makes the adoption of a "master street plan" a condition precedent
to the regulation of the development of land." Relevant statutory provisions governing the master
street plan say:
I° Ark. Code Ann. 514-43-602.
I I Ark. Code Ann. §14-56-417(a)(1)
FayettevilleVMPACT FEE STUDY—POUCY DIRECTIONS MEMORANDUM April 3,2001, Page 9
(1) Master Street Plan. The commission may prepare and adopt a master street plan
which shall designate the general location, characteristics, and functions of streets and
highways.
(2) (A) The plan shall include the general locations of sqeets and highways to
be reserved for future public acquisition.
(B) The plan may provide for the removal, relocation, widening, narrowing,
vacating, abandonment, and change of use or extension of any public ways.'
The authority to regulate development under Ark. Code Ann. 514-56-417 includes the following:
(b) (1) The regulations controlling the development of land may establish ot
provide for the minimum requirements as to:
(B) The design and layout of the subdivision, including standards
for lots and blocks, street rights-of-way, street and utility grades, and
other similar items; and
(C) The standards for improvements to be installed by the
developer at his own expense such as street grading and paving; curbs,
gutters, and sidewalks; water, storm and, sewer mains; street lighting;
and other amenities.
(2) (A) ....
(B) They may provide for the dedication of all rights-of-way to the
public.
(5) (A) The regulations shall require the developer to conform to the
plan currently in effect.
(B) (i) The re dons may require the reservation, for future
public acquisition of land for community or public facilities
indicated in the plan.
This reservation may extend over a period of not more
than one (1) year from the time the public body responsible for
the acquisition of reserved land is notified of the developer's
intent.
12
Ark. Code Ann. §14-56-414(d)(1)
Fayetteville\IMPACTFEE STUDY-POUCY DIRECTIONS MEMORANDUM April 3, 2001, Page 10
•
(6) When a proposed subdivision does not provide areas for a community
or public facility based on the plans in effect, the regulations may provide for
reasonable dedication of land for such public or community facilities, or for a
reasonable equivalent contribution in lieu of dedication of land, such
contribution to be used for the acquisition of facilities that serve the
subdivision.
Note that in striking down the park fee requirement in Fayetteville in Ciy of Fgetteville v. I.B.I., Inc., the
Arkansas Supreme Court relied on the language in (b)(5)(A), above, combined with that in (b)(6). See
discussion above and analysis below.
Extraterritorial Jurisdiction
Cities of the first class in Arkansas have relatively broad extraterritorial jurisdiction, as set out in Ark.
Code Ann §14-56-413. The language reads specifically:
(a) (1) (A) The territorial jurisdiction of the legislative body of the city having a
planning commission, for the purpose of this subchapter, shall be exclusive and shall
include all land lying within five (5) miles of the corporate limits.
The "subchapter" to which this sentence refers is headed "municipal planning" and includes the statute
discussed above dealing with the regulation of the "development" of land (see Ark. Code Ann.
§14-56-417). There are some limitations on the five -mile limit where the extraterritorial jurisdicdon of
another city would encroach on that area." Fayetteville appears to be subject to a separate limitation,
restricting the extraterritorial jtuisdiction of cities with populations from 50,000 to 150,000 as of 1989
to 2 -mile extraterritorial jurisdiction." There is a savings clause allowing the city to continue to exercise
jurisdiction over any area over which it had exercised jurisdiction prior to a date that appears to be July
3,1989."
The planning commission must designate the area subject to such jurisdiction." A separate section of
the subchapter indicates that the designation of the territorial jurisdiction should occur in the context
of a "planning area map," which should also show "the general location of streets, public ways, and
public property.'
The Arkansas Supreme Court has addressed tangentially the issue of exactions imposed by a
municipality outside the city limits in one case. In Cibl of Marion v. Baioni, discussed below, the city had
adopted impact fees that applied to sewer and water connections within the city but had not applied
13
Ark. Code Ann. §14-56-413(a)(1)(B)
14
Ark. Code Ann. §14-56-413(a)(2)(A)(ii)
15
Ark. Code Ann §14-56-413(a)(2)(C)
16 Ark. Code Ann. §14-56-413((b)(1)
17
Ark. Code Ann. §14-56-412.
FayettevilieVMPACT FEE STUDY—POLICY DIRECTIONS MEMORANDUM April 3,2001, Page 11
those fees to five contract users outside the city; based on the city's finding that the city incurred no
operating or maintenance costs for such users, the court found no constitutional objection to the city's
disparate treatment of these two groups.
