Fremont City Council Meeting: 12/17/24 07:00 PM
3300 Capitol Avenue Div/Dept: Public Works
Fremont, CA 94538 Category: Fees & Rates
SCHEDULED
Sponsors:
COUNCIL STAFF REPORT (ID # 5318) DOC ID: 5318
Updated: 12/12/2024 4:16 PM by Dina Lewis Page 1
DEVELOPMENT IMPACT FEE ANNUAL REPORT - Receive the Development Impact Fee Annual Report for Fiscal Year 2023/24 and Hold a Public Hearing (Published Notice) to Consider a 0.23% Decrease in Development Impact Fees to Align with the Bay Area Construction Cost Index; Make Findings of CEQA Exemption.
Contact Persons:
Name: Hans Larsen
Title: Public Works Director
Div/Dept: Public Works
Phone: 510-494-4722
E-Mail: [email protected]
Executive Summary: This report contains information on the City of Fremont’s Development Impact Fees for Fiscal Year 2023/24 and meets the annual reporting requirements in California Government Code section 66006. This report also provides information on changes in the Bay Area Construction Cost Index for the San Francisco Bay Area and recommends a 0.23% decrease in development impact fees consistent with those changes.
The proposed 0.23% reduction in impact fees is based on the 2024 Construction Cost Index for the San Francisco Bay Area published by the Engineering News Record. The reduction is viewed as a market correction to the relatively high construction cost increase of 13.65% identified for 2022. A reduction was also recorded for 2023 (of 1.73%).
BACKGROUND: The Mitigation Fee Act (Government Code Section 66000 et seq.), commonly referred to as AB 1600 (the “Act”), requires each local agency that imposes development impact fees to follow certain accounting procedures for tracking fee revenue and to prepare an annual report providing specific information about those fees. The information must be made available to the public within 180 days after the close of the previous fiscal year, and the annual report must be reviewed by the City Council not sooner than 15 days after the information is made available to the public. Notice of the time and place of the council meeting must be provided to the public and must also be mailed at least 15 days prior to the meeting to interested persons who filed a timely request for mailed notices (Gov. Code Section 66006(b)(2)). The City complied with the noticing requirements.
The Act also requires that every five years the Council make certain findings with respect to unexpended impact fees following the first deposit into the fee account. (Gov. Code Section 66001(d)). The Council made these findings on March 2, 2021, with the approval of the FY 2019/20 Development Impact Fee Annual and Five-Year Report. The next Five-Year Report covering FYs 2020/21 – 2024/25 will be presented to Council in December 2025.
The City provides for annual adjustments to impact fees to keep pace with the inflationary cost of infrastructure construction. The adjustments are based on the Engineering News Record-Construction Cost Index (ENR-CCI) for the San Francisco Bay Area, which measures the annual fluctuations in general construction costs so that impact fees will continue to Council Staff Report (ID # 5318) Meeting of December 17, 2024 Updated: 12/12/2024 4:16 PM by Dina Lewis Page 2
generate sufficient funds to construct the facilities needed to serve new development. This index best aligns with the types of construction materials and labor used to implement Fremont’s capital projects funded with impact fees, which primarily consist of improvements to park and transportation facilities. Annual adjustments are made in accordance with the process established by Council Resolution No. 2017-20, adopted on April 18, 2017.
DISCUSSION/ANALYSIS:
Annual Report
The City imposes impact fees on new development to mitigate the impacts caused by new development. An impact fee is a monetary exaction other than a tax or special assessment that is charged by a local agency to a new development to cover costs of public facilities needed because of impacts created by the new development. Impact fees are typically paid by developers at the time of building permit issuance and cannot be used to correct existing deficiencies or for the ongoing operation and maintenance costs of these facilities. The City’s development impact fees covered by AB 1600 are the following:
• Capital Facilities Fees
• Fire Facilities Fees
• Parkland Fees
• Park Facilities Fees
• Traffic Program Fees
Staff has prepared the attached consolidated report for Fiscal Year 2023/24, which provides the information required by the Mitigation Act, (as amended by AB 516, effective January 1, 2024). The information below was made available to the public as required by law for the FY ending June 30, 2024:
(A) A brief description of the type of fee in the account or fund. (B) The amount of the fee.
(C) The beginning and ending balance of the account or fund. (D) The amount of fees collected, and interest earned.
(E) An identification of each public improvement on which fees were expended and the amount of expenditures on each improvement including the total percentage of the cost of the public improvement that was funded with fees. (F) An identification of an approximate date by which the construction of the public improvement will commence if the local agency determines that sufficient funds have been collected to complete financing on an incomplete public improvement and the public improvement remains incomplete. • Identification of each public improvement identified in the prior report, and whether construction began on the approximate date previously noted.
