Fremont City Council Meeting: 04/18/23 07:00 PM
3300 Capitol Avenue Div/Dept: Community Development
Fremont, CA 94538 Category: Fees & Rates
SCHEDULED
Sponsors:
COUNCIL STAFF REPORT (ID # 4843) DOC ID: 4843
Updated: 4/14/2023 8:03 AM by Alberto Quintanilla Page 1 FEE DEFERRAL PROGRAM AMENDMENT--Citywide--PLN2023-00216 - Public Hearing (Published Notice) to consider Planning Commission recommendation of a City-initiated Zoning Text Amendment amending Title 18 [Planning and Zoning], Chapter 18.290 [Development Impact Fees] of the Fremont Municipal Code to allow market rate residential development projects to defer payment of impact fees until final inspection, issuance of a certificate of occupancy, or the expiration of 18 months from the date of permit issuance, whichever occurs first; and to consider an exemption for the project from the requirements of the California Environmental Quality Act (CEQA) per CEQA Guidelines Section 15061(b)(3) in that the proposed amendments are not a project which has the potential to cause a significant effect on the environment.
Contact Persons:
Name: Dan Schoenholz
Title: Community Development Director
Div/Dept: Community Development
Phone: 510-494-4438
E-Mail: [email protected]
Executive Summary: On December 6, 2022, City Council approved a 13.65% increase in development impact fees effective July 1, 2023 to keep pace with increases in construction costs as measured by the Engineering News-Record’s Bay Area Construction Cost Index. In conjunction with the fee increase, Council directed staff to return with information regarding potentially allowing market rate residential projects to defer payment of impact fees. On February 7, 2023, staff provided Council with a report. Council indicated support for allowing market rate residential projects to defer impact fees and directed staff to return to Council with a proposed Zoning Text Amendment, with the goal of having the fee deferral in place on July 1, 2023. Staff subsequently prepared the proposed Zoning Text Amendment, and on March 23, 2023, the Planning Commission unanimously recommended that Council adopt the Amendment.
Staff recommends that the City Council adopt the proposed Zoning Text Amendment to FMC Chapter 18.290 to allow market rate residential projects to defer payment of impact, art, and affordable housing fees until after building permit issuance.
BACKGROUND: Development impact fees are established under the Government Code Section 66000 et. seq., known as the Mitigation Fee Act. This act allows local agencies to establish fees to charge new development their fair share of the cost to expand or construct new public facilities to support this new development.
Fremont has five development impact fees, including: Traffic; Capital; Fire; Park Facilitie s; and Parkland. Fremont Municipal Code, Chapter 18.290 establishes the local authority for implementation of these impact fees, including the timing of payment. These five fees include the following:
Council Staff Report (ID # 4843) Meeting of April 18, 2023 Updated: 4/14/2023 8:03 AM by Alberto Quintanilla Page 2 • Traffic impact fees fund traffic facilities needed to serve new development, including intersection improvements, roadway segment improvements (distances between intersections), bicycle and pedestrian improvements (e.g., sidewalks, bike lanes), signal interconnect improvements (adjustments to signal timing as traffic patterns and intensity change), and general signal/intersection projects (i.e., conversion of non - signalized to signalized intersections when warranted). • Capital facilities fees fund the construction or purchase of buildings, land, and equipment that are part of the system of capital facilities serving new development (e.g., city administration, senior service facilities, police facilities, library service facilities).
• Fire facilities fees fund fire protection facilities in the form of buildings and equipment needed to serve new development.
• Park facilities fees fund the initial facilities and improvements (e.g., play areas, restrooms, ball fields) at City parks.
• Parkland fees fund the acquisition of new parkland to maintain the City’s standard of five acres of parkland per 1,000 residents.
In addition, residential projects sometimes owe two additional fees that were not established under the Mitigation Fee Act, but which are also eligible for deferral:
• Art District Fees: There are four zoning districts that require payment of an art fee:
Downtown, City Center, Warm Springs Innovation, and Ardenwood Technology Park Planned District (P-2015-23) (as specified in the City Planning Code, the timing of payment for such fees is governed by the Impact Fee Ordinance, FMC 18.290, et seq., which this item proposes to amend to allow for deferral of payment.) • Affordable Housing In-lieu Fees: Under the City’s Affordable Housing Ordinance, residential developers have the option to pay a fee toward off-site construction of affordable housing in-lieu of building on-site affordable housing. (per FMC 18.156.070 payment of these fees may be deferred “if approved by the community development director in accordance with the city fee deferral program.”) Until 2009, the impact fee ordinance required payment of impact fees prior to building permit issuance. In 2009, in response to a severe slowdown in development activity due to the economic recession, Council approved an amendment to the development impact fee ordinance to allow deferral of fee payment up to 18 months after building permit issuance or prior to issuance of the certificate of occupancy, whichever came first. The program is implemented via a Deferral Agreement, which is recorded on each property the fees are deferred as a lien. With the lien on the property, the applicant cannot sell the property because lenders will not issue a loan to a purchaser with the lien in place. When the fees are paid, the lien is removed. When this change became effective, the majority of new development applicants requested to defer their impact fees.
