CC SR 20240903 H - Development Impact Fee Study
CITY COUNCIL MEETING DATE: 09/03/2024
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to issue a Request for Proposal for a development
impact fee study.
RECOMMENDED COUNCIL ACTION:
(1) Review the Finance Advisory Committee’s (FAC) recommendation to initiate a
development impact fee study (also known as a Nexus Study) to potentially
establish appropriate impact fees for future development projects; and
(2) If deemed acceptable, direct Staff to issue a request for proposals (RFP) from
qualified fee consultants to develop the Nexus Study for consideration by the City
Council at a future meeting.
FISCAL IMPACT: If approved, the City Council action items will not have a fiscal impact
at this time. The request tonight is to initiate the issue an RFP. Once
the RFP process and a draft Nexus Study is completed, Staff will
return to the Finance Advisory Committee (FAC) to further review the
Nexus Study and to determine the next steps. FAC’s
recommendations will then be forwarded for City Council’s
consideration. Should the City Council select a consultant to prepare
a Nexus Study, the typical cost ranges from $30,000 to $60,000,
depending on the scope of the study. VR
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Vina Ramos, Director of Finance VR
REVIEWED BY: John W. Fox, Assistant City Attorney
Catherine Jun, Deputy City Manager
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. None
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BACKGROUND:
On May 30, 2024, in accordance with the FY 2023-24 FAC Work Plan, Staff presented
information on the City’s master fee schedule, including developer fees. The FAC’s FY
2024-2025 Work Plan includes:
• Reviewing and assessing the potential for revenue enhancement by reevaluating
current fees for new development and accessory dwelling units (ADUs) and,
• Considering establishing a joint committee with the Planning Commission.
As discussed in the May 30 FAC meeting, Staff reported that a Nexus Study is required
under the State Mitigation Fee Act for cities to consider adopting Development Impact
Fees (DIFs). This study must demonstrate a connection between the impacts of
development and the public facilities funded by impact fees . DIFs are one-time charges
to new development designed to mitigate the impacts resulting from the development
activity. For example, when new housing or commercial buildings are developed, there
may be a rise in traffic, increased use of parks and public facilities, and greater demand
on public utilities. DIFs can help fund the improvements needed to accommodate these
changes and support the public infrastructure in keeping up with the growing needs.
Although the City maintains a Master Schedule of Fees that covers various service fees
for revenue and cost recovery, it does not currently include DIFs, which is cited in Chapter
16 of the Rancho Palos Verdes Municipal Code (RPVMC) under the Subdivisions
Chapter. The Subdivisions Chapter of the RPVMC and the related DIFs have not been
updated in approximately which would be accomplished through the proposed Nexus
Study. While the Master Schedule covers a broad range of services and activities for
revenue and cost recovery, DIFs are targeted specifically at mitigating the impact of new
development on infrastructure and services.
As a result, and consistent with the FAC’s Work Plan, the FAC asked Staff to provide
additional information on DIFs and the process for establishing them. This information
has been presented and is discussed below, including research conducted by Staff from
various sources such as the Government Finance Officers Association (GFOA), the
California Department of Housing and Community Development, and other California
cities with established DIFs.
Following the presentation, the FAC directed Staff to forward the recommendation to
initiate a Nexus Study, for the City Council’s consideration. The Nexus Study will explore
potential revenue enhancements and help the City better prepare to collect appropriate
impact fees for future development projects.
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DISCUSSION:
I. Development Impact Fees (DIFs)
DIFs are a one-time charge to new development projects, imposed under the Mitigation
Fee Act, set forth in Government Code §§ 66000-66025, most of which was adopted as
part of AB 1600 in 1987.
These fees are charged to mitigate impacts resulting from development activity, covering
all or a portion of the costs associated with building or upgrading public facilities to meet
the increased demands from new development projects
Unlike taxes or special assessments, DIFs are fees that must have a reasonable
relationship to the cost of the services provided by the local agency (as determined by a
Nexus Study). Additionally, DIFs are governed by state laws and local ordinances, with
funds allocated solely for purposes that are permitted under state law. Typically, there is
a time limit within which the collected funds must be expended.
DIFs Methodology
DIFs are calculated to ensure that they are assessed proportionally to the impact created
by any new development, and the proceeds from these fees can only be spent on
expanding or upgrading infrastructure that can be used by the occupants of the new
development in the DIF’s “area of benefit.”, which is typically the vicinity of the
development. This area is defined by a Nexus Study, which determines how the fees
should be allocated to best serve the new development and its occupants.
As outlined in state laws, various methodologies are used to determine impact fees. The
fee calculation considers the following:
• Growth forecasts and level of service
• Capital costs and costs to build a unit of capacity
• New development has a gradual impact on existing water and sewage capacity,
school facilities, and roads. Separate impact fees may be imposed based on the
impact to the area.
• Impact fees are typically distinguished by land -use type, with residential fees
varying between single-family and multifamily units and sometimes by square
footage. Nonresidential developments can be subject to impact fees, such as
water, sewer, and transportation, but typically not for schools.
• Nonresidential impact fees are usually based on square footage and the amount
of impact (e.g., a transportation impact fee would be higher for a high -volume
restaurant compared to a similarly sized office space) or equivalent dwelling units
and meter size for utilities. A separate agreement should be considered to ensure
that the developer and municipality agree on the terms of the credits or
reimbursements (e.g., when the developer is eligible and how much will be
granted).
