PURPOSE     

The purpose of this report is to update the City Council on the status of the development impact fee nexus study and to initiate Council discussion on the completion of the study and adoption of the updated fees. 

BACKGROUND

In 1989, the California Mitigation Fee Act (AB 1600) was adopted by the California State Legislature, giving cities and counties the authority to implement development impact fees.  Development impact fees are fees charged to new development projects whose proceeds are used to offset the impacts from new development.  They can be used for such infrastructure projects as arterial roads, storm drainage systems, police and fire facilities, parks, or libraries, to name a few.  Development impact fees cannot be used for ongoing maintenance, for staffing, or to solve existing deficiencies.  In order to impose development impact fees, a reasonable connection or nexus must exist between the new development and the improvement of a facility for which the fees are to be assessed.  Additionally, impact fees must be used for the purposes for which they are collected, otherwise the revenues received must be returned, in the same proportion as they were paid. 

In April 1993, the City of Burbank took advantage of this legislation and adopted its first development impact fees.  The concern at the time of adoption was that new development, particularly multi-family development was impacting City facilities and services, thereby diminishing the level of services provided to the existing population.  A nexus study was conducted and fees were implemented for both residential and non-residential development.  Since the inception of the City�s development impact fees in 1993, $4,141,270.71 have been collected in Community Facility (non-transportation) fees.  Proceeds have been used to partially fund such projects as the Police/Fire Headquarters, the relocation of the Emergency Operations Center (EOC), the Buena Vista Branch Library, South San Fernando Park Improvements, the Burbank Unified School District (BUSD) Soccer Field, McCambridge Park Improvements, and Earthwalk Park. 

In early 2003, staff began looking at the City�s development impact fees to determine whether or not the fees were adequate.  An in-house committee was formed with representatives from the Community Development, Police, Fire, Library Services, Park, Recreation & Community Services, Information Technology, and Public Works Departments and the City Attorney�s Office.  The committee met on several occasions to review the existing fees and to conduct a preliminary assessment of the future needs of the City.  It was determined that an update of the City�s development impact fees may better reflect the existing and future responsibilities of the City as it prepares for the management of its growth. 

At the September 16, 2003 City Council meeting, staff presented its findings to the Council and was directed to conduct a nexus study for the purposes of updating the City�s community facility (non-transportation) development impact fees.  The consultant group, Economic & Planning System, Inc. (EPS) was retained to assist staff with this effort.  Since this time, staff, with the help of the consultant team has utilized land use projections and formed fee methodologies to develop a Capital Improvement Program that will represent the City�s best effort in offsetting the impacts from new development.  Staff is proposing to update all existing fee categories and to implement new fees for the Information Technology and Public Works Departments, and a fee for the provision of child care facilities.  The categories of the land use development have not changed considerably since the first Study and are made up of the following groups[1]:

The product of this effort is the Administrative Draft Report, Development Impact Fee Update (Exhibit_A).                                                                                                                                                        
ANALYSIS

The goal of the study was to identify the existing and future needs of the City and to develop a comprehensive list of capital projects designed to offset the impacts that new development has on City facilities and services.  In order to meet this goal, staff looked at the long-term impacts of new development by assessing how much development would occur by land use.  A service standard or methodology was then established as a way of measuring the level of service that is currently provided, and of identifying what will be needed to maintain the existing level of services.  This effort culminated in the development of a Capital Improvement Program � a thorough list of projects representing the City�s plan for managing the growth that is envisioned in the City of Burbank.

Projections

The land use projections utilized in this study are based on the projections being developed for the General Plan Transportation and Land Use Element updates.  In 1995, an extensive survey was conducted to establish the number of existing residential units and non-residential square footage in the City. Additional development occurring after 1995 was tracked using monthly building permit record tallies and was included, allowing staff to establish the 2000 base year data used in this Study.  The forecast numbers for new commercial development were refined with input from the Planning and Housing and Redevelopment Divisions, who worked to locate, define and quantify future development projects in each of the City�s redevelopment areas that were likely to occur by 2025.  For industrial areas where information about future projects was not known, an average Floor Area Ratio (FAR) was developed based upon current zoning limits, economic viability, likely turnover, and improvement of sites, to predict the amount of development that was likely to occur in these areas.  For areas of the City outside of redevelopment project areas, an assumption was made that turnover of properties would not result in a net increase of square footage.  These areas primarily consist of strip-commercial development along major arterials. 

