City Council
Report
City Council Meeting: January 28, 2025
Agenda Item: 5.B
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To: Mayor and City Council
From: Oscar Santiago, Director, Finance Department
Subject: Approval of Annual Reporting of Development Impact Fees and Adoption of Resolution Making Five-Year Findings as to the Affordable Housing Commercial Linkage Fee and Parks and Recreation Development Impact Fee Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines;
2. Review and accept the FY 2023-24 Annual Reporting of Development Impact Fees per the Mitigation Fee Act (Government Code 66000-66025) and the FY 2023-24 Child Care Linkage Fee Report per SMMC Chapter 9.65; and
3. Approve and adopt the proposed resolution (Attachment B) making the necessary five-year findings for the Affordable Housing Commercial Linkage Fee and the Parks and Recreation Development Impact Fee.
Summary
Santa Monica collects Council authorized fees from developers to fund investments in childcare, transportation, parks, affordable housing, and water conservation. The City also uses these funds to meet the City’s match requirement when seeking grant funding that further offsets costs for City projects.
This report transmits the attached Development Impact Fees Report on the status of funds collected from the City’s development impact fees, including investments made in the last year, that qualify to be reported under the Mitigation Fee Act (Government Code sections 66000-66025) (Attachment A). This Annual Report also provides the required annual reporting for the Child Care Linkage Fee per SMMC section 9.65.090. 2 of 10
Government Code 66001(d) requires the City Council to make findings every five years after a development fee is established. The Affordable Housing Commercial Linkage Fee and the Parks and Recreation Impact Fee are due to be reported this year under the five-year requirement. Staff is requesting that the City Council approve and adopt the proposed resolution (Attachment B) making the necessary findings for the Affordable Housing Commercial Linkage Fee and the Parks and Recreation Impact Fee.
Discussion
In 1987, Assembly Bill 1600 (AB1600), also known as the California Mitigation Fee Act, codified the legal and procedural parameters for charging development impact fees as set forth in Government Code sections 66000-66025. A development impact fee is a monetary exaction, other than a tax or special assessment, that an applicant of an approved development project pays to defray all or a portion of the costs of public facilities related to the project. The Mitigation Fee Act defines “public facilities” broadly to include public improvements, public services, and community amenities.
At the time that a development impact fee is established, the purpose of the fee and its anticipated use must be clearly identified. Per Government Code section 66006, collection of these fees requires separate funds or accounts to avoid commingling and requires that information be reported within 180 days after fiscal year-end.
The City publicly posted the annual Mitigation Fee Act Report, as required by AB1600, on December 27, 2024, for the following fees: Child Care Linkage Fee, Transportation Impact Fee, Parks and Recreation Impact Fee, Affordable Housing Commercial Linkage Fee, and Water Demand Mitigation Fee. Per Government Code section 66001, the City must also report on unexpended and expended fee amounts, whether committed or uncommitted, for the fifth fiscal year following the first deposit and every five years thereafter. This year, the Affordable Housing Commercial Linkage Fee and the Parks and Recreation Impact Fee are subject to the five-year reporting. 3 of 10
Staff continues to monitor development projects and revenue collected to ensure that fees are accounted for and expended in accordance with the purposes for which they were collected as required by law. It can take several years to accumulate sufficient funds to implement the relatively high-cost projects the City's development impact fees are eligible to fund. Due to recent changes in State law (SB 937) effective January 1, 2025, development impact fees on certain residential projects are no longer collected prior to issuance of development building permits, but rather at the issuance of the certificate of occupancy. It is expected that this change will create a temporary reduction in development impact fee collection for several years. The following is a summary of each development fee, the current balance, and a description of how funds are being spent:
1. Child Care Linkage Fee – This fee is intended to address the increased demand for childcare triggered by the development of commercial projects adding floor area of at least 7,500 square feet or multi-family residential projects. Developers can satisfy the ordinance requirements by either paying a fee or by agreeing to participate in the construction or establishment of one or more childcare facilities. Fees are computed annually on July 1, increasing by a percentage equal to the Engineering Construction Cost Index as published by Engineering News Record. Child Care Linkage Fees (CCLF) shall be paid by the final inspection date and prior to the issuance of the Certificate of Occupancy.
SMMC section 9.65.070 specifies that funds collected in the Child Care Linkage Fee Reserve Account shall be expended only on the construction and establishment of childcare facilities within the City of Santa Monica, including, but not limited to, expenditures for land acquisition, planning, legal advice, engineering, design, construction and equipment, as well as any administrative costs incurred by the City to administer the reserve account. Eligible expenditures shall not include ongoing operating expenses and general maintenance of childcare facilities.
