Staff Report
City Council
Item No. {{section.number}}.{{item.number}}
Meeting Date: May 22, 2024
From: Kevin Biersack, Financial Services Director
Title: AB1600 Development Impact Fee Fund Transfers and Restructuring RECOMMENDATION:
To approve the restructuring of Assembly Bill (AB) 1600 Development Impact Fee (DIF) Funds for FY 2023/2024.
BACKGROUND:
Development Impact Fees are one-time fees charged to new development. These fees are intended to pay for backbone infrastructure and capital facilities required to serve the new developments and new residents. They 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. Municipalities are prohibited from using these fees to fund ongoing operations, maintenance, and/or make up for existing service deficiencies.
City staff issued a DIF Request For Proposal (RFP). After receiving and reviewing multiple qualified responses, the City selected the Clearsource Financial/Harris & Associates team (Harris). Work on updating the AB1600 DIF schedule began in 2022.
During the June 28, 2023, Study Session, Council reviewed the first draft of the AB1600 Fee Justification 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. The Nexus Study was sent to the Desert Valley Builder’s Association (DVBA) Building Industry Association, Southern California Edison, and Southern California Gas. The DVBA provided two comment letters and the Nexus Study was modified to address their concerns.
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.
As a result, of the September 27, 2023, Council meeting, City staff implemented the recommended fees on all qualified new development beginning January 1, 2024.
DISCUSSION:
Restructuring Fund Balance
City staff completed the reclassification of the 11 Development Impact Fees. Based on the Fee Study, these fees were then consolidated into five (5) funds. This restructuring consisted of reassigning each DIF a fund balance as of FY 2022/2023 year end, consistent with the AB 1600 FY 2022/2023 reporting to City Council.
Current Fiscal Year Recognized Fees
To demonstrate the impact of the fees collected with the DIF Study implementation January 1, 2024, the table below illustrates the current fiscal year revenues with 32 permits under the old rates, and 7 permits with the new rates from January 1, 2024 forward.
Future Project Commitments
Projects are identified in the annual AB1600 report provided to the City Council. Over the years, city projects have been committed using some (or all) AB1600 funding. These
projects have various commitment dates, with the earliest being FY 1989/1990. City staff plans to review this list with Council in the fall to validate existing commitments and determine future Council direction.
Other Impact Fees
As a result of the reclassification of DIF fee costs, five (5) other (non-AB1600) fees required fund reclassification. This action was necessary because these funds were previously recorded as projects in the same special revenue fund, Fund 235, with the AB1600 fees listed above. These new non-AB1600 funds are listed below:
Art in Public Places is no longer classified as a development impact fee. At Council direction, maintenance and/or repair costs are being expensed to the General Fund.
Below are the FY 2023/2024 DIF Fund adopted budget and current expenditures reassigned to the General Fund department and division related to Art in Public Places.
FISCAL IMPACT:
No Fiscal Impact.
FIVE-YEAR STRATEGIC PLAN:
The restructuring of the updated DIF studies supports 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:
1. 2023.09.15 Final Cathedral City Nexus Study
2. Current DIF Impact Fee Project List – As of 12/31/2023