The forecast for residential units was based on numbers assigned to the City of Burbank by the Southern California Association of Governments (SCAG) for the year 2030 and extrapolated back to 2025.  Residential projects identified for likely construction in redevelopment project areas were identified, and a portion of the SCAG housing numbers was distributed to these sites. The balance of these housing units was distributed throughout the City�s multifamily residential areas.

From the first nexus study in 1993, growth in the City occurred slower than was initially projected.  Although accurate in the industrial and retail categories, both office and residential development were significantly less than anticipated.  From a historical perspective, the baseline data utilized for office development in the first study was inaccurate, which led to forecasting errors.  For the residential categories, the forecasted residential units were based on numbers assigned to the City of Burbank by the Southern California Association of Governments (SCAG) and were also less than projected.  While historical SCAG projections have not turned out to be entirely accurate, SCAG projections are deemed to be the best available source for residential growth projections and were therefore used for this analysis.

State housing law requires that each city and county in California plan to provide its "fair share" of housing to meet housing demands throughout the state.  Through the Regional Housing Needs Assessment (RHNA) process, the State Department of Housing and Community Development assigns a regional housing share to the Southern California Association of Governments (SCAG) and other regional planning organizations throughout the state, which in turn allocate the regional shares among all of the jurisdictions in each region.  Cities are required to show through the General Plan Housing Element that adequate sites are available within the city to satisfy its share of the regional housing need.  These needs assessments, conducted by the state and SCAG every five years, provide guidance to the city in planning for future housing growth.  The densities and development standards adopted in the General Plan and Zoning Ordinance must allow for at least enough additional housing development to satisfy the city's share as identified through the RHNA. SCAG projections are conservative and are generally much higher than actual residential growth.  The City of Burbank utilizes SCAG projections for three reasons: 1) they represent the best available data; 2) to conform with the legal requirement and; 3) to plan for the highest possible development scenario, in terms of residential growth.

Although no perfect set of projections can ever be reached, staff is confident that the methods used to develop the non-residential projections are representative of development that can likely occur through 2025.  For the residential categories, the estimation is based on the projected number of units that could be built in the City as forecasted by SCAG.   

Fee Methodology

In order to develop a fee for each development category (i.e. single family or office development) a fee methodology had to be developed.  For each department, the capital needs of that particular department were identified, the baseline data was then established, and using the previously identified land use projections, the fee for each land use development type was formed. For instance, the Parks, Recreation, and Community Services Department maintains 16.82 acres of neighborhood parkland[2].  In the year 2000, Burbank�s population was 100,316 residents[3].  By measuring the amount of parkland space in terms of the number of residents, a service standard or baseline for neighborhood parks was able to be identified.  In Burbank, the standard to be maintained is 0.17 acres of neighborhood parkland per 1,000 residents.   As a result of new development and the accompanying increase in residential population, if no additional neighborhood parkland is developed, the ratio of 0.17 acres of neighborhood parkland per 1,000 residents will decrease, thereby diminishing the level of service to the existing population.  It is projected that 991 new single family units and 7,768 new multi-family units will be developed through 2025.  Currently, there are 2.61 persons per single family household and 2.20 per multi-family household, which, based on growth projections suggests that 19,273 additional residents will live in Burbank by 2025.  As a result of this projected growth, 3.23 acres of additional neighborhood parkland will be needed to maintain the existing level of service to the community.  At an average cost of $2,328,000 to acquire, develop, and improve one acre of neighborhood parkland in the City, $7,523,002 will be needed to maintain the existing level of neighborhood park service to the community.

It is important to note that each of the methodologies for each department are somewhat different.  Instead of using acres per resident as the baseline factor, as was used for the parks fee, the fee for the Police Department utilizes the number of calls for service per resident and non-resident as a tool for measuring the existing level of service.  Then, based on growth projections and the accompanying number of additional calls for service that are anticipated, the number of new equipment or facility space needed to maintain the existing level of service is reached. 

