Report Prepared by: Kim Espinosa, Planning Manager, Development Services Department
Title
SUBJECT: Public Hearing and Potential Introduction of Ordinance to Update the City's Public Facilities Financing Plan and Impact Fee Program and Adoption of a Resolution Amending the Administrative Policy Implementing the Fees
REPORT IN BRIEF
The City Council will hold a public hearing and consider introduction of an Ordinance regarding the comprehensive update of the City’s Public Facilities Financing Plan and Impact Fee Program along with the Repeal of the Park Quimby Act Fees and adoption of a resolution amending the Administrative Policy implementing the Fees.
RECOMMENDATION
City Council - Adopt a motion:
A. Introducing Ordinance 2537, An Ordinance of the City Council of the City of Merced, California, amending Chapter 17.62, “Public Facilities Impact Fees,” And Repealing Chapter 17.38 “Park and Recreation Facilities Fee” And Chapter 18.40, “Park Dedication,” of the Merced Municipal Code; and,
B. Adopting Resolution 2022-07, A Resolution of the City Council of the City of Merced, California, amending Administrative Policy and Procedure A-32 regarding Public Facilities Impact Fees.
Body
ALTERNATIVES
1. Introduce the Ordinance and adopt the Resolution as recommended by staff; or,
2. Amend the Ordinance and Resolution (with specific amendments to be specified in Council motion); or,
3. Direct staff to make changes and return to Council at a later late; or,
4. Deny; or,
5. Continue the matter to a future Council meeting (date and time to be specified in motion).
AUTHORITY
Government Code 66106 through 66018 (AB 1600) established procedures for adoption or modification of development impact fees by local jurisdictions. Merced Municipal Code Section 17.62 (Public Facilities Impact Fees) and Administrative Policy A-32 spell out the implementation of the City’s Impact Fee program.
CITY COUNCIL PRIORITIES
Public Facilities Fee Program Update was mentioned in the FY 2020-21 City Council goals and priorities, but was not mentioned in the FY 2021-22 version although many projects listed such as the police station, fire stations, park upgrades, etc., can be partially financed through the Public Facilities Impact Fees.
DISCUSSION
Recent City Council Direction (January 18, 2022)
On January 18, 2022, the City Council held a public meeting on the Public Facilities Financing Plan and Impact Fee Program Update. Staff gave an overview of the process thus far, the Nexus Study, and the maximum justified fee. (The sections below cover the same information which was provided at the meeting and within the Administrative Report for that item.) Staff also asked for City Council direction on several options as outlined in the section below.
Options Considered
The Nexus Report shows the maximum justified impact fee by facility category and land use type, but the City Council may elect to implement the fees at lower rates than the maximum justified rate. Several options are available, including the following (other options may be available as well):
• Approve the maximum justified fees for all categories
• Phase in the fee increases over a specified time period
• Phase in fees by fee category
• Approve a fee less than the maximum justified fee
• Approve a fee at a lesser rate for land uses within a fee category
On January 18, 2022, the City Council provided direction to staff to prepare an Ordinance with the maximum justified fees for all categories with no phasing of the increases. If adopted, the fees would go into effect on March 26, 2022. The Ordinance at Attachment 6 reflects that City Council direction.
In addition to the above options, through the approval of the Administrative Policy, the City could offer reduced fees for different types of projects, such as for affordable housing, in-fill development, and/or smaller home sizes. [Per the City’s current Accessory Dwelling Unit (ADU) Ordinance, ADUs already pay a fee proportional to the size of the primary dwelling.] EPS and City Staff had the following suggestions to address those developments:
• Offer a reduced fee by 50 to 75 percent for in-fill development (previously defined in the City’s fee Ordinance in 2010 as the area south of Bear Creek, east of Highway 99/X Street/West Avenue, north of Childs Avenue, and west of Delong/Glen Avenue) based on their lower need for new facilities;
• Determine the fees for affordable housing projects on a case-by-case basis depending on the level of affordability, number of affordable units, etc. (These projects are too complex for a one-size-fits-all approach.)
• Offer a reduced fee for homes smaller than the City’s average home size (1,920 square feet in 2021) to address the upcoming requirements of AB 602 (effective after July 1, 2022). Staff is recommending that a lower fee be established for a range of smaller home sizes that are at least 10 to 20 percent below the average home size.
On January 18, 2022, the City Council provided direction to move forward with the above reduced fees. The Administrative Policy at Attachment 7 reflects that direction, including a 50 percent reduction for in-fill development, affordable housing fees on a case-by-case basis, and a reduced fee for homes that are at least 20 percent below the average single-family home size (1,920 square feet) proportional to the percent below the average home size. To address the inquiry received from Lee J. Kolligian (Attachment 5) prior to the public meeting, a section has been added to the Administrative Policy that would allow any Park Fee credits to be used as credits toward the Public Facilities Impact Fees.
