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Staff Report
City Council
Item No. 3.B
Meeting Date: June 28, 2023
From: Stone James, Economic Development Director
Title: AB 1600 Fee Justification Nexus Study
RECOMMENDATION:
This agenda item is for review and discussion.
BACKGROUND:
During the 2020 Cathedral City (City) City Council goal setting session, the Council directed staff to conduct a User Fee Study (USF), Cost Allocation Plan (CAP), and Development Impact Fee (DIF) studies. These studies evaluate the City’s true cost of providing City services to new developments and voluntarily requested city services. When the cost of providing City services is not fully recovered from new developments, the unreimbursed City service costs are deducted from the General Fund. Using General Funds to cover the costs incurred by new development decreases funds available to serve existing residents.
Development Impact Fees are one-time fees charged to new development. DIF fees are intended to pay for backbone infrastructure and capital facilities required to serve the new developments and new residents. Municipalities are prohibited from using DIF fees to fund ongoing operations, maintenance, or to make up for existing service deficiencies. DIF fees must be accounted for, set aside, and saved until the municipality has the required funding to build the needed facilities. This study analyzed the following fees to provide: (i) Parks, (ii) Transportation, (iii) General Government Facilities, (iv) Fire Facilities, and (v) Police Facilities.
In Q3 2021, the City reviewed, analyzed, and implemented an updated USF and CAP.
With the updated USF and CAP as a foundation, City staff issued a DIF request for proposal. After receiving and reviewing multiple qualified responses, the City selected the Clearsource Financial/Harris and Associates team. The collective team (City, Clearsource, and Harris and Associates) began work in Q2 2022.
In October 2022, Harris and Associates updated the City Council on the progress made to date and remaining steps. Tonight’s agenda item is intended to review study findings, updated fee estimates, discuss impacts of partial-to-full fee implementation, and discuss alternative paths forward.
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DISCUSSION:
In 1987, the California Mitigation Fee Act was passed following the California State Supreme Court Nollan vs. California Coastal Commission decision. These cases 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”. Development impact fees (DIF) are the additional fees new developments are required to pay to offset the costs of the new public facilities required to serve the new development(s).
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 (DIF) fee is imposed”. Agencies must also determine the “reasonable relationship between the amount of the (DIF) 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)).
Government Code 66001(a) and (b) require a local agency to:
1. Identify the purpose of the fee.
2. Identify the use to which the fee is to be put. If the use is financing public facilities, the facilities shall be identified.
3. Determine how there is a reasonable relationship between the fees use and the type of development project on which the fee is imposed.
4. 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.
5. Determine 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.
AB602, enacted by the State of California in 2021, requires that if a local agency conducts and adopts an impact fee nexus study after January 1, 2022, the local agency shall follow all the following standards and practices:
1. Before the adoption of an associated development fee, an impact fee nexus study shall be adopted.
2. When applicable, the nexus study shall identify the existing level of service for each public facility, identify the proposed new level of service, and include an explanation of why the new level of service is appropriate.
3. A nexus study shall include information that supports the local agency’s actions, as required by subdivision (a) of Section 66001 of the Government Code.
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4. If a nexus study supports the increase of an existing fee, the local agency shall review the assumptions of the nexus study supporting the original fee and evaluate the amount of fees collected under the original fee.
5. A nexus study adopted after July 1, 2022, shall calculate a fee imposed on a housing development project proportionately to the square footage of proposed units of the development. A local agency that imposes a fee proportionately to the square footage of the proposed units of the development shall be deemed to have used a valid method to establish a reasonable relationship between the fee charged and the burden posed by the development. A nexus study is not required to comply with the requirements to calculate a fee imposed on a housing development project proportionally to the square footage of the proposed units if the local agency makes the following findings:
a. An explanation as to why square footage is not appropriate metric to calculate fees imposed on housing development project.
b. An explanation that an alternative basis of calculating the fee bears a reasonable relationship between the fee charged and the burden posed by the development.
c. That other policies in the fee structure support smaller developments, or otherwise ensure that smaller developments are not charged disproportionate fees.
6. Large jurisdictions shall adopt a capital improvement plan as a part of the nexus study.
7. All studies shall be adopted at a public hearing with at least 30 days’ notice, and the local agency shall notify any member of the public that requests notice of intent to begin an impact fee nexus study of the date of the hearing.
8. Studies shall be updated at least every eight years, from the period beginning on January 1, 2022.
9. The local agency may use the impact fee nexus study template developed by the Department of Housing and Community Development pursuant to Section 50466.5 of the Health and Safety Code.
The DIF study is intended to demonstrate all fees charged by the City are lawful and comply with the Mitigation Fee Act and AB602. An analysis of level of service for each applicable fee component is summarized in the attached report.
During the Study Session presentation, Harris and Associates will provide (i) an overview of DIF rules, requirements, and procedures; (ii) a side-by-side comparison of existing and proposed fees; and (iii) a comparison of proposed Cathedral City fees with fees charged by other Coachella Valley cities.
FISCAL IMPACT:
The fiscal impact of the updated fees can be estimated once (i) all fees have been finalized and (ii) the City Council has determined which fees and over what period of time will said fees be implemented.
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FIVE-YEAR STRATEGIC PLAN:
The implementation of an updated USF, CAP, and DIF studies support the following strategic plan goals:
GOAL B: COMMUNITY INVESTMENT Objective: Cathedral City roads, gateways, public spaces, and other city infrastructure are well planned, designed, constructed, and maintained.
GOAL C: FISCAL STABILITY AND SUSTAINABILITY Objective: Cathedral City has economically prospered by facilitating the investment of private dollars in high quality development which benefits the community. We remain financially solvent by instituting prudent fiscal policies and transparent financial practices.
Action C-9 Complete and adopt the Development Impact Fee Study ATTACHMENTS:
2023.06.21 DRAFT Cathedral City Nexus Study