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FY 2023-24 Fee Activity
In 2021, the balance of the Child Care Linkage Fee (CCLF) fund reserve account was fully expended on construction of the Santa Monica Early Childhood Lab School, which created 106 new childcare slots in Santa Monica, including 38 for infants/toddlers, and 68 for preschool-aged children. Staff are releasing a Request for Proposals to conduct an updated child care linkage fee study to be completed during calendar year 2025, which will help identify the most effective way to expend existing and future funds.
2. Transportation Impact Fee (TIF) – This fee is collected on eligible new development and changes in land use that result in increased trip generation.
The fees are based on residential units or commercial square footage and are charged prior to issuance of building permits, unless State law requires the City to accept later fee payment. The TIF is based upon the costs associated with transportation improvements and the amount of new auto trips that can be attributed to land use changes.
Funds collected are used to fund transportation improvements, such as sidewalks, pedestrian crossing improvements, traffic signal upgrades, transit, and bicycle facilities, per SMMC Chapter 9.66. Funds are frequently leveraged as grant match for projects such as Safe Streets for 17th Street and implementation of the Wilshire Boulevard Safety Study recommendations.
Grant projects have longer delivery times but increase the number and size of improvements resulting from use of these fees. Grant matching was assumed in the fee calculation and nexus study supporting the development of the TIF.
FY 2023-24 Child Care Linkage Fee
Beginning
Balance
Fees
Collected
Interest
Earned
Expenditures Refunds Ending Balance
$1,433,680 $41,487 $32,585 $0 $79,645 $1,428,107
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FY 2023-24 Fee Activity
FY 2023-24 Transportation Impact Fee
Beginning
Balance
Fees
Collected
Interest
Earned
Expenditures Refunds
Ending
Balance
$11,807,237 $391,442 $72,725 $3,548,805 $342,947 $8,379,652 In FY 2023-24, $3,548,805 of TIF funds were expended on capital improvement project delivery, including tools to analyze crash reports to determine safety countermeasures, project design, right of way, required studies, prevailing wage monitoring, utility coordination, construction management and engineering support services, and construction to implement Vision Zero improvements associated with the following projects:
• 4th St Enhancements – Expo Linkages, Phase 2: $493,751 • Michigan Ave Greenway / 20th St Bike Connection: $755,785 • Pico Blvd / SMC Pedestrian Safety Improvements: $4,831 • Multimodal Signal Detection: $24,529
• Wilshire Blvd Safety Improvements, Ocean Ave Protected Bikeway, Crosswalk improvements: $2,269,779
• Safe Routes at Four Schools: $130
State law requires that TIF funds be used for the delivery of physical improvements.
These projects require significant time for project delivery because of local design, outreach and procurement steps, and State and Federal grant funding approval processes. TIF funds are pre-committed to projects for an extended time as a result, and funds need to be held available for upcoming grant match commitments. Staff anticipates using portions of the fund balance to support longer-term projects identified in the TIF nexus study such as bike facilities, sidewalks, and safe crossings. This information along with additional project and expenditure information is available in Attachment A.
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3. Parks and Recreation Impact Fee – This fee is collected from new residential and commercial development for the upgrade and/or expansion of parks and recreation facilities needed to accommodate additional occupants per SMMC Chapter 9.67.
FY 2023-24 Fee Activity
FY 2023-24 Parks and Recreation Impact Fee
Beginning
Balance
Fees
Collected
Interest
Earned
Expenditures Refunds
Ending
Balance
$6,385,590 $980,302 $125,165 $563,375 $16,345 $6,911,337 In FY 2023-24, a total of $563,375 was expended. Of the total, $38,524 was spent on the Citywide Park Condition Assessment; $3,269 on Beach Park #1 Playground Equipment Replacement; $45,791 was used on Park Improvements; $130 was spent Marine Park Basketball Court Surface Reconstruction; $435,999 was spent on Airport Conversion Planning; and $39,662 was spent on the Marine Park Basketball Court Improvements which was completed and funded 100% with Parks and Recreation Impact Fees. The Playground Safety Upgrades at Marine Park were completed, with a total project cost of $1,184,150 spanning over 3 fiscal years. 80% of the total project cost was funded with Parks and Recreation Impact Fees.
Included in the FY 2023-25 Adopted Budget, a total of $664,600 was allocated to the reconstruction of two basketball courts at Marine Park ($414,600) and to address parks and playground safety enhancements ($250,000), as per the Park Condition Assessment. Work on the basketball courts is expected to start in Spring 2025 and finish in Summer 2025. Construction of park enhancements has begun and will continue through the prioritization of projects identified through interdepartmental review of the Park Condition Assessment.
