IMPACT FEES/AMENDMENT
TO ILLINOIS HIGHWAY CODE

By WENDY U. LARSEN and MICHELLE ZIMET
of Siemon, Larsen, Mattlin & Purdy Law Firm, Chicago

Local governments faced with deteriorating infrastructure and over-stressed public facilities have begun to react to the impacts of new growth and development on the quality of life in their communities as available revenues fail to keep pace with the cost of needed facilities. Alternative funding sources, such as impact fees and other developer "fair share" programs, are being implemented to provide new capital facilities. The Illinois Legislature recently responded to its funding problems by amending the Illinois Highway Code and granting authority to certain county boards to enact impact fee ordinances to fund transportation infrastructure.

The Illinois Highway Code (Ill. Rev. Stat. ch. 121) was amended on September 17, 1987 (P.A. 85-464, effective January 1,1988), to allow county boards of any county with a population between 400,000 and 1 million people to create transportation impact districts, to collect transportation impact fees, and to adopt reasonable regulations necessary to administer and enforce the fees. Under the new amendment, persons who construct new development that has either direct or indirect access to the county or state highway systems would be subject to an impact fee if the county board uses the enabling legislation. The fee shall be in addition to any other fee the developer is required to pay when the building permit is issued.

The Highway Code amendment also provides that the impact fee shall be calculated based on both the amount of estimated traffic generated by new development and the types of improvements needed to maintain a reasonable level of service on the existing and proposed highway system. All fees collected under such an ordinance shall be earmarked in a special fund established for each transportation impact district, and monies shall only be spent for improvements within, or in areas immediately adjacent to, the district from which the fees were collected.

The purpose of impact fees and other similar financing devices is to require the developers and their customers who generate the need for and benefit from capital improvements to pay the costs of constructing those facilities. The fees provide the revenue necessary to maintain, construct or improve capital facilities needed to serve new growth and development.

While impact fees have become a popular method of financing a variety of capital facilities in other parts of the country, including sewage, fire and police protection, parks and libraries, transportation lends itself perhaps most readily to this type of funding mechanism. For example, new growth and development generates a known quantity of traffic (x number of trips generated per unit of development traveling a particular distance per average trip). This "demand" for trafficways is quantifiable in terms of the number of trips of a particular length, and easily translates into the number of additional roads required to provide safe and efficient vehicular movement at the community's selected level of service. By calculating the cost per unit of additional roads, the cost of a particular development's impact on roads can be precisely identified and a fee can be collected to pay for the required improvements.

Despite the inherent logic of the "impact" charge, some legal challenges to the use of such fees have been brought. The Highway Act amendment bypasses the issue whether the fee is within the authority of some counties. Until now, no explicit constitutional or statutory provisions in Illinois granted local governments the authority to impose impact fees. Financing of public roads and other related public improvements has instead been accomplished through ad valorem taxes, local subdivision regulations and dedication requirements, or through special assessments (See, e.g. Ill. Rev. Stat., ch. 24, Article IX.) Illinois law does not bar municipalities (especially home rule units) from adopting impact fees without explicit authority; in fact, this has been the pattern throughout the country.

In Florida, for example, impact fees are an accepted "fact of life" for new development, without statutory authority. Impact fee ordinances have survived legal challenge for over a decade, even though there is no specific enabling legislation that grants such authority to local municipalities. In Florida, an impact fee is sustained if the following tests are met: (1) new development requires additional capacity for a particular public facility, (2) the fees imposed do not exceed a pro rata share of the reasonably anticipated costs of capital expansion and are exacted only to accommodate new development; and (3) the funds are specifically earmarked and delineated so that there is a reasonable connection between the expenditure of funds collected and the benefits accruing to the development. See, e.g.,

January 1988 / Illinois Municipal Review / Page 25

City of Dunedin v. Contractors and Builders Association of Pinelias County, 312 So.2d 763 (Fla. 1975); Hollywood, Inc. v. Broward County, 431 So.2d 606 (Fla. 4th DCA 1983). And, in fact, a number of Illinois municipalities have adopted programs which closely resemble impact fees without explicit authority.

