Cotati City Council
Agenda Staff Report
Item type: PUBLIC HEARINGS (ACTION)
To: City Council
Subject: APPROVAL OF DEVELOPMENT IMPACT FEE UPDATE
Date: August 12, 2025
Written by: Damien O'Bid, City Manager
Recommendation
It is recommended that the City Council adopt: 1) the resolution revising the Traffic Impact Fee, the Sewer Connection Fee, the Water Connection Fee and the Parks and Recreation Fee, adopting a General Plan Fee (Replacing the Downtown Specific Plan Recovery Fee) and making associated findings; 2) introduce an ordinance to move most development impact fees to a single inflationary index, 3) and provide feedback to staff on the policy recommendations for focused fee eliminations and direct staff to return to City Council with a resolution implementing the final policies.
Background
California Government Code 66000, part of the Mitigation Fee Act, was enacted in 1987 to regulate the imposition and use of development impact fees by local agencies. More broadly, there has been a long history in California of ensuring that new development funds the public infrastructure needed to accommodate the growth and not shift the cost of those improvements to existing residents. Development impact fees are the tool to accomplish that, particularly off-site public infrastructure where the development is one of many contributors to cumulative impacts, as a local agency grows in accordance with its General Plan.
The Mitigation Fee Act built upon the "reasonable relationship" test established by California courts in 1949. Prior to 1987, local agencies in California had been collecting impact fees for new development to fund public infrastructure, but the process lacked a standardized framework.
The Mitigation Fee Act aimed to create a more transparent and accountable system for these fees. The Mitigation Fee Act has been amended several times since its enactment, reflecting evolving legal interpretations and policy considerations. The Mitigation Fee Act aims to ensure that such fees, collected from new development projects to fund public facilities, are reasonably related to the project's impact and are used for their intended purpose. It outlines requirements for local agencies regarding fee justification, accounting, and reporting.
The City of Cotati (City) and every other local agency in California known to staff, collects various impact fees prior to issuance of occupancy of a new development. However, among local agencies, impact fee types and amounts are not uniform, as the fees are dependent on the specific infrastructure needs or limitations of that local agency.
The City lists all fees for service, including impact fees, in the adopted fee schedule. This is posted on the City website here: https://ca-cotati.civicplus.com/441/Master-Fee-Schedule Currently, aside from regular building permit fees, the City assesses the following fees/taxes on new development:
• Affordable Housing In-Lieu Fee (for developments with 9 or less units, otherwise the development is required to include 15% of units as deed restricted affordable) • Bed Tax
• Downtown Specific Plan (DSP) Recovery (Only applicable to developments in the DSP area)
• Linkage Fee (Only applicable to commercial, industrial, retail developments) • Park n-Lieu Fee (Charged on residential developments to the extent that the required park area is not provided in the development)
• Traffic Impact Fee (TIF)
• Sewer Connection Fee
• Water Connection Fee
• Water Conservation Fee
• Fire Impact Fee (A City fee established on behalf of the Rancho Adobe Fire District) Additionally, residential and commercial developments are required to pay School Impact Fees to the Cotati-Rohnert Park School District.
Inflationary Indices
These impact fees have been adopted over time, each with their own inflationary indices, some of which are no longer published or use different time periods to measure inflationary changes.
Additionally, some of the existing impact fees, such as the Park In-Lieu and other fees are difficult or impossible to estimate without assistance from City staff (and occasionally outside third-party professionals), thereby adding cost uncertainty, reducing transparency and generally impacting the customer experience. Further, new state laws have also created new requirements around the development and collection of impact fees, often eroding a local jurisdiction‘s ability to cover the long-term costs of providing services. Finally, impact fees can be a useful tool in advancing community policy goals, if used strategically, which is discussed later in this report.
For these reasons, it is timely to update the impact fee study and supporting ordinances.
