Colorado’s second-highest court ruled last month that local governments’ ability to impose fees on “new development” is not limited solely to construction projects that occur on empty land.

Under state law, local governments that issue development permits are empowered to impose an impact fee that reflects governmental spending on “capital facilities needed to serve new development.” To do so, they must undertake an analysis to arrive at a fee that is “no greater than necessary to defray such impacts directly related to proposed development.”

A property owner challenged Pitkin County’s imposition of a nearly $950,000 impact fee on a project that would demolish an existing single-family home and replace it with a new one. The owner, Carroll Partners LLC, argued that new development does not encompass reconstruction or remodeling projects, but rather the development of “a raw parcel of land for a specific and/or different use.”

A three-judge Court of Appeals panel disagreed.

“Nothing in the impact fee statute or anywhere else in the Act suggests that a reconstruction project that is extensive enough to require a development permit — such as the one at issue here — falls outside the scope of a local government’s authority to impose an impact fee,” wrote Judge Matthew D. Grove in the April 30 opinion.

In 2020, Pitkin County imposed an Employee Housing Impact Fee based on the economic impact from residential construction. Specifically, the county reasoned that the workforce required to construct and maintain a residence would create a need for more affordable housing in the county. The fee was subject to exemptions, including if a home had already incurred the fee.

Carroll Partners purchased a 14,807 square foot home and proposed to demolish it to create a new 14,791 square foot home. The original building dated to 1983, so it was not previously subject to the fee.

After Pitkin County calculated an Employee Housing Impact Fee of $948,544 in connection with the permit, Carroll Partners challenged the lawfulness of the fee.

In a December 2024 order, Chief Judge Anne K. Norrdin sided with the county. She found that the fee was “reasonably designed to meet the overall costs” to the county in addressing the need for workforce housing as a result of residential construction.

It is “reasonable to understand that the new employee generation costs related to the construction phase exist for construction of a home on a raw piece of land just as they do for demolition and reconstruction of a home on a lot that already contains a residence,” Norrdin wrote. “Arguably, the demolition portion of a reconstruction creates more construction employee impacts than would the construction of a new home on raw land.”

She added that state law did not exempt remodeled or replacement homes from “new development.”

On appeal, Carroll Partners argued that the presence of construction workers alone was not a reason to charge the fee, otherwise any project would be subject to the charge.

“What if this was changed into an apartment complex, for example? If there was a house there before, knocked it down, built an apartment complex. Would that be a new development?” asked Grove during oral arguments.

Yes, responded attorney Daniel J. Sullivan for Carroll Partners, because “you’re changing its use and you’re changing its floor area.”

But in the nearly 15,000 square foot home, “there could be one family with five generations and 50 people,” Grove countered. “Why shouldn’t the county be able to decide what’s best for it?”

Ultimately, the panel rejected Carroll Partners’ view that the impact fee could only apply to developments of “raw parcels” of land.

“The General Assembly has empowered local governments to impose impact fees to plan for ‘growth,’ ‘serve new residents,’ promote ‘orderly development,’ and balance the ‘basic human needs of a changing population with legitimate environmental concerns,'” wrote Grove. “Workers, too, are a source of ‘growth,’ and Pitkin County’s effort to ensure that its capital facilities continue to provide services to its entire population is consistent with the General Assembly’s purpose.”

The case is Carroll Partners LLC v. Board of Commissioners.