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HomeMy WebLinkAbout16 ECONOMIC STIMULUS - DEV FEES 10-07-08AGENDA REPORT MEETING DATE: OCTOBER 7, 2008 TO: WILLIAM A. HUSTON, CITY MANAGER FROM: COMMUNITY DEVELOPMENT DEPARTMENT SUBJECT: ECONOMIC STIMULUS PROGRAM FOR NEW RESIDENTIAL DEVELOPMENTS SUMMARY: Pursuant to provisions of the Tustin City Code, development impact fees are required to be paid by the developers of new residential developments at the time of permits issuance. Due to recent changes in economic conditions relating to housing market, on August 6, 2008, the Building Industry Association of Southern California Orange County Chapter (BIA/OC) requested the City to adopt a policy to defer the collection of development impact fees until the issuance of a Certificate of Occupancy or final inspection consistent with Assembly Bill (AB) 2604 enacted on August 1, 2008. RECOMMENDATION That the City Council adopt Resolution No. 08-72 creating an economic stimulus program for new residential development by temporarily deferring payment of development impact fees until final inspection or the issuance of a Certificate of Occupancy. FISCAL IMPACT: Although BIA/OC has indicated that the proposed deferral would not incur cost or impact to the City's General Fund, further delay in obtaining the development impact fees may impact City's capital improvement programs. BACKGROUND The City Council has adopted certain fees and charges relating to mitigation of the impact of new residential development upon City municipal services and infrastructure such as roadways, parks, and public facilities (hereinafter collectively the "Development Impact Fees"). Development Impact Fees are currently required to be paid by the developers of new residential units at the time of issuance of building permits. Plan Check and Building Permit issuance fees are not considered development impact fees in this case since the fees are used to cover plan check and inspection services. A City Council Report Development Impact Fees Deferral October 7, 2008 Page 2 separate report will be forwarded to the City Council at a later date to consider incentives such as waiver of permits fees, over the counter plan check, etc. for beautification/energy efficient projects. Currently, there are four broad types of development impact fees collected. Three of the fees are collected at the time of building permit issuance and one fee (fees in lieu of park dedication) is collected prior to recordation of final tract map as follows: 1. Transportation System Improvement Program (TSIP) Fees. This fee is required pursuant to Section 8101(z) of the Tustin City Code as part of a joint exercise of powers agreement between the City of Santa Ana and the City of Tustin. The purpose of the fee is to improve the area-wide transportation system within the Transportation Improvement Program Area. 2. Major Thoroughfare and Bridge Fees. This fee is required pursuant to Section 9311 g of the Tustin City Code. The purpose of the fee is to defray the actual and estimated cost of constructing bridges or major thoroughfares in order to implement the Circulation Element of the General Plan. This fee is apass-through fee for the Foothill/Eastern Transportation Corridor Agency. 3. New Construction Tax. The new construction tax is required pursuant to Section 2601 of the Tustin City Code. The purpose of the new construction tax is to provide funds to be used for the purpose of providing public safety, public works, and other municipal services. 4. Parkland Dedication in lieu Fees. This fee is required pursuant to Section 9331 d3 of the Tustin City Code as an alternative to dedicating certain amount of parkland. This fee is required to be paid prior to recording the final tract map. Due to recent changes in economic conditions relating to the housing market throughout the nation, including in the City of Tustin, construction of residential projects have slowed down. The Building Industry Association of Southern California Orange County Chapter (BIA/OC) indicated in their letter dated August 6, 2008 (Attachment A) that the sharp decline of the housing market has had sweeping effects on the overall economy in Orange County. The BIA/OC identified an opportunity to partner with local jurisdictions to offer some economic stimulus to home builders during the challenging times through deferral of development impact fees. As such, the BIA/OC requested the City Council Report Development Impact Fees Deferral October 7, 2008 Page 3 City to adopt a policy to defer the collection of development impact fees until the issuance of Certificate of Occupancy or final inspection consistent with Government Code Section 66007 and Assembly Bill (AB) 2604 which was enacted on August 1, 2008. Assembly Bill (AB) 2604 Under current law (Government Code § 66007), local agencies that imposes fees or charges on a residential development for the construction of public improvements or facilities shall not require the payment of those fees or charges until the date of final inspection or issuance of a certificate of occupancy, whichever occur first. However, fees may be collected at the building-permit stage if the agency