PURPOSE     

The purpose of this report is to request direction from the City Council to proceed with a nexus study to update the existing development impact fee structure, and to request authorization for the City Manager to enter into a Professional Services Agreement (PSA) with a qualified consultant for the purpose of conducting this study.

BACKGROUND

At the December 17, 2002 City Council Meeting, during the annual review of the City�s development impact fee schedule, staff indicated to Council that a nexus study would be conducted to review and update the existing fees.  In February 2003, an in-house committee was formed with representatives from the various affected City departments, including: Community Development, Police, Fire, Library Services, Park, Recreation & Community Services, the City Attorney�s Office, Information Technology, and Public Works.  The committee met on several occasions to review the existing fees, evaluate the methodology used to develop fees during the first nexus study, conduct a preliminary assessment of the future needs of the City, and discuss options for proceeding with the study.

An update of the City�s development impact fees would better reflect the existing and future needs of the City.  The City�s current fees are restricted to fire protection, library, parks, police, and transportation.[1]   The existing fees have proven very beneficial as $3,609,292.06 has been received in Community Facility fees since the inception of the City�s development impact fees in 1993.  Proceeds have been used to partially fund projects such as the Police/Fire Headquarters, the Emergency Operations Center (EOC) Relocation, the Central Library Children�s Area, Buena Vista Library Improvements, South San Fernando Park Improvements, the Burbank Unified School District (BUSD) Soccer Field, McCambridge Park Improvements, and Earthwalk Park.  However, an update of the fees would be valuable as it would allow the City to increase a viable revenue source and expand it to previously unexplored areas. 

Generally speaking, development impact fees allow cities to collect funds from new development projects for infrastructure and facilities relating to the impact of new development on those facilities.  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.  In addition, it must also be determined that the projected improvements to be financed by the impact fees will benefit those required to pay them and this fee must be proportionate to the amount of benefit received.[2] 

Given the very specialized nature of nexus studies, staff feels that the best method for facilitating the development of new fees would be to retain the services of a qualified consultant, one that is familiar with the intricacies of impact fees, the methodologies for calculating them, the applicable state law such as the Mitigation Fee Act (AB 1600) that affect impact fees, and the procedures for implementing them.

In June 2003, a Request For Proposals (RFP) (Exhibit A) was sent to ten consulting firms.  Of the ten requests that were sent, the city received three proposals, three notifications of non-submittal, with no response from the remaining four firms (Exhibit B). 

The RFP issued by staff requested a proposal from consultants that would include a review of the existing fee structure, preparation of recommendations to improve the fee structure, calculation of updated fees, preparation of a report, participation in Council meetings, and submittal of the final product.  Staff further required that consultants have previous experience with nexus studies, community facility studies, and the development of impact fees relating to childcare, development and maintenance of technology infrastructure or Geographic Information Systems (GIS), community facilities such as police, fire, parks and recreation, and library services, and any related fees common to other cities.  Additionally, consultants were required to have experience with the development community and knowledge of the possible affects of impact fees to development, experience identifying alternative funding sources, and experience working with local governments.

ANALYSIS

Proposals were received from the following consulting firms: Maximus; Gruen Gruen & Associates (GG&A); and Economic & Planning Systems, Inc. (EPS).  Staff analyzed the three proposals and from the three, narrowed the selection process to Maximus and EPS.  Interviews were conducted with these two firms, to assist staff with the selection process.  The following is a summary of the three proposals that were received. 

Economic & Planning Systems, Inc. (EPS) (Exhibit C)

EPS is a land economics consulting firm experienced in services relating to real estate development, government services and public infrastructure financing, real estate market and financial feasibility analysis, government organization, and impact fee analysis.  They have experience conducting Nexus Studies for local governments and have excellent references.

The EPS approach involves reviewing City data such as the Capital Improvement Program (CIP), General Plan, the existing fee structure, demographic information, and land use projections.  These documents will be used to develop land use assumptions and growth projections, future facility requirements and the accompanying cost estimates, the allocation methodology of the fees, and their economic impact.  Based on these findings, a new fee structure will be formed.  Lastly EPS will prepare draft and final reports for review and final approval.

This proposal emphasizes financial effectiveness in the fees� ability to provide sufficient means for funding capital improvements; political feasibility by involving stakeholders in the process; legally defensible fees where the nexus between new development and the impact of new development on existing public facilities is clear; and fees that are directly attributable to the new growth.

The proposal addresses the analysis of all types of development impact fees including police, fire, general government, library, parks and recreation, public utilities such as sewer, water, and storm drain facilities, and public services such as childcare facilities, and technology related infrastructure.   The EPS proposal is the only proposal that involves the development community in the process. EPS plans to survey the fees of neighboring cities and to conduct an economic analysis of the impact on development to ensure that the City remains competitive in attracting desired development.  EPS would assign five members of their team to the study for a total estimate of 474 hours over a 3 month period, for a total cost estimate of $50,000. 

Maximus Proposal (Exhibit D)

Maximus has been providing development impact fee services for cities since the adoption of AB 1600 in 1989.  They have extensive experience, having assisted over 50 cities in establishing their respective fees.  They have an understanding of the constitutional and statutory standards, experience in impact fee methodology, knowledge of cost allocation and fee calculation methods, experience establishing impact fees for all types of public improvements, have direct experience in local government, and also have excellent references. 

The approach outlined by Maximus involves a comprehensive review and analysis of City data.  Based on this analysis, Maximus will organize the development data and determine the needs and service levels of the community.  Future facilities and their costs will also be identified.  From this analysis, the new impact fee structure will be derived.  Lastly, Maximus will prepare draft and final reports, will aid staff in the implementation of the fees, and present the report to the City Council, key stakeholders, and the public.

