File ID: 2022-01246 8/9/2022 Discussion Item 31.
Evaluation of Reduced Residential Development Impact Fees for Affordable Dwelling Units File ID: 2022-01246
Location: Citywide
Recommendation: Review and comment on 1) the performance of the Reduced Residential Development Impact Fees for Affordable Dwelling Units program; 2) revenue sources for restoring impact fee accounts to address existing and ongoing funding replacement obligations; and 3) consider options for continuing, modifying, or discontinuing the program going forward.
Contact: Helen Selph, Associate Planner, (916) 808-7852, [email protected], Matt Hertel, AICP, Principal Planner, (916) 808-7158, [email protected]; Community Development Department, Sheri Smith, Special Districts Manager, (916) 808-7204, [email protected], Infrastructure Finance Division Presenter: Helen Selph, Associate Planner, (916) 808-7852, [email protected], Community Development Department
Attachments:
1-Description/Analysis
2-Map of Participating Projects (2019-2021)
3- Impact Fees Not Collected, Subtotals by Fee/Fund
Description/Analysis
Issue Detail: On October 30, 2018, City Council passed a resolution reducing certain development impact fee rates for new qualified affordable dwelling units to a zero-dollar rate (Resolution 2018- 0428). On May 28, 2019, City Council rescinded Resolution 2018-0428 and adopted a new resolution (Resolution 2019-0185 <https://sacramento.granicus.com/MetaViewer.php? view_id=22&clip_id=4411&meta_id=556260>) that similarly provides a zero-dollar impact fee rate for development of eligible affordable housing units but provides more flexibility for determining whether a new development project would provide “affordable dwelling units” as defined in the resolution. This program, called the “Reduced Residential Development Impact Fees for Affordable Dwelling Units,” City of Sacramento Page 1 of 7
City of Sacramento
City Council Report
915 I Street, 1st Floor
Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2022-01246 8/9/2022 Discussion Item 31.
reduces financial barriers to stimulate affordable housing production. This report serves as the three- year evaluation of the program, including an analysis of the development impact fees that were not collected. There is currently no sunset date for this program.
The Mitigation Fee Act authorizes local governments to impose fees on development projects to defray the cost of new or additional public facilities that are needed because of the development project. Development impact fees are monetary exactions established and imposed according to various sections of Sacramento City Code and collected as fees at rates established by resolution.
The funds collected are used to finance the design, construction, installation, and acquisition of public infrastructure; or recover the costs of adding capacity in existing public infrastructure that is needed to serve new development and cover the City’s fee administration costs.
This report provides information about the number, locations, and types of affordable dwelling units that received fee reductions from the program between the calendar years of 2019 and 2021, and the associated impact fees not collected.
Performance and Impact Fees Not Collected
Staff conducted a survey of fee reduction program participants. Most of the respondents agreed that the fee reduction program helped their organization construct affordable dwelling units in Sacramento. The majority also agreed that the program increases the likelihood that their organization will continue to build both affordable housing and new development generally in Sacramento. While it is challenging to conclude that the fee reduction program is the primary reason for the increase in the production of affordable dwelling units from 2019-2021, the fee reduction program has been utilized more than originally anticipated.
NUMBER OF DWELLING UNITS RECEIVING FEE REDUCTIONS
2019 2020 2021 1st Half of 2022
Commercial (3+ units)801 307 287 620
Residential (1-2 units)46 4 8 3
Grand Total Dwelling Units:
2,076
The City’s2021 Housing Element Annual Progress Report
<https://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=5261&meta_id=680983> includes a summary of the City’s housing production since 2006. Prior to adoption of the fee reduction program, it was estimated that an average of 100 affordable dwelling units would take advantage of the program. In the three and one-half years since the inception of the program, 2,076 dwelling units participated in the fee reduction program. In 2019, the program benefited 847 dwelling units. In 2020 and 2021, the program benefited 311 dwelling units and 295 dwelling units respectively. In the first half of 2022, program benefits were provided to 623 dwelling units. Going forward, staff estimates approximately 500 - 600 affordable dwelling units will participate in the program annually.
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File ID: 2022-01246 8/9/2022 Discussion Item 31.
Because more projects utilized the fee reduction program than originally anticipated, the corresponding impact fees that were not collected (i.e. lost revenue), have been higher than originally anticipated. The table below shows the breakdown of impact fees not collected in the three and one-half calendar years from the beginning of the program in 2019 through the first half of 2022.
