HomeMy WebLinkAbout1998-07-06 City Council (7)City of Palo Alto
C ty Manager’s Report
TO:HONORABLE CITY COUNCIL
ATTENTION: FINANCE COMMITTEE
FROM:
DATE:
SUBJECT:
CITY MANAGER DEPARTMENT:ADMINISTRATIVE
SERVICES
JULY 6, 1998 CMR:292:98
PROPOSED REVISION OF THE METHODOLOGY USED TO
CALCULATE THE IN-LIEU PARKING FEE
REPORT IN BRIEF
In 1994, Council adopted an ordinance (PAMC Chapter 15.57) that provides for the
collection of an in-lieu parking fee and establishes the procedures for its collection and
management. CMR:524:94 (November 28, 1994) was the basis for Council’s consideration
and included the draft ordinance, environmental assessment, and the Nexus Study. The
ordinance became effective in January 1995.
The current in-lieu fee was established by Council, based on staff’s recommendation, in 1994
(CMR:524:94). When the fee was set, staff recommended establishing the in-lieu parking
fee at $19,000 per added stall, which represented the marginal or incremental cost to
construct additional spaces in a feasible, lower cost multi-level structure alternative.
Staff believes a valid argument can be made that the current methodology does not charge
the full cost of providing additional parking spaces. The fee only charges the marginal cost
of new parking spaces, and therefore the original land acquisition costs that were bome by
the Assessment District when a surface lot was created are ignored. New development is
therefore not paying for its share of the land costs that previous development paid for through
the assessment process. The cost of land for parking is a real cost that a developer would
otherwise have topay by providing space on-site for parking rather than pay the in-lieu fee.
CMR:292:98 Pagel of 9
As a result, staff believes it would be appropriate to include an estimate of the value of land
costs as part of the in-lieu fee,,
With Council’s approval, staffwill prepare an ordinance to revise the in lieu fee based on the
highest cost option for parking projects that are under design or construction at the time,
rather than the lowest cost option, as is currently the methodology. At the current time, the
highest cost parking structure under consideration is Lot R. Using Lot R as a basis, the in-
lieu fee would be set at $30,250 in 1998 dollars.
CMR:292:98 Page 2 of 9
RECOMMENDATION
Staff recommends that Council direct staff to prepare an ordinance that would make the
following changes to the current methodology used to calculate the in-lieu parking fee:
Establish the fee based on the highest cost option for parking projects that are under
design or construction at the time, rather than the lowest cost option. At the current
time, the highest cost option being designed is Lot R, and amounts to a fee of $30,250
per in-lieu space in 1998 dollars.
Authorize staff to also adjust the in-lieu fee-to reflect more up-to-date cost
information for parking projects already under design or construction in the following~
instances:
a)at the time when final designs are completed; and.
b)at the time construction is completed.
3.Exclude any bond financing costs from the fee.
Require that a deferred in-lieu payment be calculated at the rate in effect on the date
the deferred payment is actually made, rather than at the time the agreement is
executed.
BACKGROUND
Between 1957 and 1986, Palo Alto relied upon the Downtown Parking Assessment District
to supply parking for downtown development. As a result of the Assessment District, new
commercial buildings in the area were allowed to be built without providing on, site parking.
However, the number of Assessment District parking spaces did not keep pace with
development and the growth in parking demand; by 1985, the available parking in the
downtown was being fully utilized which caused parking intrusion into residential
neighborhoods adjacent to the downtown. . ¯
In 1986,.the City took a number of actions to alleviate the parking problems in the downtown
area, including the adoption of Palo Alto Municipal Code (PAMC) Chapter 18.49 which set
forth parking regulations governing development in the Commercial Downtown (CD)
District. Section 18.49.100(d) provided that the City may receive an in-lieu monetary
contribution (in-lieu parking fee) from an eligible new development in the Assessment
District that was unable to meet the parking requirements. To be eligible to participate in the
in-lieu parking program, sites must satisfy one or more of the following criteria listed in
Section 18.49.100(d):
CMR:292:98 Page 3 of 9
Construction of on-site parking would necessitate destruction or substantial
demolition of a designated historic structure; ,
The site area is less than 10,000 square feet and it would not be physically feasible to
provide the required on-site parking;
The site is greater than 10,000 square feet, but of such an unusual configuration that
it would not be physically feasible to provide the required on-site parking;
The site is located in an area where City policy precludes curb cuts or otherwise
prevents use of the site for on-site parking;
The site has other physical constraints, such as a high groundwater table, which
preclude provision of on-site parking without regular pumping of subsoil water or
other extraordinary expense.