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Use of DIFs
DIFs can potentially provide a funding source for capital requirements required to meet
the increased impacts and demands associated with new development, which reduces
the burden on the City’s current resources. Most local agencies often use DIFs to cover
the costs of additional public infrastructure and services needed as a result of new
development. Additionally, DIFs can serve as a funding source for reimbursements or
credits to developers who negotiate to provide infrastructure that would otherwise require
public funding.
Overall, DIFs are fees assessed on specific development projects to offset the costs of
new or upgraded public facilities required to serve those developments. Common types
of DIFs adopted by other California cities include:
• Traffic/transportation impact fees
• Parkland facility fees
• Public facility fees
• Public safety (police and fire) fees
• Library facility fees
• Sewer facility fees
• Street infrastructure (i.e. sidewalks, etc.)
RIMER
II. City’s Master Schedule of Fees
State law mandates that City-imposed fees for services cannot exceed the estimated
reasonable cost of providing those services. As a result, on an annual basis, the City
Council reviews and adopts the City’s Master Schedule of Fees, established based on
cost allocation plan studies conducted in 2009 and 2019 fee studies, which were adopted
on April 20, 2021. Since 2021, the City Council has opted to forgo adjustments based on
the Consumer Price Index to keep fees affordable for residents and businesses.
In summary, the City’s Master Schedule of Fees includes the following major fees:
• Permits
• Licenses
• Charges for services
• Reviews – i.e. traffic control, geologic, view restoration, building
• Low Development fees
• Quimby Act fees (parkland dedication fees)
As previously stated, while the City maintains a Master Schedule of Fees that includes
fees for various services, the adopted fee schedules does not include specific one-time
charge of DIFs.
III. Legal Requirements to Establish DIFs
Nexus Study
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State law mandates that a nexus be established between the projected impacts of
development and the public facilities for which impact fees are levied. According to
Government Code Section 66001(a) of the Mitigation Fee Act (Sections 66000 -66025),
any city or county that establishes, imposes, or increases a fee as a condition of
development approval must:
1. Identify the purpose of the fee;
2. Specify how the fee will be used;
3. Demonstrate a reasonable relationship between the fee’s use and the type of
development project on which the fee is imposed; and
4. Establish a reasonable relationship between the need for the public facility and the
type of development project subject to the fee.
Government Code Section 66001(b) further requires the locality to determine whether
there is a reasonable relationship between the specific amount the fee imposed and the
costs of building, expanding, or upgrading public facilities. Such determinations, al so
known as a Nexus Study, must be documented in writing and must be updated whenever
new fees are imposed, or existing fees are increased.
In addition to the requirements of the Mitigation Fee Act, recently the United States
Supreme Court in the case of Sheetz v. County of Eldorado (2024) 601 U.S. 267 held
that legislatively adopted impact fees, such as the fees that would be the subject of the
Nexus Study, must also comply with a separate standard to ensure the fees do not
constitute a taking under the 5th Amendment of the U.S. Co nstitution. That standard,
referred to as the Nollan/Dolan standard requires the agency adopting the fee to
demonstrate (1) the fee has an “essential nexus” to the government’s land -use interest,
and (2) the fee is “roughly proportional” to the developme nt’s impact on the land-use
interest, so as not to require the landowner to give up more than is necessary to mitigate
the harms resulting from their development. Accordingly, the Nexus study will not only
have to comply with the Mitigation Fee Act but also with the Nollan/Dolan standard. This
potentially adds an level of complexity to the analysis in the Nexus Study.
Implementation Requirements
Once the DIFs are established, the Mitigation Fee Act requires jurisdictions to:
• Segregate fee revenues from other municipal funds
• Make certain findings regarding any unexpended funds, whether committed or
uncommitted, within five years of the original deposit and every five years
thereafter
• Prepare a DIF Report available to the public within 180 days after the last day of
each fiscal year
• Allow any person to request an audit to determine if any fee or charge levied by
the city or county exceeds the amount reasonably necessary to cover the cost of
the service provided (Government Code Section 66006(d))
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• Ensure that fees charged for zoning changes, use permits, building permits, and
similar processing fees comply with the same nexus requirements as development
fees (Government Code Section 66014)
• Provide project applicants with a statement detailing the amounts and purposes of
all fees at the time of fee imposition or project approval (Government Code Section
66020)
Estimated Cost
A Nexus Study is conducted by a consultant rather than in-house staff due to their
specialized expertise in legal requirements and best practices, ensuring compliance with
state and local regulations. Also, the service provides an objective assessment, using
data modeling to accurately determine the relationship between development impacts
and public facility needs. Based on the contracts found from various city websites, the
cost to hire a consultant for preparing a Nexus Study typically ranges from $30,000 to
$60,000, depending on the scope of the study. The process to prepare the study can take
a minimum of six months to complete (after the RFP is completed), depending on how
quickly Staff can work with the consultant.
Through the RFP process, proposals will be vetted to ensure the highest quality of work
at a reasonable cost and timeline is achieved. The proposal will be presented to the City
Council for consideration of a service agreement before any work is conducted.
CONCLUSION:
Staff seeks the City Council's approval of the Finance Advisory Committee’s
recommendation to initiate a Nexus Study. This study will explore potential revenue
enhancements and help the City better prepare to collect appropriate impact fees for
future development projects. If approved, the process will begin with issuing a Request
for Proposals (RFP). After the RFP process is completed, the FAC will further review the
findings and make recommendations. Once the FAC has finalized its recommendations,
Staff will present them to the City Council for further consideration.
ALTERNATIVES:
In addition to the Staff recommendation s, the following alternative actions are available
for the City Council’s consideration:
1. Direct Staff not to proceed with a Nexus Study at this time.
2. Take other action, as deemed appropriate.
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