Who Should Pay for the Impact of New Development in Iowa: Developers or the Preexisting Community? Analysis of Home Builders Association of Greater Des Moines v. City of West Des Moines

AuthorKristin B. Flood
PositionJ.D. Candidate, The University of Iowa College of Law
Pages07

Kristin B. Flood: J.D. Candidate, The University of Iowa College of Law, 2006; B.A., University of Notre Dame, 2003. I would like to thank my parents, Dr. Michael and Michele Flood, and my siblings Shannon, Carie, Sean, and Ryan for all the love, laughter, and support they have given me over the years. Page 754

I Introduction

New development places considerable strain on the existing infrastructure, local services, and facilities of a city. To offset the strain imposed by new development, the city must build new schools, police and fire stations, roads, parks, electricity, water, and sewage facilities, and make other improvements. These new improvements all require substantial sums of money to build and operate.1 The controversial issue in Iowa is who should pay for the impact of new development: the developers who drive and profit from the development or the preexisting community that wakes up one day to an increase in its already excessive property taxes?2 This Note argues that growth should pay its own way and that the Iowa Supreme Court erred when it invalidated the use of impact fees.3 The court's holding unfairly shifted the burden of growth onto the existing community and created a windfall for developers.4

Impact fees are growing in popularity throughout the United States as a means to support new development.5 "An impact fee is generally a monetary payment assessed as a condition of the issuance of a building permit or plat approval."6 The fees generated are used to construct facilities needed to support the new development.7 Many states allow such fees because they are a welcome "means of helping municipalities offset the increased cost and strain on public facilities associated with new development."8 In Iowa, however, the state supreme court recently invalidated an impact fee ordinance adopted by the City of West Des Moines.9 The court declared the impact fee an illegal tax.10

This Note argues that the Iowa Legislature needs to pass an enabling statute allowing municipalities to impose impact fees.11 Alternatively, the Page 755 Iowa Supreme Court needs to follow the lead of other similarly situated state courts and adopt a more permissive view of what constitutes a valid regulatory fee. This would allow municipalities to impose impact fees using their home rule powers.12 Part II of this Note discusses background information concerning impact fees.13 Part III analyzes the controversial holding in Home Builders Ass'n of Greater Des Moines v. City of West Des Moines.14Part IV discusses why Iowa needs the use of impact fees, and Part V discusses Iowa's options for preserving the legality of impact fees.

II Background On Impact Fees
A Community Sentiment In Regard To New Development

Prior to the mid-1970s, communities in the United States believed "that growth brought prosperity in the form of population increase, economic development, and higher local tax revenues."15 Thereafter, however, communities began to think negatively of growth.16 Communities now view development as a strain on the existing infrastructure, local services, and facilities of a city.17 This strain is based on the city's need to provide "new or additional services and infrastructure" to support the new development.18Thus, communities resent growth because the costs of providing additional infrastructure and services are very high.19

Traditionally, cities have made existing taxpayers absorb the cost of new development by raising property taxes.20 However, because of rapid and sometimes excessive growth, cities have had to find other alternatives to offset the cost of new development.21 In addition, community attitudes have Page 756 changed, and taxpayers no longer believe that they should be taxed for new development.22 Rather, taxpayers reason that "if growth imposes a cost on the community . . . it is only fair to assess the source of that growth with the costs it imposes."23 Essentially, communities think that "growth should pay its own way."24

B Alternative Techniques To Pay For The Impact Of New Development

In response to the anti-tax sentiment25 and the need for alternative techniques to pay for new development, cities began to mandate that developers pay for the infrastructure and/or services needed to support their developments by dedicating an on-site subdivision of land.26 The dedicated land was to be used for "public purposes or for the construction of public improvements" such as subdivision streets, hospitals, and cemeteries.27 Often, the city would require the developer to construct on-site facilities needed to support the new development.28 Some local governments Page 757 have also required developers to construct minor off-site facilities.29 Usually, the city would require the developer to construct facilities on nearby land "for the purposes of road or drainage use."30

Besides mandating that a developer dedicate land or construct improvements, cities have also imposed "in-lieu fees."31 Essentially, a local government will require "a developer to pay a fee as a condition for subdivision approval rather than dedicate the land."32 Municipalities prefer in-lieu fees instead of land dedication when the development is small or the land to be dedicated is inadequate for the improvements needed.33 In-lieu fees "provide a solution to a cumulative problem created by numerous small developments each contributing to the need for" a large capital improvement, such as a sewage facility.34 The imposition of in-lieu fees is limited in that they can only be imposed when dedication of land would also have been appropriate.35

C Impact Fees

In addition to dedications and in-lieu fees, local governments have also imposed impact fees on developers to help fund the construction of facilities needed as a result of growth.36 An impact fee is (1) a "predetermined" payment of money37 that is (2) a condition precedent "to the issuance of a building permit, an occupancy permit or plat approval,"38 (3) "levied to fund large-scale, off-site public facilities and services necessary to serve new development,"39 (4) "in an amount . . . proportionate to the need" caused by the growth.40

Cities use impact fees to finance improvements like "roads, water and sewer systems, parks, schools, police and fire stations and low and moderate income housing" that are needed to support new development.41 Local governments are likely to prefer impact fees over dedications and in-lieu fees Page 758 because impact fees are more flexible.42 Impact fees "can be used to fund a broader range of public facilities beyond the land area development itself."43

D Permissibility Of Impact Fees Based On Express Or Implied Authority

An increasing number of local governments are using impact fees to offset the costs of new development.44 There is question, however, as to whether local governments have the authority to impose impact fees.45 Local governments are subject to Dillon's Rule, which states that cities only have those powers that the State either expressly or impliedly gives to them.46Thus, local governments can only impose impact fees if the State gives them the authority to do so.47

1. The Certainty of Express Authority

Some states have avoided the limitations imposed by Dillon's Rule by enacting "legislation that permits local municipalities or counties to impose impact fees."48 In 1987, Texas passed the nation's first impact fee enabling statute.49 Enabling statutes give municipalities express authority to impose impact fees, thereby satisfying Dillon's Rule.50 Because an enabling statute expressly allows a municipality to impose impact fees, there is more certainty as to the municipality's authority to do so.51 Page 759

2. The Uncertainty of Implied Authority

Local governments may also impose impact fees under implied authority from the State.52 There is inherently more uncertainty, however, in determining whether a locality has implied authority from the State to impose impact fees, as opposed to express authority.53

To determine whether a municipality has implied authority from the State to impose impact fees, it is necessary to determine the extent of the municipality's police power.54 Generally, police power is "[t]he inherent and plenary power of a sovereign to make all laws necessary and proper to preserve the public security, order, health, morality, and...

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