In 1994, Council adopted an ordinance (PAMC Chapter 15.57) that provides for the
collection of an in-lieu parking fee and establishes the procedures for its collection and
management. CMR:524:94 (November 28, 1994) was the basis for Council’s consideration
and included the draft ordinance, environmental assessment, and the Nexus Study. The
ordinance became effective in January 1995. The cost ¯analysis included in the Nexus Study
proceeded through the following steps, leading to recommendation of the amount of the in-
lieu fee:
¯Identification of feasible scenarios for public parking facilities in the Assessment
District.
2.From those, identification of the most appropriate scenarios for implementation.
3.Identification of potential locations for future parking projects, based on consideration
of the development potential and unmet parking demand, and identification of parking
projects appropriate for specific sites; selection of the most likely site and associated
parking project.
4.Determination of the cost to construct a parking stall in the most likely parking
project.
5.Recommendation of the amount for the in-lieu fee, based on the cost per added stall
in the most likely parking project.
There are certain statutory requirements restricting the collection of developer fees.
California Government Code sections 66000-66024 (the Code) allow for, and define various
CMR:292:98 Page 4 of 9
restrictions on the imposition and collection of development fees, such as the parking in-lieu
fee. In any action establishing or increasing a development fee, the local agency is required
to:
1.Identify the purpose of the fee;
2.Identify the use for the fee;
Determine how there is a reasonable relationship between the fee’s use and the type
of development project on which the fee is imposed; and
Determine how there is a reasonable relationship between the need for the public
facility and the type of the development project on which the fee is imposed.
The Code further states that "when a local agency imposes .any fee.., as a condition of
approval of a proposed development...those fees ...shall not exceed the estimated reasonable
cost of providing the service or facility for which the fee...is imposed." (Section 66005a).
Finally, fees and interest eamed on the fees .must be deposited and accounted for in a separate
fund from other agency funds.
DISCUSSION
Current Fee Methodology
The current in-lieu fee was established by Council, based on staff’s recommendation, in 1994
(CMR:524:94). When the fee was set, staff recommended establishing the in-lieu parking
fee at $19,000 per added stall, which represented the marginal or incremental cost to
construct additional spaces in a feasible, lower cost multi-level structure altemative, plus an
additional 10 percent for up-front bond issuance costs related to financing the project. The
lower cost alternative was explicitly recommended by staff, and was selected as a method
to encourage the use of the in-lieu fee as an alternative to on-site parking, because there are
advantages to having additional public parking rather than private, on-site parking.
Considerable Planning Commission discussion took place on the appropriateness of
including or excluding financing costs in the in-lieu fee. In the end; the Commission felt that
the in-lieu fee should only represent the construction cost of providing a parking stall,
because the in-lieu fee, being a cash payment, requires no financing. Thus, the Commission
recommended that the in-lieu fee be established at $17,300 (i.e., not including the bond
issuance costs).
In the City Council discussion; the Council ultimately decided that a portion of the initial
financing costs, i.e., the fixed portion, would be a reasonable compromise to legitimately
include in the fee. The City Council ultimately approved an in-lieu parking fee of $17,800,
CMR:292:98 Page 5 of 9
which included only the fixed portion of the bond issuance costs. The fee has since increased
from $17,800 to its current amount of $18,291 per stall (as of July 1, 1998), through annual
adjustments based on the San Francisco Bay Area Construction Cost Index (CCI). Again,
that amount represents the marginal cost of providing additional spaces in a lower cost multi-
level alternative.
Given that the City is beginning a process to construct two new parking structures
downtown, and given that cost estimates for those structures are more up to date than 1994
estimates, it is appropriate to revisit the in-lieu fee at this time. Staff believes that the
methodology for determining which costs are appropriate to include in the fee should be re-
evaluated, particularly in light of recent public comment and Council questions regarding the
current fee level and methodology.
Cost Components for Recommended Methodology for Calculating In-lieu Fee
The current methodology for establishing the in-lieu fee uses the construction and design
costs for a multi-level parking structure on a large parcel. The Cowper/Webster Garage was
explicitly chosen as the model in the Nexus Study. A more expensive model would be either
a multi-level structure that contained one or more below ground and completely enclosed
levels, or a multi-level structure on a smaller lot with relatively fewer net additional spaces,
such as the case with the proposal for Lot R.
Staff believes a valid argument can be made that the current methodology does not charge
the full cost of providing additional parking spaces. The fee only charges the marginal cost
of new parking spaces, and therefore the original land acquisition costs that were borne by
the Assessment District when a surface lot was created are ignored. New development is
therefore not paying for its share of the land costs that previous development paid for through
the assessment process.
All existing annual downtown parking assessments charged to property owners either pay
for the costs of the land initially acquired and made into surface parking lots, or (as has been
the case in the more recent assessments) for the cost of subsequently constructing parking
structures on those lots. The formula for the annual assessment is based on the contribution
to the parking deficit that a given building makes. !n other words, the assessment process
recovers the costs of both land and construction for parking based on parking needs for
existing square footage. In contrast, the in-lieu fee is charged only when there is an
expansion of square feet.
