Item Number: 2
City Council / Board of Directors
Public Hearing(s)
Meeting of: December 17, 2024
Submitted By:
Jenele Davidson, Deputy City Manager
Subject:
Development Impact Fees (DIF) and Capacity Charges Annual Review – Master Fee Schedule, Implementation Policy and Capital Improvement Plan Recommendation:
The Honorable City Council and Victorville Water District Board of Directors (District Board):
(1) Open and conduct the Public Hearing;
(2) Close the Public Hearing; and
(3) Adopt Resolution Nos. 24-005 and VWD 24-011, adopting an updated Master Fee Schedule for DIF and Capacity Charges, City Council Policy No. CP-24-05 establishing updated guidelines for implementation of said DIF and Capacity Charges and superseding City Council Policy No. CP-23-02, and the associated updated Capital Improvement Plan.
Fiscal Impact:
There is no fiscal impact directly associated with the recommended action. If adopted as proposed, updated DIF and Capacity Charges will go into effect on March 1, 2025, as it relates to non-residential fees and charges. The California Construction Cost Index (CCI) for July 2024-over-July 2023 was 1.26%, and this amount has been applied to non- residential DIF and Capacity Charges in Exhibit A of Resolution Nos. 24-005 and VWD 24-011.
Residential DIF and Capacity Charges will be going into Year 3 of the phased implementation plan on January 1, 2025, as previously adopted by Resolution Nos. 22- 050 and VWD 22-007.
Strategic Plan Goal:
Annual review and updating of the DIF and Capacity Charges Master Fee Schedule ensures the City is accomplishing Goal A: Financial Sustainability from the City’s current 3 9
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Strategic Plan. These incremental adjustments help ensure the City is collecting sufficient funds to fully mitigate the impact of new development and make the needed investments in infrastructure, as outlined in the Capital Improvement Plan and in accordance with Goal E of the City’s current Strategic Plan.
Background:
Development Impact Fees (DIF) are one-time fees assessed on new development to fund the cost of providing municipal facilities to address the impact created by new development. The authorization for a local jurisdiction to collect DIF and Capacity Charges are in Government Code sections 66001 through 66025 (also known as the “Mitigation Fee Act”) and related laws. Additionally, under Victorville Municipal Code Section 16-5.01.080, DIF are applicable to all development in the City of Victorville.
The Mitigation Fee Act is premised on the concept that new development should pay its own way; or, put another way, new development must mitigate its own impacts on the City’s infrastructure. For the City to levy DIF, a comprehensive study must be completed to verify there is a reasonable relationship between the purpose of each fee, the fee’s use, and the type of development project on which the fee is imposed. Capacity Charges must also be studied to ensure that they do not exceed the estimated reasonable cost of the services and public improvements/facilities for which the charges are imposed and are of proportional benefit to the person/property being charged.
The State Legislature passed AB 602 in 2021, which modified the Mitigation Fee Act and related laws and created new requirements relative to impact fees. Changes went into effect on January 1, 2022, including the requirement under Government Code Section 66016.5 that a local agency adopt an impact fee nexus study before imposing an associated development fee. To meet these requirements, the City Council/District Board previously adopted the Nexus Studies for DIF and Capacity Charges and the associated Capital Improvement Plan under Resolution Nos. 22-045 and VWD 22-005 on June 7, 2022.
On June 7, 2022, the City Council/District Board also approved Resolutions Nos. 22-050 and VWD 22-007, adopting a Master Fee Schedule (“MFS”) for DIF and Capacity Charges, a Capital Improvement Plan, and City Council Policy No. CP-22-01 which collectively outlined the City’s DIF and Capacity Charge program, fees and charges, and implementation policy, including an annual review process.