The fee reduction per dwelling unit varies depending on the fees that apply due to the location and attributes of the project, but the average fee reduction per dwelling unit is approximately $4,205.
Impact fees not collected (i.e. lost revenue) per year were: $5,532,107 in 2019; $478,649 in 2020, and $1,156,136 in 2021 respectively. In the first half of 2022, $1,462,445 in fees were not collected.
Over the three and one-half years since the program began, the total amount of fees not collected was $8,729,337.
Between 2019 and 2021, the City received approximately $1,302,906 in grant funding for infrastructure that the Park Impact Fee and Central City Transportation Fee would have funded, so staff considers that grant funding to offset some of the impact fees that were not collected between 2019 and 2021, reducing the amount that needs to be replaced to $7,426,431. Staff estimates that the fees not collected in future years (i.e. lost revenues) will be approximately $2 to $3 million per year. The grant funding received in 2022 has not yet been calculated.
IMPACT FEES NOT COLLECTED BY CALENDAR YEAR
2019 2020 2021 1st Half of 2022
Commercial (3+ units)($5,140,182) ($460,124) ($1,215,952) ($1,462,445) Residential (1-2 units)($391,925) ($18,525) ($40,184) $0 Subtotal ($5,532,107) ($478,649) ($1,256,136) ($1,462,445) Grand Total Fees Not
Collected: ($8,729,337)
Average Fee Reduction Per Dwelling Unit (DU): ($4,205)
Corresponding Grant Funding to Replace Impact Fees Not Collected Park Impact Fee $1,190,643
Central City Transportation Fee $112,263
Subtotal: $1,302,906
Replacement Revenue Needed: ($7,426,431)
Funding Replacement Obligation
Pursuant to the Mitigation Fee Act, the City must make findings every 5 years identifying funding sources, amounts, and approximate dates on which complete funding will be deposited into the impact fee funds for incomplete improvements (i.e. improvements for which the fees were supposed to be collected). Based on the timing of the 5-year finding requirement, the City must make findings City of Sacramento Page 3 of 7
File ID: 2022-01246 8/9/2022 Discussion Item 31.
by the end of 2022 specifying the funding source and date of deposit for approximately $4 million of the impact fees not collected. Similar findings will need to be made in subsequent years for the remaining funds needed for other incomplete improvements. The prioritization for restoring impact fee accounts will include considerations such as the remaining balance of revenue in the account, the need identified in the 5-year finding, and the priority for the use of the specific fee. Infrastructure Financing Division staff and appropriate departments will return to Council to make findings as necessary.
Staff requests City Council direction regarding the revenue sources for restoring impact fee accounts to address existing and ongoing funding replacement obligations, and preferred policy options for the program going forward.
1. Identify preferred revenue sources to restore impact fee accounts to address existing and ongoing funding replacement obligations, such as General Funds, Measure U Funds, or other sources.
2. Consider options for modifying the program to reduce impact fees not collected going forward. (A sustainable funding source would still need to be identified). o Revise the program to provide a reduced impact fee rate that is greater than $0 but still reduced from the regularly required amount.
o Limit the geographic eligibility of the program to certain areas, such as those that are experiencing or at-risk for displacement and gentrification or in high resource/opportunity areas of the city.
o Revise the program to reduce the income eligibility of the program from 120% Area Median Income (AMI) to a maximum of 80% AMI.
3. Wind-down the program
o If there is a lack of ongoing funding for infrastructure due to impact fees not collected, establish a sunset date for the program.
Policy Considerations: The reduction in development impact fees for affordable dwelling units is consistent with the City’s goals and policies as established in the 2021-2029 Housing Element, including:
Policy H-2.4: Provide Deferrals and Zero-Dollar Impact Fees for Affordable Housing.
The City shall continue to offer deferrals of City-controlled impact fees and consider the continuation of zero-dollar impact fees for affordable housing units.
Economic Considerations: Reducing development impact fees for affordable dwelling units City of Sacramento Page 4 of 7
File ID: 2022-01246 8/9/2022 Discussion Item 31.
reduces barriers for the construction of affordable housing.