State Law Changes Related to Impact Fees
Historically, all impact fees were collected at the time of building permit issuance. This simplified administration of the fees by collecting them all at the same time at the issuance of the building permit rather than spreading payment across the various phases of a construction project. Collecting fees at different points during construction creates the possibility of missed fee collections, which is why it is typically not done that way. In recent years, the City added the ability to defer some impact fee collection through an agreement approved by the City Council and recorded against the property, which acted as security if the unit sold prior to fee collection (backstopped by the title report to note the fee for inclusion in closing). Now, in the on-going effort to encourage housing construction in California, State Senate Bill (SB) 937 (Wiener, 2024) in most cases prohibits local agencies from imposing fees on ”designated residential development” projects until the final inspection or certificate of occupancy, whichever occurs first. Designated residential development includes 100% affordable projects, SB 35 projects,”by right” projects, low barrier navigation centers, density bonus projects, or projects with 10 or less units. For example, water and sewer connection fees can’t be collected until the water and sewer connections are turned on. Traffic impact fees can’t be collected until occupancy is granted and so forth. It is still permissible for a local agency to require that an agreement be recorded against the property to ensure collection no later than occupancy. Responding to this state law and for administrative efficiency, the City now offers such fee deferral agreements to all residential projects, by right. Commercial projects may also request such fee deferrals, however these agreements would require City Council approval under current practice.
In general, recent state legislation has sought to affect the collection process and general application of impact fees to residential development. Assembly Bill (AB) 602 (Grayson, 2021) requires local agencies to follow specific standards and practices when conducting updated impact fee studies, such as justifying the level of service for the identified fee, calculating said fee proportionate to the square footage of the project, and a new requirement to update development impact fee studies every eight (8) years. Staff anticipates this trend to continue as the state legislature looks to local governments to mitigate the impacts of the state's housing crisis.
Analysis/Discussion
The City contracted with Willdan Financial Services (Willdan) to complete a Development Impact Fee Nexus Study Update (Nexus Study) of the City’s development impact fees, including providing the fees on a square footage basis and greatly simplifying the calculation of the fees.
The fees included in the Nexus Study are the “maximum justified fees,” which are intended to fully cover the impact of new development on City infrastructure. The calculated fees are summarized in Table E.1, included in the staff report below:
In addition to the existing fees, staff is proposing to add a General Plan fee to pay for the costs of updating the General Plan and associated studies. The Nexus Study provides support for the General Plan fee as well. Staff is proposing that the General Plan fee would supersede the existing Downtown Specific Plan Recovery fee.
Fee Calculations
Chapter 1 of the attached Nexus Study describes the methodology used to calculate each fee type, but in general the fees are intended to ensure that new development funds the impacts that it creates, using the existing standard and is not intended to fund the correction of existing deficiencies. The impact fees are not intended to fully recover the costs of improvements, as they only recover the share attributable to new developments, as indicated in the table below.
While much of the Nexus Study is relatively straightforward, there are a couple of areas worth pointing out, as described below.
Park & Recreation Facility Fees (Park in-Lieu)
The Quimby Act is a provision of the state Subdivision Map Act that allows cities and counties to require the dedication of parkland (or fees in lieu of dedication). It only applies, however, to residential land subdivisions. The Quimby Act does not apply to residential projects on single parcels, such as apartment complexes and other similar multifamily development. The Quimby Act allows subdividers to pay a fee in lieu of land dedication. The fee is calculated to fund the acquisition of the same amount of land that would have been dedicated to meet the recreational needs of the future residents of the new subdivided properties. Although calculated based on land values, the in-lieu fee revenue may be used for park land acquisition, park improvements, and rehabilitation of existing recreation facilities.
Alternatively, the City can adopt a park and recreation facilities fee pursuant to the Mitigation Fee Act that applies to all residential developments, not just subdivisions, like the Quimby Act.
The City may only use Mitigation Fee Act impact fee revenue to acquire land, provide parks and recreation facilities and intensify usage of existing facilities needed to serve new development.
Unlike Quimby Act fees, it cannot be used to rehabilitate existing recreation facilities.
Rather than setting up two park mitigation funds, with different but similar rules on collection and uses, staff is recommending establishing Mitigation Fee Act fees for park and recreation facilities rather than Quimby Act fees. Planned work in the adopted Park Master Plan over the 8- year time horizon are primarily facility expansions, which are eligible uses for Mitigation Fee Act fees. Additionally, this fee applies to all residential development types, so there is no need to have different fees for different types of residential development. The only limitation is that the fee cannot be used to rehabilitate an existing facility. This recommendation is intended to facilitate the administration of Parks and Recreation impact fee collection and simplify the fee schedule for the public.
