212 [89 Op. Att’y

MUNICIPALITIES

IMPACT FEES – WHETHER IMPACT FEES MAY BE USED TO

DEFRAY COST OF POLICE AND FIRE PROTECTION SERVICES

November 18, 2004

Anne-Herbert Rollins, Esquire

City of Taneytown

On behalf of the City of Taneytown, you have requested our

opinion on the authority of the municipality to impose development

impact fees for police and fire protection services. Specifically, you

raised the following questions:

1. May a municipal corporation impose an impact fee on

residents of new developments located within the municipal

corporation to fund additional police and fire services?

2. If so, may the municipal corporation impose such a fee for

additional fire services where the fire department is not a municipal

department but, rather, a local volunteer fire department to which the

municipal corporation contributes funding?

You provided us with your legal analysis, which concluded that

the municipality lacks authority to impose impact fees for these

purposes without enabling legislation from the General Assembly.

For the reasons explained below, we generally agree with your

conclusion. Absent authorization by the General Assembly, a

municipal corporation may not impose a development impact fee for

any purpose, if the law creating the fee is primarily a revenue

measure and the impact fee is therefore a tax. Thus, enabling

legislation by the General Assembly would be necessary to impose

such a fee. Under existing statutory authority, a municipality may

impose an impact fee as part of a regulatory measure. However, in

that case, there must be an adequate nexus between the charge

imposed and the cost of the services to the property assessed, and the

revenue must be appropriately earmarked so as to substantially

benefit that property. This is unlikely to be the case for fees related
Gen. 212] 213

to the provision of police and fire protection services, particularly if

the City’s contributions to a volunteer fire department are voluntary.

I

Development Impact Fees

A. Impact Fees

The phrase “impact fee” is used to describe a fee that is tied to

the approvals required for a new development and that is in addition

to ordinary fees for required permits. 71 Opinions of the Attorney

General 214, 215 (1986). Impact fees are imposed to offset the cost

of infrastructure or public facilities necessary to support new

development. See Tiburzi, Impact Fees in Maryland, 17 U. Balt. L.

Rev. 502 (1988). In principle, an impact fee reflects the

proportionate share of the capital cost of providing a certain service

to individual dwelling units or other consuming units that begin

using that service for the first time. Id. at 503. From a municipal

finance perspective, there are two advantages to impact fees: First,

the cost of improvements is shifted from existing taxpayers or

customers to those responsible for new development; second,

revenue is collected before improvements are constructed, rather

than afterward. Id. at 502-3. Payment of an impact fee may be a

condition precedent to certain action by municipal officials – i.e.,

issuance of a building permit or approval of a subdivision plat.

B. Authority to Impose Impact Fee

A local government may not impose a tax or fee, including an

impact fee, without authorization from the General Assembly.

Article 14 of the Maryland Declaration of Rights provides “[t]hat no

aid, charge, tax, burthen or fees ought to be rated or levied, under

any pretense, without the consent of the Legislature.” The 1954

constitutional amendment that granted home rule to municipal

corporations sets forth a similar limitation: “No ... municipal

corporation shall levy any type of tax, license fee, franchise tax or

fee which was not in effect in such municipal corporation on January

1, 1954, unless it shall receive the express authorization of the

General Assembly for such purpose, by a general law which in its

terms and its effect applies alike to all municipal corporations in one
214 [89 Op. Att’y

 Article XI-E, §2 of the Maryland Constitution requires that the 1

General Assembly classify municipal corporations into not more than four

classes based on population. The General Assembly has complied with

this mandate by declaring that all municipal corporations constitute a

single class. Annotated Code of Maryland, Article 23A, §10.

or more of the classes provided for in Section 2 of this Article.”

Maryland Constitution, Article XI-E, §5. 

1

C. Nature of Impact Fee as Tax or Regulatory Measure

The constitutional restrictions apply regardless of whether a fee

is a regulatory measure or a revenue-raising tax. Campbell v. City

of Annapolis, 289 Md. 300, 305, 424 A.2d 738 (1981). However, in

a particular case, the validity of an impact fee may depend on

whether it is more aptly characterized as a regulatory measure or a

tax, since municipal corporations have statutory authority to impose

regulatory fees, but lack general taxing authority. 

