TO: Board of Supervisors
FROM: Ryan J. Alsop, Chief Executive Officer
REPORT BY: Becky Craig, Assistant Chief Executive Officer and Jennifer Palmer, Director of Housing & Community Services
SUBJECT: Development Impact Fees Studies
RECOMMENDATION
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Receive presentation of Development Impact Fee Nexus Studies for Transportation and Affordable Housing and Commercial Linkage and provide direction. (No Fiscal Impact)
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BACKGROUND
A development impact fee is monetary exaction other than a tax or special assessment that is charged by a local governmental agency to an applicant in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development project. (Gov. Code § 66000(b).) The legal requirements for enactment of development impact fee programs are set forth in Government Code §§ 66000-66025 (the "Mitigation Fee Act"), the bulk of which were adopted as 1987’s AB 1600 and thus are commonly referred to as “AB 1600 requirements.” A development impact fee is not a tax or special assessment; by its definition, a fee is voluntary and must be reasonably related to the cost of the service provided by the local agency. If a development impact fee does not relate to the impact created by development or exceeds the reasonable cost of providing the public service, then the fee may be declared a special tax and must then be subject to two-thirds voter approval. (Cal. Const., Art. XIII A, § 4.)
In August 2024, the County hired a consultant to determine the nexus of development to certain impacts and calculate in-lieu fees for four programs: Affordable Housing, Transportation Mitigation, Woodland Conversion, and the water and sewer connection fees for LBRID and NBRID. The first three fees would apply to all development projects in the unincorporated area while the utility connection fees programs apply to limited services areas. The water and sewer connection fees study for LBRID and NBRID is an update and will be presented separately. A woodland conversion in lieu mitigation fee program is contemplated in the general plan. Staff continue to study valuation and methodology options.
The Affordable Housing and Transportation Mitigation studies identify the maximum rates the County may levy by category of development and the Board may establish any fee up to the calculated maximum. The development categories include residential construction and commercial/non-residential by type. The reason to adopt the maximum rate allowed is to recognize developments’ fair share and to collect all revenues allowed by law. There are multiple reasons entities adopt impact fees at less than the maximum rate, as follows:
-one type of development may be underrepresented in the jurisdiction and the entity chooses to incentivize it, or
-development projects may not proceed if costs make projects unprofitable, or
-developers have choices where to locate and a jurisdiction chooses to remain competitive with its neighbors, or
-entities may apply other funding sources, including grants.
Any portion of the impact fee program that is not charged to development is an obligation of the entity.
Transportation Mitigation
The County currently mitigates for traffic improvement impacts in the Airport Industrial Area (AIA) with a fee program. The attached study encompasses all projects in the unincorporated area excluding the AIA. Public Works staff identified six intersection roundabouts and four bicycle lane projects from which new development outside of the AIA would benefit. All proposed improvements would be public infrastructure and payment of fees would mitigate future developments’ offsite countywide traffic impacts. The consultant reviewed existing traffic impacts and potential development impacts and determined that the portion attributable to future development would be 20% of the total proposed intersection impacts and 100% of the bicycle lane enhancements. The study analyzed winery visitation in depth to ensure its impacts were captured. The County has not programmed funding any portion of the existing deficiency in its five-year capital outlay forecast. Collecting fees for 20% of the projects without a plan to construct would violate AB 1600 reporting requirements.
Staff recommend the Board accept the proposed Transportation Impact Fees nexus study and not adopt a fee.
Affordable Housing
The County adopted an Affordable Housing Fund Ordinance in 1992, which created the Affordable Housing Fund to assist with funding the development of affordable housing in Napa County. The Ordinance was based on a Jobs-Housing Nexus Study conducted by the County and established a housing impact fee on non-residential construction and an inclusionary housing requirement on residential construction. The non-residential component of the program was updated and revised in 2004 and again in 2014; the residential component was last revised in 2010. The current inclusionary program has an in-lieu fee option available to all new construction and all residential projects have paid the in-lieu fee. The purpose of a nexus study is to quantify and document the linkages among construction of new workplace buildings, the employees who work in them, and the demand for affordable housing. Likewise, nexus studies explore the linkages between new residential construction, the expenditures of new households in Napa, new jobs generated by the expenditures, and the demand for additional affordable housing units. It estimates the number of new jobs created based on the development type and how many new workers will not earn enough to afford market-rate housing, thus requiring affordable options. The analysis establishes a legally defensible connection (“nexus”) between the impact of new development and the need for Affordable Housing and translates that into a fee per square foot of new commercial or market-rate residential development by size and type.