In 2019, Council voted to eliminate the fee deferral option for market rate residential projects of two or more units. Reasons for the change included the fact that market rate residential development was exceeding Fremont’s target as established through the Council Staff Report (ID # 4843) Meeting of April 18, 2023 Updated: 4/14/2023 8:03 AM by Alberto Quintanilla Page 3 Regional Housing Needs Assessment (RHNA) process, suggesting deferral wasn’t needed to incentivize market rate projects; as well as recognition that the sooner the City received the fee payments, the sooner the funds could be used for fee-supported purposes. The deferral option was retained for affordable housing and for non-residential projects.
As part of the impact fee program, Council typically authorizes annual index-based adjustments to fees to reflect changes in the cost of providing public infrastructure. On December 6, 2022, Council considered an increase in impact fees of 13.65%, effective July 1, 2023. This proposed increase was the highest proposed annual adjustment on record due to unprecedented construction cost increases in the preceding year. During the public hearing on the proposed increase, a speaker representing the Building Industry Association stated that the 13.65% increase would be difficult for developers to accommodate, and requested that Council reinstate the impact fee deferral for market rate residential developers as a way to help market-rate residential projects remain financially feasible. As part of its adoption of the increase, Council directed staff to return with information regarding the pros and cons of restoring the fee deferral option.
On February 7, 2023, staff returned to Council with the requested information and received direction from Council to proceed with the reinstatement of fee deferrals for market rate residential projects.
DISCUSSION/ANALYSIS: The proposed Zoning Text Amendment to FMC Chapter 18.290 would restore the ability of market rate residential projects to defer payment of impact, art, and affordable housing fees until final inspection, certificate of occupancy, or expiration of 18 months from the date of building permit issuance, whichever is shorter.
The effect of restoring the fee deferral option is difficult to predict but likely would be mixed.
On the one hand, by collecting the fees later, the City would use the fees later for infrastructure/affordable housing, which would result in cost increases in an environment of escalating construction costs. There would also be an opportunity cost associated with infrastructure not being able to be utilized as soon.
On the other hand, restoring fee deferrals would lower borrowing costs for residential development, which in some cases could be a deciding factor as to whether or not the project is built. If the fee deferral resulted in more projects being built, it might also result in greater total revenues, allowing for more infrastructure/affordable housing to be constructed. Also, if the fee deferral resulted in more residential projects moving forward, it would assist the City in meeting its regional housing allocations for both market-rate and affordable units.
From an administrative standpoint, reinstating the fee deferral option for market rate residential development would be straightforward, as the systems are already in place for deferrals related to affordable housing and commercial projects.
As noted previously, Council at its February 7, 2023 meeting considered the various potential impacts of restoring the fee deferral option for market rate residential developments. Council ultimately directed staff to return with the necessary ordinance revisions to restore the fee deferral option. On March 23, 2023, the Planning Commission unanimously recommended that Council approve the proposed Zoning Text Amendment.
For clarity, it should be noted that the draft Zoning Text Amendment exhibit presented to Council Staff Report (ID # 4843) Meeting of April 18, 2023 Updated: 4/14/2023 8:03 AM by Alberto Quintanilla Page 4 the Planning Commission inadvertently showed, for illustrative purposes, the proposed text changes redlined against a prior version of the Impact Fee Ordinance. The ve rsion attached to this staff report corrects this scrivener’s error and shows the proposed changes redlined against the current version of the Ordinance. There is no substantive distinction between the version considered by the Planning Commission and the version currently before the Council.
PUBLIC NOTICE: On April 3, 2023, notice of tonight's development impact fee hearing was sent to the 2,816 subscribers to the City’s Builders Interest List. The Builders Interest List is used to notify interested persons about construction and development service updates, development fees, policy and program changes, and related outreach efforts.
FISCAL IMPACT: As noted above, the impact of reinstatement of the fee deferral would result in a delay in fee collections, but overall fees would potentially increase if the deferral resulted in more projects being built.
ENVIRONMENTAL REVIEW: The proposed project is exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to, without limitation, CEQA Guidelines Section 15378(b) (2), (4) and/or (5), and/or per CEQA Guidelines Section 15061(b)(3), in that it is an administrative or governmental funding mechanism or fiscal activity that does not involve a commitment to any specific project, and in that it is not a project which has the potential to cause a significant effect on the environment. Each of the foregoing provides a separate and independent basis for CEQA exemption.
ATTACHMENTS:
• Draft Fee Deferral Ordinance Revision in MT 4-13-23
RECOMMENDATIONS:
1. Hold public hearing.
2. Find that the project is exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to, without limitation, CEQA Guidelines Section 15378(b) (2), (4) and/or (5), and/or per CEQA Guidelines Section 15061(b)(3), in that it is an administrative or governmental funding mechanism or fiscal activity that does not involve a commitment to any specific project nor have in that it is not a project which has the potential to cause a significant effect on the environment. Each of the foregoing provides a separate and independent basis for CEQA exemption.
3. Adopt an ordinance, as shown in Exhibit “A,” approving the proposed Zoning Text Amendment PLN2023-00216 to amend FMC Chapter 18.290, Development Impact Fees to allow market rate residential development projects to defer payment of development impact fees after building permit issuance.