BACKGROUND
In January 2020, City Council identified reevaluating all City fees as a 2020 and 2021 strategic Council goal. This agenda item is a vital step towards achieving this goal.
In 1987, following the California State Supreme Court Nollan vs. California Coastal Commission decision, the California Mitigation Fee Act was passed. These actions set the stage for Assembly Bill 1600, and Government Code sections 66000-66011. Later, Ehlrich vs. City of Culver City (1993), Doland vs. City of Tigard (1994), and Proposition 218 (1997) (among others) occurred, enabling public agencies to impose a user fee for government services when (1) the individual’s decision to use the governmental service is voluntary, and (2) the fee charged is reasonably related to both the level and cost of the service to be provided.
In addition to public agencies charging for the cost of processing development and related applications, Government Code Sections 66000 and 66001 allow for additional fees or, “monetary exactions other than a tax or special assessment” be charged “in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development project”. Local agencies must determine “how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed” and “how there is a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development on which the fee is imposed”. (660014 & 4(b)) These additional fees are commonly referred to as Development Impact Fees.
DISCUSSION:
A Development Impact Fee (DIF) study is, in part, based on the estimates in a Cost Allocation Plan (CAP) and User Fee Study (UFS). Accordingly, DIF fees must be analyzed and updated separately from and subsequent to CAPs and UFSs. Having successfully updated and implemented a CAP and UFS in Q3 2021, the City is ready to begin reviewing and updating their DIF schedule. In Q 2021, the Finance Department issued an updated DIF request for proposal (RFP). Four responses were received. The responses were evaluated in terms of expertise, work product, and familiarity with similar-sized and geographically-located cities.
Within each of these categories, there were additional criteria. Each criterion was weighted based on the applicant’s experience and the City’s unique needs. After each proposal was individually reviewed and scored, a joint proposal between ClearSource Financial (prime vendor) and Harris & Associates (teammate) emerged as the best fit for the City.
While ClearSource Financial was slightly higher than the lowest bid (by approximately $7,000), price was not the sole determining factor. The Team believes ClearSource is the best firm for this engagement because of their: (i) superior performance recently updating the City’s master fee schedule, (ii) deep knowledge of City fees and staffing structures, (iii) understanding of the Coachella Valley’s development environment, and (iv) willingness to share best practices gleaned from working with a diverse array of municipalities throughout California. Given the amount of time ClearSource will be spending with City staff and the demands currently shouldered by City staff, fit is an important consideration.
While time is of the essence, DIF studies are necessarily detailed and time-consuming. The project with begin with the consultant reviewing the City’s available DIF documentation and meeting with the various City departments. The consultant will discuss existing DIF fees, identify any recent or pending legislation which may impact future DIFs, and define overall project goals.
The consultant will review and become familiar with the City’s General Plan, Housing Element, anticipated future development trends, and key socio-economic characteristics. Based on City staff feedback and the consultant’s review of pertinent city documentation, the consultants will identify the critical infrastructure projects requiring funding along with associated costs.
Ultimately, the consultant will prepare an update to the City’s AB1600 Fee Justification Study summarizing the fees, assumptions, cost estimates, land uses, projected revenues, CIP, existing level of service, and other related assumptions. The report will make the required nexus findings, discuss annual fee update procedures, outline reimbursement and credit policies, and discuss the required administrative procedures. The Nexus Study will be prepared with an executive summary and will contain all required legal and technical documentation.
Even in a non-COVID environment, a Cost Allocation Plan and User Fee Study can generally take one year to complete. After completing the DIF analysis, City Staff and the consultant will present their findings to the Council. Upon Council’s final approval of the updated DIF schedule, staff may implement the new DIF schedule following the mandatory sixty-day waiting period.
FISCAL IMPACT:
The Clearsource Financial DIF engagement will be an amount not to exceed $65,090. Funding will come from both the current year (FY21-22) budget and the FY22-23 budget.