Although some county boards now have the explicit authority to impose a regulatory impact fee as a condition of development approval, the fee must nonetheless be "reasonable." The fee must substantially advance a legitimate public interest and must bear a rational relationship to the development impact sought to be mitigated by the fee. Three constitutional standards have developed to ensure that a substantial relationship exists between the regulatory requirements and the public purpose for which they were imposed. The three standards examine whether the exaction is (1) uniquely and specifically attributable; (2) bears a reasonable relationship; or (3) has a rational nexus with the new development. The rule of reasonableness that the Illinois courts have traditionally imposed on exactions is the "uniquely and specifically attributable" standards.

Traditionally, in order for a mandatory dedication to be a valid exercise of the police power in Illinois, the need for the capital improvement must be "specifically and uniquely attributable" to the development of the particular subdivision. See e.g., Pioneer Trust & Savings Bank v. Village of Mount Prospect, 22 Ill. 2d 375, 176 N.E.2d 799 (Ill. 1961) (fees for educational purposes were not authorized because they were unrelated to the developer's subdivision plat); Krughoff v. City of Naperville, 41 Ill. App. 3d 334,354 N.E.2d 489 (2d Dist. 1976), aff'd, 68 ILL. 2d 352, 369 N.E.2d 892 (Ill. 1971) (upheld required dedication of land, or contribution of fees in lieu, for school and park purposes). A determination of the "reasonableness" of the conditions imposed on developers will be based on the extent to which the need for the improvement is specifically and uniquely attributable to the activity so as to justify casting the financial burden on the developer.¹

The "rational nexus" constitutional standard of reasonableness has been adopted as the appropriate standard for determining the constitutional validity of impact fees in many states. This standard has been broken down into three parts: (1) the new development must create a demand for a new capital facility, (2) a "rational nexus" must exist between this new development and the need for the new facilities, and (3) there must be some assurance that sufficient benefit accrues to the particular development that pays the fee. See, e.g., Associated Homebuilders of the Greater East Bay, Inc. v. City of Walnut Creek, 484 P.2d 600 (Cal. 1971); Home Builders Ass'n of Greater K.C. v. City of Kansas City, 555 S.W. 2d 832 (Mo. 1977); Call v. City of West Jordan, 606 P.2d 217 (Utah 1979). This standard has been characterized as less stringent than the Illinois "uniquely and specifically attributable" test. However, the U.S. Supreme Court's recent decision in Nollan v. California Coastal Commission, 107 S.Ct. 3141 (1987) may have resulted in a blending of the distinctions between the standards.

The Illinois municipalities that choose to impose transportation impact fees should be careful to ensure that there is a proper nexus between the regulations, their stated purpose, and their expenditure. If the transportation exactions do not specifically relate to their stated purpose, the development condition will be invalidated.

If Illinois local governments decide to impose impact fees, local officials will not only have to determine the burden imposed by the new development, but they would also have to establish procedures to ensure that new development is paying no more than its "fair share" of the cost of improvements. If the county boards want to impose impact fees on new development for road improvements, for example, they must establish that the fee is attributable to the burden on local roads which the new development will generate, and the county boards may be required to produce data that shows the number of trips per day generated by the development, the number of extra lanes, and other associated impacts.

Although impact fees are a relatively new method of financing capital facilities, they have already become part of an accepted cost of development, and are tolerated by developers and local governments alike. Managed growth is crucial for counties like DuPage and Lake, two counties that qualify under the legislation; impact fees can fund the improvement and expansion of their transportation programs so that these counties can keep pace with their increased growth. Other municipalities in Illinois should likewise consider adopting impact fee programs to help alleviate their own growth management needs. Developer financing of transportation improvements is a viable, equitable method of shifting the cost of new development to those who create the costs. •

Page 26 / Illinois Municipal Review / January 1988