REPORT TO COUNCIL
SUBJECT
Title
Public Hearing: Action on a Resolution Establishing the Average Per-Acre Land Values and Updating the Parkland In-Lieu Fee Schedule for FY2021/22 for New Residential Development
Report
COUNCIL PILLAR
Enhance Community Sports, Recreational and Arts Assets
BACKGROUND
In July 2014, the City Council adopted Ordinance No.1928 which added Chapter 17.35 “Park and Recreational Land” to the Santa Clara City Code (Code) that requires new residential developments to provide developed park and recreational land, and/or pay a fee in-lieu of dedication (“In-Lieu Fees”) pursuant to the Quimby Act (“Quimby”) and/or the Mitigation Fee Act (“MFA”). The Code requires that land values be used in the calculation of the In-Lieu Fees. The City completes its annual land valuation study in accordance with City Code Section 17.35.040 and Supplemental Instructions approved by Council June 7, 2016. The appraisal reports have a valuation date of December 31 (full calendar year January 1 to December 31) and include the average value of an acre of land for each of the three residential ZIP Code areas of the City (95050, 95051, and 95054). The land valuation report is posted on the City website for a two-week public comment period and persons interested in this subject are notified. The purpose of this memorandum is to share the findings of the land valuation report and recommend corresponding updates to the Parkland In-Lieu Fee Schedule for FY2021/22.
DISCUSSION
In March 2021, the City of Santa Clara completed its annual land valuation study by Frank Schmidt & Associates with a valuation date December 31, 2020 (Attachment 1). Table 1 below provides the 2020 valuation for the City’s three residential zip code areas along with prior years’ values for comparison.
|
Table 1 Average Land Value per Acre |
|
Area |
12-31-2020 |
12-31-2019 |
% Diff |
12-31-2017* |
12-31-2016 |
12-31-2015 |
|
95050 |
$4,720,000 |
$4,385,000 |
+7.6 |
$3,738,000 |
$3,315,000 |
$3,620,000 |
|
95051 |
$5,120,000 |
$4,630,000 |
+10.6 |
$3,993,000 |
$3,583,000 |
$3,800,000 |
|
95054 |
$4,830,000 |
$4,495,000 |
+7.5 |
$4,035,000 |
$3,669,000 |
$3,685,000 |
|
*2017 values are used in existing fee schedule for FY2020/21. |
Proposed Fees
This report proposes Council adoption of a Resolution (Attachment 2) to establish the Parkland In-Lieu Fee Schedule for FY2021/22. The proposed fees are in conformance with Council Resolution No.19-8769 (Attachment 3), adopted on October 29, 2019 which directed staff to “phase in the park improvement cost increase of $2,664 ($3,471 - $807) per capita over a four-year period increasing 25% ($666) per year and continue to adjust the land valuation (increase/decrease) fee component each year based on the annual land appraisal at 100% cost recovery.”
The proposed In-Lieu Fees are calculated based on the 2020 cost of land ($4.720 million per acre in 95050, $5.120 million per acre in 95051, and $4.495 million per acre in 95054), and 75% of the approved per capita cost for park construction/improvement ($2,805). If adopted, the In-Lieu Fees would increase between 21% and 29% depending upon the area, housing type (single family/multifamily), and whether the residential project is subject to Quimby or MFA. Table 2 below provides a comparison of current and proposed fees.
