The Escondido city council recently voted to sharply increase developer fees. The fees begin taking effect in February.
The council held discussions over two meetings in December before agreeing to a fee structure, including delaying some fees for existing projects already in the pipeline.
The city is playing catch up for ten years of stagnant fee increases, except for a 2% bump last year.
Jay Petrek, assistant city manager, on December 6 noted that developer fees are collected for the park development fund, the traffic impact fund, storm drain fund and public facilities fund. Last year the park development fund collected $769,230 in fees; the traffic impact fund collected $891,536; the storm drain fund collected $264,696 and public facilities collected $1.202 million in development fees.
Park development fees are only collected from residential development and not offices or other commercial. Development impact fees may not exceed the cost of providing public facilities. The city, said Petrek, may not legally charge more for public facilities than the facility costs. The fees can only be used for capital improvements; not maintenance or operations.
Petrek was blunt in his initial report on December 6. “Our current fees have not kept pace with construction costs,” he said. “We currently collect thirty nine percent of the cost of providing facilities. We are significantly underfunding public facilities.” Fees for the downtown area are significantly less than those of the rest of the city, he said.
To arrive at its new fee structure city staff anticipated growth based on the city’s general plan and calculated what would be required to serve the new growth. “We want to maintain fee competitiveness, but not by charging so high as to force developers to locate elsewhere,” said Petrek.
Residential densities are averaging out at 70% of the general plan, industrial is 50% and commercial is 80% of that allowed by the general plan. Currently the general plan is 77% built out. “if we do not change our fees we are only collecting $96 million to try and tackle a $246 million price tag. You can see how out of whack we are,” he said.
In 2006 the council reduced develop fees for the downtown to encourage growth. Currently fees for the downtown are 85% of what the rest of city collects for drainage; 39% of public facilities and 27% of park fees. Petrek called these percentages, “unsustainable.”
“Fees are so low that we have limited power to negotiate limited concessions. If they were higher we would have the opportunity to reduce them a few points,” said Petrek. “At thirty-nine percent, there isn’t much wriggle room.”
The rationale for keeping that fee low is to create an incentive for development that meets the city’s vision, said Petrek. “It’s important to generate increased property tax revenues, versus vacant land, which can go toward improving the city’s bottom line and in enhanced employment opportunities.”
Attracting more development to the city’s core also bolsters sales tax revenue and consumer spending, said Petrek. “It makes sense to incentivize developments that promote customer spending or bring in sales tax. To make sure we are not pricing ourselves out of the market. But, our current rates are insufficient to adequately cover the costs of new growth.”
Even with the fees staff was proposing, the city would rank very competitively to neighboring cities, he said.
Answering criticisms from the building industry that such fees would significantly increase the cost of housing, Petrek maintained that, “fees are a small impact on the cost of development.” They would add between 1-2% to the cost of a building, depending on the density, he said.
At the December 6 meeting Gil Miltenberger of Integral Communities, which has multifamily developments for the downtown in the pipeline, said the hikes would increase fees by
245%. “That’s a big number. I’ve never seen such a big fee increase,” he said.
He said Integral loves doing business here and wants to continue to do so. “I have seen that start of transformation downtown,” he said. “My concern is that it would shut down projects in the pipeline and future projects. Without projects, no fees are paid to the city.”
Miltenberger warned, “I understand you are looking at tight budgets, but does it make sense to discourage development downtown? Such a dramatic fee increase will send a signal and people will pull back. It’s easy to land a plane softly, rather than crash land it.”
He asked the council to consider phasing in fees over several years for multifamily developments. This would allow for a soft landing and a predictable set of frees.
Maria Bowman, of Mercado Business Association, whose Mercado Project Area is located north of Fifth Avenue, south of West Valley Parkway, between Centre City Parkway and Quince Street said they have been working for years to bring development to this area—where the old police station once was. “We need the help of developers. Please consider not raising the fees of developers, at least not by much. These are hard times. I’m asking you on behalf of future owners,” she said.
Elly Garner, director, government affairs at Palomar, which owns the old hospital land of 14 acres of extremely desirable downtown land, told the council that the site is “difficult to work with.” Adding, “It’s not something everyone wants but a great opportunity.” Observing that the city gets no taxes on this land currently because it belongs to a public agency, she said, “Any sale is a windfall. These are dollars the city has never seen before. We are afraid that the increase would have a significant cost associated with it and perhaps scare off some developers.”
A representative of the Building Industry Association of San Diego, also opposed increasing fees by as much as 300%, which, she said, would lead to higher home prices and rents. The BIA sent a letter to the city requesting that if the fee was adopted it be spread out over several years.
Council members in general favored spreading out the fees over several years. It struck council member Olga Diaz odd that the city didn’t review the fees more frequently and called for doing it at least every three years. “A gradual approach may be easier to implement,” she said.
Diaz felt it was more important to incentivize multifamily development than single family development. “Because that’s what we want to attract.” She also felt that redevelopment shouldn’t be hit as hard as new development because infrastructure is already there.
She also urged that projects already in the pipeline or in talks with the city move forward under existing fees.
She concluded, “I’m concerned about the old hospital because it is such a difficult site.” Commenting on the fact that Escondido’s fees are so low compared to other cities, she speculated, “This must be why San Marcos is able to build such wonderful facilities. It’s clear we can’t be completely out of sync with other agencies.”
Council member Ed Gallo noted that “even with the increased fees your staff has proposed, we still rank at the bottom of the Highway 78 Corridor. Why aren’t we being bombarded with commercial and condos if we are the lowest in North County? We’re not. Have you seen what’s being built in Vista and San Marcos—and they have the highest fees.
“There’s something wrong here!” said Gallo. “When we are next door to a town that is highest and we’re the lowest there is something radically wrong. We have to start looking at that pretty darned hard. I’m tired of being the 99-cent store of North County.”
He said he preferred condos to more apartments because when a condo changes ownership its taxes go up.
Councilmember Mike Morasco agreed that projects in the pipeline should continue under the old fee structure.
Council member John Masson said,” I’m OK with phasing this in, especially with multifamily downtown. Overnight is a big hit. We definitely want to do a deal with the hospital.”
In arguing for the increased fees, Mayor Sam Abed exclaimed, “We’re not a second-tier city anymore. The city is changing.” Without higher fees, “We’re not going to have enough police, or good roads.”
He added, “If we make our city better, our parks better, our traffic better than people are going to pay the price they pay to Carlsbad and San Marcos. We have the most intense development in North County. I’m totally committed to the hospital but I want to see who is building and what kind of proposal it is.”
The new fees were adopted at the final meeting of December.