Unlike neighborhood parkland that is only impacted by residential growth, the Police Department must respond to calls for service from all land uses and accordingly new development, in all land uses should be assessed.  In order to ascertain the proportion of police service calls made from each land use, a standard had to be developed that quantified the level of demand for police service by land use.  To determine the appropriate split of service calls between land uses, the City�s Geographic Information System (GIS) capabilities were employed and staff was able to geo-code, or assign a land use to each call for service that was made in 2002.  This method enabled staff to determine the exact level of demand for police services, by land use.  Staff was then able to assign fees to each land use accurately and proportionally.

For those departments that did not have the benefit of having information that accurately identified the level of service by land use, a service population standard was implemented that takes into account demand from both residents and non-residents.  For instance, the Library Services Department knows that a certain percentage of its patrons are Burbank residents.  However, they do not know how many of those residents live in single-family or multi-family areas, or whether those patrons both live and work in Burbank.  Further, the remaining percentage may not all, by default work in Burbank.  It can be argued that a significant percentage of library patrons do not live or work in the City.  As a result, in departments where it is assumed that both the residential population, to a larger degree, and the non-residential employees, to a lesser degree, utilized its services (when no empirical evidence existed that could be used to establish a level of service by land use), a service population ratio was utilized.  This ratio or �service population� is defined as population plus 0.3 of employment, reflecting the differing degrees of demand for services each group represents.  Examples of where this service standard was used included parks equipment and community and hillside parks, Public Works equipment and facility space, Library Services equipment, and Information Technology equipment.

Capital Improvement Program

As mentioned, the result of combining growth projections and service standards led to a Capital Improvement Program designed to offset the impacts from new development.  As long as a nexus, or relationship can be established between the fee and the project that dictates the reason for the assessment, any type of capital facility or improvement can be included in the Capital Improvement Program.  Earlier in this report, the example of neighborhood parkland was used to show the additional parkland needed to serve additional population.  This type of project is 100% driven by new growth (i.e. if residential population remained static, no additional parkland would be needed to maintain the existing service standard).  However, it is also acceptable to include projects in the Capital Improvement Program that are not 100% driven by new growth, as long as the portion that is assessed to new growth is proportional to the impact that new development incurs.  In this Study, both types of projects have been included in the Capital Improvement Program.  Some of the more standard projects included in the Program include parkland acres, facilities space, and vehicles.  Projects that are not necessarily dictated by new growth, but will benefit new growth, include such projects as the Debell Clubhouse Project and the Information Technology Wireless Bridge Network. 

The total cost for the all projects included in the Capital Improvement Program is $87,166,601.  Most projects are driven by new growth; however, $16,996,025 of the $87.2 million is not attributable to new growth and must be funded through alternative funding sources.   Although these sources do not have to be readily identified, the City Council should note that all projects included in the Capital Improvement Program must be built, or the impact fee revenues must be returned.

Fire Department

To offset the impacts from new development, the Fire Department�s portion of the Capital Improvement Program consists of a Rescue Ambulance category and a Truck Company category.  After a specified number of calls for service is reached in a given year, the Fire Department has a policy of increasing the number of service vehicles.  For instance, the addition of another rescue ambulance is needed when the benchmark of 7,000 calls for service is reached. Based on the cost of each apparatus, in addition to the number of replacements through 2025, the total cost attributed to new development for Fire equipment is $2,257,500. 

Police Department

The Police Department developed the following categories as a part of the Capital Improvement Program: unmarked vehicles; marked vehicles; motorcycles; parking control vehicles; animal shelter space; range training center; and evidence storage facility space.  The total cost for the Police Department�s portion of the Capital Improvement Program is $7,525,010.  All equipment and facilities are 100% attributable to new growth, with the exception of the evidence storage facility and the communications system, which will be funded both by the City�s existing operating funds and also by new development. 

Parks & Recreation Facilities

The Parks, Recreation, & Community Services Department prepared the following list of projects to be included in the Capital Improvement Program: facilities space including community center and administrative space; vehicles & equipment; neighborhood park, community park, and hillside park development; the Debell Clubhouse project, and the Ovrom Park project[4].  Parks & Recreation facilities account for the largest driver of the fee, with total project costs of $44,577,213.  This is primarily due to the significant cost of acquiring land in the City.  In order to offset the impacts from new development, the Study called for 27.6 acres of additional community parkland for a total cost of $64,252,800.  Given the lack of developable parkland space in the City, it was determined that approximately 10 acres of land could be acquired in the future for the development of community park space.  As a result, the total community park space was administratively reduced to 10 acres with acquisition and improvement costs of $23,280,000.  Other categories such as neighborhood park development and park maintenance equipment also constituted higher than average totals, which contributed to the overall cost of the Parks & Recreation Facilities category.