In effect, no past parking assessment has been charged a developer or property owner for any
new square footage added downtown. Because the new development has not paid for any
land costs for the additional parking required, the in-lieu fee charged on new development
really should include land costs as well as the construction costs.
CMR:292:98 Page 6 of 9
The cost of land for parking is a real cost that a developer would otherwise have to pay by
providing space on-site for parking rather than pay the in-lieu fee. If the City were not to
provide its existing Assessment District land for parking, then the alternative for a developer
would be to either buy additional land for parking, or to reduce the size of the project to
accommodate more on site parking.
As a result, staff believes it would be appropriate to include an estimate of the value of land
costs as part of the in-lieu fee.. Because including land costs would represent a significant
policy shift, as well as raise the in-lieu fee significantly, staff from the City Manager’s
Office, Administrative Services Department, and Transportation met on two occasions with
major downtown property owners to go over the numbers and receive comments on this idea.
The feedback that staff obtained from the property owners was that Charging for land costs
appeared fair in concept, but had some practical difficulties.
The value of land downtown varies from block to block, and depends on a variety of
complex factors such as location, street access, and the floor area ratio allowed for
development on that property. Because it would be difficult to agree on an appraised value
for land downtown, and because such a valuation would involve a complex formula to adjust
for land value variations, staff does not recommend an explicit inclusion of land costs into
the calculation of the fee itself. Rather, staff believes it would be more practical to
administer the in-lieu fee by charging an amount that substitutes for land costs in a fair
manner.
One way to include an estimation that approximates or substitutes for land costs is to change
the current methodology from using the low-cost parking project to using the high-cost
parking project to establish the fee. The Nexus Study recommended the low-cost project in
order to avoid being "unfair to an individual property owner who wishes to develop a
¯ downtown property .... (and having) to pay a fee that might be higher than needed." For
example, in Table 2 ofCMR: 183:97 (March 24, 1997), attached, Lot R has construction costs
per added parking stall 0f$29,200. (This equals $30,250 in 1998 dollars.) Lots S and L, in
contrast, have costs per stall of $21,300 (all expressed in 1996 dollars). The difference
between the two is $7,900, which approximates the cost of land (see below)..
The 1994 Nexus Study estimated land costs per parking space to be about $6,200, or $100
per square foot. A recent appraisal (September 1997) done by Hulberg and Associates for
an easement on Lot F on Florence Avenue also estimated $100 per square foot for land costs.
Because the September 1997 appraisal was for property, in the downtown that is not
necessarily representative of some of the higher cost parcels of land downtown, staff believes
$6,200 is on the low side of the cost of land downtown, and that the $7,900 difference
between the low and high cost parking structures (i.e., between Lot Rand Lots S/L in the
attached table) is a better approximation of the cost of land.
CMR:292:98 Page 7 of 9
Financing costs
Staffalso recommends that bond financing costs be excluded from the in-lieu fee calculation.
This is a change to the current methodology, in which the initial fixed fmancing costs (legal,
financial advisory, and underwriting costs, etc.) are included in the in-lieu fee. However,
because the City obtains the in-lieu fee up front from’developers, and because no bond
financing would be necessary if all developers paid an in-lieu fee up front with cash, staff
believes it would be more appropriate to omit financing costs.
Revision of Deferral Provision
The current, in-lieu fee ordinance requires that the fee be paid in full prior to issuance of a
building permit. If the project owner enters into an agreement with the City, the owner may
defer payment of the fee until the date of final building inspection approval, typically about
one year atter building permit issuance. In the cases of deferral (used in two of the four in-
lieu projects to date), the full amount of the fee is calculated at building permit issuance
(when the agreement is signed), even though the fee may not actually be paid until the
following year. This results in the City’s receiving an in-lieu payment that was calculated at
the prior year’s rate which, on the average, increases about 2 percent annually--the average
yearly increase in the CCI since staff started applying this index to traffic impact fees in
1989.
The current deferral agreement therefore results in an underpayment to the University
Avenue Parking Assessment District In-lieu Fund (the Fund). This loss means that all of
the property owners in the Assessment District will end up having to pay slightly more of an
assessment the next time a new parking structure is built. For equity purposes, staff therefore
recommends for equity purposes that the ordinance be modified to require that the deferred
payment be calculated at the rate in effect on the date the deferred payment is actually made.
This modification would apply only to future deferral agreements, not to agreements that
have already been signed and the fee not yet paid.
RESOURCE IMPACT
Funds collected from the in-lieu fee are deposited into a separate fund, the University
Avenue Parking Assessment District In-Lieu Parking Fund, (In-Lieu Fund). Funds are used
only to defray the costs of the next parking facility that is constructed in the District.