|
Table 2 Proposed In-Lieu Fees |
|
Housing |
Quimby |
MFA |
|
Area |
Type |
Current |
Proposed |
% Diff. |
Current |
Proposed |
% Diff. |
|
95050 |
SF |
$40,588 |
$51,567 |
27% |
$36,044 |
$45,828 |
27% |
|
|
MULTI |
$32,688 |
$41,530 |
|
$29,028 |
$36,908 |
|
|
95051 |
SF |
$42,913 |
$55,214 |
28.7% |
$38,059 |
$48,989 |
28.7% |
|
|
MULTI |
$34,561 |
$44,468 |
|
$30,651 |
$39,454 |
|
|
95054 |
SF |
$43,296 |
$52,570 |
21.4% |
$38,390 |
$46,697 |
21.6% |
|
|
MULTI |
$34,869 |
$42,338 |
|
$30,918 |
$37,609 |
|
Developer/Appraiser Comments
The Annual Land Valuation appraisal report was posted on the City website for review from March 30, 2021 to April 16, 2021. Members of the public and development community were invited to review and comment. The comments/questions received (Attachment 4) are paraphrased in “italics” followed by appraiser response below.
• The report assumes the land value increased to $4,830,000 which represents approximately 7.5% increase from prior appraisal.
o Due to the COVID pandemic in 2020, the uncertainty in the market caused nearly all facets of the market to be reevaluated. However, beginning in about the third quarter, buyer demand for residential increased. The primary reason for the value increase from one-year prior was due to an increase in residential sales transactions in 2020 from 44% in 2019 to 57% in 2020. Based on the Supplemental Appraisal Instructions using the weighted average, the increase in residential transactions resulted in a higher percentage of residential land component for the hypothetical 1-acre lot in each zip code; since residential land values are higher than commercial and industrial, the average price per acre increased.
• The appraisal assumes many factors, including economic rebound and increase in sales comparables from another zip code region within Santa Clara. Commercial and Commercial/industrial land values have decreased. For example, the 4590 Patrick Henry tenant filed for bankruptcy in 2020 and subtenant vacated and down-sized outside of 95054. Most properties are not achieving rental asking prices.
o Yes, commercial land values decreased in 2020, but industrial overall actually increased. This was likely due to the work-from-home dynamic that kept pressure on delivery services and data centers to keep up with the increased demand, which increased the need for more industrial space to accommodate rising demand.
• Using a 95% adjustment factor for residential is too high when rental residential has been decreasing by 15% from prior year. New land value per acre in 95054 should consider using values prior to pandemic.
o The appraisal report uses the General Standards for Appraisal and the Supplemental Instructions for Appraisal adopted by Council. It sets the average per acre value, not a value for a specific property. The City Code allows individual property owners to have a property-specific appraisal completed for their residential project following the same standards and methodology. Using values over three years old would not account for changes in value from 2018, 2019 and 2020.
• Impacts on real estate are yet to be realized, construction costs are rising, rents are declining, vacancies and capitalization rates are increasing.
o Yes, rents declined but the rental property land component is only a small portion of residential. The vast majority of the City’s residential is “for sale” housing, and this housing type increased the most in value in 2020. While some of the impacts from the pandemic may not be realized, we must keep in mind that the concluded values were as of December 31, 2020 and through the market lens as of that date. Whatever market risks there were moving forward were, in theory, factored into the data as of that valuation date. In addition, low interest rates and strong housing demand continue to fuel the for-sale and rental housing market.
• The City should set aside the 2020 appraisal and instead use the 2017 Appraisal to set the land value component of the fees. The fee increase adopted by Council in November 2019 included park improvement cost escalators built into the fee.
o The fee increase adopted by Council in November 2019 did NOT include a park improvement cost escalator, but rather a phase-in of the improvements’ value increase over a four-year period (see Resolution No. 19-8769). The land valuation is set at 100% cost recovery. If Council sets the fees lower than cost recovery, a source for additional funds to acquire the 2.6-3.0 acres of developed parkland per 1,000 new residents would need to be identified or the City would not be able to meet the park standard.
Fee Implementation
In conformance with State law, the proposed Resolution provides the required findings and implementation dates of fees for projects subject to Quimby (immediately after adoption of the Parkland In-Lieu Fee Resolution), and projects subject to MFA (no sooner that 60 days after adoption of the Parkland In-Lieu Fee Resolution).
