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MEMORANDUM
To: Charles McClendon, City of Cathedral City
From: Megan Quinn, Harris & Associates
RE: DVBA Development Impact Fee Study Comments
Date: September 21, 2023
CC: Stone James, City of Cathedral City, Kevin Biersack, City of Cathedral City, Adam Marston, Harris & Associates, Desert Valley Building Association
Dear Mr. McClendon,
Harris & Associates has reviewed the memo provided by the Desert Valley Building Association (DVBA) on August 15,
, 2023 regarding the AB1600 Fee Justification Nexus Study for the City of Cathedral City dated July 2023. Harris and the City of Cathedral City (City) met with the DVBA on September 13, 2023 to discuss the memo and this memorandum summarizes our responses discussed in the meeting as well as additional quantitative information.
Please see our response to the August 15, 2023 memo below. Please forward our response to the DVBA.
Administrative Fee
The DVBA memo stated that the Nexus Study fails to support a quantitative nexus for a percentage of fe es to be collected for administrative purposes. The DVBA lis ts the acceptable uses of the Administrative Fee as “the costs to draft the development impact fee study, annual reports and fee updates. All other uses are already paid for by the development community via land use, regulatory and service fees.” The uses of the Administrative F ee collected in association with development impact fe es has several additional appropriate uses that are not covered by land use, regulatory and service fees th at the DVBA may not have considered. These addition al appropriate include:
1. Facility Master Planning
2. Credit and Reimbursement Administration
3. Program Management
While the cost of master plans may be estimated by the City prior to the adoption of a Nexus Study, pro gram management and the administration of credits and re imbursements are difficult to quantify up front as these costs are dependent on the timing of development and whether the development community elects to construct the facilities included in the Impact Fee Nexus study.
The collection of an administrative fee as a percen tage of the development impact fees is done in juri sdictions throughout the state and is an industry standard. W hile the percentage of the administrative fee varie s from jurisdiction to jurisdiction, it typically falls wi thin the three percent to six percent range. The Ci ty’s proposed Development Impact Fee Nexus Study currently uses three (3) percent. This is based on conversations with DVBA, discussions with City staff on the necessary costs to administer the Impact Fee Program, costs for annual AB1600 reports and five-year reports, development impact fee updates every eight (8) years per AB602, legal support, and master plans necessary to support the development i mpact fee update. Please see the estimated annual c ost below, based on the estimated total costs necessary over an eight year period, as well as the estimate d
2 administrative annual revenue collected. As shown b elow, the estimated cost is higher than the estimat ed revenue collected.
Estimated Annual Administration Fee Revenue
Estimated Annual Administration Fee Expenses
Park Facility Improvements
Harris reviewed the comments on the Park Facility improvements and discussed the comments with the City. The existing level of service for parks within the City does fall below the City Standard of (3) acres per 1,000 residents.
Nonetheless, the City Standard is utilized to calcul ate the Park Facilities Fee as it is an appropriate City Standard set by the General Plan. The City has significant growth projected in the North area of the City, and it is appropriate for new development to meet this City Standard. New development is expected to pay the fee that results in meeting the City Standard and will not be expected to fund existing deficiencies. Government Code 66001 states, “A fee shall not include the costs attributable to existing deficiencies in public facilities, but may include the costs attributable to the increased demand for public fac ilities reasonably related to the development proje ct in order to (1) refurbish existing facilities to maintain the existing level of service or (2) achieve an adopted level of service that is consistent with the general plan”. The Par k Facilities Fee achieves an adopted level of servi ce that is consistent with the City’s adopted General Plan. Th is approach, therefore, is consistent with the Miti gation Fee Act. AB602 requires that when applicable, the nexus study identifies the existing level of service for each public facility, identifies the proposed new level of serv ice, and includes an explanation of why the new lev el of service Fee Category
Total
Fee
Revenue
Admin.
Fee
(3%)
Estimated
Annual
Admin. Fee
(40 Years)
Parks $197,139,504 $5,914,185 $147,855
Transportation $77,423,596 $2,322,708 $58,068
General Gov $96,614,638 $2,898,439 $72,461
Fire $53,183,368 $1,595,501 $39,888
Police $36,645,180 $1,099,355 $27,484
Total $461,006,285 $13,830,189 $345,755
Item
Total
Estimated
Average
Cost (8 Years)
Annual
Amount
Legal (assumes 20 hours Annually) $52,160 $6,520
.5 FTE for Accounting / Admin @ @ $132/hour Uniform Billing Rate $1,098,240 $137,280 Development Impact Fee Nexus Study $100,000 $12,500
Transportation Master Plan $800,000 $100,000
Public Safety Master Plan $250,000 $31,250
Public Facilities Master Plan $500,000 $62,500
Parks Master Plan $400,000 $50,000
Annual Report / Five-Year Report $120,000 $15,000
Total $3,320,400 $415,050
3 is appropriate. This Nexus Study meets that requirement and explains why the new level of service is appropriate based on the General Plan standard.
Furthermore, the Nexus Study includes a description of the City’s existing undeveloped parkland. The Ci ty has identified required funding sources for some of the parkland. The City has shown an ongoing commitment of finding funding for parks through grants, general f und revenue, and other funding sources. Funding for parks is outlined as an action item in the City’s 5 Year Str ategic Plan and discussed in the City’s recently ad opted 2040 General Plan. The City currently owns enough parkla nd that, when developed, the City will meet or exce ed the General Plan standard of (3) acres per 1,000 residents.