Acquire
Park
Land
Develop
Park Land
Expand/
Improve
Park
Land
Rehabilitate
Park Land
Residential
Subdivisions
(SFDs,
Condos)
Residential
Projects
(Apartments)
Quimby X X X X X
Mit. Fee Act X X X X X
Residential Impact Fees
Rather than break out the various impact fees for multi-family and single-family units, the Nexus Study combines them into ”All Units”. This was done for a couple of reasons. The first is that listing them separately would complicate the assessing and tracking of fees on developments.
Additionally, having a single residential fee simplifies and provides more clarity to the development community.
Administrative Costs
All impact fees include a 2% administrative fee for the purpose of handling, tracking, and reporting these fees.
Comparison with Other Communities
The change in the fee calculation methodology makes direct comparisons difficult. For example, the water and sewer connection fees are currently calculated by the water meter size, so a direct comparison to a square footage-based fee depends on the size of the structure. To compare the fees using an ”apples to apples” methodology, Willdan used several neighboring jurisdictions selected by staff, including higher growth communities. However, each community has different infrastructure needs, so while this is a guide to understand Cotati’s regional competitiveness, it’s important to understand that every community has different infrastructure needs, depending on their individual circumstances.
With this in mind, the goal of the fee comparison was to look at total impact fees for sample development types in Cotati and in other communities where impact fees do not appear to be a barrier to new development. The full comparison is attached to this staff report, but the summary of assumptions used for each development type are shown in Table 1, below. The development prototypes are only intended to provide a comparison using units within the normal range that we typically see, making estimates easily scalable. Additionally, for the calculation of Cotati’s existing Park in-Lieu Fee, which applies to residential development only, Willdan assumed 3.10 residents per single family unit and a fair market value of land at $669,000 per acre.
The details can be found in the attached comparisons, but the following narrative summarizes the bottom line by development type.
Single Family Home Prototype
Assuming a 2,500 square foot (SF) single family home, the fees would increase by approximately $15,000 – largely due to the increase in the Parks and Recreation (aka Park inLieu) Fee. At approximately 2,000 SF, the existing and proposed impact fees are equal. The existing fees are calculated by unit and the proposed fees are by SF. Therefore, units larger than 2,000 SF would see higher total impact fees and units smaller than 2,000 SF would see lower total impact fees when compared to the existing fee structure.
If the new fees were applied to this prototype home, it would be about $13,000 higher than Petaluma, about $3,000 higher than American Canyon and in the range of fees for Rohnert Park and Santa Rosa.
Multi-Family Prototype
Assuming a 20-unit apartment development at 1,000 SF each, the fees would increase by approximately $40,000 – again largely due to the increase in the Parks and Recreation (aka Park in Lieu) Fee. If the new fees were applied to this prototype apartment complex, it would be about $75,000 less expensive than Petaluma, $180,000 less expensive than American Canyon, and in the range of fees for Rohnert Park and Santa Rosa.
Retail/Commercial Prototype
Assuming a 2,000 SF space, the fees would decrease by approximately $25,000 – largely due to decreases in water and sewer connection fees. If the new fees were applied to this prototype commercial space, it would be about $60,000 less expensive than Petaluma, $25,000 less expensive than American Canyon, $10-50,000 less expensive than Rohnert Park and about $10,000 less expensive than Santa Rosa.
Office Prototype
Assuming a 2,000 SF space, the fees would decrease by approximately $17,000 – largely due to decreases in water and sewer connection fees. If the new fees were applied to this prototype office space, it would be about $30,000 less expensive than Petaluma, $14,000 more than American Canyon, $2,000-36,000 less expensive than Rohnert Park and about the same range as Santa Rosa.
Industrial Prototype
Assuming a 10,000 SF space, the fees would decrease by approximately $30,000 – largely due to decreases in water and sewer connection fees. If the new fees were applied to this prototype industrial space, it would be about $70,000 less expensive than Petaluma, $110,000 more than American Canyon, $60,000-95,000 more than Rohnert Park and about $50,000 more than Santa Rosa.
Application of the Development Impact Fees
Currently, many impact fees are charged by the unit, so the size of the unit is not typically material to the impact fees collected. However, with the change across most fees to a SF based fee, it raises new questions of applicability. Following existing practice, the incremental increase in building square footage would typically be charged the incremental impact fee amounts, depending on the original impact fees applied. Today, this most often comes up with increases in water meter sizes. Moving forward, if an existing home expands by 500 square feet, that incremental increase could be subject to the related impact fees. A notable exception is Accessory Dwelling Units, which are exempt from impact fees if they are 750 square feet or less.
