Placentia City Council
TO: CITY COUNCIL
VIA: CITY ADMINISTRATOR
FROM: DIRECTOR OF DEVELOPMENT SERVICES
DATE: APRIL 16, 2024
AGENDA REPORT
SUBJECT: ANNUAL UPDATE REGARDING CITYWIDE DEVELOPMENT IMPACT FEES,
TRANSIT ORIENTED DEVELOPMENT PACKINGHOUSE DISTRICT
DEVELOPMENT IMPACT FEES, AND RESIDENTIAL AFFORDABLE HOUSING
IMPACT FEES FOR COST RECOVERY
FISCAL
IMPACT: These Development Impact Fees are established for cost recovery or statutory purposes only. There is no immediate fiscal impact associated with the recommended actions. The adoption of revised development impact fees and residential affordable housing impact fees will not have an immediate impact on revenues to the City until effective 60 days subsequent to adoption. This update adjusts impact fees only commensurate with the Construction Cost Index (CCI).
SUMMARY:
The City's Development Impact Fees program ("DIF") was first established in the early 1970's when much of the City was undeveloped. The City's costs for infrastructure have significantly increased over that period of time; however, the City's DIFs were not updated regularly to adequately cover said infrastructure costs, thus requiring the General Fund to subsidize infrastructure improvements or, in some cases, the improvements that are not conducted by a developer. In addition, in April 2017, the City Council approved the Transit -Oriented Development ("TOD") Packinghouse District Plan which results in impacts to City services that the new development will create and identifies mitigation measures and costs associated with mitigating those impacts. Furthermore, since the inception of the DIF program, the City's Housing Element outlines numerous additional goals and policies, including goals and policies that provide more affordable housing opportunities to its residents.
In 2017, to address the aforementioned lack of infrastructure funding citywide, within the TOD District, and lack of funds related to implementing the required Housing Element citywide, the City prepared new development impact fee nexus studies ("Studies") for the purpose of updating DIFs.
The result was an update to the existing citywide DIF program, creating a TOD DIF program, and creating a Housing Impact Fee program (collectively, "DIFs"). The studies analyzed the impacts created by new development on City operations and infrastructure needs and calculated the cost and method of apportionment of those fees and impacts across needed mitigation measures.
Those fees are then utilized to construct improvements throughout the City to mitigate development impacts on the community. The affordable housing fee was created for the purpose of collecting new developer -paid housing impact fees to be used to provide additionalj'affordable April 16, 2024
City Council Agenda
April 16, 2024
housing opportunities in the community. Collectively, the DIF program that is currently in place was adopted by City Council in October 2017, implemented by Ordinance Nos. 0-2017-09 (TOD DIFs), 0-2017-10 (citywide DIFs), 0-2017-11 (Housing Impact Fee) and became effective in December 2017.
In 2023, City Council adopted an update to the DIF program, largely resulting in adjustments to the 2017 DIFs, increasing each fee by Construction Cost Index ("CCI") as recommended by the three 2017 studies. In addition to the routine adjustment pursuant to CCI, two specific fees were updated commensurate with actual costs in 2023. Those fees that were updated beyond CCI are the Public Safety Impact Fee (now known as Fire, Police Animal Shelter fees) and TOD Sewer Impact Fee. These specific fees were updated beyond CCI because the City performed the "City of Placentia Development Impact Fee Nexus Study" dated April 2023. This year, Staff proposes increasing all Development Impact Fees for Fiscal Year 24-25 by CCI as measured from April 2023 to April 2024.
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1. Open the Public Hearing concerning the Citywide Development Impact Fee Schedule, the Transit -Oriented Development (TOD) Packing House Development Impact Fee Schedule, and the Residential Affordable Housing Impact Fee Schedule; and
2. Receive the Staff report, consider all public testimony, ask questions of Staff; and
3. Close the public hearing; and
4. Find that the recommended actions are exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15378(b)(4), 15061(b)(3), and 15273 of the CEQA Guidelines, Section 21065 of the Public Resources Code, and the City of Placentia Local Guidelines for implementing CEQA; and
5. Adopt Resolution No. R-2024-18, a Resolution of the City Council of the City of Placentia, California, approving updated Development Impact Fees pursuant to Construction Cost Index to financially mitigate impacts to parks and recreational facilities, sewer facilities, transportation infrastructure, storm drain facilities, Quimby in -lieu fees, and to public safety (Fire, Police, Animal Shelter) fees citywide; and
6. Adopt Resolution No. R-2024-21, a Resolution of the City Council of the City of Placentia, California, approving updated Development Impact Fees pursuant to Construction Cost Index to financially mitigate impacts to traffic and transportation infrastructure, streetscape infrastructure and sewer facilities in the Transit Oriented Development area; and
7. Adopt Resolution No. R-2024-22, a Resolution of the City Council of the City of Placentia, California, approving updated Citywide Residential Affordable Housing Impact Fees pursuant to Construction Cost Index for residential developments citywide; and
City Council Agenda
April 16, 2024
8. Direct Staff to prepare a new Development Impact Fee Nexus Study Report to be employed for the future update of both Citywide Development Impact Fees and Transit Oriented Development (TOD) Impact Fees for fiscal year 2025-26 or earlier, with a cost increase metric that most closely reflects the current cost indices average for cost trends for specific construction trade labor and materials in the current construction environment.
