Impact Fees and Utility Connection Fees for Data Centers: How They Work and What Is Negotiable

An impact fee is a one-time charge on new development that pays for public capital facilities needed to serve it: road capacity, water and wastewater plants, parks, fire stations. Texas’s impact fee law, for example, bases fees on “service units,” a standardized measure of consumption, generation or discharge attributable to a unit of development, and ties them to a capital improvements plan.¹ Florida’s statute requires that fees be proportional to, and have a rational nexus with, both the need for new facilities and the benefit to the new construction.⁶

Utility connection fees, often called capacity charges, tap fees or system development charges, are the water and sewer version. Foster City, California, describes its connection fees as capacity fees imposed under California Government Code Section 66013, intended to make new development pay its fair share of system capacity costs.² They are separate from monthly rates and separate from the cost of physically extending lines to the site.

Electric utilities usually recover new-service costs through tariffs and contributions rather than impact fees; that track is covered in contribution in aid of construction and large-load tariffs.

Impact fees rest on state enabling law plus constitutional limits. Most states that authorize them require a fee study, a capital plan and a reasonable link between the fee and the impact. Texas requires a capital improvements plan with service unit projections over no more than 10 years, a public hearing on land use assumptions and an advisory committee that includes development and real estate representatives.¹ Florida’s statute writes the “dual rational nexus” test into law and bars using fee revenue for existing debt or previously approved projects unless the spending has a rational nexus to new construction.⁶

The U.S. Supreme Court added a federal layer in April 2024. In Sheetz v. County of El Dorado, a unanimous Court held that permit conditions imposed by legislation, such as a fee schedule, are not exempt from the Nollan/Dolan test, which requires an essential nexus to a legitimate land use interest and rough proportionality to the project’s impact.⁷ El Dorado County had set its traffic fee by formula from a nexus study, based on project type and location, without individualized determinations.⁸ The Court did not decide whether that fee passed the test and sent the case back to the lower courts, so the ruling is narrow.⁷

Transportation and public facility fees are usually charged per 1,000 square feet of floor area by land use category. In Stafford County, Virginia, transportation impact fees effective July 1, 2025 apply to projects approved after that date, at $18,090 per 1,000 square feet for retail, $11,584 for office and $5,899 for industrial; data centers pay the industrial rate.³ A land use attorney quoted in local coverage estimated that a data center could pay up to $6 million per million square feet, and argued that this is inequitable for a low-traffic use.³

Water and sewer capacity fees use one of two yardsticks. Many utilities price by meter size: Hayward, California’s connection fee for a 10-inch water meter is about $902,249 as of September 2025.⁴ Others price by projected daily flow: in Imperial County, California’s Gateway area, the FY 2025–2026 capacity fees are $2.90 per gallon per day for water and $3.56 for sewer.⁵ Under either method, a campus that relies on evaporative cooling can owe far more than one using closed-loop cooling.

Behind the schedule is a fee study. Utilities typically follow the American Water Works Association’s M1 manual, which describes a buy-in approach (new customers pay for a share of existing assets, suited to systems with spare capacity), an incremental approach (new customers pay for planned expansion) or a combination of the two; Morgan Hill, California’s 2023 study uses the combination approach.¹³

Fee schedules are built around average users in broad categories. A data center often generates fewer trips than a warehouse of the same size but may draw much more water, or almost none, depending on cooling. That mismatch cuts both ways. Treating a data center as industrial can overcharge transportation, as the Stafford County debate shows.³ On the water side, a schedule based on meter size may undercount a high-consumption user, which is one reason utilities write true-up clauses into service agreements. A 2022 utility agreement in Whitestown, Indiana, reserves the right to impose additional capacity, regional improvement and other fees if actual wastewater flows or water use exceed what was projected.¹⁴

Large users also tend to move from schedules to negotiated deals. In Chesterfield County, Virginia, a tax rate and water agreement for a data center project reserves potable water and wastewater capacity for ten years and lets the developer sign service agreements and pay the capital cost fees at any point before the tenth year.¹² In St. Joseph County, Indiana, Amazon agreed in 2024 to pay $114 million toward expanding water and sewer infrastructure for its New Carlisle campus.¹⁵ Those numbers dwarf any standard fee, and they show that for big campuses the real question is often who builds capacity, not what the schedule says. Background on system headroom is in municipal water and sewer capacity.

The fee rate itself is set by ordinance and is rarely negotiable for one project. The application of the fee, its timing and its offsets often are.

Outright waivers are less common than credits. Local officials are cautious because a waived charge leaves the utility or city to fund that share of capacity from other revenue when the infrastructure later needs expansion. Where waivers are part of an incentive package, they are usually written into a development agreement alongside tax terms, discussed in data center tax incentives.

1. 01List every fee-imposing body: county, city, school district, water and sewer utility, special districts. Annexation can change the list; see annexation and utility service areas.
2. 02Pull the current fee schedules and the fee studies behind them, and note the effective date and any scheduled increases.³⁴
3. 03Identify the land use category staff would apply to a data center, and whether an independent calculation is allowed.¹⁰
4. 04Estimate water and sewer demand by phase from the cooling design, then price it under the utility’s method.⁵¹³
5. 05Map which off-site improvements you may build (mains, turn lanes, lift stations) and whether they earn credits.⁹
6. 06Ask the utility how capacity is reserved and when capital fees are due.¹²

Put the result in the pro forma early, next to construction costs and site drivers. Fee exposure rarely decides a site alone, but it can shift the ranking between two parcels in different jurisdictions. If you want fees and utility capacity reviewed alongside power and zoning, you can get a site reviewed.