HomeMy WebLinkAboutStaff Report 323-05
CMR:323:05 Page 1 of 12
TO: HONORABLE CITY COUNCIL
ATTN: FINANCE COMMITTEE
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES/PLANNING
DATE: JULY 19, 2005 CMR: 323:05
SUBJECT: COMPARATIVE DATA ON DEVELOPMENT IMPACT FEE LEVELS
This is an informa tional report and no Council action is required.
BACKGROUND
On August 9, 2004, the City Council considered a potential transportation impact fee on new
development citywide (CMR 384:04), as well as a potential study of the Charleston/Arastradero
Streetscape Plan (CMR 385:04) to determine if a legal nexus exists for an area-specific
development fee. Council was aware that several new impact fees had been implemented over
the past few years, and that there had been discussions of other potential new development-
related fees. In order to consider the cumulative economic impact of all existing fees along with
potential new fees, Council moved to continue discussion of new transportation impact fees until
staff could prepare information on all existing and potential development-related fees for Council
consideration and prioritization. This report summarizes current impact fees; presents potential
citywide and Charleston/Arastradero area fees; and provides comparative data from other cities.
The data reveals that while cumulative impact fees for residential development are similar to
other cities, non-residential fees are high compared to other jurisdictions. These comparisons
warrant further analysis of existing fee levels and policies. Staff will be examining the legal and
financial issues associated with adjusting existing impact fees prior to making a recommendation
on a citywide transportation impact fee.
DISCUSSION
Under California law (AB 1600), cities have the ability to charge new development for its
relative share of the cost of public facilities and services. The City of Palo Alto first adopted a
development impact fee in 1984. Development impact fees are not an ongoing fee or tax, but
rather are one -time fees, paid at the time of construction. The City’s current impact fees are
comprised of three categories: Housing, Traffic, and Community Facilities (parks, libraries and
community centers). Current fee levels are summarized in Attachment A.
CMR:323:05 Page 2 of 12
The City has several new development-related fees und er consideration. Potential one -time
development impact fees include:
· Citywide transportation (TIF)
· Charleston/Arastradero corridor fee
· Water/wastewater capacity (adopted, effective 7/1/2005)
In addition to impact fees, developers are required to pay other fees on their projects, which add
to the cumulative economic effect of doing business in Palo Alto. Some of these are one -time
application expenses such as permit fees, which are included in charts in this report comparing
Palo Alto to other cities.
Other fees are not development-related. These are ongoing, paid by residents and businesses
annually or monthly, not just with new construction. Current ongoing fees include utilities fees,
the Downtown Business Improvement District fees, and the University and California Avenue
Parking Assessment Districts. A storm drain fee increase was approved by voters on April 26,
2005. Other potential ongoing fees include a business license tax and emergency response or
911 fee. Ongoing fees are not included i n the data presented in this report.
Current & Potential Fees
Chart 1 depicts each of Palo Alto’s current and potential impact fees for two types of residential
projects: a new single-family home; and per multi -family dwelling. If enacted, potential impact
fees will add 20% to 22% to the current impact fees charged to new residential development.
CMR:323:05 Page 3 of 12
Chart 1: Current vs. Potential Impact Fees – Residential
Single Family Multi-Family
$16,452
$10,375
$12,708
$19,669
$-
$3,000
$6,000
$9,000
$12,000
$15,000
$18,000
$21,000
Fees
per housing unit
Total $16,452 $19,669 $10,375 $12,708
Citywide TIF 2,289 1,405
Charleston/Arastradero 928 928
Water Capacity 4,750 4,750 2,708 2,708
Parks/Library/Comm Ctr 11,702 11,702 7,667 7,667
Current Potential Current Potential
20%
22%
Impact fees do not apply to residential replacement homes, remodels or expansions, only to new
residential units.
CMR:323:05 Page 4 of 12
Chart 2 depicts each of Palo Alto’s current and potential impact fees for three types of
commercial projects. Data is per square foot of development. If enacted, potential impact fees
will add 12% to 30% to the current impact fees charged to new commercial development.
Impact fees apply to net new development in each land use category. A change in tenants or
tenant improvements within existing space will not trigger impact fees.
Chart 2: Current vs. Potent ial Impact fees – Commercial
Office R&D Retail
+18% +12% +30%
$20.50
$24.17
$29.18
$32.58
$20.33
$26.47
$0
$5
$10
$15
$20
$25
$30
$35
$40
Fe
e
s
p
e
r
s
q
u
a
r
e
f
o
o
t
Total $20.50 $24.17 $29.18 $32.58 $20.33 $26.47
Citywide TIF 3.40 3.40 5.87
Charleston/Arastradero 0.27 0.27
Water Capacity 0.60 0.60 0.60 0.60 0.60 0.60
Traffic -SRP - - 8.68 8.68 - -
Other 0.23 0.23 0.23 0.23 0.06 0.06
Parks/Library/Comm Ctr 4.09 4.09 4.09 4.09 4.09 4.09
Housing 15.58 15.58 15.58 15.58 15.58 15.58
Current Potential Current Potential Current Potential
* Charleston/Arastradero fee will apply to few lots in the Stanford Research Park, thus it is
excluded from R&D figures. See Attachment C.