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As part of the FY24-26 Biennial Budget, a total of $2,588,000 was allocated to projects that will begin in FY24-25. Of the total, $888,000 was allocated to Airport Conversion Planning Staff ($222,000 annually through 2028) via December 2023 Council approval; $450,000 has been allocated to the Parks and Recreation Master Plan, a 20-year park network vision and planning document last updated in 1997; $250,000 has been allocated to Park Improvements; and $1,000,000 has been allocated to match CDBG funding (as per grant requirements) for the Virginia Avenue Park Playground Reconstruction. $605,247 will be leveraged for design and construction of park amenities.
Staff continues to evaluate potential park-based projects such as construction of essential equipment and infrastructure to maintain access to open spaces as the City continues to grow. Staff also actively utilize this funding to meet local match requirements when applying for grants as exemplified through the Virginia Avenue Park Playground Reconstruction. This enables the City to maximize available funding for priority projects. Projects are prioritized based on health, safety, and community benefit criteria and are presented to Council as part of the proposed Capital Improvement Program budget. Staff anticipates that future available funding would be used for projects at Memorial Park and Clover Park; set aside for annual park improvements, including implementation of emergency projects identified by the Park Condition Assessment; projects and pilot programs identified through the Parks and Recreation Master Plan process; court, field, and existing amenity improvement and expansion projects; local match requirements when applying for grants; and to support ongoing playground safety upgrades.
4. Affordable Housing Commercial Linkage (AHCL) Fee – To offset the additional need for affordable housing generated by new commercial development, the City adopted the AHCL fee, per SMMC Chapter 9.68 on June 23, 2015, to contribute to the creation of affordable housing production and preservation.
The City utilizes this funding for the production and preservation of affordable 8 of 10
housing by issuing loans to nonprofits for the acquisition of property, new construction, or rehabilitation of existing buildings within the City. In FY 2023- 24, no fees were disbursed.
FY 2023-24 Fee Activity
AHCL fees are one of several funding sources deposited into the Citywide Housing Trust Fund. As affordable housing projects are identified and reviewed by staff, these funds are considered for use as part of each project’s funding mix. A portion has been dedicated to a specific new development. Staff will continue to work to identify affordable housing developments that could utilize this funding. Final funding mixes for these developments will be decided as development proposals are refined and financial feasibility determined. As of August 2024, the City plans on committing $1.0M of these funds to assist in the financing of an acquisition and rehabilitation loan at the 2033-2101 Virginia Avenue project.
5. Water Demand Mitigation Fee – On March 19, 1991, the City Council adopted Resolution 8196 (CCS) which established a one-time fee to mitigate the total daily water consumption rate projected for new development (Water Demand Mitigation Fee). The Water Demand Mitigation Fee was set at $3.00 for each gallon of daily water demand that must be mitigated. The Water Demand Mitigation Fee is required when: a new single-family residence is constructed or there is an addition of 50% or more to existing square footage; for construction of a new multi-family building or addition of new units; for construction of a new non-residential building or whenever there is a change of use, change or addition to new plumbing fixtures, addition of restaurant seating, or addition of FY 2023-24 Affordable Housing Commercial Linkage Fee
Beginning
Balance
Fees
Collected
Interest
Earned
Expenditures Refunds Ending Balance
$2,322,234 $61,607 $52,785 $0 $106,630 $2,329,996
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square footage. On July 1, 2017, the Water Neutrality Fee replaced the Water Demand Mitigation Fee.
FY 2023-24 Fee Activity
In FY 2023-24, $63,778 was expended on the Recycled Water Main Expansion Project.
Staff anticipates using the available balance of $256,564 to complete the Recycled Water Main Expansion Project.
This is not a close out of the developer fee. The City will continue to collect Water Demand Mitigation revenues for permit applications submitted prior to July 1, 2017, and will continue to report on it until all funds are expended.
Environmental Review
This report is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) (Common Sense Exemption) of the CEQA Guidelines, which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” This report is administrative in nature, and no action is being undertaken. Therefore, it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of the recommended action.
FY 2023-24 Water Demand Mitigation Fee
Beginning
Balance
Fees
Collected
Interest
Earned
Expenditures Refunds
Ending
Balance
$320,342 $0 $0 $63,778 $0 $256,564
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Prepared By: Robert Garcia, Financial Reporting And Systems Administrator Approved Forwarded to Council
Attachments:
A. Attachment A - Development Impact Fees Report (2024) B. Attachment B - Resolution Adopting Five-year Findings for Affordable Housing Commercial Linkage and Parks and Recreation Development Impact Fee