determines they are for improvements for which an account has been established, funds appropriated, and a proposed construction schedule or plan adopted. These requirements can be met by adoption of a capital improvement plan. Historically, the vast majority of jurisdictions routinely have made the statutory determinations necessary to collect fees at the building-permit stage. More recently, however, AB 2604, signed by the Governor on August 1, 2008, allows -but not requires -local agencies to further defer the collection of development impact fees to the close of escrow. Deferral of Impact Fees As BIA/OC indicated in their letter, fee collection at the front end of the construction process creates a tremendous burden to the private sector. Deferral of development impact fees will serve as a tremendous stimulus action in partnering with private industry to ensure economic recovery and promote the development of new homes in Tustin. The economic stimulus through deferral of development impact fees can be provided to developer temporarily during the market downturn. The proposed economic stimulus would allow payment of development impact fees to be deferred until the development is ready for final inspection or issuance of Certificate of Occupancy. The fees would be based on the schedules in effect at the time of permits were issued. However, not all impact fees can be deferred by the City Council. For example, the TSIP fee was created through a joint powers agreement between the City of Tustin and the City of Santa Ana. Unless the joint powers agreement is amended and agreed by both City of Santa Ana and Tustin, the TSIP fee cannot be deferred. For Major Thoroughfare and Bridge fees, the fees are collected as pass- through fee for the Foothill/Eastern Transportation Corridor Agency; thus, cannot be deferred unless TCA agrees. Consequently, only deferrals of the New Construction Tax and Park in Lieu fee are proposed at this time. To guarantee the payment of these impact fees, prior to and as a condition of issuance of the building permit, the City would require the developer to execute either a contract secured by a lien or a letter of agreement secured by a irrevocable letter of credit and/or bond. The Council also may note that the deferral is proposed as a temporary measure City Council Report Development Impact Fees Deferral October 7, 2008 Page 4 (one year) at this time unless extended. Should the City Council wishes to permanently defer the collection of development impact fees; an ordinance to amend applicable sections of the Tustin City Code would be required. Although the City of Tustin is one of a few cities with the lowest development impact fees, due to changes in economic conditions in the housing market, the City Council may want to provide stimulus for new residential developments. It should be noted that the deferral of impact fees may also impact or result in delays of development of some capital projects in which the fees are anticipated. For example, the City may rely on the payment for parkland in lieu fees to improve certain park facility. When the developer fail to pay the fee within the agreed timeframe, the City would be left with no choice but deferring the park improvements accordingly as in the case of the City of Huntington Beach senior center (Attachment B). In conclusion, the financial impact to the City as a result of a one (1) year deferral of development impact fees will vary based on the number of residential permits issued and the timing of construction. Staff believes that the benefits of the economic stimulus by deferring development impact fees would outweigh the possible effects of delaying the construction of public improvements. After one (1) year, staff can reevaluate the impact of this economic stimulus program and update the City Council with the status. The City Council at that time may direct staff to extend or discontinue the program. Consequently, staff recommends that the City Council adopt Resolution No. 08-72 creating an economic stimulus program for new residential developments by temporarily deferring development impact fees. Justina Willkom Principal Planner Y. Henry Huang Building Official Elizabeth A. Binsack Director of Community Development Attachments: A. BIA/OC Letter dated August 6, 2008 B. Orange County Register Article dated September 4, 2008 (H.B. senior center developer failed to pay $22 million on fees) C. Resolution No. 08-72 ATTACHMENT A BIA/OC Letter dated August 6, 2008 HDI~iiVISTRATI~~ August 6, 2008 AUG 0 8 2008 Mayor Jerry Amante RECEIVED City of Tustin 300 Centennial Way Tustin, CA 92780 RE: Deferral of collection timing for development impact fees. Mayor Amante, I am writing on behalf of the membership of the Building Industry Association Southern California, Orange County Chapter (BIA/OC) to request that the City of Tustin adopt a policy to defer the collection of development impact fees until the issuance of the certificate of occupancy for all residential construction. As you know, the housing industry in Orange County is facing troubling times in this distressed market. The sharp decline of the housing market has had sweeping effects on the overall