Impact Fees Adjustments in Sonoma County for Affordable Housing As previously mentioned, jurisdictions typically adopt the maximum justifiable impact fees, primarily to ensure that the infrastructure required to accommodate new development is funded by the new development that creates the impact rather than through other existing revenue sources. However, in recent years, some jurisdictions in Sonoma County have decided, as a policy, to reduce or eliminate some impact fees to lower the cost to develop affordable housing.
If fees are reduced for certain types of development, such as affordable housing, the jurisdiction cannot charge more to the other developments subject to the fee to make up the difference. The costs associated with the ”non-paying” development’s fair share must be made up through or backfilled with other city revenues, such as grants or general fund revenue.
A summary of Sonoma County jurisdictions are listed below.
Staff are not aware of any standing policies to reduce or eliminate impact fees for affordable housing in the cities/towns of Cloverdale, Healdsburg, Rohnert Park, Sebastopol, Windsor or the City of Sonoma. It should be noted that these jurisdictions may have reduced or eliminated certain impact fees for specific projects, which is not discussed here, as this staff report focuses on standing policies only. The cities of Petaluma, Santa Rosa and Sonoma County have either on-going polices (Petaluma) or pilot programs (Santa Rosa, Sonoma County) to eliminate impact fees for certain categories of affordable housing development, as described in detail below.
City of Petaluma:
On November 21, 2022, the Petaluma City Council adopted a resolution to eliminate development impact fees for city facilities, parkland development, parkland acquisition, open space acquisition, and traffic mitigation development impact fees for certain affordable housing projects. Water and wastewater connection fees are still charged. Eligible projects include:
• Residential development projects that will be deed-restricted prior to occupancy to acutely low, extremely low, very low, low, and/or moderate-income residents and that will be owned and operated by non-profit corporations recognized as such by the United States Internal Revenue Service and the State of California Franchise Tax Board. • Residential development projects that will be deed-restricted prior to occupancy to acutely low, extremely low, very low, low and/or moderate income residents, that will be supportive housing projects or will provide on-site supportive services, and that have received or will receive City financial support or other comparable City support such as the City applying for grant funding for the project as co-applicant with or on behalf of the project developer.
This does not apply to affordable units within a market rate project and is intended for 100% affordable projects. Projects that have not yet paid the required impact fees (not retroactive) are eligible as of the date of approval of the enabling resolution in 2022.
In adopting these fee eliminations, Petaluma did not propose to backfill the lost revenue, in the stated hope that future grants will make up the shortfall. There was no time limit on the fee reduction, but it was stated that a wider reduction in fees would be considered with an updated General Plan that is currently in progress.
City of Santa Rosa:
On November 12, 2024, the City Council implemented a targeted impact fee reduction for affordable housing units. Based on the production of units towards their Regional Housing Needs Allocation (RHNA) requirements, Santa Rosa had achieved the allocation of market rate units and made significant progress towards the Low-income unit allocation. The percentage of completion for Very Low- and Moderate-income units remained low, which was the focus of their pilot program.
Santa Rosa charges a variety of development impact fees, including a Capital Facilities Fee (CFF), Water Fee, Wastewater Fee, Park Fee, Public Art in Private Development, School District Fees, Housing Impact Fees and Commercial Linkage Fees. The purpose of the CFF is to fund capital improvements to accommodate the impact of new developments on transportation, public safety and storm drain facilities and infrastructure.
Based upon their analysis, Santa Rosa set the CFF to zero dollars (100% reduction) under the pilot program for certain new deed restricted affordable housing units for up to three (3) years from the date of the program adoption or until a new Development Impact Fee study addressing CFF has been completed, whichever occurs first.
