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WA9401-CS 930422LAWRENCE W. JACKSON TIM KIRK ROBERT L. DILLARD III ROBERT E. HAGER PETER G. SMITH JOHN PIERCE GRIFFIN DAVID M, B~'RMAN BRUCE A, STOCKARO NICHOLS, JACKSON, KIRK & DILLARD, L.L.P. Attorneys & Counselors at Law 1800 Lincoln Plaza 500 North Akard Dallas, Tens 75201 (214) 954-3333 Faesimfie (214) 954-3334 April 22, 1993 (VIA FACSIMILE and REGULAR U.S POSTAL SERVICE) Mr. Steve Goram Director of Public Works City of Coppell P.O. Box 478 Coppell, Texas 75019 Re: Pro-rata Charges Dear Steve: Pursuant to your request, the undersigned provides the following opinion relating to whether the City may collect pro-rata charges from a developer or land owner who has paid, or is paying, impact fees pursuant to Chapter 17 of the Code of Ordinances. You ask whether the City may collect pro-rata charges pursuant to Article 3-1 and 3-2 of the Code of Ordinances for the extension of water and sanitary sewer facilities from a developer or land owner who has paid, or is paying, impact fees pursuant to Chapter 17 of the Code of Ordinances. Section 3-1-13 and Section 3-2-5 provide for pro-rata charges for the purpose of reimbursing developers for oversizing or constructing water or sewer mains or lines. Section 3-1-14 and Section 3-2-3 provide for pro-rata charges for the City's extension of water and sanitary sewer mains. We will address both types of pro-rata fees in response to your question. Chapter 395 of the Local Government Code is the Texas Impact Fee Act. The Act prohibits the imposition of an impact fee by a City unless specifically authorized by the Act. Section 395.001(4) of the Act defines impact fee as a charge or assessment imposed by a City against new development in order to generate revenue for funding or recouping the cost of capital improvements or fadlity expansions necessitated by and attributable to such new development. The Act specifically applies to the funding of off- site facilities, although it was the intent of the legislation to preserve existing subdMsion exactions for on-site facilities and practices relating to the extension of water and sewer utility lines. As a result, the Act excludes from the definition of an impact fee: (1) AGG03FOB Mr. Kenneth M. Griffin, P.E. April 22, 1993 Page 2 dedication of land for public parks or payment in lieu of the dedication to serve park needs; (2) dedication of rights-of-way or easements or construction or dedication of on- site water distribution, waste water collection or drainage facilities or streets, sidewalks, or curbs, if required by a valid ordinance and necessitated by and attributable to the new development; and (3) lot or acreage fees to be placed in trust funds for the purpose of reimbursing developers for oversizing or constructing water or sewer mains or lines. Thus, the Act specifically authorizes the City, pursuant to Section 3-1-13 and 3-2-5, to collect pro-rata fees (lot or acreage fees) for the purpose of reimbursing developers for the construction or oversizing of water and sewer mains. The pro-rata charges for water in Section 3-1-14 and the pro-rata charges for sewer in Section 3-2-3 are not excluded from the statutory definition of an impact fee and, therefore, are not valid unless calculated and charged as an impact fee in accordance with Chapter 395. The pro-rata charges for water and sewer provided by those Sections are impact fees which do not comply with the requirements of Chapter 395 of the Local Government Code. These fees are de facto impact fees and presumably were intended to be replaced by the adoption of Ordinance 90478, creating Chapter 17 and providing for impact fees for water and sanitary sewer facilities. Accordingly, the City should not collect any such pro-rata fees and if the same have previously been collected from a developer or land owner, an appropriate credit should be provided if impact fees are later assessed and collected pursuant to Chapter 17. In regard to the pro-rata fees for the purpose of reimbursing the developers for oversizing or constructing water and sewer mains as provided in Section 3-1-13 and 3-2-5 of the City Code, a somewhat different result is reached. The Impact Fee Act specifically allows lot or acreage fees for the purpose of reimbursing developers for oversizing or constructing water or sewer mains or lines. Thus, pro-rata fees collected pursuant to Section 3-1-13 and 3-2-5 of the City Code for the purpose of reimbursing the developers for the oversizing or constructing water or sewer mains or lines is specffically authorized. If a developer or land owner has paid a lot or acreage fee pursuant to Section 3-1-13 and/or 3-2-5 of the City Code for the purpose of reimbursing a developer for the oversizing or constructing water or sewer mains or lines, an appropriate credit should be applied to any impact fees later assessed and collected pursuant to Chapter 17 of the City Code. The existence and the amount of any credit must be determined on a case- byecase basis by the City Engineer or other appropriate official charged with determining Mr. Kenneth M. Griffin, P.E. April 22, 1993 Page 3 the amount of credit, if any, in the enforcement of Chapter 17. Additionally, it has come to our attention that the City has not been depositing impact fees collected pursuant to Chapter 17 in separate interest-bearing accounts and has not used its fees solely for the purposes authorized by the Impact Fee Act. The Act requires that all funds collected from the imposition of an impact fee must be deposited in an interest-bearing account clearly identifying the category of capital improvement within the service area for which the fee is adopted. Any impact fees may be spent only for the purpose for which the impact fee was imposed, as shown by the capital improvement plan and only for the items payable by the fee as authorized by Section 395.012 of the Local Government Code. In no event should impact fees be used for the administrative or operating costs of the City, nor for the repair, upgrading, operation, expanding or replacement of existing capital improvements to serve existing development. Finally, if construction of an improvement is not started within two (2) years or if service is not available within five (5) years from the date of payment, then the land owner can request a refund. If the improvement is constructed, the City must recalculate the actual costs of construction and refund the difference if it exceeds the impact fee collected by more than 10%. In addition, the City must refund to the record property owner any portion of an impact fee not spent within ten (10) years after the date of payment. By copy of this letter, I am advising Frank Trando, Acting City Manager, Alan Johnson, Acting Finance Director, Gary' Sieb, Planning Director, Ken Griffin, City Engineer and Howard Pafford, of our opinion. The appropriate personnel should take immediate steps to correct any improper accounting for impact fees. AGG03FOB Mr. Kenneth M. Griffin, P.E. April 22, 1993 Page 4 Thank you for your attention to this matter. If you have any questions in this regard or require any further assistance, please do not hesitate to contact me. Very truly yours, NICHOLS, JACKSON, KIRK & DILLARD, LLP. PGS/mdm cc: Ken Griffin City Engineer Gary Sieb Director of Planning Frank Trando Acting City Manager Alan Johnson Acting Finance Director Howard Pafford City of Coppell P.O. Box 478 Coppell, Texas 75019 By: AGG0aFOB