economy in Orange County. The financial strains that our members are enduring have forced massive layoffs over the last year. According to the Construction Industry Research Board (CIRB), business activity in Orange County related to residential development was over $5 billion in 2006; in 2007 that number dropped to just under $4 billion, and in 2008 the projected figures have plunged to little over $7 hundred million in by the end of the 3~ quarter. Negative trends continue to spiral downward. BIA has identified an opportunity to partner with local jurisdictions to offer some economic stimulus to home builders during these challenging times; development impact fee deferral. Last week (8/1/08) the Governor signed a bi-partisan bill that quickly moved through the state legislature encouraging local jurisdictions to adopt development impact fee deferral programs as a means for creating economic stimulus. In Orange County, a number of cities, the County of orange and the Orange County Sanitation District have already amended their fee collection policies. Ur{artg+e Count: Chapter Itui{Minn In~lu_~trc :1p~i~~~ia~i~m ul~ ~oulhr~rrr I:u{i(urni.~ 17744 Sky Park Circle Suite 170 Irvine, California 92614 949.553.9500 fax 949.553.9507 www.biaoc.com ww w.nrardelhornetuur.orr 1'uur induntrv'; ~•ompreh~•n,ic~ online r,uidr to new hunw, ® ~~.. Fee collection at the front end of the construction process creates a tremendous burden to the private sector that can easily be relieved. Deferral of development impact fees will serve as a tremendous stimulus action that will send a clear message that the City of Tustin is committed to partnering with private industry to ensure economic recovery. We respectfully urge the City of Tustin to amend the timing of collection of development impact fees until the time at which certificates of occupancy are issued. Our membership is committed working collectively with your city in order to get through this unprecedented market shift. We remain a resource to all levels of government on the important issues related to the prosperity of our local 5ommunities. Thank you for your thoughtful consideration. . e~uuy, E. Thalman. Chief Executive Officer Cc. City Council William A. Huston, City Manager w~ Enc. Assembly Bill No. 2604, CHAPTER 246 Assembly Bill No. 2604 CHAPTER 246 An act to amend Section 66007 of the Government Code, relating to land use. [Approved by Governor August 1, 2008. Filed with Secretary of State August 1, 2008.] LEGISLATIVE COUNSEL'S DIGEST AB 2604, Torrico. Developer fees. Existing law prohibits a local agency that imposes any fees or chazges on a residential development for the construction of public improvements or facilities from requiring the payment of those fees or chazges until the date of the final inspection or the date the certificate of occupancy is issued, whichever occurs first, with specified exceptions. If the fee or chazge is not fully paid prior to issuance of a building permit, existing law authorizes the local agency issuing the building permit to require the property owner, as a condition of issuance of the building permit, to execute a contract to pay the fee or charge within the specified time. This bill would authorize a local agency to defer the collection of one or more fees up to the close of escrow. The people of the State of California do enact as follows: SECTION 1. Section 66007 of the Government Code is amended to read: 66007. (a) Except as otherwise provided in subdivisions (b) and (g), any local agency that imposes any fees or charges on a residential development for the construction of public improvements or facilities shall not require the payment of those fees or chazges, notwithstanding any other provision of law, until the date of the final inspection, or the date the certificate of occupancy is issued, whichever occurs first. However, utility service fees may be collected at the time an application for utility service is received. If the residential development contains more than one dwelling, the local agency may determine whether the fees or charges shall be paid on a pro rata basis for each dwelling when it receives its final inspection or certificate of occupancy, whichever occurs first; on a pro rata basis when a certain percentage of the dwellings have received their final inspection or certificate of occupancy, whichever occurs first; or on a lump-sum basis when the first dwelling in the development receives its final inspection or certificate of occupancy, whichever occurs first. 