The pilot program will apply to housing units meeting the criteria listed below:
• All residential units, deed restricted through the City’s Housing Authority, administered by the Department of Housing and Community Services, at the following affordability levels:
o Very Low Income (30-50% of Area Median Income (AMI))
▪ Includes Acutely Low Income (0-15% of AMI) and Extremely Low Income (15-30% of AMI)
o Low Income (50-80% of AMI)
o Moderate (80%-120% AMI)
• For eligible units within the Low-Income affordability category, the zero-dollar fee will no longer apply if the City reaches the required unit totals within the Low-Income affordability category, as determined through the current RHNA cycle. o Note that there is no corresponding limitation on Very Low Income or Moderate Income units in the program. It is believed that this structure was adopted because Santa Rosa had already achieved 67% of the RHNA requirement for Low Income units, with a significant number of new units in review. Very Low and Moderate were at 33% and 10% of RHNA, with no units in review. • Residential units receiving locally sourced financial assistance from the City or the Housing Authority’s loan programs will not be eligible for the fee program. • For projects that elect to convert temporary housing units to permanent housing units, the zero fee will apply to any units if the required approval to convert the temporary housing units to permanent housing units is obtained during the program’s lifespan. • The fee reductions will apply to building permit applications proposing vertical construction associated with the unit issued during the program’s lifespan.
Restricting the zero fee to new affordable units that obtain a building permit for vertical construction during the program’s lifespan is intended to ensure that the reduction will only apply to housing units that are initiating construction.
Existing market-rate projects may also elect to build inclusionary deed restricted affordable units through the building permit process to avoid paying Housing Impact Fees, which is an option provided under the City’s Inclusionary Housing Ordinance. Units constructed through this process may meet all eligibility requirements for the CFF elimination.
Ultimately, Santa Rosa elected to defer the decision to backfill lost revenue until the end of the pilot program, in part because no replacement revenue was identified and because the actual impact is uncertain due to the unknown timing of building permit issuance for projects in the development pipeline. Elimination of the impact fees will require Santa Rosa to offset the funding gap through other sources of funding, such as General Fund reserves, grants, and special taxes which would have been dedicated to other projects. According to Santa Rosa staff, General Fund reserves are not a viable option to backfill projects due to the structural deficit and strain on this resource for many organizational needs. It's possible to shift some special revenue sources that may be eligible to reduce the impact to the General Fund, but it would simply move funds into the impact fee programs and reduce funds in the contributing special revenue fund.
According to Santa Rosa staff, these alternate sources do not meet the current project needs of Santa Rosa, so the General Fund will most likely need to backfill, as required. If Santa Rosa makes no decision, the costs will still ultimately be borne by the General Fund or some of the impact fee projects will not have sufficient funding to be constructed.
Sonoma County (Unincorporated):
On March 11, 2025, the Board of Supervisors (BOS) created a two (2) year pilot program to eliminate some impact fees for affordable housing. The elimination program is time-limited and will be revisited when the County completes their pending development impact fee nexus study, which they anticipate taking 18-24 months (the term of the pilot program).
The BOS ultimately voted to eliminate park and traffic impact fees for very low, low, and moderate-income affordable housing and backfill the lost revenue with up to $3 million from the County’s General Fund. Unincorporated areas do not typically include ”County“ water or wastewater, as these are typically provided by special districts operated by Sonoma Water (typically wastewater districts inherited from the County) or private companies (typically private water districts). The summary of the adopted pilot program is as follows:
• All qualifying projects that paid or will pay impact fees between February 1, 2025, and December 31, 2026, are eligible for the impact fee elimination. • Fees will be assessed at the time of building permit issuance, including eliminating fees for affordable units, but not collected until the time of final inspection or certificate of occupancy, whichever occurs first. This creates a blanket unsecured fee deferral and relies on collection at occupancy.
• The fee eliminations will apply only to ”affordable housing developments“ that have a recorded affordability restriction at the time of building permit issuance. Affordable housing developments is defined as, ”dwelling unit(s) reserved for rent or sale to persons and families of low or moderate income (as defined in California Health & Safety Code section 50093) pursuant to the provisions of the general plan housing element and requiring that the continued affordability of said units be secured by a recorded affordability restriction.” Therefore, the fee elimination applies to inclusionary as well as 100% affordable housing projects.
• Consistent with the Housing Affordability Act and RHNA obligations, eligible affordability restrictions will include deed restrictions that guarantee continued affordability of rental units for at least 55 years and of ownership units for at least 45 years.
• Fees will be assessed on a unit basis, as opposed to a project basis.
The County used the prior two-years‘actual impact fee revenue and the pending development pipeline to estimate the potential revenue loss. Based on this, the County decided to backfill the lost revenue by up to $3 million from the General Fund over the two-year pilot program. Given the large amount of “builders remedy“ projects in their pipeline (30x historical average), this backfill was believed to be sufficient to cover the eligible affordable units. However, the County did not cap the total number of qualifying units at RHNA obligations or other criteria, so if the revenue backfill runs out, the elimination of fees will continue through the term of the pilot program along with any related loss in impact fee revenue.