Area-Specific Fees and Fee Overlap
Not all impact fees apply citywide. Palo Alto’s current traffic impact fees apply only to parcels
developed in a specific area, like San Antonio/West Bayshore or the Stanford Research Park.
The potential Charleston/Arastradero fee would only apply to parcels within a half-mile of the
corridor, not citywide. Attachment C indicates parcels subject to current and potential area-
specific fees.
It is noteworthy that in some areas of town, area-specific and citywide fees overlap. For
instance, a parcel subject to an area-specific fee, like the traffic impact fee in Stanford Research
*
CMR:323:05 Page 5 of 12
Park, would also be subject to a citywide transportation fee if enacted. In portions of the half-
mile Charleston/Arastradero corridor a few parcels (pending development) could be subject to
the Charleston/Arastradero fee, potential citywide TIF, and San Antonio/West Bayshore fees.
Fee overlap areas are indicated on Attachment C, though “citywide” is not included in the legend
(since all parcels would be affected by a citywide fee).
Impact Fee Exemptions
It is important to note that development impact fees include a number of exemptions, which vary
widely across fee ordinances adopted by each city. The City of Palo Alto’s impact fee
exemptions are not uniform, and are summarized in Attachment B. Each exemption reflects a
policy decision addressed at the time the impact fee was enacted or amended by City Council.
New development may be exempt from all or some impact fees, depending upon the intended
use as summarized in Attachment B. For ins tance, 100% affordable housing projects (not a mix
of market rate and below market rate) are exempt from current impact fees.
Palo Alto Compared to Other Cities
Council has expressed an interest in comparing Palo Alto’s fee levels with those of surrounding
communities. Palo Alto recently participated in two development fees surveys: one conducted
by Redwood City (April 2005) and another conducted by the City of San Jose on behalf of the
Home Builder’s Association (May 2004 and June 2005). These multi -city surveys calculated
development-related fees and taxes, including permit, construction, and development impact fees
for various project types. They did not include ongoing, non-development-related fees.
Comparison data presented in this report is derived from the data in the surveys plus online
research on fees in each jurisdiction.
Other jurisdictions have addressed fees in a variety of ways. The most common development
fees are implemented to support parks and water/sewer systems or mitigate traffic. Other
jurisdictions have fees designed to support public facilities like libraries and public safety
buildings. Less common fees include those that fund housing and street trees, or are applied as a
general construction tax. Table 1 depicts the array of development impact fees and taxes in a few
jurisdictions in the Bay Area.
Table 1: Impact Fee Types In Various Jurisdictions
Fee type Los Gatos Milpitas San Jose Fremont
Menlo
Park
Redwood
City Palo Alto
Park X X X X X
Housing X X
Traffic X X X X X X
Water/Sewer X X X X X X X
Street Trees X X
Other Facilities X X
Construction Tax X X
CMR:323:05 Page 6 of 12
In addition to different types of fees, each jurisdiction applies fees to different types of
development in different ways. Impact fees for residential projects are usually assessed by
housing unit, whereas fees for commercial projects can be calculated by square foot, car trip,
valuation and many other ways. For comparison purposes the data is presented per dwelling unit
for residential fees (total fees divided by housing units in each survey), and on a square foot basis
for non-residential projects (total fees divided by square footage of each sample project). The
following charts allow Council to compare cities based on total fee levels (permit plus impact
fees) and then on impact fees by fee category.
Residential Fees
It is helpful to look at the total cost of fees added to the cost of development across jurisdictions.
Charts 3 and 4 compare estimated permit and impact fees for single-family and multi -family
residential projects in Palo Alto to 12 other cities. Palo Alto’s current combined impact and
permit fees are around the mid-range compared to other cities for residential projects.
