An econometric analysis of the relationship between new development and local government capital expenditures for use in establishing rational nexus for the implementation of impact fees
Meek, Alfred Benjamin
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More than 90 percent of local governments impose land-use exactions as a way to finance needed infrastructure. Often those exactions include cash payments, also known as impact fees. The current legal basis for impact fees, as put forth by the Supreme Court of the United States, is the “rational nexus” criterion. Simply put, the rational nexus criterion says that there 1) must be a connection between the exaction and the purpose for which it is used, and 2) the exaction must demonstrate rough proportionality to the impact of the development. Therefore, the goal here is to develop a statistical, empirical analysis that meets the rational nexus criterion and provides a basis for an impact fee program that will provide sufficient funds to cover the capital costs that result from new development. In order to accomplish this goal, a series of fixed-effect panel data regressions were estimated using annual capital expenditures (by category) and digest values (by type) for all counties in the State of Georgia over a nine year period. This ex post, economic analysis of the cost of development is very different from the ex ante engineering analysis that has been the traditional method for establishing impact fees. The results show that the unique ex-post economic analysis developed here 1) establishes the rational nexus between new development and the cost of capital needed to support that development and 2) produces results that are consistent with current impact fees and that in some cases can be used as the starting point for a local government impact fee program.