91 Ch. 246 - 2 - (b) (1) Notwithstanding subdivision (a), the local agency may require the payment of those fees or charges at an eazlier time if (A) the local agency determines that the fees or charges will be collected for public improvements or facilities for which an account has been established and funds appropriated and for which the local agency has adopted a proposed construction schedule or plan prior to final inspection or issuance of the certificate of occupancy or (B) the fees or charges aze to reimburse the local agency for expenditures previously made. "Appropriated," as used in this subdivision, means authorization by the governing body of the local agency for which the fee is collected to make expenditures and incur obligations for specific purposes. (2) (A) Pazagraph (1) does not apply to units reserved for occupancy by lower income households included in a residential development proposed by a nonprofit housing developer in which at least 49 percent of the total units are reserved for occupancy by lower income households, as defined in Section 50079.5 of the Health and Safety Code, at an affordable rent, as defined in Section 50053 of the Health and Safety Code. In addition to the contract that may be required under subdivision (c), a city, county, or city and county may require the posting of a performance bond or a letter of credit from a federally insured, recognized depository institution to guarantee payment of any fees or charges that aze subject to this paragraph. Fees and charges exempted from paragraph (1) under this pazagraph shall become immediately due and payable when the residential development no longer meets the requirements of this pazagraph. (B) The exception provided in subpazagraph (A) does not apply to fees and charges levied pursuant to Chapter 6 (commencing with Section 17620) of Part 10.5 of Division 1 of Title 1 of the Education Code. (c) (1) If any fee or chazge specified in subdivision (a) is not fully paid prior to issuance of a building permit for construction of any portion of the residential development encumbered thereby, the local agency issuing the building permit may require the property owner, or lessee if the lessee's interest appeazs of record, as a condition of issuance of the building permit, to execute a contract to pay the fee or charge, or applicable portion thereof, within the time specified in subdivision (a). If the fee or chazge is prorated pursuant to subdivision (a), the obligation under the contract shall be similazly prorated. (2) The obligation to pay the fee or chazge shall inure to the benefit of, and be enforceable by, the local agency that imposed the fee or charge, regazdless of whether it is a party to the contract. The contract shall contain a legal description of the property affected, shall be recorded in the office of the county recorder of the county and, from the date of recordation, shall constitute a lien for the payment of the fee or chazge, which shall be enforceable against successors in interest to the property owner or lessee at the time of issuance of the building permit. The contract shall be recorded in the grantor-grantee index in the name of the public agency issuing the building permit as grantee and in the name of the property owner or lessee as grantor. The local agency shall record a release of the obligation, containing a legal description of the property, in the event the obligation is 91 - 3 - Ch. 246 paid in full, or a partial release in the event the fee or chazge is prorated pursuant to subdivision (a). (3) The contract may require the property owner or lessee to provide appropriate notification of the opening of any escrow for the sale of the property for which the building permit was issued and to provide in the escrow instructions that the fee or charge be paid to the local agency imposing the same from the sale proceeds in escrow prior to disbursing proceeds to the seller. (d) This section applies only to fees collected by a local agency to fund the construction of public improvements or facilities. It does not apply to fees collected to cover the cost of code enforcement or inspection services, or to other fees collected to pay for the cost of enforcement of local ordinances or state law. (e) "Final inspection" or "certificate of occupancy," as used in this section, have the same meaning as described in Sections 305 and 307 of the Uniform Building Code, International Conference of Building Officials, 1985 edition. (f) Methods of complying with the requirement in subdivision (b) that a proposed construction schedule or plan be adopted, include, but aze not limited to, (1) the adoption of the capital improvement plan described in Section 66002, or (2) the submittal of a five-year plan for construction and rehabilitation of school facilities pursuant to subdivision (c) of Section 17017.5 of the Education Code. (g) A local agency may defer the collection of one or more fees up to the close of escrow. This subdivision shall not apply to fees and charges levied pursuant to Chapter 6 (commencing with Section 17620) of Part 10.5 of Division 1 of Title 1 of the Education Code. O 91 ATTACHMENT B Orange County Register Article dated Se tember 4, 2008 (H.B. senior center developer failed to pay $~22 million on fees) News: Senior center developer failed to pay $22 million in fees ~ city, makar, fees, million, pay - OCRe . _, ocnq~~tereoen Thursday, September 4, 2008 H.B. senior center developer failed to pay $22 million in fees Makar Properties did not pull building permits on time, triggering a payment that was due by the end of August. By ANNIE BURRIS The Orange County Register HUNTINGTON BEACH - A major Orange County developer has failed to pay the city of Huntington Beach $22 million in fees after missing two deadlines, city officials said. City leaders said they don't plan on pressing