Based on a public hearing date of May 25, 2021, the Quimby In-Lieu Fees would apply to new residential housing projects with applications deemed complete on or after May 26, 2021; and, the MFA In-Lieu Fees would apply to new residential projects with applications deemed complete on or after July 25, 2021.
Summary
In March 2021, the City of Santa Clara completed its annual land valuation study for 2020. This report follows the process Council has previously approved and simply updates the land values used in the Parkland In-Lieu Fee calculations to reflect changes in the market. The land values have not been updated since 2017. The continued use of lower (older) land values results in cost recovery of less than 100% and a financial subsidy for new housing development and the inability to acquire and develop new parkland and recreational amenities to maintain the current park system standards of 2.6 to 3.0 acres per 1,000 residents. The pandemic has heightened the public’s awareness of the importance of parks to their quality of life. The proposed resolution contains all of the required findings for the Quimby Act and Mitigation Fee Act and the recommendations are in line with the Council Pillar to enhance community sports, recreation and art assets.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(4) in that it is a fiscal activity that does not involve commitment to a specific project which may result in potential significant impact on the environment. In addition, the requirement of parkland dedication or collection of fees in-lieu may assist in the mitigation of impacts on the environment from new housing development projects.
FISCAL IMPACT
The actual amount of Parkland In-Lieu Fee revenue collected will vary based on the project application type (Quimby/MFA), the area of the City (95050, 95051, 95054), the density of housing units (multifamily versus single family), the amount of public parkland dedicated, and the amount of financial credit developers receive for eligible on-site private open space and recreation amenities (which reduces remaining fees due by 50%-65%). Since the exact number and type of new housing units to be built in any particular year is unknown, an exact amount of In-Lieu Fees revenues cannot be calculated at this time. However, when the In Lieu Fee Policy is set at 100% cost recovery, the In-Lieu Fee program will recover 100% of the costs to provide new residents developed public parkland and recreational amenities at the same level of service as provided to existing residents. If fees are set at less than 100% cost recovery, then additional funds from the General Fund or other sources of capital will be needed to fill the funding gap, or the level of service will decline.
In August and October of 2019, Council approved Resolution Nos. 19-8749 and 19-8769 which maintained the use of 2017 land valuation data and phased in over four years the 2018 park improvement values. Over the same period, construction cost escalation has increased an average of 3.2% per year (10 years average is 3%/year). The estimated impact of the maintaining the land values and improvements at artificially low values has resulted in a net reduction of approximately $4,583,000 of Park In-Lieu Fees collected based on actual projects.
As noted above, land valuation has not been updated since 2017. The continued use of lower (older) land and park construction values yields cost recovery rates of less than 100% and a financial subsidy for new housing development. Over time, the City will need to identify other funding sources for acquisition and development of new parkland in order to maintain current park system standards of 2.6 to 3.0 acres per 1,000 residents of adequately developed parkland and sufficient recreational facilities. Without sufficient parkland and facilities, there is increased demand on existing, older facilities which causes additional wear, earlier/more frequent repair/renewal, and higher maintenance and capital replacement costs.
COORDINATION
This agreement has been coordinated with the Finance Department and the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
Public Notice of the May 25, 2021 Council hearing was published in the Weekly, a newspaper of general circulation, on May 5, 2021 and on May12, 2021, and an E-notify email sent to individuals whom have opted in to receive information about this topic. A copy of this report was posted on May 21, 2021 on the City website and in the City Clerk’s Office.
RECOMMENDATION
Recommendation
Adopt a Resolution to Establish the Parkland In-Lieu Fee Schedule for New Residential Development for FY2021/22 In Accordance with Title 17 (“Development”) Chapter 35 (“Park and Recreational Land”) of the City Code using the December 31, 2020 land valuation report.
Staff
Prepared by: James Teixeira, Director of Parks & Recreation
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Land Valuation Appraisal Report December 31, 2020
2. Resolution - Fees In-Lieu of Parkland Dedication FY2021/22
3. Resolution No. 19-8769
4. Developer Communications on Land Valuation Report 2020