Environmental Considerations:
California Environmental Quality Act (CEQA): The consideration of continued fee reductions for affordable dwelling units is exempt from the provisions of the California Environmental Quality Act (CEQA), consistent with section 15378(b)(4) of the CEQA Guidelines, which provides that the creation of government funding mechanisms or other government fiscal activities that do not involve commitment to any specific project are not subject to environmental review.
Sustainability: The reduction of development impact fees for affordable dwelling units has increased infill housing opportunities near the urban core and public transit, which helps to reduce long commutes and dependence on the use of the private automobile, reduce the use of fossil fuels and greenhouse gas emissions, and help meet air quality standards.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: The reduction of certain development impact fees imposed by the City provides an incentive for the production of affordable dwelling units. The City made a commitment to evaluating the performance of the fee reduction program and associated impact fees not collected after three years of implementation.
Financial Considerations: The 2019 resolution specifies that any funding shortfall resulting from this fee reduction may not be made up from revenue from fees paid by others within any of the relevant fee programs. Additional revenue sources are needed to replace impact fees not collected and restore capital facilities accounts.
Based on the 5-year finding requirements under the Mitigation Fee Act, approximately $4 million of the $7.4 million in uncollected impact fees needs to be identified to fulfill the City obligation by the end of calendar year 2022. General Fund, Measure U, and/or alternate funding sources can be used to satisfy the City obligation to replace fees not collected. Since the timing requirement will be identified in the analysis required for the 5-year findings, appropriation can be conducted during the FY2022/23 Mid-Year process.
Local Business Enterprise (LBE): Not applicable.
Background: The City imposes development impact fees on development projects to defray the cost of new or additional public facilities that are needed to serve the new development project.
Development impact fees cover the cost to design, construct, install, or acquire public infrastructure or to recover the costs of adding capacity in existing public infrastructure and cover fee administration costs. Development impact fees are necessary to support backbone public infrastructure and City of Sacramento Page 5 of 7
File ID: 2022-01246 8/9/2022 Discussion Item 31.
facilities such as water and sewer mains, pumpstations, roadway segments, active transportation infrastructure, water and sewer treatment facilities, police and fire facilities, parks and open space, wells, and land acquisition.
Development impact fee amounts are determined by nexus studies and are subject to the legal requirements of the Mitigation Fee Act. Due to this legal framework, the calculation of the various development impact fees amounts for development projects is complex and varies depending on the project location and the attributes of the specific project.
The following table provides an overview of development impact fees reduced for affordable dwelling units. Since certain impact fees had already been reduced for affordable housing prior to the 2019 resolution and others were outside of the City’s control, the fees that were reduced to a zero-dollar rate in both the 2018 and 2019 resolutions included development impact fees which the City controls that did not already have an exemption for affordable housing. The table below shows City fees that were reduced to a zero-dollar rate, the fees that were already exempt, and other fees which were and are still outside of the City’s control.
Affordable Housing Development Impact Fees
City Fees Reduced to a Zero-
Dollar Rate by 2019 Resolution
City Fees Already Exempt prior to
2019 Adoption
Outside of City’s Control
65th Street Area Impact Fee Citywide Transportation
Development Impact Fee
Construction Excise Tax (Major
Streets Construction Tax)
Central City Impact Fee Housing Trust Fund Sacramento Area Flood Control Agency Fees
Combined Sewer Development
Fee
I-5 Sub-regional Corridor
Mitigation Program
School Facilities Fee
Jacinto Creek Planning Area
Impact Fee
Mixed Income Housing
Fee/Housing Impact Fee
Other one-time taxes
North Natomas Planning Area
Development Fees
Sacramento Countywide
Transportation Mitigation Fee
Park Development Impact Fee
Railyards Impact Fee
River District Fee
Sewer Development Fee
Water System Development
Fee
Willowcreek Impact Fee
The remaining fees that continue to be paid for affordable dwelling units are taxes, processing fees and development impact fees that the City collects for other agencies, such as school fees and City of Sacramento Page 6 of 7
File ID: 2022-01246 8/9/2022 Discussion Item 31.
Sacramento Area Flood Control Agency fees.
