Development Impact Fee Nexus Study
Community Development and Finance Departments
June 23, 2026
1 What are impact fees?
2 • The City imposes development impact fees to offset the increased demand of new development on public
facilities.
• The City may use impact fees to finance capital
improvements to serve growth.
• Impact fees are collected with building permits on
projects that increase square footage, except single
family residential additions less than 500 SF.
Why prepare a nexus study?
3 • AB 1600 requires agencies to justify development impact fee levels.
• AB 602 requires agencies to prepare a nexus study every 8 years and strengthens requirements to justify impact
fees.
• The City’s last nexus study was completed in 2007.
• City hired DTA to conduct a nexus study per AB 602.
Key Findings
4 • The City’s current impact fees are below the maximum justifiable levels, except the residential “police” fee.
• Increasing impact fees to the maximum levels would cost $143,272 for a 2,346 SF house, hindering housing construction and economic development. • The City’s current impact fees are within range of comparable jurisdictions.
Approach
5 • Apply nexus study findings to satisfy AB 602 validation of City impact fees.
• Modify fees to the least extent to ensure continued
defensibility.
• Continue adjusting fees annually for inflation.
• Revisit impact fees once the City completes a long-term capital improvement plan.
Key Changes to Fees
6 • Lower residential police fee to maximum justified level:
$0.59 / SF.
• Increase single-family fees by 20%, since the City can no longer apply impact fees to garages.
• Merge multi-family and single-family fees into a single residential fee, lowering multi-family impact fees by 38%. • Remove “parks” fee for non-residential development.
• Increase all fees by CCCI of 3.9%.
ADU Fee Calculation
7 • State law –
• ADUs less than 750 SF: no impact fees
• ADUs of 750 SF or more: fees shall be proportional to the square footage of the primary dwelling
• City’s ADU fees –
• No fees applied to ADUs up to 750 SF
• 80% lower fees applied to larger ADUs
ADU Fee Calculation
8 Recommendation
9 Recommendation
10 Under 750 SF exempt.
Applies to entire square footage of larger ADUs.
Recommendation
11 Recommendation
12 Recommendation
13 Recommendation
14 Recommendation
15 Adopt Resolution No. 38-26 approving the Development Impact Fee Study and Nexus Report; establishing
Development Impact Fees for the City of Morro Bay; and
adopting the FY 2026-2 Master Fee Schedule.
ADU Fee Calculation
16 Example 1,000 SF ADU
• Nexus Study: $10 x 251 SF (1,000 – 749) = $2,510
• Proposed: $1.90 x 1,000 SF = $1,900
• ADUs less than 750 square feet exempt