🏛️ Issues and Advocacy Training
Courses › Local Government 101: Budgets, Levies and Bonds

Lesson 7 of 9 · about 16 minutes

Fees, Impact Fees and Enterprise Funds: Water, Sewer and Growth

You'll be able to

  • Apply the Idaho test that separates a fee from a tax
  • Explain how an enterprise fund and its rates work, including bond coverage
  • Know the hearing rule for fee increases over 5 percent
  • Check an impact fee's purpose, size and spending deadline against Idaho Code 67-8201 and following

Property tax is the money everyone argues about. Fees are the money that quietly grows. A city can hold its levy flat for years and still take more from residents through water rates, sewer rates, permit fees and charges on new houses. Following local money means following fees too.

Fee or tax?

The difference matters in Idaho because taxes need legal authority and face limits like the 3 percent cap, while fees face a different test. The Idaho Attorney General's Opinion 89-4 summarizes the leading case, Brewster v. City of Pocatello, decided by the Idaho Supreme Court in December 1988. Pocatello charged owners of property next to city streets a "street restoration and maintenance fee." The court called it a tax. A fee, as the opinion puts it, is a charge for "a direct public service rendered to a particular consumer." A tax is a forced contribution from the public to meet public needs, whether or not you personally get a direct service. Having a public street next to your lot is a privilege the whole public shares, so the charge was a tax.

Idaho Code 63-1311 adds a cost ceiling. A taxing district may charge fees for services that property tax would otherwise fund, but the fees "shall be reasonably related to, but shall not exceed, the actual cost of the service." And Idaho Code 63-1311A says no taxing district may approve a fee increase of more than 5 percent, or a new fee, without first holding a hearing after public notice. Skip the hearing and the increase is voidable.

Test any new charge by asking whether it pays for a direct service to the person paying, and whether it covers no more than the cost of that service. If either answer is no, ask the agency what legal authority supports it.

Enterprise funds: water and sewer

Most Idaho cities run water and sewer as enterprise funds (lesson 3): self-contained businesses paid by customer bills. The Revenue Bond Act in Idaho Code 50-1027 and following lets cities build these works, issue revenue bonds for them and "prescribe and collect rates, fees, tolls or charges" (50-1030). Article VIII, Section 3 of the Idaho Constitution lets voters approve water and sewer revenue bonds by simple majority, repaid only from rates and charges.

City councils set city utility rates. The Idaho Public Utilities Commission regulates investor-owned water companies, not city-owned systems, so the rate fight for a city system happens at the council table.

A rate has to cover three things: running the system, paying its debt, and keeping the promises made to bondholders. Those promises usually include debt service coverage: net revenue must exceed annual debt payments by a multiple written into the bond documents, such as 1.25. Miss it and the city can face higher borrowing costs or a covenant breach.

Example: Larkspur's sewer rate

The invented city of Larkspur has 5,200 sewer accounts.

ItemCurrentWith new plant bond
Operations and maintenance$2,100,000$2,100,000
Annual revenue bond payments$650,000$950,000
Coverage required (1.25 x payments)$812,500$1,187,500
Revenue needed (O and M + coverage)$2,912,500$3,287,500
Monthly rate per account (revenue / 5,200 / 12)$46.67$52.68

Increase: ($52.68 - $46.67) / $46.67 = 12.9 percent. That is over 5 percent, so 63-1311A requires a noticed public hearing before the council votes. The extra 25 percent of debt payments collected for coverage stays in the fund. It builds reserves or pays for smaller capital projects, and it is a fair question to ask where it goes.

The money can also leave. Many cities transfer money from utility funds to the general fund as payment for shared services, or as a "franchise fee" or "payment in lieu of taxes." Lesson 3 covered why that deserves a cost study. Under 63-1311, a utility fee that is padded to fund the police department is no longer just a cost of the service.

Impact fees

A development impact fee is a one-time charge on new construction to pay its share of the new public facilities growth requires. In Idaho these are governed by the Idaho Development Impact Fee Act, Idaho Code 67-8201 and following. As of October 2026, 67-8203 lets cities, counties, single countywide highway districts, fire protection districts and ambulance service districts adopt impact fee ordinances (the Legislature revised that definition in 2026 with HB 766). The rules are specific, which makes them checkable.

What they can pay for

Idaho Code 67-8203 limits "public facilities" to:

  • Water supply, treatment, storage and distribution
  • Wastewater collection, treatment and disposal
  • Roads, streets and bridges, including signals and rights-of-way
  • Stormwater and flood control
  • Parks, open space and recreation areas
  • Public safety: law enforcement, fire stations and apparatus, emergency medical and rescue, street lighting

Schools, libraries and city offices are not on the list. And the money must go to capital improvements with a useful life of ten years or more that increase capacity. Repairs to existing facilities do not count.