• For previously identified projects that did not start construction on the approximate date identified in the prior report, a reason for the delay and a revised approximate construction start date.
(G) A description of each interfund transfer or loan made from the account or fund, including the public improvement on which the transferred or loaned fees will be expended, and, in the case of an interfund loan, the date on which the loan will be repaid, and the rate of interest that the account or fund will receive on the loan.
Council Staff Report (ID # 5318) Meeting of December 17, 2024 Updated: 12/12/2024 4:16 PM by Dina Lewis Page 3
(H) The amount of refunds made of unexpended funds pursuant to Government Code Section 66001(e), and the amount of reallocation of funds made under Government Code Section 66001(f)] due to administrative costs of refunding unexpended revenues exceeding the amount to be refunded. For any refunds made, the number of persons or entities identified to receive those refunds.
Annual Adjustment to Development Impact Fees
In accordance with the process established by Council Resolution No. 2017-20, staff proposes a 0.23% reduction to impact fees, effective July 1, 2025. This annual adjustment is based on the ENR-CCI for the San Francisco Bay Area, which measures the inflationary cost of infrastructure construction and annual fluctuations in general construction costs so that impact fees will continue to generate sufficient funds to construct facilities needed to serve new development. This index best aligns with the types of construction materials and labor used to implement Fremont’s capital projects funded with these fees, which primarily consist of improvements to park and transportation facilities.
It is noted that the CCI varies from other cost indexes such as the Building Construction Index (oriented toward building structures) and the Consumer Price Index (oriented towards consumer goods and food). Provided in the table below is a comparison of the various indexes and their fluctuations over the past five years. In 2022, there was a large inflationary increase related to construction and consumer costs. In 2023, there was a market correction to lower inflation levels, including a unique decrease of 1.73% reported for the CCI. In 2024, there has been another market correction to lower inflation levels, a decrease of 0.23% reported for the CCI.
Cost Index Comparisons and Annual Changes for San Francisco Bay Area 2020 2021 2022 2023 2024
Construction Cost Index 4.48% 6.62% 13.65% -1.73% -0.23% Building Cost Index 4.88% 11.21% 22.18% 2.66% 0.27%
Consumer Price Index 1.62% 3.15% 6.80% 2.88% 3.24%
Adjustment to Impact Fees – Effective July 1, 2025. State law requires a minimum 60-day period after Council approval for fee adjustments to go into effect. The proposed 0.23% decrease of the impact fees would go into effect July 1, 2025, which is more than the 60 days required by state law. The new fees that would become effective July 1, 2025, are shown in Exhibit A of the Resolution included with this item.
Public Notice. Impact fee adjustments generally require a noticed public hearing under Government Code Section 66018, for which notice must be provided in accordance with Government Code Section 6062a. The City complied with these requirements by publishing the public hearing notice in the Tri-City Voice on November 26, 2024. Additionally, public hearing e-mail and text notifications of the proposed adjustments to the impact fees were sent to approximately 3,540 email subscribers and 1,091 text subscribers listed on the City’s e-Subscribe Builder’s Interest List on December 2, 2024.
FISCAL IMPACT: Reducing the City’s impact fees by 0.23% ensures that new development is adequately funding its share of the costs of new public facilities, as the costs to construct Council Staff Report (ID # 5318) Meeting of December 17, 2024 Updated: 12/12/2024 4:16 PM by Dina Lewis Page 4
these projects fluctuate over time. Adjusting the impact fees annually to reflect current construction costs ensures the City does not subsidize new development’s share of these facilities and that adequate funding is available when the City is ready to construct the projects.
ENVIRONMENTAL REVIEW: The recommended action is exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to 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 is not a project that has the potential for causing a significant effect on the environment.
ATTACHMENTS:
• Draft Resolution Development Impact Fee
• Development Impact Fee Annual Report for Period Ending June 30, 2024 • Exhibit A to Draft Resolution Development Impact Fee
RECOMMENDATIONS:
1. Approve the Development Impact Fee Annual Report for Period Ending June 30, 2024.
2. Hold a public hearing regarding the proposed development impact fee adjustment.
3. Adopt a resolution approving a 0.23% decrease to development impact fees for the capital facilities, fire facilities, park facilities, parkland, and traffic programs to reflect construction cost changes in 2024, effective July 1, 2025, and amending the master fee schedule to reflect the revised fees.