The 2019 resolution reduced residential rates for affordable dwelling units to a zero-dollar rate for the impact fees identified in the resolution, subject to the following eligibility requirements:
Rentals: An “affordable dwelling unit” means a dwelling unit or facility (1) to be occupied by low- or moderate-income households as defined in section 50093 of the California Health and Safety Code, and (2) offered at an affordable rent as defined in section 50053 of the California Health and Safety Code for a period of at least 30 years. The “affordable dwelling unit” shall be either: Subject to restriction for a period of at least 30 years under a recorded regulatory agreement between the property owner and the City, the Sacramento Housing and Redevelopment Agency, or another local, state or federal agency; or for projects that do not otherwise require a regulatory agreement, the applicant must demonstrate to the satisfaction of the Planning Director in the Director’s sole discretion that the principles of (1) and (2) of this paragraph are met.
For-sale units: An “affordable dwelling unit” for a for-sale unit means (1) a unit sold at an affordable housing price as defined in section 17.712.020 of Sacramento City Code, and (2) to be occupied by low-income households as defined in section 50079.5 of the California Health and Safety Code for a period of at least 30 years. The “affordable dwelling unit” shall be either: Subject to restriction under a recorded regulatory agreement for a period of at least 30 years between the original property owner and the City, the Sacramento Housing and Redevelopment Agency, or another local, state or federal agency; or for projects that do not otherwise require a regulatory agreement, the applicant must demonstrate to the satisfaction of the Planning Director in the Director’s sole discretion that the principles of (1) and (2) of this paragraph are met.
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Del Pas
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Northgate Blv
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Cosumnes River Blvd
Broadway
14Th Ave
Richards Blvd
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KingJr
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Franklin Blvd
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35Th Ave
El Camino Ave
Edison Ave
Q St
Freepor
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Elvas Ave
Folsom Blvd
J St5Th St
Vintage Park Dr
24Th St
Arden Way
10Th St
Alhambra Blvd
Bell Ave
Eastern
Ave
Americ an R iver D r
43 Rd Ave
Fulton
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La Riv iera Dr
W El Camino Ave
Sutt erville Rd
Pocket Rd
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Fruitridge Rd
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StocktonBlvd
San Juan Rd
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Florin Perkins Rd
Power InnRd
7Th
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Florin Rd
SACRAM
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84 S a cramento River
Am erican Rive r
Reduced Residential Development Impact Fees
f
or Affordable Dwelling Units Program
Participating Projects 2019-2021
All maps & data provided are subject to Terms of Use identified in the City of Sacramento Open Data Policy at http://data.cityofsacramento.org/pages/disclaimer. 0 1 2 Miles
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DSD_GIS\Projects\Affordable_Housing\Reduced Residential Development Impact Fees Commercial Residential
# of Dw
elling Units
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76 - 150
151 - 225
226 - 300
301 -0345
Single Unit and Duple
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# of Dwelling Units
1 Road
City of Sacramento Boundary
Attachment 3 –Development Impact Fees Not Collected,
Subtotals by Impact Fee/Fund (January 1, 2019-June 30, 2022) Fee/Revenue Program Fees Not Collected, January 1, 2019 through June 30, 2022
Water Development Fee: 211 ($1,141,437.27)
Sewer Development Fee:
212
($4,121.13)
Combined Sewer
Development Fee: 403
($1,564,022.97)
North Natomas Public
Facilities Fee: 270
($1,440,589.00)
North Natomas Public Land
Acquisition: 272
($185,877.00)
North Natomas Regional
Land Acquisition: 273
($160,704.00)
North Natomas Transit Fee:
271
($163,246.00)
PDIF: 287 ($1,843,348.37)
PDCI: 267 ($1,025,304.76)
River District fee: 380 ($189,424.68)
Central City Transportation:
390
($112,262.67)
Central City Public Facilities:
391
($19,054.86)
Central City Sewer: 393 ($67,501.80)
Central City Water: 392 ($53,127.69)
Central City Administration:
394
($7,605.31)
Railyards Infrastructure: 306 ($326,140.00)
Railyards Interchange: 307 ($15,341.00)
Railyards Com Facilities: 308 ($92,046.00)
Railyards Admin: 309 ($12,995.00)
Greenbriar Regional Park:
433
($137,247.76)
Greenbriar Fire: 434 ($57,276.62)
Greenbriar Community
Center: 435
($57,925.04)
Greenbriar Transit: 436 ($52,737.72)
GRAND TOTAL REVENUE
LOSS
($8,729,336.65)
Note: The Infrastructure Finance Division provided a fee reduction for Greenbriar Impact Fees to provide the same incentive for affordable dwelling units as in other areas.