Gómez-Ibáñez (1993): “Functionally, exactions are at once instruments for shaping the physical environment, for generating public revenue, and for resolving political conflict”.

# _Methodology_

Exactions are backed by a regulatory authority, and some suggest that they border on a taking since owners are not provided just compensation. In the United States, exactions must be able to uphold their force in court since takings are unconstitutional. States are required to authorize local authorities to exact development fees. The following are three characteristics that govern the use of exactions in the United States:

- 1) “Rational nexus:”  the justification for exactions must be determined by an impact from the development that warrants infrastructure investment; the project must comply with the Master Plan, and the exactions must be applied equitably (Altshuler and GómezIbáñez 1993)

- 2) <u>Proportionality: the cost of the infrastructure provided, and thus the amount of</u> exaction, should be proportional to the impact of the project

- 3) <u>Restricted funds: exactions collected can only be used to fund the cost of the</u> infrastructure required by that project (Peterson 2009).

The amount of fees paid varies significantly, not just by state to state, but by jurisdiction. Impact fees are not assumed to fully fund the total cost of infrastructure, so fees may be either set or negotiated. Altschuler and Gómez-Ibáñez (1993) cite a 1991 survey in California which found that municipalities were unable to determine exact fees amounts charged because of such variation.

A major criticism of impact fees is that by acting as a development tax they reduce home construction, especially within the small home market. However, recent empirical work suggests that impact fees may in fact expand housing construction within suburban areas by reducing exclusionary regulations and increasing the percentage of proposed projects receiving local government approval (Burge and Ihlanfeldt, 2006). Burge and Ihlanfeldt (2006) find that in Florida counties, impact fees earmarked for public services other than water and sewer system improvements have increased construction of small homes within inner suburban areas and of medium and large homes within all suburban areas.

# _Impact Fees in Developing Countries_

Impact fees have been almost exclusively used in developed countries; however, Chile has employed impact fees in the 1990s to finance roads. Two municipalities in the Santiago metropolitan area successfully raised significant funding to build the Northeast Radial roadway, amounting to 62 kilometers of roads (this case is documented in Zegras 2003). Chile’s exercise in impact fees was _ad hoc_ , so no standardized method exists for determining fees. Further, no legislation dictates the legality of the practice. Zegras (2003) explains that Santiago is an anomaly among developing countries. The status of Chile as a higher income country and an emerging economy positions its capital city as an example of a city that can begin to test such a practice. He also warns that cities that house a large slum population will face unique challenges due to the absence of clear land titling. Prerequisites for successful implementation of development/impact fees and exactions include the definition of reasonable methods to determine exaction or fee amounts, a strong regulatory authority to justify use of 28