Navigating SB 1883: Key Changes to Water and Wastewater Impact Fee Requirements

by Samantha T. Tweet

Regulation of water was an important focal point for the 89th Texas Legislature, and the ripples from those newly enacted laws have been washing ashore over the past year. Among the most significant developments from the 89th Legislative Session are changes to the laws governing water and wastewater impact fees. During the regular session, Senate Bill (“SB”) 1883 introduced substantial and noteworthy modifications to the process by which a political subdivision, such as a municipality or water district, adopts land use assumptions, capital improvements plans, and impact fees. Then, during the second called special session of the 89th Texas Legislature, SB 14 created a new requirement for political subdivisions to provide a credit against water and wastewater impact fees for certain water conservation and reuse projects. Now, approximately 10 months after the Texas Legislature adjourned sine die, the practical implications, and potential pitfalls, of these new requirements are becoming increasingly apparent. Given the significant revenue associated with impact fees, it is critical for political subdivisions to understand and properly implement these requirements to ensure compliance and avoid costly missteps.

An impact fee is a charge or assessment imposed by a political subdivision on new development to fund or recoup the costs of capital improvements or facility expansions necessitated by and attributable to that development. Chapter 395 of the Texas Local Government Code establishes a procedural and substantive framework that political subdivisions must follow when adopting a new impact fee or amending an existing one. Chapter 395 also governs how political subdivisions calculate, assess, collect, and use impact fees. Through SB 1883 and SB 14, the 89th Texas Legislature implemented sweeping changes to Chapter 395, substantially altering the requirements and procedures for adopting and amending impact fees and creating a new requirement for water conservation credits against those fees. The following is a summary of some of the key changes.

• Additional Public Notice Requirements: The first change brought about by SB 1883 concerns the public notice requirements for adopting or amending an impact fee. As amended, Chapter 395 requires a political subdivision to make its land use assumptions and capital improvements plan—the documents supporting the amount of a proposed impact fee—available to the public at least 60 days before the first publication of notice of the public hearing to review and consider approval of those documents. Further, SB 1883 repealed a provision stating that an impact fee would not be invalidated for failure to comply with public notice requirements if the political subdivision made good-faith efforts to substantially comply, making it more important than ever that a political subdivision carefully reviews public notice requirements before adopting or amending an impact fee.

• Increased Approval Threshold for Initial Imposition of an Impact Fee: SB 1883 also raised the approval threshold for a political subdivision to impose an impact fee in the first instance. Previously, the governing body of a political subdivision could approve imposing an impact fee by simple majority vote. Now, approval requires an affirmative vote of two-thirds of the governing body’s members, requiring a more aligned board or city council to adopt a new impact fee.

• New Limitation on Adopting Amendments to Existing Impact Fees: Under Chapter 395, as amended by SB 1883, a political subdivision must wait three years after an impact fee is adopted or amended to increase the amount of that impact fee. However, SB 1883 makes two important clarifications. First, the limitation does not prevent a political subdivision from adopting a phased approach to collecting the maximum allowed impact fee. Second, it applies only to the increase of impact fees adopted on or after SB 1883’s September 1, 2025 effective date.

• New Timeframe for Public Hearing on Amendments: SB 1883 further provides that once a political subdivision receives an updated land use assumption and capital improvements plan, it must adopt an order setting a public hearing to discuss and review the update and determine whether to amend the plan within 120 days.

• New Requirements for Composition of the Impact Fee Advisory Committee: SB 1883 also changed the composition requirements for an impact fee advisory committee. Under Chapter 395, at least 50 percent of the advisory committee must now be representatives from the real estate, development, or building industries who are not employees or officials of the political subdivision, increased from the previous 40 percent requirement.

• Need for an Impact Fee Audit: Perhaps the most substantial change resulting from SB 1883 is the addition of a new independent financial audit requirement, which adds an entirely new step to the impact fee process. Before a political subdivision may increase an impact fee or adopt a new impact fee for service area where one has not previously been adopted, the political subdivision must engage a certified public accountant who has not provided other services to the political subdivision within the preceding year to audit the political subdivision’s existing impact fee program. SB 1883 specifies what the audit must include and allows the political subdivision to use revenues collected from impact fees to pay for the audit. Once the audit is complete, the political subdivision must hold a public hearing on the results of the audit and post a copy on its website at least 30 days before adopting an order setting a public hearing on the proposed impact fee or publishing notice of that hearing.

• Potential for Attorney General Involvement in Impact Fee Action: SB 1883 added a Chapter 395 provision authorizing the Texas Attorney General to bring an action on behalf of a property owner to contest an impact fee or recover a refund of an impact fee.

• New Requirement for Conservation and Reuse Credits Against Water and Wastewater Impact Fees: SB 14 created a new requirement for political subdivisions to provide a credit against water and wastewater impact fees to builders or developers who construct, contribute, or dedicate an eligible system or facility that results in water reuse, conservation, or savings. Under Chapter 395, as amended by SB 14, a political subdivision will establish procedures for calculating and applying water conservation credits in a fair and consistent manner and for reviewing and approving such credits.

Adopting or amending an impact fee is a worthwhile exercise for political subdivisions seeking to shift the burden of costly water or wastewater projects from existing customers to new development. Given these new changes to the impact fee process, political subdivisions should work closely and early with impact fee consultants, including staff, demographers, engineers, rate consultants, and attorneys, to review and successfully implement these new requirements.

Samantha Tweet is an Associate in the Firm’s Districts, Energy and Utility, and Water Practice Groups. If you would like additional information or have questions related to these or other matters, please contact Samantha at 512.322.5894 or stweet@lglawfirm.com.