The City has been successful in securing grants for park facilities in the past. The City was awarded $6.4 million in grant funding for the Ocotillo Park ($5 million) an d the Amphitheater ($1.4 million) as well as $8.498 million for the Dream Homes Park. The City has demonstrated a s uccessful track record and commitment to pursuing g rant funding for parks and will continue to aggressively target and pursue grants for parks. Furthermore, the City’s 5- year CIP budget has planned $1.56 million of General Fund revenue to fund parks. The City will continue to identify funding sources and explore partnerships for joint- use facilities to develop the City’s undeveloped pa rkland.
Furthermore, the City has an existing fund balance for the Park and Recreation Facilities Fee of $899, 554 as of 06/30/2022 per the City’s AB1600 annual report.
Transportation Facilities
The DVBA details that existing developments’ fair s hare of the future transportation improvements whic h amounts to $34,297,853.37 include existing deficien cy. The existing developments fair share of future transportation facilities are not an existing defic iency as these proposed improvements have not yet b een triggered nor are they required prior to new development occurring. As such they cannot be considered an existing deficiency.
As new development moves forward, the additional tr ips generated by new development will cause a need for new transportation improvements. The Nexus Study ackn owledges that existing development will benefit fro m these new transportation improvements once they are constructed and as such existing developments’ fair share of the improvements (based on trip generation rates ) are removed from the calculation and those costs are not spread to new development.
The DVBA further details that if the City were to u se General Fund monies, they would need to use it p rior to the Nexus Study being implemented. Because the improveme nts are not an existing deficiency and have not bee n triggered at this time, the expenditure of General Fund monies upfront is not required and funds may be allocated in the future to pay for existing developments’ fai r share. The City may also offset this contribution through the acquisition of grants or other funding sources. Aga in, the approximately $34.3 million is the fair sha re cost allocated to new development based on the new trans portation improvements necessary to serve new development, not the costs to remedy any existing deficiencies.
General Government, Fire, and Police Facilities
The DVBA asks for clarification of the valuation used for a number of City vehicles. All costs included in the Nexus study were based on the City’s 2021 insurance valua tions. However, Harris acknowledges and appreciates the concerns of the DVBA and coordinated with City staf f to confirm the valuations included in the Nexus S tudy are accurate. City staff confirmed the valuations inclu ded in the Nexus Study are accurate with the except ion of the following vehicles, which have had their costs updated to be in line with the replacement cost of these vehicles:
• Ford Taurus replacement cost reduced to $50,000.
• Honda Motorcycle replacement cost reduced to $39,70 0 based on the costs of fully outfitted Honda Motorcycles and recently purchased and fully outfitted BMW Motorcycles for the City.
4 • Ford C-Max replacement cost reduced to $48,000 to reflect the cost of a Ford Escape with all equipment. • Ford Fusion replacement cost reduced to $40,000 to reflect the cost of a Chevy Malibu with all equipment. • Honda Accord replacement costs to approximately $51,000 with all equipment.
Additionally, the DVBA states that the current leve l of service should be based on the current depreci ated value of vehicles and equipment rather than replacement v alue. Harris acknowledges that depreciation schedul es are critical in accounting for vehicles and it ensures that vehicles that have reached the end of their us eful life are excluded if the City has chosen to not replace them . However, for vehicles and equipment that have not fully depreciated, the City has a maintenance and capital replacement plan to account for the replacement of these vehicles once they reach the end of their useful li fe. These vehicles themselves establish the existin g level of service rather than the value of these vehicles/equipment.
As stated above, the total quantity of vehicles that are in service and have not reached the end of their useful life establishes the existing level of service. In order to ensure that this existing level of service is m aintained as new development occurs, the fee calculations must utili ze the replacement cost of the existing vehicles in service. If replacement costs are not utilized and depreciated value is utilized instead, the fees new development pays will only allow the City to purchase a portion of the required vehicles.
For example, the City currently maintains 37 police vehicles that are still within their useful life expectancy which serve a current population of 55,933. Based on this , the existing level of service is 1 police vehicle per approximately 1,512 persons. In order to maintain the existing level of service, replacement costs must be utilized in the calculations. If the vehicles depreciated value is used, new development will be providing police vehicles at a level of service less than 1 vehicle per 1,512 persons.
The below calculations demonstrates this point and utilizes a depreciated value factor of 60% for all 37 vehicles which is a conservative estimate and may not represent the current depreciated value of each vehicle.
Please let me know if you have any additional questions.
Signature on following page
Description Value
Police Vehicles in Service 37
Existing Service Population 55,933
Persons Served by Each Vehicle 1,512
Replacement Cost for 36 Vehicles in Service $2,221, 902 Assumed Depreciated Value for 36 Vehicles in Servic e $888,761 Average Cost of Police Vehicles $60,051
Vehicles that Can be Purchased using Fees based on Replacement Cost 37 Vehicles that Can be Purchased using Fees based on Depreciated Cost 15 Depreciated Value Percentage of Existing Level of S ervice 60% Persons Served by Each Vehicle using Depreciated Va lue $3,779
5 Respectfully,
Megan Quinn
Director, Municipal District Financing
(916) 306-5704
[email protected]