Report Prepared by: Kim Espinosa, Planning Manager, Development Services Department
Title
SUBJECT: Approval of a First Amendment to Professional Services Agreement with Economic Planning Systems (EPS) for the Public Facilities Financing Plan and Impact Fee Program Update, Status Report on the Update, and Adoption of a Resolution Amending the Administrative Policy (A-32) for the Impact Fee Program
REPORT IN BRIEF
Considers approving an amendment to the Professional Services Agreement with Economic Planning Systems (EPS) in the amount of $10,000 to complete the Public Facilities Financing Plan and Impact Fee Program Update as well as receiving a status report on the update and considering the adoption of a resolution amending Administrative Policy A-32 for the Impact Fee Program in the areas of exemptions, fee deferrals, and required security.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving the First Amendment to the Professional Services Agreement with Economic Planning Systems (EPS) to complete the Public Facilities Financing Plan and Impact Fee Program Update in the amount of $10,000; and,
B. Approving a supplemental appropriation from Fund 017-Development Services unencumbered, unreserved Fund Balance in the amount of $10,000 to the Planning Division’s Professional Services account (017-0804-512-17-00); and,
C. Approving Resolution 2021-93, A Resolution of the City Council of the City of Merced, California, amending Administrative Policy and Procedure A-32 regarding Public Facilities Impact Fees; and,
D. Authorizing the City Manager or Deputy City Manager to execute the agreement.
Body
ALTERNATIVES
1. Approve the First Amendment to the Professional Services Agreement and Resolution as recommended by staff; or,
2. Amend the First Amendment Professional Services Agreement 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
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.
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 2021 fee levels across all land use categories. However, the City Council has the option of adopting fee levels below the maximum allowable 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.
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. 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 (see below) and possible future changes to the Policy. The stakeholders had some minor requests for information which will be addressed in the draft Nexus Report, and EPS indicated that the draft nexus report should be available by the end of October, which will be on track for public hearings by the end of 2021.
First Amendment to Professional Services Contract with EPS
The City engaged EPS to prepare the update to the Public Facilities Financing Plan and Impact Fee program in February 2019 at a cost of $85,000 (Attachment 2). By early 2020, EPS had completed an initial calculation of the impact fees for review. Because City staff needed to turn its priorities to the COVID response, the project was put on hold for most of 2020 and the stakeholder engagement process was put off until mid-2021. Because of these delays, EPS has had to perform additional tasks not originally anticipated in the project budget, such as updating the cost allocations and methodology for calculating the Police and Fire fees, updates to the transportation fees, and participation in additional stakeholder meetings, which has exhausted the current project budget. To complete the project, EPS will still have to prepare a Draft Public Facilities Financing Plan, Fee Nexus Study, and Impact Fee Ordinance as well as attend public hearings before the City Council on the fee program. EPS has indicated that they will need to augment the project budget by $10,000 in order to complete the project.
City staff is recommending that the City Council approve the First Amendment to the Professional Services Agreement (Attachment 1) to augment the budget in the amount of $10,000. It is anticipated that the update will be ready for City Council public hearings by the end of 2021.
Proposed Changes to Administrative Policy A-32
Based on current affordable housing projects that the City is trying to move forward and previous direction from the City Council, City staff has been anticipating various changes to Administrative Policy A-32 that implements the Public Facilities Impact Fees. At first, City staff had hoped to make those changes along with any other necessary changes as part of the Fee Update discussed above. However, due to delays in the Fee Update, City staff is recommending that three minor updates be made to the Administrative Policy at this time. These updates are outlined in the Exhibit A of the Draft Resolution at Attachment 4 (with a red-lined version at Attachment 3) and include 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.
It is anticipated that several other updates to the Policy will be needed in the future and will be adopted as part of the overall update to the Fee program, such as an infill rate, a decreased rate for smaller than average homes, updates to the definitions, etc.
City Council Action
After receiving the update on the Public Facilities Financing Plan and Impact Fee Program project, the City Council is being asked to approve the contract amendment for EPS in the amount of $10,000 at Attachment 1 and to adopt the changes to Administrative Policy A-32 as outlined above and in the Resolution at Attachment 4.
IMPACT ON CITY RESOURCES
An additional $10,000, increasing the total project budget to $95,000 (the original contract was for $85,000), will need to be appropriated in order to accomplish the fee update.
ATTACHMENTS
1. First Amendment to Professional Services Agreement with EPS
2. Original Professional Services Agreement (February 2019)
3. Redlined Version of Amended Administrative Policy A-32
4. Draft Resolution Amending Administrative Policy A-32