Chart 3: Permit & Impact Fees, New Single -Family Home
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Palo
A
l
t
o
Men
l
o
P
a
r
k
Red
w
o
o
d
C
i
t
y
Mou
n
t
a
i
n
V
i
e
w
Daly
C
i
t
y
San
L
e
a
n
d
r
o
San
M
a
t
e
o
Sun
n
y
v
a
l
e
San
J
o
s
e
Frem
o
n
t
Milp
i
t
a
s
Gilro
y
Mor
g
a
n
H
i
l
l
Impact Fees
Permit Fees
CMR:323:05 Page 7 of 12
Chart 4: Permit & Impact Fees, Multi-Family (per dwelling unit)
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Palo
A
l
t
o
Men
l
o
P
a
r
k
Red
w
o
o
d
C
i
t
y
Mou
n
t
a
i
n
V
i
e
w
Daly
C
i
t
y
San
L
e
a
n
d
r
o
San
M
a
t
e
o
Sun
n
y
v
a
l
e
San
J
o
s
e
Frem
o
n
t
Milp
i
t
a
s
Gilro
y
Mor
g
a
n
H
i
l
l
Impact Fees
Permit Fees
CMR:323:05 Page 8 of 12
Chart 5 examines only impact fees, stratifying the fees charged on a new single family home by
fee type, for Palo Alto and other cities. Fees in other cities range from $7,844 (Redwood City) to
$43,717 (Gilroy). Palo Alto’s current fees total $16,452. Adding the potential
Charleston/Arastradero fee of $928 would bring Palo Alto’s impact fees to $17,380. Adding the
potential TIF of $2,289 would result in a total fee of $19,669, keeping single-family fees for Palo
Alto within the mid-range compared to other cities.
Chart 5: Impact Fees by Type – New Single Family Home
$16,452
$19,669
$32,633
$7,844
$16,200
$11,700
$22,662
$8,219
$15,174
$21,128
$30,666
$35,423
$43,717
$19,834
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
Palo
A
l
t
o
-
C
u
r
r
e
n
t
Palo
A
l
t
o
-
P
o
t
e
n
t
i
a
l
Men
l
o
P
a
r
k
Red
w
o
o
d
C
i
t
y
Mou
n
t
a
i
n
V
i
e
w
Daly
C
i
t
y
San
L
e
a
n
d
r
o
San
M
a
t
e
o
Sun
n
y
v
a
l
e
San
J
o
s
e
Frem
o
n
t
Milp
i
t
a
s
Gilro
y
Mor
g
a
n
H
i
l
l
Do
l
l
a
r
s
p
e
r
U
n
i
t
Sewer/Water Water Capacity Parks/Lib/CC Housing Traffic Other PotentialC/A Potential TIF Total
CMR:323:05 Page 9 of 12
Chart 6 stratifies impact fees charged per multi -family unit, by fee type, for Palo Alto and other
cities. Fees in other cities range from $3,016 (Redwood City) to $31,654 (Gilroy). Palo Alto’s
current fees total $10,375. Adding both the Charleston/Arastradero and TIF fees would bring
Palo Alto’s impact fees to $12,708 ($10,375 + $928 + $1,405), near the mid-range compared to
other cities.
Chart 6: Impact Fees by Type, Multi-Family (per dwelling unit)
$10,375
$12,708
$17,641
$3,016
$13,800
$4,585
$7,562
$5,541
$11,357
$16,503
$24,991
$23,492
$31,654
$15,717
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Palo
A
l
t
o
-
C
u
r
r
e
n
t
Palo
A
l
t
o
-
P
o
t
e
n
t
i
a
l
Men
l
o
P
a
r
k
Red
w
o
o
d
C
i
t
y
Mou
n
t
a
i
n
V
i
e
w
Daly
C
i
t
y
San
L
e
a
n
d
r
o
San
M
a
t
e
o
Sun
n
y
v
a
l
e
San
J
o
s
e
Frem
o
n
t
Milp
i
t
a
s
Gilro
y
Mor
g
a
n
H
i
l
l
Sewer/Water Traffic Housing Water Capacity Parks/Lib/CC Other PotentialC/A Potential TIF Total
CMR:323:05 Page 10 of 12
Commercial Fees
Charts 7 and 8 stratify impact fees by type for Palo Alto and other cities for commercial
development. Current impact fees in Palo Alto are high compared to other cities, primarily due
to Palo Alto’s housing fee ($15.58 per square foot) and area-specific traffic fee ($8.68 per square
foot in the Stanford Research Park/ El Camino Real CS zone).
Chart 7: Impact Fees by Type – Office/R&D (per square foot)
$20.50
$24.17
$29.18
$32.58
$27.96
$15.47
$4.70
$7.90 $6.81
$3.92
$2.27
$4.68 $3.29
$13.75
$-
$5
$10
$15
$20
$25
$30
$35
$40
Palo
A
l
t
o
-
C
u
r
r
e
n
t
Palo
A
l
t
o
-
P
o
t
e
n
t
i
a
l
Palo
A
l
t
o
S
R
P
-
C
u
r
r
e
n
t
Palo
A
l
t
o
S
R
P
-
P
o
t
e
n
t
i
a
l
San
F
r
a
n
c
i
s
c
o
Men
l
o
P
a
r
k
Red
w
o
o
d
C
i
t
y
San
L
e
a
n
d
r
o
San
M
a
t
e
o
Sun
n
y
v
a
l
e
San
J
o
s
e
San
t
a
C
l
a
r
a
Frem
o
n
t
Gilro
y
Sewer/Water Housing Parks/Lib/CC Water Capacity Traffic Other PotentialC/A Potential TIF Total/s.f.