Their project approach is similar to that of the EPS approach, however there are significant differences.  The proposal is strictly limited to addressing fire, police, parks, libraries, childcare, and technology fees.  The preparation of planning studies, facility master plans, land use surveys, appraisals and collection or analysis of raw data is excluded.  Whereas EPS will involve key stakeholders early in the process, Maximus proposes to involve them during the latter stages.  Although each of the consultants require information from the City such as the existing CIP, General Plan, specific plans, alternate revenue sources, and existing debt, it appears as though Maximus would be most dependant on City staff to complete the study.  Maximus does not propose to survey the fees of neighboring cities.  Although it appears as though they have extensive land use, governmental, and development impact fee experience, the project manager has no experience with and will provide no economic analysis.  Maximus would assign one individual to the study and estimates that 292 hours would be needed over a 5 to 6 month period, for a total cost estimate of $79,900.

Gruen Gruen & Associates Proposal (Exhibit E)

Gruen Gruen & Associates (GG&A) specializes in fiscal analysis, regional and urban economic market analysis, and assistance in the implementation of strategic action plans for public and private clients.  They have experience analyzing and quantifying the impacts of growth, assessing demand for new development, and evaluating the impact of land use and tax structure policy decisions on municipal revenues. 

GG&A proposes to conduct a comprehensive review of the existing fee structure, research applicable state law, analyze available City data, and review the existing fee calculation methodology, to develop recommendations to update the existing fees.  A customized model that calculates updated impact fees will be developed, the appropriate metrics/indicators for model inputs will be tested, then crossed with the City�s growth forecasts, to arrive at the new fees.    GG&A plans to study impact fees imposed by neighboring communities, develop a credit system to avoid potential double payments, and research and recommend alternate funding sources.  After preparing a draft report and presenting the draft study to Council, GG&A will modify and refine the report, and lastly, submit the final document.

Their approach is also similar to that of the EPS approach, but also has differences.  They too will establish a demand for services, will calculate facility costs, address the impacts on development, ensure that fees will comply with applicable state law, and will conduct a survey of the fees of neighboring cities.  As a firm that specializes in economic analysis, they will also develop models to accurately determine impact fees, and that will assist in establishing the link between new development and the impact of new development on existing facilities.  In addition, the strength of their proposal lies in its thoroughness, its potential to alter variables to achieve the desired outcome through modeling, and consideration of a fundamental drawback in development impact fees � double payments.  However, despite GG&A�s experience analyzing and critiquing the impact fee structures of different cities and public organizations, they have never conducted a nexus study.  Additionally, they make no mention of involving stakeholders in the process, and no references were able to be reached.  GG&A proposes to assign four staff members to the study, with an estimated 992 hours over a 4 month period, with a total cost estimate of $112,955.  Given the high cost associated with this consultant, and their lack of experience with nexus studies, staff elected not to include them in the interview portion of selection process and does not recommend them for the study.

CONCLUSION  

Each of the proposals received from each of the three firms demonstrated a great deal of expertise with, and interest in, this type of project.  The tasks outlined by each of the proposals generally met the intent of staff�s request.  However, after considerable review by the Nexus Study Committee and further interviews with EPS and Maximus, staff feels that EPS is the strongest candidate for the study.  Their proposal includes analyzing all types of community facility, utility, and public services fees common to other cities.  They intend to involve the public and key stakeholders in the process.  EPS have expressed flexibility and interest in pursuing fees such as Technology development, or Geographic Information Systems (GIS) � fees relatively uncommon to this process.  The firm has experience conducting nexus studies and will determine the appropriate level of each fee by conducting an analysis of the future needs of public facilities based on growth projections, testing these fees to ensure that the market will support them, and ensuring that Burbank will remain competitive in attracting desired development.  From the soundness of their approach, to the level of service that they would provide, to their background in economics, land use, local government and public infrastructure financing, for a cost not to exceed $50,000, staff feels that an agreement with Economic & Planning Systems, Inc. should be pursued for this study.

FISCAL IMPACT

Based on the proposals received from the RFP process, the cost per study ranged from $50,000 to $112,955.  Should the City Council be supportive of staff�s recommendation, the proposed resolution authorizing the City Manager to enter into a Professional Services Agreement (PSA) with Economic & Planning Systems, Inc. (EPS), would be for an amount of up to $50,000.  The source of this expense is recommended to be funded from the Golden State Redevelopment Project Area, unappropriated fund balance, 301.ND000.30004.  Any appropriation from the General Fund, unappropriated fund balance would have a negative impact on the PERS and budget stabilization funds.  By utilizing Agency funds, the General Fund will not be impacted.  In addition, the Agency would benefit from the study as it will provide additional funding sources for costs related to infrastructure improvements that are part of future redevelopment projects.

RECOMMENDATION

Staff recommends that the Council and Redevelopment Agency adopt the following resolutions:

1. An Agency resolution approving the Cooperation Agreement between the Agency and City to fund the impact fee study and approving the appropriation of $50,000 for the study, from the Golden State Redevelopment Project Area, unappropriated fund balance, 301.ND000.30004 to Golden State Redevelopment Project Area, Professional Services, 301.CD21A.62085.

    2.  A Council resolution authorizing the City Manager, on behalf of the City, to enter into a Professional Services Agreement (PSA) with

         Economic & Planning Systems, Inc. (EPS) for the purpose of conducting the development impact fee nexus study and approving the

         Cooperation Agreement between the City and Agency.