Policy Recommendations
Impact fees are measures of the proportional impact that new development brings to the community. Any reductions or eliminations of impact fee revenue is effectively shifting the cost burden to the City’s other existing revenue sources. Therefore, collection of 100% of the justifiable amount is the most common and generally recommended level for impact fees. In some cases, there may be policy justifications to adjust the impact fee amounts. For City Council discussion, the staff believe the following recommendations for lodging and affordable housing would allow for fiscal responsibility while leveraging fee eliminations to achieve policy goals. Staff would return to City Council as soon as possible (but within 60 days) with a resolution implementing the final policy recommendations for targeted fee elimination, if any.
Lodging
As part of the economic development strategy, the City has been seeking to bring in high quality lodging options for visitors to Cotati. Overnight lodging brings visitors into the community that support local businesses, helps diversify the economy and supports local services and infrastructure through sales taxes and a local tax called a transient occupancy tax (TOT). The City of Cotati is the only city in Sonoma County with no overnight lodging options or TOT revenue.
In the City’s municipal code, hotels are required to pay a TOT of 10%. Additionally, the Sonoma County tourism district collects an additional 2% in most areas of Sonoma County, for a total TOT of 12% in Cotati, Petaluma and Cloverdale. Other cities in Sonoma County collect a higher TOT percentage, with the highest at 16% (Healdsburg, Santa Rosa).
Given the economic imperative to diversify revenue sources and continue to grow revenue to provide high quality services and infrastructure for our residents, staff explored options to incentivize the construction of quality lodging through the impact fee program. Unlike most other land uses, lodging comes with a separate local revenue source (TOT), in addition to the incremental increases in property and sales taxes. Therefore, it is possible to effectively recover the equivalent of impact fees, if not more over time, through TOT collection. For this reason, it is recommended that all impact fees be set to zero for hotels, provided that the amenities are equivalent to a 3-star hotel or better, and a portion of the TOT revenue, equivalent to the impact fees, be directed to backfill the lost impact fees. Rather than collecting the fees at the time of development, this recommendation would effectively defer the collection of fees for a defined period of time after occupancy and operation using an internal loan among funds. While all types of hotels or motels will generate TOT, this program is proposed to be targeted at encouraging only the higher quality hotels that will be additive to the community. Any proposed extended stay hotels or proposed hotels/motels with 2-star ratings or lower would not qualify for this program and would pay the full impact fee.
For reference, although there is no universal hotel rating system, a general summary of the rating criteria is provided below that could be established as part of the program criteria:
• 1-Star: Basic accommodation with minimal amenities and services. Expect a clean room, a bed, and perhaps a small desk. En-suite bathrooms may not be guaranteed, and services like 24-hour reception or daily cleaning are unlikely.
• 2-Star: Modest comfort with some added conveniences. Expect en-suite bathrooms, a TV, and possibly Wi-Fi. Amenities are still limited, but you can expect better service and cleaner spaces compared to a 1-star hotel.
• 3-Star: A balance between affordability and comfort. Expect spacious rooms with modern furnishings, on-site dining options, and enhanced services like daily housekeeping and 24-hour reception. Locally, these are hotels such as the Fairfield Inn, Hampton Inn and Oxford Suites.
• 4-Star: Upscale hotels with a focus on comfort, style, and service. Expect features like multiple dining outlets, a gym or spa, and concierge services. Rooms are often larger and more stylish, with plush bedding. Locally, these are hotels such as the Lodge at Sonoma, Fairmont Mission Inn and the Graton Hotel.
• 5-Star: The highest level of luxury and service. Expect top-notch amenities, personalized service, and a high-end experience. This could include valet parking, concierge service, 24-hour room service, and other luxurious touches. Locally, these are hotels such as the Montage in Healdsburg.
Affordable Housing
The City currently requires that all new market rate developments (over nine units) incorporate 15% of the units as affordable housing with a housing affordability mix that best meets the City’s RHNA requirements. The 15% set aside for affordable housing is known as the ”inclusionary housing” requirement. The policy concept is that affordable housing is spread throughout market rate development so that they are virtually indistinguishable and fully integrated into the market rate neighborhood. These projects are commonly financed through conventional construction loans, which means that any losses attributable to the affordable housing component of the project must be made up for with the market rate housing.