Public Works

During the first impact fee study in 1993, a fee for Public Works was never implemented.  The proposed new category for Public Works would include cars and trucks, equipment, and shop facility space.  The high cost of equipment in addition to the replacement costs sets this category at $7,901,902.

Library Facilities

The Library Services Department is proposing to add: library space; volumes; public computers; and a Radio Identification System to the list of capital items.  The Radio Identification System is an electronic tracking system that will provide self check-out opportunities for library patrons.  With the exception of this item, all other equipment is 100% attributable to new growth.  The total cost attributable to new growth for these projects amounts to $4,857,614.

Information Technology Department

Like Public Works, the Information Technology fee would be a new fee covered under the City�s development impact fees.  The Information Technology Department developed the following categories as a part of the Capital Improvement Program: city-wide wireless bridge network; new servers/portals for E-government; expansion of the fiber optic cable network; expansion of the City�s security equipment; modernization/expansion of the Geographic Information System (GIS) program; and, improvement of the disaster recovery system.  Since these items are not triggered by new growth, only 20% of the costs, or new development�s �fair share� will go towards funding these capital items.  The total amount attributable to new development for this category is $596,104

Child Care Fee

The child care fee addresses the need for child care services for residents and non-resident employees.  Based on existing service standards, 22,623 square feet of land would need to be acquired and improved with a 6,621 square foot facility.  The average acquisition costs of commercial land in the City was combined with the estimated improvement costs of a child care center[5]; $2,455,233 would be needed to construct the new center and maintain the existing level of services to the community.

Administration Fee

During the Fiscal Year 2004-05 budget cycle, the Community Development Department proposed a 5% surcharge be added to the Community Facility (non-transportation) Fee.  The Building Division calculates, tracks, and distributes the Development Impact Fees for other city departments, but receives no compensation for the costs associated with administering the program.  Due to an increase in Building activity, the division expected to collect $23,750 in additional revenue from the new surcharge and that these revenues be used for the Division�s Accela maintenance costs (computer tracking software) and for acquiring new user licenses for other staff in the department, including Planning and License & Code Services. 

This study is proposing to include an administrative fee for this very purpose.  However, since the proposed fees are higher than the existing fees, the costs associated with administering the program are proposed at 2% of impact fee revenue.  Staff recommends that the administrative fee cover these costs and that depending on the outcome of the fees, the ultimate Administrative fee percentage, reflect these costs. 

Revenue

The revenues generated by development impact fees are dependent on the level of new construction.  Under the proposed rate structure and assuming construction activities occur at the anticipated levels, as illustrated by growth projections, the maximum amount that the City could receive is $71,573,987 in revenue through 2025[6].  If the current impact fees were to remain unchanged with the current growth projections, the maximum amount that the City could receive would be $29,555,483 through 2025. 

As previously mentioned, the projections found in the 1993 nexus study were not met, with shortfalls in the office and residential categories.  The resulting revenues were correspondingly less.  Since revenues are entirely dependant on actual development, if growth does not occur as projected, actual revenues received will be less.

Economic Implications

Development impact fees can be an excellent tool for cities to collect revenue for capital projects.  However, arguments can be made that impact fees actually cause a devaluation in property, by restricting the site�s development potential with unneeded assessments.  Conversely, it can be argued that impact fees could result in increased property values in the future due to the amenities that are maintained despite new development.  Although it is recognized that a property free of impact fees can be more profitable to a developer than a property encumbered with an assessment, staff believes that new development does impact the existing service standards and that such assessments are warranted.  The challenge is assessing enough to affect the needed improvements, without overburdening development, as to alone disrupt development cycles or to inhibit the economic development activities of a community.

