City outlines impact-fee update process after state law change requiring independent audits

The Lancaster City Council received an update on the city's impact-fee program and the procedural changes required by state law at the July 20 work session. Development Services Director Vicky Coleman explained that recent state legislation introduces an independent-impact-fee audit requirement and other notice and timing rules that affect how the city can update fees.

Coleman summarized the role of impact fees as a cost-sharing mechanism for new development and noted that Texas law permits cities to collect impact fees for roadway, water, sewer, stormwater/drainage and flood-control infrastructure. She identified the statutory framework as the Texas Local Government Code (chapter cited in the presentation) and referenced recent amendments (discussed in the transcript under a bill number) that went into effect in September. The key new requirement is an independent impact-fee audit performed by a certified public accountant who has had no engagement with the city in the prior 12 months before the audit.

Coleman outlined the typical update steps: revise land-use and population assumptions, prepare a 10-year capital improvement plan and cost estimates, and run the state's prescribed formula to calculate maximum allowable fees. Coleman said the city's last comprehensive update occurred in 2021 and that the city currently collects fees for water, sewer and roadway service areas; she noted the city previously used a two-step collection schedule that advertised lower initial rates for the first two years then increased in year three. Because of the new audit and notice rules, Coleman recommended the city first engage an independent auditor, then engage a consultant to conduct the technical fee study (the consultant work can be funded from impact-fee funds under state law).

Council members asked about timing and whether fees must be adjusted immediately; Coleman said the audit is required before any fee increase or new component and that the council need not change current fees if it chooses not to. The city manager said staff will issue a request for proposals to procure an independent auditor and bring consultant and audit options back to council for formal consideration.