Alternatively, some affordable housing is developed as 100% affordable housing. These are typically financed differently than market rate housing, leveraging a variety of grants of public funds and other affordable housing funding sources to buy down the construction costs such that the development becomes viable at the lower rental or sale prices. Notably, because of the various public funding sources used for 100% affordable housing projects, these are almost always prevailing wage projects, similar to any other publicly funded project.
The City has an affordable housing RHNA requirement, which must be met by 2031. The following table shows the RHNA requirements for affordable housing and the progress towards meeting these requirements, as of December 31, 2024.
Income Level
Very Low Income
(<50% of Area
Median Income)
Low Income
(50-80% of Area
Median Income)
Moderate Income
(80-120% of Area
Median Income)
RHNA Allocation: 60 34 39
Entitled Units 32 2 2
Building Permit Issued 1 2 1
Occupancy Issued 2 1 1
Remaining Units 25 29 35
For over five years now, the state legislature has been considering and passing a dizzying slate of housing legislation each year, intended to increase housing production in the State. From the perspective of the State, it has become an economic imperative that housing across all levels of affordability be available to retain the workforce and encourage economic growth. In general, this legislation has trended toward removing local jurisdiction authority over the approval of residential developments, making their ability to construct less “discretionary” and more “ministerial”. Locally, the City has entitled or re-entitled numerous market rate housing developments, many of which have not yet gone into construction. While the reasons are numerous – from interest rates to the cost of land, materials or labor to the cost of infrastructure improvements to just general market uncertainty - ultimately the reason is that the project did not yet reach the profit threshold to “pencil” for the developer and/or project funders. One of many cost components embedded in the construction cost of a project is permitting fees – specifically impact fees. Therefore, staff spent considerable time looking at this and exploring options that met the City’s fiscal and policy goals for consideration by the City Council.
As mentioned earlier, eliminating or lowering the cost of an impact fee doesn’t eliminate the corresponding cost to the City – it simply shifts the cost to other existing funding sources. To encourage market rate development to continue to mix affordable housing into their developments and lower the overall cost of development, it is recommended that affordable housing impact fees be eliminated in mixed market developments – provided that the affordable units meet the City’s RHNA needs, are no more than the approximately 15% (included rounding of fractional units) required by the City’s inclusionary housing ordinance, and there are sufficient funds in the inclusionary housing fund to backfill the loss of impact fees. This will discourage segregating affordable housing on a single project site and encourage the City’s policy goal of mixed income developments by reducing the loss on these units. Additionally, because these projects are conventionally financed, these units could come to market much faster than a typical 100% affordable project. Lastly, capping the fee elimination at approximately 15% would limit the backfill exposure to the Inclusionary Housing and Linkage Funds on inclusionary projects.
Under this proposal, projects that are 100% affordable would not have reduced impact fees by policy. The Council could, however, make this decision on a case-by-case basis for projects that meet the community's goals. These 100% affordable housing projects can take advantage of numerous state law incentive programs (Builders Remedy, SB 35, etc.), often reducing community and city input on the scope, scale and design of the projects. Keeping fee waivers under the discretion of the Council, rather than through a blanket policy, will ensure the City is not forced to subsidize a project for which there is little community support. Lastly, it is worth noting if fee waivers or reductions are granted by the City Council, it is not expected to create project financing issues for the developer. While the waiver or reduction would likely trigger prevailing wage requirements, this is often already a requirement of the project given the assortment of public funds typically needed to build this type of project.
Program Duration
While there is no “sunset” date or pilot period in the staff recommendation, the affordable housing impact fee elimination would no longer be available if/when the Inclusionary Housing and Linkage Fund balances reach zero. Alternatively, the City Council could also choose to put a term on the program, if desired, regardless of remaining fund balances. From a development perspective, particularly when obtaining construction financing, it is important to know what impact fees are going to be required. The program in Petaluma doesn’t have a sunset date and the pilot programs in Santa Rosa and Sonoma County have defined terms, which provides a window of time to pull construction permits. The goal of any such program would ideally be to get projects that are “on the fence” to move into construction, but fee certainty is important in this calculation. Therefore, in the staff recommendation, fee certainty and what triggers it, are important considerations.