In an effort to address growth without inhibiting progress, staff directed the consultant team to conduct a fee survey, comparing Burbank�s existing and proposed fees with the existing fees of the cities of Pasadena, Glendale, Santa Monica, Los Angeles, Ventura, and Culver City.  These cities were chosen for a variety of reasons: some cities are in close proximity to Burbank and represent immediate competition; some cities have demographics that are similar to the City of Burbank; and other cities have a similar business base to that of Burbank. A broad review of all development costs was made, including development impact fees and other development costs such as building permits and plan check fees.  The development costs for specific model projects were tested in each city and the total development costs by city, were compared.  For instance, the multi-family category was represented by a six-unit apartment building with unit sizes of 1,625 square feet.  The results of the survey suggested that the City of Burbank had considerably higher non-residential fees than other cities, and lower residential fees than other cities.  For instance the average Single Family development impact fee (including transportation fees) is $4,098 per unit.  Burbank�s existing fee is $2,035 per unit.  The average office development impact fee is $3.34 per square foot.  Burbank�s existing fee is $5.79 per square foot.  Burbank�s existing non-residential fees are already the highest development impact fees among the comparison cities.[7]

These facts caused staff some concerns over the non-residential fee categories.  The proposed non-residential fees are significantly higher than those charged in other jurisdictions surveyed, and could potentially affect Burbank�s regional competitiveness for future office, retail, and industrial development.  As a result, staff developed some possible approaches by preparing different scenarios with which to pursue.  The scenarios involved removing major development projects and capital items from the capital improvement list.  For instance, the first of the preliminary calculations included the Police/Fire Headquarters and the Development & Community Services Building (DCSB).  However, since the Police/Fire Headquarters represented roughly $9.4 million in fees to new development, for a project that has already been completed and is fully funded, the project was removed.  The remarketing of the subordinated 1993 Golden State Bond will fund the DCSB which is now also fully funded, so again, the project was also removed. 

Despite the efforts of the fee reducing measures, non-residential fees continued to be at levels that may have negatively affected economic development activities in the City.  To combat the high non-residential fees, staff examined a further approach that involved administratively reducing all non-residential fee categories to their existing levels.  If the City Council is supportive of such an administrative reduction, it should be noted that revenue shortfalls of roughly 15% would result, which would have to be bridged by other funding sources.

In assessing the current thresholds for each of the fees, analyses were also conducted on potential, future fees.  For instance, the Transportation Impact Fees are scheduled to be updated in spring 2005, along with the General Plan Transportation Element update.  Residential development is not assessed in the current transportation fee program; however, as a part of the transportation fee update, staff is analyzing the traffic impacts from residential development and may recommend implementing residential transportation fees.  The potential economic impacts of the imposition of this fee will be assessed at the time of adoption of the updated transportation fees.  If necessary, the community facilities portion of the fee can be revised at that time to accommodate this fee.

Another project that is worth highlighting is the draft Inclusionary Zoning Ordinance.  The proposed Inclusionary Zoning Ordinance would integrate affordable units within market rate developments.  Housing developers would be required to restrict a certain percentage of the new units to low or moderate income households.  This project is currently tracking with the General Plan Land Use update, anticipated for Council consideration in spring 2005.  Depending on the final direction received on Inclusionary Zoning fees, multi-family residential development could be affected.  To build a multi-family unit in the City, it currently costs roughly $5,321 per unit in fees.  This amount includes impact fees and all applicable building permit and plan check fees.  If the City Council is supportive of updating the development impact fees as presented, it would

cost roughly $8,581, a 61% increase, overall[10].  While the parameters of the draft Inclusionary Zoning Ordinance have not been finalized, for discussion purposes, fees in their current form would increase development fees to roughly $10,053 per unit, further increasing the burden by 17%[11].  This brief analysis is not intended to represent the exact outcome of the Inclusionary Zoning fee; it is merely to illustrate the potential of a future fee and what that may mean in terms of impacts to development.  The proposed Inclusionary Zoning Ordinance is currently in the draft stage and is in flux � the economic implications of this fee will be analyzed at time of adoption.  The following table compares all development fees (including such fees as building permit and plan check fees) for the City of Burbank and for the six other cities included in the fee comparison; the proposed Inclusionary Zoning fee, in its current draft stage is included in a separate row[12].