Fee Survey
At the January 18, 2022, meeting, Mayor Serratto inquired about how the City’s proposed fees compared with other cities. Staff indicated that a detailed fee survey had been prepared in June 2021 based on a previous draft of the fee, so that survey did not reflect the current proposed fee rates, which are lower than the ones used in the survey. The survey compared Merced’s 2021 fees and the June 2021 draft fees with six nearby cities, including Clovis, Fresno, Lodi, Manteca, Modesto, and Turlock. In reviewing that fee survey and using the current proposed fee rates, City staff has concluded that the City’s proposed fees are in the middle range between the highest and lowest for both single-family and multi-family residential, the middle to high range for retail and office, and the high range for industrial. A summary of the fee survey is provided at Attachment 4. It also should be noted that with the last fee update in 2012, the fees were reduced by 55 percent across all categories.
[The Sections below are repeated from the report for the public meeting on January 18, 2022, with a few minor updates.]
Status of Public Facilities Financing Plan and Impact Fee Program Update
Background
The City’s Public Facilities Financing Plan and associated Public Facilities Impact Fee Program were first adopted in 1998; revised in 2003, 2004, 2006, 2009, and 2010; and comprehensively updated in 2012. The impact fees are used to fund capital facilities and infrastructure generated by new development over the next 20 years, with service levels as outlined in the City’s General Plan. Per State Law (AB 1600), these fees can only be used on capital projects, not for maintenance or staffing. AB 1600 also mandates that there must be a clear “nexus” or correlation between the amount of fees charged to new development and the impact that new development generates. In other words, impact fees cannot be used to fix existing problems or “deficiencies” not created by new development. A history of the City’s Public Facilities Impact Fee levels can be seen at Attachment 1, including the most recent 2022 annual increase which was effective on January 1, 2022.
Fee Update
In 2019, the City hired Economic Planning Systems (EPS) to prepare a comprehensive update of the Fee Program. Working with City Department Heads and other City staff, EPS updated the population and growth projections, updated the project list and costs, added projects that were previously deleted from the 2012 project list that were deemed at the time to be outside the 20-year time frame based on growth projections, and added projects that weren’t previously included in the Impact Fee program. These new projects include neighborhood parks (the Public Facilities Impact Fees would replace the existing City Park Fees or “Quimby Act Fees” that are currently used to acquire park land for neighborhood parks), a new Corporation Yard for Public Works, and Smart City Technology Infrastructure for City facilities.
In Fall 2020, EPS completed an administrative draft of the fees for City staff review. If adopted as drafted, the impact fees would increase above 2022 fee levels across all land use categories. However, the City Council has the option of adopting fee levels below the maximum justified fee. In all previous updates of the Impact Fees, the City had formed a citizen task force or focus group made up of citizens, developers, builders, and business owners as well as representatives from the Planning Commission and City Council. Because of COVID, this community and stakeholder engagement process was delayed.
On March 1, 2021, the City Council received a status report on the Fee Update and directed staff to move forward with the stakeholder engagement process to include members of the City Council Planning/Housing Subcommittee.
Stakeholder Meetings
Subsequently, three virtual stakeholder teleconferences were held on June 17, August 26, and September 30, 2021, with an invitation list including over 45 representatives from local developers, local businesses, local realtors, the Building Industry Association, other interested citizens, along with the Chairpersons of the Planning Commission and Parks & Recreation Commission and the three members of the City Council Planning/Housing Subcommittee (Boyle, Ornelas, and Perez).
At the June 17, 2021, stakeholder teleconference, EPS went over the assumptions used in the study, the list of projects and cost estimates, how the fees are calculated, possible implementation measures, the preliminary draft fees for each land use category, and a fee survey of comparable cities in the region. (This fee survey was done in June 2021 based on a previous higher draft of the fees and had not been updated to reflect the latest draft fee. A summary is provided at Attachment 4 with some edits by City staff to show the current proposed fees.) A copy of the draft fees and background materials were then provided to all the stakeholders via email whether or not they were able to attend the teleconference.
At the August 26, 2021, stakeholder teleconference, the stakeholders were able to ask questions about the draft fees and give feedback. Based on questions raised regarding the Police and Fire fees and road and bridge projects, EPS and City staff went back and modified the project costs and growth allocations for Police and Fire projects and modified the fee calculations to send out to the stakeholders prior to the September 30 teleconference. Modifications to the road and bridge project list were also made to present to the stakeholders on September 30.
At the September 30, 2021, stakeholder teleconference, EPS and City staff went over the modifications to the Police, Fire, and Transportation fee calculations along with information about pending changes to the Administrative Policy and possible future changes to the Policy. The stakeholders had some minor requests for information which will be addressed in the draft Nexus Report.
