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Staff Report
City Council
Item No. 6.A
Meeting Date: October 11, 2023
From: Stone James, Economic Development Director
Title: AB 1600 Fee Justification Nexus Study
City Council
RECOMMENDATION:
Adopt Resolution 2023-XX approving the AB 1600 Fee Justification Nexus Study City of Cathedral City Final-September 2023; and update the City's AB 1600 development impact fee schedule to reflect the adopted recommendations. Full implementation of the adopted fees will be effective January 1, 2024.
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) study. 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 development, the unreimbursed City service costs must be covered 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 for 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 (RFP). After receiving and reviewing multiple qualified responses, the City selected the Clearsource Financial/Harris and Associates team. Work on updating the Assembly Bill (AB) 1600 DIF schedule began in Q2 2022.
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In October 2022, Harris and Associates (Harris) provided a progress update to City Council and identified remaining steps.
During the June 28, 2023, Study Session, Council reviewed the first draft of the AB 1600 Fee Justification Nexus Study (Nexus Study). Harris provided a detailed overview of the Nexus Study, contrasting allowable new development impact fees with current fees and comparing proposed development impact fees with fees charged by surrounding jurisdictions.
Following the June 28, 2023, Study Session, Staff received two comment letters dated July 7, 2023, and August 8, 2023, from the Desert Valley Builder’s A ssociation (DVBA).
The Nexus Study was modified to address DVBA’s concerns. In addition to the DVBA, the Nexus Study was sent to the Building Industry Association, Southern California Edison, and Southern California Gas. To date, only the DVBA has provided comments.
During the August 9, 2023, Study Session, City Council directed staff to , after analyzing and addressing stakeholder concerns, prepare the Nexus Study for Council adoption.
The Council also directed staff to implement 100% of the recommended fe es on all qualified new development beginning January 1, 2024.
Following the August 9, 2023, Study Session, staff received a third DVBA comment letter dated August 15, 2023. Staff and Harris worked with DVBA to understand and address DVBA’s concerns. Staff and Harris re analyzed the costs associated with fee administration, vehicle replacement, and traffic and updated the Nexus Study accordingly. After a September 13, 2023, meeting between DVBA, Harris, City staff, and the City’s attorney’s office, Harris provided a response letter to the DVBA on September 21, 2023.
On September 27, 2023, during the public hearing portion of the Council meeting, Harris and staff presented the final AB 1600 Fee Justification Nexus Study City of Cathedral City Final – September 2023 report (attached). On September 27 th, DVBA submitted a fourth comment letter. In this September 27 th comment letter , DVBA “…remains concerned that the Administrative Fee is excessive, the Parkland Improvement Fee is only supportable at 1.41 acres p er one thousand population, and the City may not currently have the authority to collect Parkland Fees pursuant to the Quimby Act”. Staff, Harris, and the City’s attorney office have reviewed the September 27th DVBA letter and do not agree with DVBA’s position.
While the City has met previous public hearing meeting notice requirements, the City reposted notice of a public hearing to discuss the adoption of a revised AB 1600 Development Impact Fee schedule. These additional public notices were published in the Desert Sun newspaper on September 30, 2023, and October 6, 2023.
DISCUSSION:
The current AB 1600 Development Impact Fee schedule was adopted in January 2006.
Construction costs have significantly increased since 2006. Given increased costs over the last seventeen years, there is a material shortfall between current development
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impact fees and the actual cost to build the municipal facilities required to serve future residents.
As evidenced in the marked increase between the 2006 -enacted AB 1600 fee s and 2023 Nexus Study proposed AB 1600 fees, the City has been undercharging developers for the actual costs necessary to cover future capital improvements. By not collecting sufficient impact fees now, future years’ General Fund monies will be required to make up the shortfall between actual costs to construct required public facilities and collected DIF fees.
Using 2022 permit activity, the following table examines the impact fees collected under the current 2006 AB 1600 schedule and what would have be en collected had the 2023 Nexus Study been implemented.
LOST REVENUE ANALYSIS
DEVELOPMENT TYPE:
Residential
Number of
Permits Issued
in 2022 by
Product Type
TOTAL
COLLECTED DIF
FEES USING
2006 FEE
SCHEDULE
TOTAL DIF FEES
WHICH WOULD
HAVE COLLECTED IF
USING 2023 NEXUS
STUDY
RECOMMENDED
FEES
REVENUES CITY
SHOULD HAVE
COLLECTED BUT
WERE NOT
COLLECTED (2023
DIF fee less 2006
DIF fees)
Single Family
55 $118,250.00 $694,100.00 $575,850.00
Multi-family
2 $32,000.00 $137,440.00 $105,440.00
Non-Residential
Commercial/Retail
2 $1,628.80 $12,900.84 $11,272.04
Office/Non-Retail - - - - Industrial/Non-Retail - - - - Total DIF Fees $151,878.80 $844,440.84 $692,562.04 * The above table illustrates development impact fees assuming a 2,000 square foot single family detached home, an eight (8) unit multifamily project (8,000 total livable square feet), and a 2,000 square foot commercial/retail space. The Development Services Department listed 55, 2, and 2 as the actual permits issued in 2022.
The AB 1600 Nexus Study identifies the maximum justifiable development impact fee s.
City Council has directed staff to fully implement the Nexus Study recommended fees beginning January 1, 2024. Below is a table outlining the 2023 Nexus Study proposed fees.
SEPTEMBER 2023 NEXUS STUDY FINAL PROPOSED DEVELOPMENT IMPACT FEES
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Land Use Parks Transportation
General
Government
Facilities Fire Police
Total per
Residential
Square Foot
or Per
Commercial
1,000 Sq.ft.
Residential
Single Family $3.37 $0.64 $1.25 $0.69 $0.48 $6.43 Multi-family $4.74 $0.61 $1.76 $0.97 $0.68 $8.76
Non-Residential (Fee
per 1,000 sq.ft. of
Inhabitable Space)
Commercial N/A $2,147.52 $590.43 325.64 $226.44 $3,290.03 Office N/A $1,804.49 $1,297.63 715.68 $497.69 $4,315.49 Industrial N/A $273.65 $129.76 $71.57 $49.77 $524.75
FISCAL IMPACT:
Using 2022 permit act ivity outlined above, implementing the updated Nexus Study development impact fees would have resulted in collecting an additional $ 692,562 per year. Note, DIF fees are not added to the General Fund , rather DIF funds must be separately accounted for, held in trust, and may only be used to construct the municipal facilities required to serve future residents.
FIVE-YEAR STRATEGIC PLAN:
The implementation of updated USF, CAP, and DIF studies support s 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:
2023.09.15 Final Cathedral City Nexus Study
General Plan - Parks
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2023-09-27 DVBA DIF Study Concerns September 27 2023 Cathedral City 2023-09-21 HARRIS RESPONSE to DVBA Impact Fee Concerns 9.21.23 Final (002) RESOLUTION - Cathedral CIty 2023 DIF Update 2023-10-11