A regulatory fee must be “reasonable and have some definite

relation to the purpose of [the regulatory] scheme.” Mayor of Ocean

City v. Purnell-Jarvis, Ltd., 86 Md. App. 390, 404, 586 A.2d 816

(1991). In contrast, a “revenue-raising” measure or tax (other than

a special assessment) need not have any connection between the

subject of the tax and use of the resulting revenue. Allied Am. Mut.

Fire Ins. Co. v. Comm’r of Motor Vehicles, 219 Md. 607, 616, 150

A.2d 421 (1959). Unlike a regulatory fee, the amount of a revenueraising measure is not subject to judicial review. Mayor of Ocean

City, 86 Md. App. at 405. 

In Eastern Diversified Properties, Inc. v. Montgomery County,

319 Md. 45, 570 A.2d 850 (1990), the Court of Appeals held that an

impact fee imposed to pay for road construction constituted a tax,

rather than a regulatory measure. In that case, the impact fee was

imposed prior to the issuance of a building permits in two designated

“planning policy areas” of Montgomery County to pay for road

construction. The fee was intended to reflect a pro rata share of the

costs resulting from new development. In enacting the impact fee,

the County relied, not on its taxing authority, but on “its home rule

powers, including its police power to ensure and coordinate the

provisions of adequate transportation facilities with new

development ....” 319 Md. at 49. Revenue collected from the impact
Gen. 212] 215

fee was dedicated to road improvements in the planning area in

which the fee was assessed. Id. Eastern Diversified challenged the

fee, arguing that it was an unauthorized excise tax. Id. at 51.

The Court noted that the classification of an impact fee as a

regulatory measure or a tax depends on the purpose of the

enactment, rather than the label attached to it. 319 Md. at 53. The

Court adopted the following basis for distinguishing the two:

A regulatory measure may produce revenue,

but in such a case the amount must be

reasonable and have some definite relation to

the purpose of the Act. A revenue measure,

on the other hand, may also provide for

regulation, but if the raising of revenue is the

primary purpose, the amount of the tax is not

reviewable by the courts. There is no set rule

by which it can be determined in which

category a particular Act primarily belongs.

In general, it may be said that when it appears

from the Act itself that revenue is its main

objective, the enactment is a revenue measure.

... [W]here the fee is imposed for the purpose

of regulation, and the statute requires

compliance with certain conditions in addition

to the payment of the prescribed sum, such

sum is a license proper, imposed by virtue of

the police power .... 

Id. at 53, citing Theatrical Corp. v. Brennan, 180 Md. 377, 381-82,

24 A.2d 911 (1942) (internal citation omitted). The Court concluded

that the impact fee imposed by Montgomery County was

predominantly a revenue-raising measure. Nothing in the local

legislation establishing the impact fee suggested that the fee was

charged solely based on service provided to new development or that

it was designed to defray expenses of the development regulatory

process. Furthermore, the sole condition imposed in connection with

the fee was its payment. Although the County argued that the

purpose of the fee was to regulate development, the revenues were

devoted to road construction in a large area. To qualify as a

regulatory measure, it was not sufficient that “the property owner

receive some benefit from the improvement.” Rather, the amount of
216 [89 Op. Att’y

 The Court did not need to decide whether the impact fee was

2

properly characterized as a property tax, excise tax, or other type of tax.

Id. at 55, n.4. However, in a subsequent decision, the Court made clear

that the impact fee at issue was an excise tax. Waters Landing Ltd.

Partnership v. Montgomery County, 337 Md. 15, 25, 650 A.2d 712

(1994).

the fee would need to “be reasonable and have some definite relation

to the purpose of the Act.” Id. at 53-55. Thus, the impact fee in that

case constituted a tax that the County lacked authority to impose. Id.

at 55.2

The Court’s decision does not suggest that an impact fee could

never be imposed as a valid regulatory measure. In reaching its

decision, the Court emphasized that the primary purpose of the

Montgomery County impact fee was to raise revenue and that the

fees were not sufficiently linked to services provided or to the

expense of the regulatory process. 319 Md. at 54-55. 

