Development Impact Fees

The South Carolina General Assembly enacted the Development Impact Fee Act to set guidelines for assessing, collecting and spending development impact fees. Impact fees are legal, but the courts have defined how they are collected and spent. The Act puts into statute the standards that exist in case law and ensures that those paying the fees don’t pay more than is fair to cover their impact on local government services.

Federal case law established two basic legal theories that are reflected in the Act: rational nexus and proportionality. A rational nexus must exist between the service being funded and the impact that the person paying the tax has on that particular service. The fee must be proportional to the impact of the new home, considering all other funds contributed by the homeowner such as property taxes. The concept of proportionality dictates that that new homeowners not pay for 100 percent of the cost of a service when existing homeowners will benefit. Proportionality also dictates that a new homebuyer not pay to repair or improve existing services, but to pay to maintain the current level of service.

South Carolina REALTORS® believe that the Development Impact Fee Act is appropriate and necessary to protect both real estate buyers and local government. South Carolina REALTORS® oppose any amendments to the Act that would erode these protections.

Impact fees increase the cost of homes, impacting prospective homeowners with low to moderate income most. Developers pass on the impact fee in the purchase price of the home. In most cases, this fee is rolled into the mortgage, and homeowners pay these fees with interest over the life of their mortgage. Homebuyers with limited means can easily be knocked out of the market by even a small amount added onto the cost of their new home. Further, because impact fees are nearly always a flat fee, they affect buyers of affordably priced homes far more severely than buyers of higher-priced homes.

Impact fees negatively affect the economic health of the community. The higher cost of housing as a result of impact fees makes an area less attractive to industrial recruitment. When industry is considering expanding to a new community, the availability of affordable housing is often a key factor in site selection.

Impact fees translate into higher taxes for everyone in the community. Impact fees, as part of the sale price of the home, are incorporated into the home’s assessed value under the new property tax scheme. As a result, the new resident not only pays the impact fee, but they pay property taxes on that impact fee as well. New residents are not the only ones affected by impact fees. Impact fees get incorporated into the valuation of older homes during reassessment, and current residents end up paying property taxes on those same impact fees as well.

Impact fees are not a reliable source of revenue to a local government. Home construction and real estate sales are cyclical and dependent upon the health of the overall economy. Consequently, revenues from impact fees can vary widely from year to year, often disrupting infrastructure funding plans and debt service needs. Revenues from impact fees usually cannot come close to meeting the community’s infrastructure needs, and other sources of revenue will continue to be necessary.