Increasing the in-lieu fee will increase the amount available in the In-Lieu Fund, and will
therefore incrementally lower the annual assessment charged. If property owners do not
approve the assessment in a mail balloting procedure, as required by Proposition 218, then
the in-lieu fees collected would need to reside in the In-Lieu Fund until sufficient funds were
available to provide additional parking. Dollars available in the In-Lieu Fund are estimated
to total about $1.4 million for 75 unbuilt parking spaces, including interest, as of June 30,
1998. (This does not include the in-lieu fee to be paid at final building inspection for 24
spaces for the 390 Lytton project, or the fee to be paid for 9 spaces for the 400 Emerson
project.)
CMR:292.’98 Page 8 of 9 ~
POLICY IMPLICATIONS
Staff’s recommendation is consistent with the draft Comprehensive Plan, which states that
the City should "Provide sufficient parking in the University Avenue/Downtown and
California Avenue business districts to address long-term needs" ( Policy T-45).
Staff’s recommendation to include a surrogate for land costs in the in-lieu fee is a shift in
current policy. It results in a higher fee, which could potentially lessen the desirability of
developing smaller parcels downtown. Where developers use the in-lieu fee to pay for some
of the required spaces, the higher fee could result in a shift towards more private, on-site
spaces instead of the public in-lieu spaces. Provision of public parking results in more
intensive use of stalls than if they were reserved for a particular business. The actual affect
of a higher in-lieu fee on downtown development and on the provision of private versus
public parking is unknown. Staff believes, however, that the impact of the recommended
higher in-lieu fee will be only a marginal factor in private decisions made about providing
on-site versus public parking.
ENVIRONMENTAL ASSESSMENT
The Council approved a negative declaration for the project in 1994.
ATTACHMENT
Attachment A: Table 2 of CMR: 183:97
PREPARED BY:Jim Steele, Manager of Investments and Debt
Carl Stoffel, Transportation Engineer
DEPARTMENT HEAD APPROVAL:
CARL YEATS¢/
Director, Administrative Services
CITY MANAGER APPROVAL:
EMILY HARRISON
Assistant City Manager
CC:Chamber of Commerce (Susan Frank)
Downtown North Neighborhood Association
University South Neighborhoods Association.
Chop Keenan
Jim Baer
John Baer
Ed Storm
Roxy Rapp
Warren Thoits
CMR:292:98 Page 9 of 9
ATTACHMENT A
attended the meeting. Comments received at the meeting varied from general support
constructing multi-level parking structures at both sites (Lot R and Lots S/L) to not
providing additional parking, but rather regulating the demand for parking by charging for
parking and implementing a local shuttle bus service.
In preparation for the current discussion before the Policy and Services Committee and
Finance Committee, approximately 1,000 notices (Attachment 8) were mailed to property
owners within the Downtown Assessment District, downtown merchants/tenants,
neighborhood representatives, and member of boards and commissions. Notices were
also published in the Palo Alto Weekly and Daily.
Rc_c_om m ended Plan
The recommended plan is to proceed with the development of (1) a multi-level structure
on the existing City parking Lots S/L site (four elevated decks, one at-grade level, and two
below grade), and (2) a multi-level structure (three elevated decks and one at-grade level)
on the existing City parking Lot R site.
The recommended plan is expected to yield up to 729 additional parking spaces, at a total
cost of approximately $19.1 million (1996 dollars) or $26,300 per added stall. With the
addition of four years of cost increases (at 3 percent per year), the total cost of the
recommended plan to build two parking structures would be approximately $21.6 million
(2000 dollars) or $29,600 per added stall. The following table shows the relevant details.
SUMMARY COSTS ~’TABLE 2.
No. of Existing Spaces
No. of Additional Spaces
Total Co~truction Cost
Construction Cost per Addzd Space
ToUd Cost (including financing)
Total Cost per Added Space
19965
20005
19965
20005
19965
20005
19965
20005
TotalAnnu~ Assessment(6.75%;20yrs)19965
20005
AverageAnnual AssessmenffSquareFoot 19965
20005
Lot R
139
$4.6 million
--~ $29,200 :.
$32,800
$4.7 million
$5.3 million
$34,100
$38,400
$439,000
$494,000
$0.21
$0.23
Lo~ S/L
109
590
$12.6million
$14.2mi~on
$21,300
$24,000
$14.4million
$16.3million
$24,500
$27,600
51,337,000
$1,504,000
$0.59
.50.67
Total
180
729
$16.7 million
$18.8 million
$22,800
$25,700
$19.1 million
$21.6 million
$26,300
$29,600
$1,776,000
$1,998,000
CMR:183:97 Page 31 of 37