When I learned the Village was considering updating its impact fee ordinance, I attended a listening session to better understand the issue. What follows is what I learned and what I believe should happen next. Seeing that the Village was hosting listening sessions on the topic encouraged me to participate. The sessions were led by Village Staff. This article is about what I have learned since attending and some possible next steps.

Impact fees emerged in the late 1980s and early 1990s as state and federal aid for local infrastructure declined and growing communities faced increasing pressure to expand roads, utilities, parks, and public safety facilities. In Wisconsin, municipalities were authorized to impose impact fees in 1993 under §66.0617, which established strict standards to ensure that fees are tied to new growth and do not fund existing deficiencies. Smaller communities often rely on impact fees because they typically have limited tax bases and borrowing capacity, yet still experience steady residential growth that requires expanded water, sewer, and other capital infrastructure. For these communities, impact fees are intended to ensure that new development contributes its proportionate share toward the cost of growth rather than shifting those costs entirely onto existing taxpayers.

Impact fees are paid when a building permit is issued and are legally the responsibility of the developer or property owner. In practice, however, the cost is built into the project and passed along through home prices, rents, or commercial lease rates. While collected from builders, the economic impact ultimately flows to home buyers and business customers at a higher rate than the original impact fee. The National Association of Home Builders study estimates a 20% increase between the original fee and the fee charged to the home buyer. A simple rule of thumb from commercial real-estate finance is that because value is tied to income (via the capitalization rate), each $1 per square foot of one-time added cost can require roughly $0.05–$0.08 per square foot per year in additional net operating income, which tends to show up in what tenants ultimately pay or the consumer’s of the tenets goods and services.   

The Village’s current impact fee ordinance has been in place since 1996, without any inflation adjustment. Homes built today pay essentially the same fee as homes built in 1996. Updating water and sewer fees to reflect current infrastructure costs is reasonable. An update to the fees is long overdue. Along with updating the sewer and water fees, the Village Trustees asked to consider adding a new public safety fee. This is an interesting idea to fund public safety services as the Village grows. The draft of the revised ordinance can be located on the Village Website about impact fees.

The Village enlisted Ehlers, an industry-leading municipal advisory firm, to conduct an impact fee study to consider resetting the sewer and water impact fees and adding a new public safety fee. The study reviewed the Village’s Utility Master Plan and identified the following:

• Future growth will require the construction of Well #5, for which 100% of Well #5’s capacity is attributable to future growth, which can be funded through the updated water impact fee.
  
• The proposed sewer fee supports the new Ridge Lift Station and interceptor project, finding that 93% of the project benefits future growth, while 7% addresses existing system needs.
  
• The public service fee could be used to complement funding for the new police facility, which will cost $ 14.66 million. The study allocates 52% of that cost to new growth, while the other 48% would address deficiencies. The new impact fees for a new single-family home would increase to $6,239, before including the additional park fees and parkland fees.

At face value, it seems obvious that the Village should impose an impact fee on new development. Water and sewer assets can be directly connected to a new well and lift station. However, the same calculations used for infrastructure should not be used to fund services, largely because public safety is driven by policy, whereas utilities are directly aligned with use. Policy decisions are aligned with staffing level, space needs, and facility size. Unlike a well or lift station, the size of a police facility involves judgment about service levels, growth projections, and operational preferences. The details of the methodology matter.

• Public Safety Facilities Are Not Utility Infrastructure: Water and sewer systems expand in measurable units such as gallons, REUs, and pipe capacity. Public safety facilities are more complex and dependent on policies and decisions that consider staffing, space standards, and facility size, which are partially discretionary. Unlike a well or lift station, the size of a police facility involves judgment about service levels, growth projections, and operational preferences.
  
• Risk of Legal and Procedural Challenges: Wisconsin law requires impact fees to bear a rational relationship to growth, exclude existing deficiencies, be reduced for grants and other capital funding, and be spent within statutory timelines. Public safety facilities are more likely to face scrutiny regarding how deficiencies were calculated, whether staffing projections are growth-driven, and if the facility is oversized relative to actual need. If challenged, legal costs ultimately fall on taxpayers.
  
• Housing Affordability and Market Competitiveness: The study estimates that the combined impact fees would increase monthly housing costs by approximately $41 on a $450,000 home. That may seem modest in isolation, but impact fees are paid upfront at permit issuance; they stack with park fees, land dedication fees, and rising construction costs, and developers compare communities regionally. If Cottage Grove becomes meaningfully more expensive than neighboring municipalities, development may slow or shift.  Slower growth means a smaller tax base, a greater burden on existing residents, and less housing supply.
  
• Effects on Commercial Tenants and Consumers: The proposed commercial impact fees in Cottage Grove (including a law enforcement impact fee of about $1.08 per square foot) would add roughly $30,000 in fee costs for a 28,000 sq ft facility (the same size as the new police station). When combined with separate water and sewer impact fees (based on meter size), building permits, park fees, etc., the total charges could reach hundreds of thousands of dollars. This creates a strong risk that commercial and industrial developers choose to build in neighboring communities instead. That would constrain the growth of our tax base, weaken support for local schools, and reduce local shopping, dining, recreation, and service options.
  
• Establishes Precedence for Future Service-Based Fees: Other communities, such as McFarland, have expanded impact fees beyond utilities to include police and library facilities. While permitted under statute, this illustrates how impact fees can evolve into funding mechanisms for broader public services. Over time, service-based impact fees may begin to resemble broad-based revenue tools rather than narrowly tailored growth infrastructure funding. 

Impact fees are a legitimate and useful tool when carefully applied. Utilities like water and sewer make sense and are grounded in measurable capacity expansion. But expanding impact fees into public safety introduces greater subjectivity, legal complexity, and economic risk.

What I have taken away from researching impact fees is that Cottage Grove should update its existing water and sewer impact fee ordinance, ensure continued compliance with Wisconsin Statute §66.0617, and refrain from adopting the proposed law enforcement impact fee. This balanced approach supports infrastructure growth while protecting housing affordability and economic competitiveness.

At the March 2 Village Board Meeting, the Trustees will discuss the proposed changes outlined here. If you want your voice considered, attend the meeting and offer a public comment or send a comment online via the Village Forum Center.