Impact Fees in Washington State for 2024

Summary

The housing affordability crisis has become a national focal point. Washingtonians, at every level, feel the effect it has on their lives. Young adults struggle to afford rent, working families struggle to save enough money to buy a home, and retiring baby boomers stay in their family-size homes to hold on to cheaper mortgages. There are numerous factors at the local, state, and national levels that affect housing prices; this report looks at the burden from impact fees imposed on new residential construction in Washington state.

Background

Impact fees are a type of revenue collected by local government to pay for some of the cost of providing public facilities for new development. This study looks at impact fees authorized under the Washington State Growth Management Act (GMA) (RCW 82.02.050).The GMA impact fees may only be used for the following capital facilities that are publicly owned or operated: public streets, roads, and bicycle and pedestrian facilities that were designed with multimodal commuting as an intended use; publicly owned parks, open space, and recreation facilities; school facilities; and fire protection facilities (RCW 82.02.090).These are typically categorized as fire, parks, school, and transportation or traffic impact fees. There are other types of impact fees that local governments can impose under state law, including transportation mitigation fees. However, this report only considers impact fees imposed under the GMA.

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Along with the restrictions the GMA has on how local governments can spend impact fees they are also required to offer deferrals on payments (RCW 82.02.050), refunds if the fees are not used within 10 years (RCW 82.02.080), and place the money collected in separate accounts for each type of fee and report on their status annually (RCW82.02.070). Local jurisdictions cannot rely solely on impact fees to fund new facilities, but the GMA does not provide a specific limit on how much of a project can be funded by impact fees (RCW 82.02.050 (2)).  

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Impact fees are a significant component of the tax and regulatory burden on residential construction. The fees can directly increase the cost of construction, but they also can affect the viability of a project or influence the type of housing built. The strength of their effect on housing affordability varies depending on the amount or rate of fees imposed by local governments. Lawmakers recognized the negative effect impact fees could have on construction costs and viability when making the GMA, so they included the option for local jurisdictions to provide full or partial exemptions for low-income housing.

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It’s important to note that not all jurisdictions in Washington state can impose impact fees, as not all cities, counties, and school districts perform comprehensive planning under the GMA. Furthermore, even if a jurisdiction plans under the GMA, it may choose not to impose impact fees.

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Fire, parks, and transportation impact fees are determined, imposed, and collected by city and county governments. School impact fees are determined by school districts and typically imposed and collected by the respective city or county.

Methodology

To assess impact fees for all local governments that impose them in Washington, we began by utilizing an older impact fee deferral report from the Department of Commerce which contained an appendix listing all jurisdictions that impose impact fees(Commerce, 2019). We then looked on each jurisdiction’s website and located their impact fee schedule or rates in the municipal code. There were several limitations to this approach. Many of the websites were hard to navigate and search. The websites did not always contain up-to-date fee schedules, and not all jurisdictions routinely updated their fee schedules. Some jurisdictions had no fee schedules on their websites at all, and we had to contact them for the information.

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As mentioned previously, impact fees fall under four categories, fire, parks, schools, and transportation. Jurisdictions may impose impact fees on commercial and residential construction and have separate rates or fees for each building type. For this report, we are only considering fees imposed on single-family and multi-family dwellings(additionally, some jurisdictions have one all-encompassing residential rate). Residential impact fees are typically assessed per dwelling unit; our analysis will primarily center on that. However, they are sometimes assessed per square foot or new peak trips during critical traffic times, typically in the afternoon, for transportation. The data we collected and present in this report should not be used to determine what an exact construction project must pay in fees but provides an illustration as to what could be expected. Builders should contact the respective jurisdiction to obtain the most recent fee schedules and make determinations based on the schedule and specifics of the project.

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Looking at the average impact fee by type gives a general sense of the tax burden residential construction faces. The combined average in impact fees that a single-family dwelling unit in Washington state may owe is $18,431.89. Based on this total average, if a builder is making a 50-home development, then they could owe $921,594.50 in impact fees. The builder will need to factor this into the soft costs of the homes for the project to be profitable. Additionally, fees can also affect the types of buildings used in the project or the overall viability of a project. They may choose to build fewer homes that are higher end so they pay less impact fees overall but then can sell each home for a higher margin, making it easier to recover the costs of the fees.

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The combined average in impact fees that a multi-family dwelling unit in Washington may owe is $11,207.30. Jurisdictions may have separate multi-family rates depending on the number of dwelling units involved. This report will focus on 1-3 story multi-family buildings with no interior corridors, referred to as walk-ups because they fall under residential construction in the building codes. On average, a 12-unit walk-up would owe$134,487.30, a 24-unit would owe $268,975.20, and a 36-unit walk-up would owe $403,462.80in impact fees. While on average it seems that multi-family dwellings are charged less in impact fees than single-family, some jurisdictions have higher rates for multi- compared to single-family dwellings.

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Looking at impact fees by county shows the tax burden is not equal across the state. Some counties have much higher impact fees on average compared to others. The averages in Table 2 include both the impact fees imposed by the counties themselves and all the cities, towns, and school districts in their jurisdiction based on those calculated per dwelling unit. Transportation impact fees can be calculated based on per new peak trips instead of by dwelling unit. Each jurisdiction will base the rates on a study, so a dwelling unit may be determined to have one or more new peak trips. So, in effect, the fee could be the same as per dwelling unit, or it could end up being double or more than a per dwelling unit basis; that is why we excluded new peak trips from Table 2.

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While these average calculations can help us understand the general effect that impact fees have on residential construction, it’s critical to consider specific instances of jurisdictions with abnormally high impact fees. For example, a new single-family dwelling in Issaquah would pay a total of $29,589.59 in impact fees. A 50-dwelling unit residential development in Issaquah would pay a total of $1,479,479.50. That is 160.5% greater than the state average.

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Recommendations

First, we will discuss recommendations that are of a technical nature. The difficulties in collecting the data for this report show that local governments need to improve the access of their current fee schedules on their websites. This will enhance transparency and make it easier for builders to know how much they will owe in fees. Related to that, during our research, we noticed that not a single jurisdiction had available on their website the annual financial report they are required to make regarding the separate impact fee account. Jurisdictions may be performing these reports and not posting them online, but these are essential reports that let the public know that revenues are being accounted for and spent appropriately. We recommend jurisdictions make these reports readily available online.

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Second, we will discuss recommendations that are of a policy nature. The results of this study show the incredible burden that impact fees can impose on new residential construction. The severity of our housing crisis calls for prudent action to be taken at every level to increase supply and lower construction costs to create more affordable market-based housing. Local governments can control how much they charge new residential construction for impact fees. By lowering the fees, they can immediately reduce the soft costs of construction and improve affordability.

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Lastly, school impact fees are, on average, 135% higher than other impact fees. School districts set their own impact fee rates and enter into agreements with cities and counties for the respective city or county to collect the fees. Jurisdictions should review enrollment numbers during the year, and if enrollment has declined compared to the projections in the school district’s capital facilities plan, then they should immediately cease impact fee collections.

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Conclusion

Local governments planning under the GMA in Washington can impose sizable impact fees on new residential construction. These fees create a significant tax burden on housing developments, decreasing housing affordability and potentially affecting the type or viability of certain projects. In addition to technical improvements to make impact fees more easily accessible by the public, policymakers should consider ways to reduce or remove impact fees to immediately decrease soft construction costs in their area and improve housing affordability.

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