Arkansas Case Law
The Arkansas Supreme Court first upheld an impact -like fee in 1910 in Branch v. Gerlach." The authority
of the city of Argenta to impose the fee was not setiously at issue in the case. A property owner
proposed to make one connection to the system -and offered to pay the fee for one connection -but then
intended to connect several houses on different lots to the system through that one connection. The
city required that there be one connection, accompanied by the required fee, for each lot to which there
was a connection. The court held:
The only question raised, therefore, is whether or not the city had the right to require
a separate connection for each lot. We hold that it did have such power. It is a
reasonable exercise of the police power. Sound reason may be discovered why the
houses on different lots should have separate connection with the sewer, so that the
supervision may be more effective, and so that the stoppage of one connection will not
affect other premises. (p. 451)
This is very much like the "rational nexus" requirement established by the Supreme Court in Nollan and
was sufficient to sustain the one lot/one connection/one fee formula used by the city in this early case.
Another early case, Hinton v. Bowman (1911),19 involved a connection charge for tying into a privately
constructed sewer line -but it dealt directly with the reasonableness of the fee in language that is relevant
today. The facts were somewhat similar to Branch v. Gerlach, discussed immediately above, in that a
property owner held 12 lots and had extended a sewer line behind all of them but now proposed to
connect only one residence located on three lots. The court provided this basic fiscal analysis and
contrasted the positions of the parties:
It appears that about one hundred lots can be served by this sewer, and that its
construction cost about $1,600. It is therefore insisted by defendant that $16 for each
lot, making $192 for the twelve lots, is a reasonable charge for such connection. The
plaintiff, however, contends that he only wishes to make one connection, and that his
residence is only situated upon three lots; and he therefore insists that $48 would be a
reasonable charge for such connection. (pp. 174-75)
After a good deal of discussion of related issues and of the extent to which it had the authority to deal
with the reasonableness of fees, the court held:
It appears from the testimony that in the city of Little Rock the average cost for similar
sewer connections is from $ 50 to $ 60. The testimony further shows that the plaintiff,
believing the city had a right to give to him the connection he desired for the three lots,
18 Branch v. Got& 94 Ark. 378, 127 S.W. 451 (1910)
18 Hinton v. Bowman, 101 Ark. 306, 142 S.W. 174(1911)
FayettevilleVMPACTFEE STUDY—POUCY DIRECTIONS MEMORANDUM April 3, 2001, Page 12
agreed to pay $ 75 therefor, which was the price fixed by the city as a compensation for
such connection. In his answer, which is duly sworn to, defendant stated that he was
willing before this suit was instituted to permit this connection to be made for these
three lots for the sum of $ 60, and he also stated therein that this was a reasonable
charge therefor. Upon a consideration of all the testimony and the circumstances of this
case, we think that $ 60 should be allowed for making this connection with the
residence and the three lots. But this will not give a license to plaintiff or any grantee
from him to make connection for any of the other lots, either directly with the main
sewer, or indirectly by means of the lateral sewer Any connection made by any of the
other lots with the lateral sewer is in effect a connection with the main sewer, and
whenever that is done defendant will be endtled to a reasonable compensation
therefore. (p. 175)
In reaching that conclusion, the court relied in part on its earlier 1910 decision in Pulaski Heights Sewerage
Co. v. Longborougb, where a property owner had physically connected to a sewer operated by a private
company, under the authority of the city government, and refused to pay the required fee. The
corporation claimed the right to set the fee without interference. The court held that, because the
corporation provided a public service under authority of the city, it could review the reasonableness of
the fees. After some analysis of rate -setting principles applied in other cases, the court held:
The evidence in this case fails to furnish a satisfactory standard to determine what
compensation for connection of plaintiffs residence with the sewer of Pulaski Heights
Sewerage Company would be reasonable and just to all parties. The nearest approach
is the average costs of connections with sewers in Little Rock. The sewer in question is
in the vicinity of that city. In Little Rock the average cost is about fifty or sixty dollars
for a connection, mostly $50. One charge was as high as $83. As the cost of the sewer
in question was expensive, more so than the average in Little Rock, we think that $60
should be allowed for a connection with it in this case, the highest average in Little
Rock; and it is so ordered. (p. 537)
A somewhat difficult case in Arkansas exactions law is one involving Fayetteville. COI ofFayetteville v.