STRATEGIC PLAN STATEMENT:
This item is consistent with the City Council approved 5 -Year Strategic Goal to:
Keep Development Impact Fees current and updated to facilitate cost recovery by requiring new development to pay a fair share of costs for City facilities, as Objective Number 1.3 is to Update Fee Study/Cost Allocation. In addition, this action is consistent with Objective Number 3.12 to secure funding for affordable housing as the Citywide Residential Affordable Housing Impact Fees will be increasing commensurate with CCI.
BACKGROUND:
DIFs are a commonly used method of collecting a proportional share of funds from new development for infrastructure improvements and/or other public facilities capital improvements that would be needed as a result of the new development. These fees are seen as paying for the aforementioned future required infrastructure costs as opposed to the General Fund and are therefore seen as cost recovery in nature. With rare exceptions, DIFs are one-time funds restricted to funding capital costs for new facilities or upgrades to existing facilities and are not used for annual operations and/or maintenance. Impact fees may only be imposed on new development, and the fee proceeds must be expended on improvements needed as a result of the new development.
Pursuant to the Mitigation Fee Act ("Act"), California Government Code Section 66000, et seq. (also known as AB 1600), adoption of impact fees requires documentation of the "nexus" between the fees being charged, the impacts of new development, the benefit of the facilities needed to mitigate such impacts, and the proportional cost allocation among different fee categories. Impact fee programs must be adopted by the City Council via an ordinance, however, once the program is adopted, the fees could potentially be automatically updated via City Council resolution. Impact fees are imposed either jurisdiction -wide or in a relatively Targe area anticipating significant amounts of new development, such as a specific plan area or community plan area. In Placentia, we have both citywide (includes affordable housing) impact fees and TOD District specific impact fees.
In 2017, the City prepared development impact fee nexus studies for the purpose of updating DIFs pursuant to California Government Code Section 66000. Three different nexus studies were completed in 2017 and were utilized respectively to adopt the current citywide DIFs, the housing impact fee, and the TOD DIFs. The DIF program that is currently in place was adopted by City Council in October 2017, implemented by Ordinance Nos. 0-2017-09 (TOD DIFs), 0-2017- 10 (Citywide DIFs), 0-2017-11 (Housing Impact Fee) and became effective in December 2017.
City Council Agenda
April 16, 2024
Although the 2017 DIF update was comprehensive in nature, the City did not update the DIFs between 2017 and 2020. The 2021 DIF update adjusted the fees commensurate with the CCI from December 2017 to February 2021. In updating the DIFs in 2021, City Council adopted an Ordinance codifying how annual updates to the DIFs will occur. The Municipal Code now states that the annual fee adjustment shall be based on April -to -April Construction Cost Index for Los Angeles as published by the Engineering News -Record for the preceding 12 months (April to April), with the exception of the 2022 fee update which was based upon February 2021 to April 2022 Construction Cost Index for Los Angeles as published by the Engineering News -Record.
In April 2023, two specific fees were updated commensurate with actual costs. The fees that were specifically updated beyond CCI are the Public Safety Impact Fee (now known as Fire, Police Animal Shelter fees) and TOD Sewer Impact Fee. Those specific fees were updated beyond CCI because the City performed the "City of Placentia Development Impact Fee Nexus Study" dated April 2023. The balance of all Development Impact Fees were adjusted by CCI .23% as measured from April 2022 to April 2023.
This year, Staff proposes increasing all Development Impact Fees for Fiscal Year 24-25 by CCI as measured from April 2023 to April 2024. One of the Staff recommendations to City Council is to direct Staff to prepare a new Development Impact Fee Nexus Study Report to be employed for the future update of both Citywide Development Impact Fees and Transit -Oriented Development (TOD) Impact Fees for fiscal year 2025-26 or earlier, with a cost increase metric that most closely reflects the current cost indices average for cost trends for specific construction trade labor and materials in the current construction environment. This recommendation was also included in the April 2023 staff report, and a Request for Proposal (RFP) for this effort has already been posted and is in process.
DISCUSSION:
Update to Development Impact Fees
The existing Citywide DIFs include the following:
• Citywide Public Safety Impact Fee Program
• Now known as Fire, Police Animal Shelter fees pursuant to the City of Placentia Development Impact Fee Nexus Study" dated April 2023
• Citywide Park and Recreation Impact Fee Program
• Citywide Quimby Land Dedication and In -Lieu Fee Program • Sewer Impact Fee Program
• Traffic Impact Fee Program
• Storm Drainage Impact Fee Program
City Council Agenda
April 16, 2024
The existing residential Affordable Housing Impact Fee includes:
• A Residential Affordable Housing Impact Fee ("RAHIF") requiring developers to pay a fee to mitigate the additional demand for affordable housing that is created by proposed market rate residential development.
