Selected Funding Sources for Public Facilities

Impact Fees

Impact fees are one-time charges assessed by local governments against a new development project to help pay for new or expanded public facilities that will directly address the increased demand created by that development.

Counties, cities, and towns planning under the Growth Management Act may impose impact fees for:

• Public streets and roads
• Publicly owned parks, open space, and recreation facilities
• School facilities
• Fire protection facilities

For more details, see our page on Impact Fees.

In addition, all cities, towns, and counties, as well as transportation benefit districts, may impose transportation impact fees under the Local Transportation Act (see below), although MRSC is not aware of any jurisdictions that currently do so under that authority.

Voluntary Agreements

RCW 82.02.020 prohibits fees on development collected as part of a voluntary agreement between the developer and the permitting agency unless they are in lieu of a dedication of land or they mitigate a direct impact that has been identified as a consequence of a proposed development. The permitting agency must be able to establish that an impact fee collected pursuant to a voluntary agreement is "reasonably necessary as a direct result of the proposed development or plat." (These impacts are typically identified through the SEPA process). Funds collected under voluntary agreements must be held in a reserve account and expended on agreed upon capital improvements. Fees must also be expended within five years or be refunded with interest.

These types of agreements must be "voluntary," though not voluntary in the usual sense of the term. When a local government presents a developer with the choice of dedicating or reserving land for park or open space or the like or paying a fee in lieu of such dedication or reservation, the developer's agreement to pay a fee in lieu of the dedicating is "voluntary" for purposes of RCW 58.17.020.

Court decisions, such as Vintage Construction Company, Inc. v. City of Bothell, 83 Wn. App. 605 (1996), have required cities to demonstrate that fees-in-lieu of dedication be related to the value of the land that might otherwise be dedicated.

In Isla Verde Int'l Holdings, Inc. v. Camas, 146 Wn.2d (2002), the state supreme court addressed the required nexus between an open space requirement for a subdivision and the impacts of the particular subdivision. The court held that, under RCW 82.02.020, approval for a proposed subdivision may not be conditioned on the developer's setting aside a fixed percentage of the property as open space absent an individualized determination that the set aside requirement is reasonably necessary as a direct result of the proposed subdivision or reasonably necessary to mitigate a direct impact that is a consequence of the proposed subdivision.

SEPA - The State Environmental Policy Act

The State Environmental Policy Act (SEPA, chapter 43.21C RCW) grants wide-ranging authority to impose mitigating conditions relating to a project's environmental impacts. A local government's authority under SEPA to mitigate environmental impacts includes the authority to impose impact fees on a particular developer to pay for the mitigation of impacts on public facilities and services. We note, however, that a municipality pursuing this course must establish a proper foundation. Local SEPA policies authorizing the exercise of SEPA substantive authority must be adopted and fees imposed must be rationally related to impacts identified in threshold determination documents (primarily environmental checklists) or environmental impact statements. Fees collected under SEPA may not duplicate fees collected under other sources of authority.

Under GMA, a city or county may establish a fee schedule, based on a formula, and specify the amount of the mitigation fee to be imposed for each type of system improvement. However, in City of Olympia v. Drebick, 156 Wn.2d 289 (2006), the state supreme court indicated that SEPA does not provide the authority to do such an overall scheme of uniform fees. Instead, under SEPA, the mitigation fees calculation must be based on an individualized assessment of a development's direct impact on each improvement.

Note that when relying solely on SEPA authority, there is no basis for imposing conditions or fees unless the project goes through SEPA. As a result, a project that is exempt from SEPA would not normally pay mitigation fees. However, the city of Everett has established a separate small project impact fee procedure under GMA to collect fees from projects that would otherwise be missed, because exempt from SEPA.

Many of the jurisdictions that have adopted GMA impact fees still rely on SEPA to address impacts not covered by the GMA impact fees. However, care must be taken to avoid "double dipping." Local governments may not require any person to pay for system improvements under SEPA when they have paid a fee for the same system improvements under GMA or any other authority RCW 43.21C.065. Similarly, a developer may not be required to pay GMA impact fees for system improvements that were subject to SEPA-based mitigation fees. RCW 82.02.100.