I.B.I., Inc. struck down as unconstitutional a fee -in -lieu of dedication required by the city as a condition
of subdivision approval . The court provided this description of the fee requirement, which was
adopted in accordance with Fayetteville's comprehensive plan, as applied to I.B.I.:
With respect to public parks, the planning commission projected the maximum possible
residential population for each neighborhood by 1990. It then determined the number
of acres of public parks that would be needed in each neighborhood if and when that
maximum was reached. By subtracting the existing park acreage from the projected
need, the planning cotranission determined the park acreage that would be needed in
each neighborhood if it reached its maximum residential population.
IBI's specific neighborhood comprises more than a thousand acres, the exact figure not
being shown. Twenty-eight acres of parks will be needed if that neighborhood reaches
its projected maximum population. There being now only twelve acres of parks in the
neighborhood, there may be a deficit of sixteen acres. To provide for the acquisition of
the needed acreage, every developer of a new residential subdivision must dedicate a
specified fraction of an acre for each residential unit or make a cash contribution in a
FayettevilleVmPAcr FEE STUDY -POLICY DIRECTIONS MEMORANDUM Apnl 3,2001, Page 13
specified amount in lieu of the dedicated land. No dedication of land will be accepted
unless the planning commission finds it to be suitable for park purposes and consistent
with the city's general plan. (p. 506)
The court held that the program was too vague to be enforceable:
The two planning commission witnesses made no pretense of saying that any definite
plan for the specific location of future parks now exists 1131 could not have offered any
land, presumably anywhere, in the required fractional acreage that would have been
accepted by the city. No land has been accepted from any developer; only contributions
of money are acceptable. No location for any future park has been determined. Such
locations will be decided on a case-by-case basis, as the particular area develops in the
future. This is said to be good planning, which no doubt it is. The money contributed
will be placed in an interest-bearing account, but there is no way of saying just when it
will be spent, or even for what, since it may be used not only for the acquisition of land
but also for equipping existing or future parks.
As we read the statute, it contemplates something more specific than the Fayetteville
plan in its present stage. The statute requires the developer "to conform to the plan or
plans currently in effect." § 19-2829, supra. In effect there is no plan in effect in
Fayetteville, unless a map and a statement of projected deficiencies in park acreage can
be regarded as a plan currently in effect. (p. 507)
One of the clear concerns of the court was with the lack of any time limit on when the funds could be
spent:
There is apparently no way of determining when, if ever, the contributed money will be
spent, or where, other than in the district, or for what, except as the planning
commission may eventually decide. Yet IBI must make its contributions now, with no
way of assuring its purchasers of residential lots that the increased price they must pay
will result in their access to a public park within ten years or even within fifty years.
The statute confirms the view that something reasonably definite is essential to a plan
requiring the dedication of land or the contribution of money. (p. 507)
In language immediately following that quoted, the court refers to the one-year time limit established
on the acquisition of lands "reserved" for future acquisition under the same statute, perhaps hinting that
one year might be the relevant measure -but it does not say that. The opinion concludes with this
statement:
We are unwilling to say that the legislature intended for the cash contributions to be
made in return for a vague assurance that the money would be spent at some time in the
future, somewhere in the neighborhood, for some public park purpose, with no
provision for a refund to the contributor even if the residential area should never be
developed as expected. (p. 508)
FayeftevilleVMPACT FEE STUDY—POLICY DIRECTIONS MEMORANDUM April 3, 2001, Page 14
What appears to be the leading case on the subject of exactions and fees in Arkansas is CO/ of Mation
v. Baioni (1993). The first paragraph of the court's opinion reflects the parallels between the evolution
of this fee and the history of exactions provided above:
This case involves certain sewer and water "tap and access fees" the City of Marion has
charged appellees, as developers of residential land in and around the city. Marion has
experienced a considerable growth in population since 1975, and this influx of new
people has resulted in the city exceeding the design capacity of both its water and sewer
systems. Between July of 1988 and August of 1990, the city enacted a series of
ordinances that placed "tapping fees" on builders or lot owners connecting on to the
city's existing water and sewer systems and required "access fees" from any person or
entity connecting to the city's transmission lines. These fees only apply to new
development. The ordinances, as amended, provide that the funds collected from these
respective fees must be placed in separate accounts designed as the "water expansion
account" and "sewer expansion account," and used solely to expand the city's water and
sewer systems. (pp. 1-2)
Local builders challenged the constitutionality and validity of the system under Arkansas law. As the
case evolved, it focused on one what is probably the most critical question regarding the validity of such
a fee under state law -that question is, "Is this a fee, which the governing body may simply adopt by
ordinance, or is it a tax, subject to procedural and substantive limits imposed on taxation under the state
constitution and state law?" A chancellor found that the fee system amounted to a tax that had not
been approved by a vote of the people, as required under Ark. Code Ann. §26-73-103. The appellate
court ultimately ruled for the city. In doing so, it began with this generalized statement of the rule for
distinguishing taxes from fees:
The distinction between a tax and a fee is that government imposes a tax for general
revenue purposes, but a fee is imposed in the government's exercise of its police
powers. (p. 2)20
The court continued with this analysis.