Office/R&D impact fees in other cities cluster in three groups: $2 to $8 per square foot; $13 to
$15; then jump to nearly $28 per square foot in San Francisco. Palo Alto’s current impact fees
for office total $20.50 per square foot. Adding potential Charleston/Arastradero and TIF fees
would bring Palo Alto’s office impact fees to $24.17, well above fee levels in other cities, except
San Francisco.
Impact fees in the Stanford Research Park would increase from $29.18 per square foot to $32.58
if the potential TIF fee is enacted. This fee level is well above other cities, including San
Francisco.
CMR:323:05 Page 11 of 12
Chart 8: Impact Fees by Type – Retail (per square foot)
$20.33
$26.47
$11.63
$6.88
$9.52
$5.80 $5.66 $5.03 $5.59
$23.95
$21.45
$25.53
$0
$5
$10
$15
$20
$25
$30
Palo
A
l
t
o
-
C
u
r
r
e
n
t
Palo
A
l
t
o
-
P
o
t
e
n
t
i
a
l
Men
l
o
P
a
r
k
Red
w
o
o
d
C
i
t
y
San
L
e
a
n
d
r
o
San
M
a
t
e
o
Sun
n
y
v
a
l
e
San
J
o
s
e
Frem
o
n
t
San
F
r
a
n
c
i
s
c
o
Milp
i
t
a
s
Gilro
y
Sewer/Water Water Capacity Housing Parks/Lib/CC Traffic Other PotentialC/A Potential TIF Total
Retail impact fees at other cities cluster from $5 to $12 per square foot, then jump to the $21 to
$25 per square foot range. Palo Alto’s current impact fees total $20.33 per square foot.
The key to impact fees for retail development is exemptions. Palo Alto’s current impact fees for
retail are higher than other cities. However, Palo Alto’s 1,500 square foot exemption allows
existing retail locations to expand moderately without paying impact fees. Also, fees only apply
to new development, so an existing location that changes retail tenants will not be subject to
impact fees unless space beyond 1,500 square feet is added. Adding fees could stifle new retail
growth on vacant lots on El Camino Real or other parts of the city.
In light of the disparity between cumulative impact fees in Palo Alto and other cities, staff plans
further study of Palo Alto’s current fee structure and exemptions. The purpose of this analys is
will be to examine the legal and financial issues associated with adjusting fees prior to making a
recommendation on a citywide transportation impact fee.
RESOURCE IMPACT
Development impact fees provide funding for capital improvements to mitigate the impacts of
new development on a specific public facility. The revenues received each year vary based on
the amount of development occurring in Palo Alto during that timeframe. Fees collected for
various existing fee types for fiscal year 2003-04 (CMR:109:05) were:
Housing: $345,615
Parks: $369,149
CMR:323:05 Page 12 of 12
Libraries: $ 32,455
Community Centers: $ 91,219
Traffic SRP: $ 38,035
Revenues for new fees are estimated at:
Water capacity: $1,000,000 to $3,000,000 per year
Charleston/Arastradero: $819,000 (by the year 2015)
POLICY IMPLICATIONS
Council has the authority to charge new development for its relative share of the cost of specific
public facilities and services, as calculated based on nexus studies. Council also has the
authority, for policy reasons, to restructure fees based on articulated City policies. The
information provided in this report allows Council to consider all existing and potential fees
together to evaluate the cumulative impact on development in Palo Alto. Information provided
in a future analysis will examine existing fee levels and policies, including the legal and financial
issues associated with adjusting existing impact fees in order to facilitate a policy discussion
related to fee levels for both new and existing fees.
PREPARED BY: Libby Dame, Senior Financial Analyst, Administrative Services
Heather Shupe, Administrator, Planning and Community Environment
DEPARTMENT HEAD APPROVAL:
CARL YEATS
Director, Administrative Services
DEPARTMENT HEAD APPROVAL:
STEVE EMSLIE
Director, Planning & Community Environment
CITY MANAGER APPROVAL:
EMILY HARRISON
Assistant City Manager
ATTACHMENTS
Attachment A: Current Development Impact Fees
Attachment B: Palo Alto Development Impact Fee Exemptions
Attachment C: Areas subject to Traffic Impact Fees
Attachment D: Additional Information on Impact Fees in Palo Alto and Other Jurisdictions