On December 19, 2023, the City Council/District Board approved Resolution Nos. 23-100 and VWD 23-015, which adopted an updated MFS for non-residential DIF and Capacity Charges, City Council Policy CP-23-02 (which superseded CP-22-01 and established updated guidelines for DIF and Capacity Charge implementation), and an updated Capital Improvement Plan for 2024. The non-residential DIF and Capacity Charges were increased by 4.57%, and new City Council Policy No. CP-23-02 (“CP-23-02”), made these updated DIF and Capacity Charges effective as of March 1, 2024 and established that future updates/adjustments would go into effect on March 1st of each subsequent year. 3 9
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As part of the annual review process, CP-23-02 established a yearly review of the MFS for DIF and Capacity Charges and application of the California Construction Cost Index (CCI), as published by the California Department of General Services, to account for inflation, and the Capital Improvement Plan to ensure all DIF and Capacity Charge funded capital projects are accounted for. However, Residential DIF and Capacity Charges are in year three of the phased implementation plan for 2025 and the CCI adjustment will be applied beginning in March of 2027, after the final year of phased implementation is complete.
Certain residential single-family developments are grandfathered into the City/Board’s former DIF and Capacity Charges (those that existed prior to the new fees that went into effect on January 1, 2023), if they pull building permits prior to January 1, 2025 and have made significant progress, such as the project applicant making a final map submission to the City for plan check review; the underlying development is within a recorded Final Map (including a recorded Dash Map within an approved, unexpired Tentative Tract Map); or if a project is in the Final Map Approval Process, prior to June 30, 2022. However, if building permits are not pulled before January 1, 2025, the residential single-family development projects will be charged the current rates at the time the project moves forward in obtaining building permits.
Discussion:
It is important that the City/District annually review DIF and Capacity Charges to ensure they are sufficient to mitigate the impacts of new development on the associated capital facilities and other improvements needed to maintain the existing level of service. The corresponding City Council policy and Capital Improvement Plan should also be reviewed each year.
For the MFS, the annual review process consists of applying the CCI to the fees and charges in the MFS to ensure sufficient amounts are collected to complete projects when accounting for annual costs. For July 2024-over-July 2023, the CCI was 1.26%. This percentage increase has been applied to all non-residential DIF and Capacity Charges in the MFS, as seen in Exhibit A to Resolution Nos. 24-005 and VWD 24-011 (Attachment A and B). By applying this inflation factor, the City is keeping pace with construction costs and will be less likely to subject developers to substantial increases in fees, as was the case when the Nexus Studies were completed in June 2022.
Annual review of the Capital Improvement Plan allows the City to identify projects that have been completed, update project status with completion time frames and budget estimates, and add new eligible projects. The Capital Improvement Plan is a requirement for AB 602 and is made available on the City’s website.
This year, the Capital Improvement Plan (Exhibit C to Resolution Nos. 24-005 and VWD 24-011) has been updated for 2025 to include the following projects:
•Sewer Project – C2
•Sewer Project – C3
•Sports Complex – Property Acquisition Cost Increase
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Finally, review of the existing Council Policy for DIF and Capacity Charges should be conducted each year to ensure that the policy is working as expected and that the City’s program continues to meet the requirements of the Mitigation Fee Act and related laws.
Although a completely new CP-23-02 was adopted last year, minor changes to Sections III of and IV of CP-23-02 are needed to clarify the reference to the Cost Index being used to calculate annual adjustments, correct certain typographical errors, and reflect changes made to Mitigation Fee Act Section 66007 by SB 937 relating to the time of collecting DIF and Capacity Charges. New CP-24-05 contains revised Sections III and IV and is attached as Exhibit B to Resolution Nos. 24-005 and VWD24-011.
If Resolution Nos. 24-005 and VWD 24-011 are adopted as proposed, new City Council Policy No. CP-24-05 will supersede the prior policy and will become effective as of January 1, 2025, along with the Capital Improvement Plan. Non-residential DIF and Capacity Charges will go into effect on March 1, 2025, as noted in the attached MFS.
Residential DIF and Capacity Charges that were previously adopted under the phased implementation plan will become effective on January 1, 2025.
Staff recommends that the City Council/District Board adopt Resolution Nos. 24-005 and VWD 24-011, approving an updated Master Fee schedule for DIF and Capacity Charges, new City Council Policy No. CP-24-05, and the associated Capital Improvement Plan.
Staff is available questions the City Council/District Board may have.
Attachments: A. Resolution No. 24-005
B. Resolution No. VWD 24-011