In this case, the chancellor reviewed considerable legal authority leading him to the
general conclusion that a governmental levy or fee, in order not to be denominated a
tax, must be fair and reasonable and bear a reasonable relationship to the benefits
conferred on those receiving the services. We agree with the chancellor's conclusion,
which seems to be the prevailing rule in other jurisdictions. However, the rule's
application is not always an easy one for the courts. (p. 2, citing several impact fee and
related cases from other states)
The court provided this more specific analysis:
Under the City of Marion ordinances, sewer and water fees total $950.00 for each single
family unit. While $150.00 of this amount is required to tap -in to the sewer system, the
actual cost of tapping -in is about fifteen or twenty dollars. The chancellor held, and
20
Citing COI of.North Link Rork v. Graham, 278 Ark. 547, 647 S.W.2d 452 (1983)
FayettevilleWPA CT FEE STUDY—POLICY DIRECTIONS MEMORANDUM Apnl 3,2001, Page 15
•
appellees argue on appeal, that because the fees imposed by the city exceed the services
provided, the fees are in actuality taxes. Such a conclusion ignores the fact that the
tapping and access fees established by Marion are for the raising of funds to pay for the
extension of existing water and sewer systems to developments where new users reside.
Raising such expansion capital by setting connection charges, which do not exceed a pro
rata share of reasonably anticipated costs of expansion, is permissible where expansion
is reasonably required, if the use of the money is limited to meeting the cost of that
extension. [emphasis in the original] (p. 3)21
The court went on to uphold the validity of the fee ordinances, applying what amounts to a "rough
proportionality" analysis under Dolan, although the case mentions neither Nollan nor Dolan:
Here, the city's expert witness, John Sheahen, testified that he determined an
appropriate level of fees to developers that justified the projected costs of water and
sewer facilities needed to serve future customers. He said that the projected costs for
extending the water system would require $805.00 per single family unit and sewer costs
would require $808.00 per unit. Obviously, the city's combined water and sewer
connection fees, $950.00, imposed on builders and developers for new users is
considerably less than the costs projected by Sheahen—$1,613.00 per single family unit.
Such evidence certainly supports the chancellor's finding that the city's fees are
reasonably related to the benefits conferred on the appellees, and in our de novo review
of the record, we also conclude the fee amounts established by the city are more than
reasonable.
Of major importance, we point out that the city ordinances require the tapping and
access fees to be segregated and placed into accounts to be used solely and exclusively
to expand the capacity of the city's water and sewer systems. In other words, these
funds will be used directly to benefit the new users and for no other purposes. Graham,
278 Ark. 547, 647 S.W.2d 452; Contractors & Builders Ass'n, 329 So.2d 314; Amherst
Builders Assn, 61 Ohio 345, 402 N.E.2d 1181. This fund restriction distinguishes this
case from those situations where municipalities have imposed fees to underwrite the
costs of a special service to a new development but instead the monies benefited the
general public. (p. 3)
Because the Arkansas court cited it several times in upholding the Marion fees, it is worth a brief
discussion of the 1980 Ohio case, Amherst Builders' Association v. Ciy of Amherst. In that case, the court
considered a challenge to a sewer tap -in fee of about $400 per single-family dwelling unit, where the
evidence showed that the cost of inspection was approximately $140 In discussing the fee, the court
cited the appellate court's decision in (upholding total water and sewer connection charges of $450 as
"fair and reasonable")with approval and also referred to one of its own earlier decisions:
In State, ex rel. Stoeckle, v. Jones (1954), 161 Ohio St. 391, we endorsed this concept of cost
equalization in an analogous situation. There the municipality had partially funded the
21 citing Contractors & Builders Assoc of Pinellas Counry vs. up, ofDunedin, 326 So.2d 314 (Fla 1976), and Amherst Builders
.Assn, 61 Ohio St. 345, 402 N.E.2d 1181 (1980).
u Englewood Hills, Inc., v. Village of Engkwood, 14 Ohio App 2d 195, at 198, 237 N E 2d 621, at 624 (1967)
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