Recent City Council Action
On October 18, 2021, the City Council adopted an amendment to EPS’ contract to finish the project and adopted Resolution #2021-93 amending Administrative Policy A-32 extending the time line for fee exemptions for demolished buildings from 5 years to 15 years; expanding the eligibility for fee deferrals from non-residential projects only to allow multi-family projects to qualify as well; and allowing alternate security mechanisms for such fee deferrals to be approved by the Finance Officer to give developers more options.
Draft Nexus Report and Maximum Justified Fee
In December 2021, EPS completed the Draft Nexus Report required under State Law to justify the fee program and was distributed to the Stakeholders for comment. The Draft Nexus Report can be seen at Attachment 2. The Nexus Report outlines the methodology and key assumptions used; demographic and land use assumptions (population, employment, density, etc.); outlines the calculations for calculating each fee for each facility type (transportation, fire, police, parks, public works, and information technology); the Nexus findings required under State Law; and Fee Program implementation and administration.
Based on the nexus study, the maximum justified fees for each land use category are presented in the following table. However, the City Council may elect to adopt less than the maximum justified fee, phase the increase in over time, or other options as determined by Council.
|
Land Use Category |
Max. Justified Fees |
Current Fees (Jan. 2022) |
Unit of Growth |
|
Single Family Residential |
$11,671 |
$5,938 |
Dwelling unit |
|
Multi-Family Residential |
$8,520 |
$4,107 |
Dwelling unit |
|
Institutional |
n/a |
$4,079 |
1,000 sq. ft. |
|
Retail - Less Than 50,000 SF |
$13,940 |
$11,927 |
1,000 sq. ft. |
|
Retail - More Than 50,000 SF |
$13,940 |
$8,996 |
1,000 sq. ft. |
|
Office Commercial |
$12,420 |
$7,810 |
1,000 sq. ft. |
|
Industrial |
$5,400 |
$2,233 |
1,000 sq. ft. |
|
Lodging |
$3,293 |
$4,107/Room (60% of Rooms Only) |
Room |
These fee increases would represent increases of 96 to 107 percent for single-family and multi-family residential, 17 to 59 percent for commercial uses, and 141 percent for industrial uses over 2022 level fees. (The fee for lodging would actually decrease by 19 percent, but would be charged for each room instead of just 60 percent of the average occupied rooms as it is today.) The number of land use types would be reduced by eliminating the institutional type (data is hard to find on these types of uses so projecting growth for churches, hospitals, etc., is problematic and should be done on a case-by-case basis), merging the two retail commercial types into one, and adding the lodging category. [Please note that as of January 1, 2022, the City’s Public Facilities Impact Fees were adjusted per the current ordinance by 7.3% based on the Construction Cost Index of the Engineering News Record, but the comparison information in the report is based on 2021 fees.]
The Ordinance would modify the Public Facilities Impact Fees along with repealing the City’s existing Park Fees and Park Dedication Ordinance, which have been folded into the new Impact Fees. The current Public Facilities Fee Ordinance (Chapter 17.62 of the Merced Municipal Code) is presented at Attachment 3 along with the Parks and Recreation Facilities Fee (Chapter 17.38 of the Merced Municipal Code) and Park Dedication (Chapter 18.40 of the Merced Municipal Code). The Ordinance at Attachment 6 and Administrative Policy at Attachment 7were modified based on the Nexus Report and the direction provided by City Council on January 18, 2022.
Next Steps
After tonight’s public hearing, the City Council will consider introduction of the draft Ordinance at Attachment 6. If introduced, it would have a 2nd reading and adoption on February 22, 2022, and would be effective 30 days later on or about March 26, 2022. If the Administrative Policy is adopted by the Resolution at Attachment 7 tonight, it would usually become effective tonight, but the resolution has been drafted to indicate that the effective date of the policy would be the same as the effective date of the Ordinance.
IMPACT ON CITY RESOURCES
The City’s Public Facilities Impact Fee Program provides funding to assist in building new infrastructure projects and capital facilities in the City of Merced, including fire stations, police stations, roads, bridges, traffic signals, parks and recreation facilities, etc. As such, it is an important revenue source for the City for capital projects.
ATTACHMENTS
1. History of City’s Public Facilities Impact Fee Levels (1998-2022)
2. Draft Nexus Report (December 2021)
3. Current Public Facilities Impact Fee Ordinance (MMC 17.62), Parks & Recreation Fee Ordinance (MMC 17.38), and Park Dedication Ordinance (MMC 18.40)
4. Summary of Fee Survey
5. Correspondence Regarding the Fee Program
6. Draft Ordinance (Final and Red-Lined)
7. Draft Resolution Adopting Administrative Policy A-32 (Final and Red-Lined)
8. Presentation