II

Municipal Authority to Impose Impact Fees

A. Legislation Authorizing Impact Fees

Unless authorized by public local law before 1954 or by public

general law, a municipal corporation lacks authority to impose any

form of excise tax, including an impact fee that would be construed

as a tax under Eastern Diversified Properties. When the General

Assembly has granted explicit authority to local governments to

impose impact fees, that authority generally has been limited to

financing capital improvements. See, e.g., Annotated Code of

Maryland, Article 25, §9 (authority of Carroll County to impose

impact fees); Article 25B, §13D (authority of counties that have

adopted code home rule to impose impact fees); but see Annotated

Code of Maryland, Article 23A, §44(b) (authority for municipal

corporation to create special taxing district for bus or ride sharing

system; use of impact fees as well as ad valorem taxes to support

both capital and operating costs). 
Gen. 212] 217

 Article 23A, §2(b)(33) was enacted as an emergencymeasure after

3

the Court of Appeals struck down a fee imposed in connection with a

municipal residential licensing scheme. See Chapters 565 and 684, Laws

of Maryland 1981, superseding Campbell v. City of Annapolis, 289 Md.

300, 424 A.2d 738 (1981). That legislation was intended to “restore to

municipal corporations the broad authority ‘heretofore thought to exist’ to

levy fees and charges in connection with the exercise of their lawful

powers.” 67 Opinions of the Attorney General 307, 310 (1982).

In a 1986 opinion, Attorney General Sachs relied on §2(b)(33) to

conclude that the Town of Ocean City could impose an impact fee on new

development to fund its local share ofthe cost of beach restoration efforts.

71 Opinions of the Attorney General 214 (1986). That opinion preceded

the Eastern Diversified decision and did not focus on the distinction

between a tax and a regulatory fee. The conclusion that the proposed

(continued...)

B. Article 23A, §2(b)(33)

The General Assembly has granted municipalities the general

power to assess regulatory fees: 

In addition to, but not in substitution of, the

powers which have been, or may hereafter be,

granted to it, [a municipal] legislative body

also shall have the following express

ordinance-making powers:

. . . 

 (33) Subject to the limitations imposed

under Article 24 of the Code, the Tax-General

Article, and the Tax-Property Article, to

establish and collect reasonable fees and

charges:

 ...

 (ii) Associated with the exercise of any

governmental or proprietary function

authorized by law to be exercised by a

municipal corporation.

Annotated Code of Maryland, Article 23A, §2(b)(33)(ii). The

authorization to impose “reasonable” fees and charges indicates that,

in enacting §2(b)(33)(ii), the Legislature was conferring authority to

impose regulatory charges rather than taxes.3
218 [89 Op. Att’y

 (...continued) 3

Ocean City fee would be permissible was supported in part by a provision

in several bills then pending before the General Assembly (now codified

at Annotated Code of Maryland, Natural Resources Article,

§8-1103(i)(2)(ii)2, that authorized replenishment of the ocean beach and

required a local contribution, specifically referencing “fees and charges

authorized under Article 23A, §2(b)(33).” Id.

C. Rational Nexus Test

To justify imposition of impact fees on new development as a

regulatory measure under Article 23A, §2(b)(33), there must be a

sufficient nexus between the fee assessed and the proportional cost

of providing the benefits supported by that fee to affected property

owners. The Court of Appeals alluded to the need for such a nexus

in Eastern Diversified, but did not articulate a specific standard for

determining whether a nexus exists. While courts in other states

have relied on a number of alternative standards in considering the

validity of impact fees, the “rational nexus” test predominates. See,

e.g., Blaesser & Kentopp, Impact Fees: The “Second Generation,”

38 Wash. U. J. Urb. & Contemp. L. 55, 100 (1990).

Under the rational nexus test, an impact fee is permissible as

a regulatory measure, so long as (1) the fee relates to needs

attributable to new development, and (2) the revenue collected is

earmarked for the substantial benefit of the development charged.

