The tax revolt and the high costs of rapid residential development have induced many jurisdictions to implement development fees, also called impact fees or exactions, as a way to finance new infrastructure. Special assessments are also used for this purpose in a few states, such as Minnesota. 1 Using some well-known tools of urban public finance, this chapter asks who ultimately pays these fees and special assessments.
This question, which involves what economists call the incidence of alternative infrastructure financing mechanisms, has been explored in many papers. 2 Most of this literature employs supply and demand curves and intuitive arguments. Although the technical details are not presented here, this chapter builds on a more formal treatment of the topic which confirms some points, adds precision to others and reveals some new conclusions that the literature has missed. 3 The formal analysis on which this chapter builds does not consider all the institutional details presented in some previous work, but includes, I believe, the most central features of the topic. 4
The key relationship on which this analysis builds is the relationship between house values on the one hand and property taxes, fees and infrastructure on the other. As many economists have pointed out, and many empirical studies confirmed, people will pay more for houses that face lower effective property tax rates or receive better infrastructure or other public services, all else____________________