Affordable Housing Impact Fees are a cost-recovery mechanism, not an assessment or tax. The fees recover a portion of or all the costs incurred by the County to provide the affordable housing need generated by the new development. At the full fee, the County fully covers the necessary revenue to develop the required housing. Any reduction in fees results in the need to identify outside revenues to fill the gap between the funding needed and the fee amounts collected. The Affordable Housing and Commercial Linkage Impact Fee Study (“Nexus Study”) determined the maximum justified housing impact fees supportable under state law, shown below.
Maximum Justified Affordable Housing Impact Fee per Square Foot Schedule
New Residential Rental Unit $152.00
New Residential For Sale Unit $86.00
Commercial - Office $367.00
Commercial - Hotel $405.00
Commercial - Retail/Restaurant $584.00
Commercial - Industrial $154.00
Commercial - Warehouse/Storage $50.00
The County can adopt any amount up to those shown above. The Affordable Housing and Commercial Linkage Fee Financial Feasibility Analysis provides policymakers with analysis of the net fee capacity for each of the development types included in the Nexus Study. Net fee capacity refers to a project’s total revenue or residual value after all costs. The analysis assumes that if the residual land value is less than the cost to acquire that land and build the project, the project is not feasible. The study includes an alternative feasibility analysis method that can be applied for certain developments that are built by owner-operators, such as privately owned wineries. The alternative analysis uses a total development cost model to consider the feasibility of fees within 1-3% of the project’s overall construction cost.
Staff recommend the Board adopt the Affordable Housing Impact Fees at less than the maximum rates identified in the Napa County Affordable Housing and Commercial Linkage Fee Financial Feasibility Analysis nexus study. The staff recommended fee levels seek to balance the need for increased cost recovery from new developments without adversely impacting project(s) feasibility such that there is a significant slowing of desired commercial and residential development projects. The proposed fees incentivize the construction of smaller residences and agriculturally-focused commercial businesses in the office, industrial and warehouse sectors.
Residential:
0-1,199 sq ft 0% of max $86/sq ft = $0/sq ft
1,200-1,999 sq ft 25% of max $86/sq ft = $21.50/sq ft
2,000-2,999 sq ft 50% of max $86/sq ft = $43.00/sq ft
3,000+ sq ft 100% of max $86/sq ft = $86/sq ft
ADU/2nd Dwelling:
0-750 sq ft 0% of max $86/sq ft = $0/sq ft
750-1,999 sq ft 25% of max $86/sq ft = $21.50/sq ft
2,000+ sq ft 100% of max $86/sq ft = $86/sq ft
Multi-Family: 0% of max $152/sq ft = $0/sq ft
Commercial:
Office 4% of max $367/sq ft = $14.50/sq ft
Hotel 25% of max $405/sq ft = $101.25/sq ft
Retail/Restaurant 10% of max $584/sq ft = $58.40/sq ft
Industrial/Manufacturing 5% of max $154/sq ft = $7.75/sq ft
Warehouse/Storage 15% of max $ 50/sq ft = $7.75/sq ft
Staff further recommends fees be adjusted annually per the construction cost index (CCI) to ensure market value is maintained and be suspended for the duration of the performance period if a regional housing bond is passed by the voters. Staff will present annual reports on revenue collection and projects.
Procedural Requirement:
1. Receive staff report
2. Public comment
3. Discussion and direction
Requested Action: Direct Staff to prepare an ordinance with intent to adopt the Affordable Housing and Commercial Linkage Fee Study and Affordable Housing and Commercial Linkage Fee Financial Feasibility Analysis and increase related fees.
FISCAL & STRATEGIC PLAN IMPACT
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Is there a Fiscal Impact? |
No |
ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION: The proposed action is not a project as defined by 14 California Code of Regulations 15378 (State CEQA Guidelines) and therefore CEQA is not applicable.