8 McQuillin, The Law of Municipal Corporations § 25.118.60 (3rd

ed. rev. 2000). Thus, there are two steps in the analysis: first, the

municipality must be able to demonstrate a reasonable connection,

or rational nexus, between the population growth resulting from new

development and the need for additional facilities; and second, the

municipality must be able to show a reasonable connection, or

rational nexus, between use of the revenue generated by the fee and

benefits accruing the project or property assessed. Id.

III

Police and Fire Protection Services

The impact fee contemplated in your request is unusual in that

it would relate to the municipality’s cost of providing additional
Gen. 212] 219

police and fire protection services, rather than to the cost of capital

improvements. As noted above, impact fees are generally used to

help defray the cost of infrastructure required to accommodate new

development. However, it may be possible to recover the operating

cost of municipal services resulting from new development through

an impact fee. 

A. Impact Fees as an Excise Tax - Enabling Legislation

Before enacting a local ordinance to impose an impact fee for

services, the municipality could seek enabling legislation through the

General Assembly allowing it to impose the fee as an excise tax.

Such legislation would need to be enacted as a public general law,

applicable to each municipality governed under the municipal home

rule amendment. Maryland Constitution, Article XI-E, §5; Article

23A, §10. The enabling legislation should be drafted to describe the

permissible uses for which impact fees might be imposed. The

advantage of this approach is that there would be no need to show a

nexus between the assessment and the use of the revenue. 

B. Impact Fees as a Regulatory Measure - Additional Police

In Eastern Diversified Properties, the Court of Appeals made

clear that a regulatory fee must have some connection to the

underlying purpose of the legislation, beyond revenue generation.

319 Md. at 54-55. If the sole condition required by the ordinance

would be payment of an impact fee to obtain a building or

development permit, the fee would constitute a tax. On the other

hand, if the ordinance prescribed minimum police service levels for

the municipality and adopted a formula or model under which the

fee would be calculated, in theory it could reflect the need for

additional police services based on the impact of new development.

See, e.g., Kelly, Development Impact Fees: Modeling Future Growth

and Economic Development in a South Carolina Community, 20

Int’l. J. Pub. Admin. 1599, 1606 (1997) (treating cost of police

officer as capital asset for purposes of calculating impact fee). 

The second part of the rational nexus test requires that there be

a reasonable connection between the use of the revenues derived

from the impact fee and benefits accruing to the project or property

assessed. A regulatory fee must be based either on the expense of
220 [89 Op. Att’y

the regulatory process or, in this case, on the cost of services

provided. However, it is not sufficient that the property owner

receive some benefit from the services. Rather, the fee must be

reasonable and have some definite relation to the purpose of the

ordinance. Eastern Diversified, 319 Md. at 55. Stated otherwise,

revenues must be earmarked to provide police protection in the

specific area assessed, and the fees must be proportional to the cost

of providing the services. Unless the revenues were devoted to the

provision of police services in the specific area of assessed property,

an impact fee would likely be invalidated as an unauthorized excise

tax. 

C. Impact Fees as a Regulatory Measure - Support of Volunteer

Fire Department

You asked whether a municipality may impose impact fees to

support the services of a volunteer fire department. It is not clear

whether the City is legally obligated to make payments to the

volunteer fire company based on properties served, or whether its

contribution is voluntary. If the payments are voluntary, it does not

appear that an impact fee could be justified based on the

municipality’s cost of serving new development. If they are not, a

regulatory fee would need to be structured to satisfy the two-part

reasonable nexus test. 

IV 

Conclusion

If the City of Taneytown desires to impose development impact

fees on new development to help pay for police and fire protection

services, it would be prudent to seek enabling legislation from the

General Assembly, applicable to all municipalities, authorizing

imposition of impact fees as an excise tax and addressing the types

of activities that can be financed in this manner. In theory, the City

might be able to structure an impact fee as part of a regulatory

measure, if the fee were based on the costs attributable to providing

services to the new development and the revenues were earmarked

to provide those services to the development assessed. However,

this is unlikely to be the case with most fees related to such services,
Gen. 212] 221

particularly if the City’s payments to a volunteer fire department are

voluntary.

J. Joseph Curran, Jr.

Attorney General

William R. Varga

Assistant Attorney General

Robert N. McDonald

Chief Counsel

 Opinions and Advice