In terms of affordable housing units and the obligation of all new residential units to contribute to the impact fee program, there are options for exempting affordable housing development from development impact fees, should the Council be supportive.  It is a goal of the Blue Ribbon Task Force on Affordable Housing that affordable units be integrated into new residential developments.  According to SCAG, the number of multi-family units is projected to increase by 7,768 units through 2025.  Based on the Draft Inclusionary Zoning Ordinance standard of 15%, the total number of new affordable units would be 1,165.  As previously mentioned in this report, the lost revenues from any fee reducing measures must be supplemented by other funding sources.  If the City Council does choose to exempt affordable housing units from impact fees, a shortfall of $5.5 million will be created, which would have to be recovered in some form.  To bridge this gap, an incentive plan could be funded from the Low & Moderate Income Housing fund for all affordable housing units constructed.  This option would require annual appropriations of roughly $250,000, assuming growth projections are met. 

The last matter that should be touched on is the potential for a change in the City�s development standards.  Based on the results of the traffic modeling currently being conducted for both the Transportation and Land Use Element updates, the City may be adjusting some of its allowed densities based upon the transportation network�s ability to accommodate the projected traffic generated by future development.  As a result of the potential changes in development standards, the projections for future growth in the City may also change.  If projections do change significantly as result of the General Plan update, the projections that have been utilized in this Study should be updated to reflect this adjustment.  However, regardless of the change in projections, staff does not anticipate a great change in the impact fees.  Most of the projects included in the Capital Improvement Program are 100% driven by new growth.  Although there may be less growth, which means fewer people paying the fee, there will also be less of need to purchase as many vehicles, or develop as many acres of parkland, and the fee will remain unchanged.  The only area that would decrease as a result of this adjustment would be for those projects that have fixed costs and that new development is only paying its �fair share� of.  In this case, the costs attributable to new development will be less, and the fee would decrease.   However, since staff is recommending administrative fee reductions in the Community Parkland category and in all non-residential categories, the City could make the appropriate change in growth projections and still have enough leverage to maintain the prescribed fees.

CONCLUSION

After a thorough assessment of the needs of this City, an establishment of existing service levels, then a determination of the methods needed to maintain these high service levels, a fee for each type of development was established.  The sometimes vast differences in fees between cities can vary for such reasons such as a community�s attitude toward growth, the demand for services in the area under study, the necessary improvements and their beneficiaries, and the availability of alternative financing or revenues[13].  Generally speaking, development impact fees, providing that a nexus can be established, can be set higher in high demand cities, or in cities that are not actively seeking growth.  To ensure that this fee program would be balanced and that the assessment would be high enough to offset the impacts from new development without imposing too high of an assessment as to drive off development, a fee comparison was conducted between the City of Burbank and six neighboring jurisdictions. 

The results of the survey suggested that there was room for growth in the residential fee categories, but the non-residential fees, already being the highest among the comparison cites may not be able to support higher fees � at least not in the short-run.  After applying various approaches to lowering the overall fee to ensure Burbank�s continued attractiveness as a strong business community, it appeared that despite general fee reducing methods that a blanket, administrative fee reduction of all non-residential fee categories, would be the most prudent approach.  By applying this method, the City would remain an attractive place to do business, ensuring that economic development activities would continue.  In addition, the nexus study establishes the relationship necessary to charge the total fee, if at any time the Council chooses to increase them to their original, higher levels.  Staff suggests that the proposed fees for the residential categories be adopted, and that the proposed non-residential fees be reduced to their existing levels, as follows:

FISCAL IMPACT

The revenues generated by development impact fees are dependent on the level of new construction.  If growth occurs at the anticipated rate, the maximum amount that the City could receive is $71,573,987 through 2025.  If the City Council is supportive of the administrative fee reduction in the non-residential categories, the maximum that the City could receive would be $58,448,421 through 2025.  Since revenues are entirely dependant on actual development, if growth does not occur as projected, actual revenues received will be less.

RECOMMENDATION

This item is a discussion item providing the City Council with the opportunity to discuss the matter prior to final consideration; therefore, staff recommends that Council discuss the item and, if appropriate, direct staff to proceed with the final consideration processes.

EXHIBITS

Exhibit A          Draft Final Report, Development Impact Fee Update

go to the top