Cotati City Council
Agenda Staff Report
Item type: CONSENT CALENDAR (ACTION)
To: City Council
Subject: SECOND READING OF AN ORDINANCE CONSOLIDATING
INFLATIONARY INDICES FOR DEVELOPMENT IMPACT
FEES (DIF), ADJUSTING TIMING OF DIF PAYMENTS ON
RESIDENTIAL PROJECTS, AND MODIFYING PARK IN LIEU
LANGUAGE TO BE CONSISTENT WITH THE ADOPTED DIF
NEXUS STUDY.
Date: September 9, 2025
Written by: Damien O'Bid, City Manager
Recommendation
It is recommended that the City Council conduct a second reading and adopt the attached ordinance consolidating inflationary indices for Development Impact Fees (DIF), adjusting timing of DIF payments on residential projects, and modifying the Park in Lieu DIF language to be consistent with the adopted DIF nexus study.
Background
On August 12, 2025 the City Council introduced the attached ordinance, which modifies existing municipal code to consolidate the various inflationary indices for development impact fees (DIFs), modifies the timing of collection of DIFs for residential projects to conform to state law, and updates the Park in Lieu DIF to be consistent with the Parks and Recreation DIF adopted by the City Council. This item is the second reading of the ordinance.
Analysis/Discussion
Inflationary Index
The City’s DIFs 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. The attached ordinance uses 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, this uses 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.
Deferred Collection of Residential 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).
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.
Park in Lieu Ordinance
With the adoption of the Park and Recreation DIF, it shifted the legal basis of the fee from a Quimby Act fee to a Mitigation Fee Act fee. Essentially, the Mitigation Fee Act fee can be used for any type of residential development, but can only be used for park and recreation facility expansions (not maintenance of existing facilities). This shift was made because the vast majority of planned park improvements over the 8-year life of the DIF Nexus Study are capacity expanding projects. Additionally, the existing ordinance language anticipated a per unit DIF, which had to be modified to work with the new legally compliant square footage-based DIF.
Financial Considerations
There are no direct financial considerations associated with adoption of the ordinance. The uniform inflationary index will likely vary slightly from the various prior indices used, resulting in slightly different inflationary percentages applied to the DIFs. Additionally, the requirement to record Fee Deferral Agreements on all residential projects will result in some additional staff time, but it required by state law and can often be covered by development deposits for nonministerial projects.
Environmental Issues
The proposed ordinance modifying the inflationary index for DIFs, updating the fee deferral language and amending the park in lieu language will not have any effect on the environment.
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 California Environmental Quality Act (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 15061(b)(3) of the CEQA Guidelines in that there is no possibility that the activity may have a significant impact on the environment.