The existing TOD DIFs include the following:
• TOD Traffic Impact Fee
• TOD Sewer Impact Fee
• Now updated pursuant to the City of Placentia Development Impact Fee Nexus Study" dated April 2023
• TOD Streetscape Infrastructure Impact Fee
As previously stated, all three of the existing DIF programs included nexus studies to justify each respective DIF. Each of the three studies recommended that CCI be utilized as the metric for future DIF increases. The Municipal Code regarding DIFs (adopted in 2017) specifically states that the Citywide and TOD DIFs be adjusted annually commensurate with changes in construction costs. The Residential Affordable Housing Impact Fee study recommended CCI as a metric to be utilized for annual adjustments. As previously stated, this method of recurring annual updates was codified in the Municipal Code in 2021. This year's update will entirely adjust the fees commensurate with the CCI for Los Angeles as published by the Engineering News -Record from April 2023 to April 2024, effective 60 days after adoption, as follows:
Date CCI
April 2024 15244.84
April 2023 13729.03
The delta calculation between April 2024 CCI and April 2023 CCI is expressed as (15244.84 / 13729.03) = 1.110 or 11%. As such, Staff has prepared three resolutions to update the DIFs, one each for the existing Citywide DIFs, TOD DIFs, and for the residential Affordable Housing Impact Fee. Therefore, the rates for all DIFs have been increased by 11%. However, it is the observation of Staff that the recommended net increase in rates does not accurately reflect the current market bidding environment for its Capital Improvement Projects (CIP). Therefore, as an additional recommendation, Staff is requesting City Council to direct the Development Services Department to work in concert with finance staff in the preparation of a new Development Impact Fee Nexus Study Report to be employed for the future update of both Citywide Development Impact Fees and Transit Oriented Development (TOD) Impact Fees for fiscal year 2024/2025.
Other Updates
In 2021, the Storm Drain Acreage Fees for Area G in the southeast portion of the City were adjusted to a certain amount (not using CCI) due to a recent legal Settlement Agreement. Staff has been advised by the City Attorney to keep Storm Drain acreage fees for Area G at the same rate as adjusted and adopted in 2021 until the end of 2027. Development that occurs in Area G
City Council Agenda
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between the effective date of the 2021 update and December 31, 2027, will be subject to the adjusted fee adopted by City Council in 2021 pursuant to the settlement agreement.
As previously stated, one of the Staff recommendations to City Council is to direct Staff to prepare a new Development Impact Fee Nexus Study Report to be employed for the future update of both Citywide Development Impact Fees and Transit Oriented Development (TOD) Impact Fees for fiscal year 2025-26 or earlier, with a cost increase metric that most closely reflects the current cost indices average for cost trends for specific construction trade labor and materials in the current construction environment. It is the observation of Staff that the recommended net increase in rates does not always accurately reflect the current market bidding environment for its Capital Improvement Projects (CIP). Although this recommendation was also included in the April 2023 Staff report, a Request for Proposal (RFP) for this effort has been posted and closes in late April.
The RFP is actually seeking consultant services to update all Citywide and TOD DIFs, and to create a successor Community Facilities District (CFD) to mitigate additional public safety costs.
These aforementioned efforts will be completed to be effective no later than July 1, 2025.
FISCAL IMPACT:
There is no immediate fiscal impact associated with the recommended actions. DIFs are a commonly used cost recovery method of collecting a proportional share of funds from new development for infrastructure improvements and/or other public facilities capital improvements that would be needed as a result of the new development. These fees are seen as paying for necessary infrastructure costs as opposed to the General Fund and are therefore seen as cost recovery in nature. The adoption of revised Development Impact Fees and Residential Affordable Housing Impact Fees will not have an immediate impact on revenues to the City until effective 60 days subsequent to adoption. This update adjusts the fees commensurate with the Construction Cost Index (CCI), and therefore, does not provide unanticipated revenue, rather it adjusts revenue commensurate with CCI for the period between the 2023 effective date and present.
Prepared by:
Jos-. M. Lambert
Reviewed and approved:
Jennifer Lampman
Director of Development Services Director of Finance
Reviewed and approved:
Damien R. Arrula
City Administrator
City Council Agenda
April 16, 2024
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Attachments:
1. Resolution No. R-2024-18 - Approving updated Citywide Development Impact Fees
2. Resolution No. R-2024-21 - Approving updated Transit Oriented Development Packinghouse District Development Impact Fees
3. Resolution No. R-2024-22 - Approving updated Residential Affordable Housing Impact Fees
4. Engineering News -Record City Cost Index Los Angeles April 2023