How much they can charge

Under 67-8204, the fee "shall not exceed a proportionate share" of the cost of system improvements, and the improvements must be "attributable to the capacity demands generated by the new development." The fee may be collected no earlier than the start of construction or the building permit, unless the developer agrees otherwise. A developer can ask for an individual assessment based on its own data, and the ordinance must give credits for other payments toward the same facilities.

How they get adopted

Under 67-8206, a capital improvements plan is developed with an impact fee advisory committee and the current land use assumptions, then adopted after a public hearing with notice published 15 to 30 days ahead. The fee ordinance gets its own hearing, which can be combined with the plan hearing.

How they must be spent

Idaho Code 67-8210 requires impact fees to sit in interest-bearing accounts inside the capital projects fund, tracked by category and service area. They can be spent only on the category and area they were collected for. Fees must be spent within eight years, first in, first out, or eleven years with a written reason. Wastewater and drainage fees get twenty years. Anything unspent must be refunded. Each year, as part of the audit, the government must report fees collected and spent by category.

Example: checking a park impact fee

Larkspur's capital improvements plan lists a new 20-acre park costing $7,200,000. The plan says $1,200,000 of that fixes an existing shortage of park land (current residents already have less park per person than the adopted level of service), and $6,000,000 serves growth. Projected new homes over ten years: 2,400.

Growth share per home: $6,000,000 / 2,400 = $2,500.

New homes will also pay property tax toward an existing parks bond. The plan credits that at $300 per home.

Fee: $2,500 - $300 = $2,200 per new home.

The $1,200,000 for the existing shortage cannot be charged to new homes. If the plan had divided the full $7,200,000 by 2,400 homes, the fee would be $3,000, and $500 of it would be charging newcomers for a gap current residents created.

Impact fees divide people in good faith. Supporters say growth should pay for the capacity it uses instead of shifting the cost to existing taxpayers. Builders and housing advocates answer that the fees add to the price of new homes and can slow construction that the area needs. Both points can be true at once. Whichever side you take, check the numbers in the plan against the statute.

Common mix-ups

  • Claim: Impact fees can pay for new schools. What the evidence shows: Schools are not among the public facilities listed in Idaho Code 67-8203, so the cities, counties and districts the Act covers cannot collect development impact fees for them under it.
  • Claim: A fee is whatever the government calls a fee. What the evidence shows: Idaho courts look at what the charge does. Brewster held a "fee" was really a tax.
  • Claim: Utility rate increases need voter approval. What the evidence shows: Rates are set by the council. New revenue bonds for water or sewer need a majority vote, and big fee increases need a noticed hearing.

Reporting angle

  • Request the most recent water and sewer rate studies, and the bond documents showing coverage requirements.
  • Ask for the annual impact fee report required by 67-8210(3). Compare fees collected to fees spent, and look for balances approaching the eight-year deadline.
  • Get the capital improvements plan and check that each project is on the 67-8203 list and adds capacity.
  • Check the notice for any fee increase over 5 percent against 63-1311A. A newspaper ad must run once a week for the two weeks before the hearing week; the statute also allows three public meetings in different locations or a single mailing to all residents at least seven days ahead.
  • List every transfer out of utility funds and the justification for each.

Research angle

Check yourself

1. In Brewster v. City of Pocatello (1988), the Idaho Supreme Court held that a street restoration and maintenance fee charged to property owners was:

2. Under Idaho Code 63-1311, a fee a taxing district charges for a service must be:

3. A city wants to raise its sewer rate from $46.67 to $52.68 a month. What does Idaho Code 63-1311A require first?

4. Which of these can an Idaho city build with development impact fees under Idaho Code 67-8203?

5. How long does an Idaho government generally have to spend impact fees for parks before it must refund them?

Terms in this lesson

User fee
A charge for a direct service to the person who uses it, such as a water bill or a building permit. In Idaho it may not exceed the cost of the service.
Development impact fee
A one-time charge on new development to pay its proportionate share of new public facility capacity, under Idaho Code Title 67, chapter 82.
Capital improvements plan
The adopted list of facilities an impact fee can pay for, required before a city, county or other entity the Act covers can charge impact fees.
Debt service coverage
A bond promise that a utility's net revenue will exceed its annual debt payments by a set margin, such as 1.25 times.
Rate study
A consultant's or staff analysis of what a utility costs to run and how rates should be set to pay for it.

Full glossary

Sources