charges for the delinquent payment but would rather see Makar Properties follow through on building a senior center that the $22 million is designed to fund. "Because we need the fees from their project, we are kind of stuck," Mayor Pro Tem Keith Bohr said. "We need each other basically." Michael Gagnet, Makar's executive vice president of development, said, "I disagree with any assertion by the city that we missed any deadline" and would not comment further on the fees. Huntington Beach joins a list of other Orange County cities such as Orange, Irvine, Anaheim and Mission Viejo that has offered builders various payment delays on construction fees. The Orange County Sanitation District also decided in early August to allow builders to wait to pay sewer hookup fees until a structure is occupied. Newport Beach-based Makar is not only having trouble paying city fees. The developers said last week that a 32-acre project on Pacific Coast Highway is a year behind schedule, and they do not have financing for the construction yet. They said the bad economy, tougher construction loan obligations and negotiations with the city delayed their mixed-use project named Pacific City. "We just had to slow down to make sure all Page 1 of 2 News: Senior center developer failed to pay $22 million in fees ~ city, makar, fees, million, pay - OCRe... Page 2 of 2 ~~~~~. oenq~ster.~m our ducks were in a row to move forward," Gagnet said during an interview last week about the construction. "We are getting fired up again ir} the next couple of weeks." Makar needs to pay the city $22 million because they did not pull building permits for the senior center by a July 1 deadline, based on an agreement between the city and developer in 2006. Makar needed to pay the fee within 30 days of July 1, said the agreement. The city gave Makar an extension to pay the fee by late August because of negotiations related to the fee amount. As of Wednesday, the city has not received the funds. "It is easy to play hardball, but that doesn't really do anything for us in the long run," Bohr said. Councilman Don Hansen said the city has worked with developers before on project deadlines such as the Bella Terra mall near the I-405 freeway and The Strand in downtown Huntington Beach. The $22 million fees stem from obligations Makar is required to meet because of the construction of Pacific City. Makar needs to pay astate-mandated in-lieu fee to the city for building Pacific City without setting aside park space. As part of the deal in 2006, the city and Makar agreed to use the $22 million to build a senior center -construction that will be overseen by Makar. City officials said that they are looking at all their options for the unpaid $22 million and have not reached a decision on how to move forward. "I don't think this falls under the guise of special treatment, but we are working with those people who are putting a significant investment into the city," Hansen said. Contact the writer: aburris@ocregister.com or 714-445-6696 ATTACHMENT C Resolution No. 08-72 RESOLUTION NO. 08-72 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN CREATING AN ECONOMIC STIMULUS PROGRAM FOR NEW RESIDENTIAL DEVELOPMENT BY TEMPORARILY SUPERSEDING THE PROVISIONS OF VARIOUS ORDINANCES HERETOFORE ADOPTED RELATING TO THE REQUIRED TIME OF PAYMENT OF SPECIFIC DEVELOPMENT IMPACT FEES The City Council does hereby resolve as follows: The City Council finds and determines as follows: A. That the City Council of the City of Tustin has adopted certain fees and charges relating to mitigation of the impact of new residential development upon City municipal services and infrastructure such as roadways, parks, and other public facilities (hereinafter collectively the "Development Impact Fees"); B. That pursuant to the provisions of the Tustin Municipal Code said Development Impact Fees are currently required to be paid by the developers of new residential units at the time of issuance of building permits or prior to recordation of final tract map for construction of such residential units; C. That due to recent changes in economic conditions relating to the housing market throughout the nation, including in the City of Tustin, construction of many residential projects heretofore approved, or in the process of being approved, by the City of Tustin have slowed down due to such economic conditions; D. That the City of Tustin relies on new residential development in the City to stimulate the local economy and provide direct and indirect benefits to the City and its residents and businesses by creating construction jobs, new market-rate and affordable housing units and new tax bases and revenues to the community; E. That it is therefore in the public interest and to the public benefit for the City Council to stimulate and encourage new residential development in the City of Tustin by the adoption a resolution creating Economic Stimulus Program for Residential Development. II. The City Council hereby adopts the measures hereinafter set forth which shall be known and referred to as the Economic Stimulus Program for New Residential Development. III. Notwithstanding any provision of any other ordinance or resolution