What are Development Exactions and Incentives?

Developer exaction tools consist of conditions or financial obligations imposed on developers that help local governments in providing additional public facilities or services required by new growth. The developers of new properties are typically required to provide at least a portion of the added infrastructure (such as transportation networks) necessitated by their development, or to make some cash contribution to the agency responsible for implementing the needed system improvements.

Typically, exactions provide funds for water and sewer lines, road construction, new schools, and parks. They are intended to help growth to "pay for itself" and to lessen impacts of new development on existing public facilities. They can take several forms including impact fees levied on developers, financing of infrastructure improvements, and land donations.

Developer incentives encourage efficient, orderly growth patterns by quantifying the monetary benefits of smart growth principles and then offering them as "carrots" to developers. Development incentives give discounts or bonuses for projects in designated growth areas, which helps city planners and developers make more efficient transportation investments that are linked to existing infrastructure. By creating incentives to coordinate development projects with existing and planned transportation infrastructure, communities can improve their ability to sustain and expand multimodal transportation systems.

Why and where are they applied?

Development incentives are most commonly applied in growing communities or redeveloping areas, but would serve any community poised for future development. Having certain tools in place before a density boom allows a local community to coordinate land use and transportation before growth occurs.

The power to exact concessions from developers is part of local government's police power to further a public interest. Development exactions and impact fees are perceived to be effective growth management tools, as growth "pays for itself" through infrastructure payments in the form of a lump sum at the beginning of development.

Development exactions and impact fees can provide a financing mechanism for local communities to develop and extend local street networks. Although the concept of requiring developers to pay for facilities, infrastructure, or other benefits to the community is usually in the form of a monetary exaction, the tool can be implemented to address various features of new development.

Development exactions can be particularly useful to support growth in developing areas and centers designated for urban renewal. Areas poised for high growth, even in built-out existing neighborhoods, are good applications of this tool. Among other things, exactions can be used to demonstrate to local residents that there is a plan in place to deal with traffic impacts generated by new development in their neighborhood.

Where can I get more information?

• Policy Link Equitable Development Toolkit. Policy Link has created a toolkit in which development exactions is described as a strategy to offset the burdens of new development on the community.
• State Agriculture Development Committee of New Jersey. The State that pioneered TDR, this site has a wealth of information about the mechanics of the tool, examples nationwide, and explanations of the technicalities and administrative requirements.
• The Brookings Institute Center on Urban and Metropolitan Policy Document on TDRs and Other Market-Based Land Mechanisms: How they work at their role in shaping metropolitan growth. Using case studies and a national survey, this paper examines TDRs and other market-based land preservation techniques like mitigation banking and density transfer fees.
• Wisconsin Comprehensive Planning Implementation Guide Toolkit. This toolkit reviews TDRs and density bonuses as tools used in Montana to help shape land use and transportation development. Several fact sheets of commonly used implementation tools are especially relevant. See Chapter 3 for additional links.
• Montana Infrastructure Finance Center. This website provides summary information for the most significant financing resources available from state, federal, and local institutions. It includes a section on public infrastructure and links to third-party technical assistance on specific topics. The site covers a broad array of financing tools available for use in Montana.