Local Transportation Act

The Local Transportation Act (chapter 39.92 RCW) authorizes local governments to develop and adopt programs for the purpose of jointly funding, from public and private sources, transportation improvements necessitated in whole or in part by economic development and growth within their respective jurisdictions. Cities operating under this chapter are authorized to impose transportation impact fees on development to pay for "reasonable and necessary off-site transportation improvements to solve the cumulative impacts of planned growth and development in the plan area." RCW 39.92.030(4).

The Act specifies various requirements for transportation programs. The authorized programs must be based on an adopted transportation plan and the fee must be calculated from a specified list of capital projects. Traffic impact fees cannot exceed an amount that the city can demonstrate is reasonably necessary as a direct result of the proposed development.

Transportation Benefit Districts

Cities and counties may establish transportation benefit districts (TBDs) to fund transportation improvements. TBDs may raise revenue a variety of ways, but the primary funding sources are nonvoted vehicle license fees up to $50 (subject to certain conditions) and voted sales and use taxes up to 0.2 percent.

For more details, see our page on Transportation Benefit Districts.

Subdivision Exactions

Under chapter 58.17 RCW, the state subdivision law, cities or counties may require that developers install, at their expense, the improvements necessary for a full range of urban services in new subdivisions. Such improvements usually include streets, curbs and gutters, sidewalks, water systems, fire hydrants, sewer and drainage lines, and, in some instances, transit stops, parks and recreation facilities, and sites for schools. Installation of these improvements is usually required as a condition of subdivision approval. Also, a performance bond or similar obligation generally is required to ensure that improvements will be installed in accordance with city or county requirements. If a proposed plat does not make "appropriate provisions" for the public health, safety, and general welfare, including such needed improvements, the legislative body must deny the proposed plat.

RCW 58.17.110 addresses project improvements that service a specific new development. In contrast, GMA Impact fees are specifically designed to address system improvements included in the local jurisdiction's capital facilities plan rather than project improvements.

Nolte v. City of Olympia, 96 Wn. App. 944, 954 (1999) clarifies that "(t)his statute [RCW 58.17.110] does not authorize impact fees other than those imposed under RCW 82.02.050 - .090.

Water and Sewer Connection Fees

RCW 35.92.025 allows a city to charge a connection fee in addition to the actual cost of the connection. The legislative body of the city or town is to determine what the additional charge shall be so that property owners connecting to the system bear their equitable share of the cost of the system. Case law previously made clear that this equitable share of the cost of the system is to be based on historical costs and not on future costs. This was the specific holding in Boe v. Seattle, 66 Wn.2d 152 (1965).

However, a well-reasoned memo on this issue by Hugh Spitzer in 1996 presents a broader interpretation regarding the ability to factor in future costs. The Spitzer memo reviews the relevant statutes and cases, and stresses the need for basing any future costs on studies by engineers and/or financial consultants.

Latecomer Fees

RCW 35.91.020 authorizes contracts between a city or a county and a developer for construction of water and sewer facilities, and it authorizes, for a 15-year period, reimbursement of a developer by other property owners who did not contribute to the original cost of the facilities and who subsequently tap into or use the facilities.

Chapter 35.72 RCW authorizes cities and counties to contract with a developer for the construction or improvement of street projects, and it authorizes, for a 15-year period, reimbursement of the developer by other property owners who subsequently develop their property and who meet certain criteria.

For more details, see our page on Latecomer Agreements.

Local Improvement Districts

Chapters 35.43 through 35.56 RCW authorize and establish the mechanisms for cities to carry out a wide range of public improvements, including streets, parking facilities, water and sewer systems, parks and recreational facilities, underground utilities, and transportation facilities, and to assess for benefited property owners the costs of such improvements. Similarly, chapter 36.88 RCW authorizes counties to form road improvement districts.

For more details, see our page on Local Improvement Districts and our Local and Road Improvement Districts Manual.