heretofore adopted to the contrary, the payment of the following specific Development Impact Fees for construction of new residential units in the City of Tustin shall be deferred until, and collection thereof by the responsible City agency, department, official or employee shall be made prior to final inspection or issuance of a Certificate of Occupancy for such residential units by the City of Tustin, whichever occurs earlier, or such other time as expressly hereinafter provided: 1. New Construction Tax required pursuant to Section 2601 of the Tustin City Code. 2. Parkland Dedication in lieu Fees required pursuant to Section 9331 d3 of the Tustin City Code. III. Final inspection of construction shall not occur, and no certificate of occupancy for any new residential units shall be issued by the City of Tustin, until payment of such Development Impact Fees are made to the City of Tustin in full. The amount of the Development Impact Fees due and payable shall be based upon the fee schedules and amounts in effect at the time said Development Impact Fees would have been due and payable in the absence of this resolution. IV. Payment of such Development Impact Fees shall be deemed a debt due and owning to the City of Tustin at such time which debt shall only be deemed satisfied and discharged upon payment in full to the City of Tustin. V. The provisions of this resolution for deferral of payment of Development Impact Fees shall expire one year from the date of the adoption of this resolution unless the City Council shall have first acted to extend or otherwise alter the provisions of this resolution prior to that time. VI. Nothing contained in this resolution shall be deemed to authorize or permit the deferral of payment of any fee or charge imposed upon residential development within the City of Tustin except for those Development Impact Fees expressly enumerated in Section II hereof. VII. Nothing contained in this resolution shall be deemed to create any new fee charge, or increase any existing fee or charge, to which the procedures specified in Section 66017 of the Government Code of the State of California would be applicable. VIII. As a condition of the deferment of time of payment of any Development Impact Fee(s) pursuant to this resolution, the City shall require the property owner, or lessee if the lessee's interest appears of record, prior to and as a condition of issuance of the building permit, to execute either a contract secured by a lien or a letter of agreement secured by a irrevocable letter of credit and/or bond. In either event, the Development Impact Fee(s) shall be paid prior to final inspection or issuance of a Certificate of Occupancy, whichever occurs earlier, as set forth below. (a) With regard to a contract, the obligation to pay the Development Impact 2 Fee(s) shall inure to the benefit of, and be enforceable by, the City regardless of whether the City is a party to the contract. The contract shall contain a legal description of the property affected, shall be recorded in the office of the county recorder of Orange County and, from the date of recordation, shall constitute a lien for the payment of the Development Impact Fee(s) which shall be enforceable against successors in interest to the property owner or lessee at the time of issuance of the building permit. The contract shall be recorded in the grantor-grantee index in the name of the City of Tustin as grantee and in the name of the property owner or lessee as grantor. The City shall record a release of the obligation, containing a legal description of the property, when the obligation is paid in full. The contract shall require the property owner or lessee to provide appropriate notification of the opening of any escrow for the sale of the property for which the building permit was issued and to provide in the escrow instructions that the fee or charge be paid to the City of Tustin from the sale proceeds in escrow prior to disbursing proceeds to the seller. The executed contract shall be deemed to supersede any conflicting provision contained in any applicable development agreement with regard to the time of payment of any Development Impact Fee(s). (b) As an alternate to recording a contract that constitutes a lien, the property owner or lessee if the lessee's interest appears of record may, prior to and as a condition of issuance of the building permit, execute a letter of agreement and provide an irrevocable letter of credit and/or bond pursuant to procedures established by the Director of Community Development. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin, held on the 7ri day of October, 2008. Jerry Amante Mayor Pamela Stoker City Clerk 3 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS CITY OF TUSTIN ) CERTIFICATION FOR RESOLUTION NO. 08-72 PAMELA STOKER, City Clerk and ex-officio Clerk of the City Council of the City of Tustin, California, does hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and foregoing Resolution No. 08-72 was duly passed and adopted at a regular meeting of the Tustin City Council, held on the 7th day of October, 2008, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: Pamela Stoker, City Clerk 4