In any case, if the City Council wishes to pursue the recommendation for focused fee elimination on inclusionary housing, given the pressure it will put on those funds, staff will explore and present options at a future meeting to potentially increase revenue to the Inclusionary Housing and/or Linkage Funds.
Downtown Specific Plan (DSP) Fee
If the City Council adopts the proposed General Plan fee, it is recommended that the DSP fee (currently calculated on a per acre basis) be repealed, which is included in the attached resolution. The General Plan encourages infill development in the DSP area of the City, so removing this fee for development lowers development cost in this Priority Development Area.
Other Impact Fees
Although not specifically discussed, it is worth pointing out that the City also has a Fire Impact Fee that was adopted on behalf of the Rancho Adobe Fire District. If this fee is eliminated for inclusionary units, as recommended above, it would also be subject to backfill by the Inclusionary Housing and Linkage Funds. Similarly, if the fees are eliminated for quality lodging development, it would be subject to backfill by TOT revenue. Finally, there is a School Impact Fee, which is excluded from this discussion and would continue to be collected from all development, as this fee is adopted and administered directly by the Cotati-Rohnert Park Unified School District.
Inflationary Indices
Staff recommend using the Construction Cost Index (CCI) for San Francisco as the inflationary index, to be used for all development impact fees in the fee schedule. For simplicity of administration, staff recommend using the prior twelve-month period, based on a calendar year (January-December). Inflationary adjustments would be applied to the updated fee schedule, effective the following July.
Financial Considerations
The recommendations proposed are cost neutral to the City. The impact fee elimination for certain hotel projects would be repaid by TOT revenues through an internal loan over time, ideally within 5 years of project occupancy.
For affordable housing impact fee elimination or reductions, the lost revenue would be made up through a transfer of funds from the Inclusionary Housing and Linkage Funds. As of July 1, 2025, these funds have an estimated current balance available of approximately $895K and $330k, respectively. Additionally, each year, the Inclusionary Housing Fund receives approximately $66k in interfund loan payments and interest on the existing loan schedule. If the Inclusionary Housing Fund were to call the interfund loan debt owed as well as sell the land held for redevelopment to affordable housing (120 East Cotati Avenue) at market value, there could be an additional $2.36M in funds available for impact fee reductions (approximately $3.6M).
However, calling the interfund loan with the Sewer Enterprise is not a near term option, but some restructuring or acceleration may be an option. The sale of 120 East Cotati Avenue is unknown, but is expected to be determined as part of development agreement discussions this calendar year. Regardless of the balance, if these funds become depleted, this proposed program would no longer be available until the funds were replenished.
In general, most of the entitled residential developments are SB 330 projects, meaning that all City fees were ”frozen” at the time the application was deemed complete. This includes Redwood Row, Cotati Village 1 and Cotati Village 2, which will see no cost changes as a result of the updated impact fees. New development will be subject to the new impact fee schedule, which will go into effect 60 days after adoption. It is proposed that any policy changes to the impact fees would go into effect concurrently with the new fee schedule. This would include any project that has qualified under SB 330.
Based on total fee costing of proposed developments, it is expected that the combined funds available in the Inclusionary Housing and Linkage Funds of $1.2M, as of July 1, 2025, would eliminate development impact fees on approximately 18 affordable housing units at the proposed single family unit prototype (2,500 square feet) if all City impact fees are set to zero, or 44 multifamily units using the multifamily prototype (1,000 square feet) if all impact fees are set to zero. If entitled units are excluded from the RHNA requirements (because they have not pulled a building permit yet), there are 125 units remaining in the City‘s RHNA affordable housing allocation. Another option is to do partial impact fee reductions for residential. For example, if the fees are only 50% reduced, it would double the number of affordable units that would qualify (36 SFD and 88 MFD). Essentially, every $1M in subsidy would waive all City impact fees for 15 single family prototypes or 37 multifamily prototypes.
Environmental Issues
Where it can be determined with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA review.
This general rule can be applied to activities which could be subject to the CEQA process, but which logic dictates should not be subject to CEQA review. Therefore, based on the information provided above, the proposed resolution is exempt from CEQA pursuant to Section 14.03.021 of the CEQA Guidelines in that there is no possibility that the activity may have a significant impact on the environment.