REPORT TO COUNCIL
SUBJECT
Title
Action on a Resolution Establishing the Average Per-Acre Land Values and Park Development Costs to be Used in Setting the Parkland In-Lieu Fees for New Residential Development for FY 2023/24
Report
COUNCIL PILLAR
Enhance Community Sports, Recreational and Arts Assets
Enhance Community Engagement and Transparency
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
Since 2014, City Code Chapter 17.35 “Park and Recreational Land” requires new residential developments to provide developed park and recreational land and/or pay a fee in-lieu of developed parkland dedication (“In-Lieu Fees”) pursuant to the Quimby Act (“Quimby”) and/or the Mitigation Fee Act (“MFA”). This enables the City to maintain its existing level of service at the same rate of 2.6 acres to 3.0 acres of parkland and recreational amenities per 1,000 residents. The In-Lieu Fees are calculated annually and included in the Municipal Fee Schedule by a Council adopted resolution.
The calculation of the In-Lieu Fees is based on the three primary cost components for the acquisition and development of new parkland, namely (a) the average cost to purchase land for parks in Santa Clara, (b) the average cost per capita to develop the land into a useable park facility, i.e. to construct the amenities, buildings, landscaping and the equipment to service it, and (c) the cost to administer the program, including the review of residential development plans for compliance with the ordinance. The methodology for the calculation of the In-Lieu Fees is explained in the Parks & Recreation Facilities Development Impact Fee Study (Nexus Study) updated August 27, 2019 (Attachment 1).
When the In-Lieu Fee Policy is set at 100% cost recovery, the In-Lieu Fee program will recover 100% of the costs necessary to provide new residents with 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, additional funds from the General Fund or other funding sources will be needed to fill the funding gap, or the level of service will decline. Without sufficient parkland and facilities, there will be an impact in the form of increased demand on existing, older facilities which causes additional wear, earlier/more frequent repair/renewal, and higher maintenance and capital replacement costs. Therefore, it is important to use current land values and park improvement costs to calculate the In-Lieu Fees.
Land Value
The cost to purchase land for parks is based on an annual land valuation study. The appraisal report is completed by an appraiser and in accordance with City Code Section 17.35.040 and the Supplemental Instructions approved by Council June 7, 2016 (Attachment 2). The appraisal report has a valuation date of December 31 to account for the full calendar year (January 1 to December 31) of data for property transactions and provides an objective assessment of the average value of an acre of land in 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 by email.
Park Development/Amenities Cost
The cost to construct the park improvements (landscape, furnishings, buildings, etc.), is based on an average cost per capita for the City’s existing park system improvements. This creates a fair and equitable distribution of costs to be recovered for development of park assets and features to serve the new residents at the same standard as existing residents. The systemwide average cost per capita is reviewed periodically and as part of the nexus study. In general, the cost analysis includes a review of recent/actual park improvement project costs and increases/decreases in the State of California, Department of General Services Construction Cost Index reported by the Real Estate Services Division for the Bay Area. In 2017/18, at the time of the last nexus study, by Council direction, the increase in the value of park improvement cost was phased in over a four-year period with no index for cost escalation.
The purpose of this memorandum is to (a) share the findings of the land valuation report, (b) provide park construction cost information, (c) summarize public comment and input from the Parks & Recreation Commission Meeting of March 21, 2023, and (d) to discuss and set Council policy direction for the Parkland In-Lieu Fee Schedule for FY 2023/24.
DISCUSSION
Land Valuation - Average Cost per Acre
On March 1, 2023, the City of Santa Clara completed its annual land valuation study by Frank Schmidt & Associates with a valuation date of December 31, 2022 (Attachment 3). The land values for each of the City’s three residential zip code areas are $5.50 million per-acre in 95050, $5.84 million per-acre in 95051 and $5.24 million per-acre in 95054. Table 1 below presents the 2022 valuation and the percentage change from 2021 along with previous values for comparison.
|
Table 1 Average Land Value Per Acre |
|
Area |
2022 |
2021 |
% Diff |
2020 |
2019 |
2017 |
|
95050 |
$5,500,000 |
$5,715,000 |
-3.76% |
$4,720,000 |
$4,385,000 |
$3,738,000 |
|
95051 |
$5,840,000 |
$6,000,000 |
-2.67% |
$5,120,000 |
$4,630,000 |
$3,993,000 |
|
95054 |
$5,240,000 |
$5,495,000 |
-4.64% |
$4,830,000 |
$4,495,000 |
$4,035,000 |
Park Improvement Value - Average Cost Per Capita
The average park improvement value per capita of $3,471 was developed in 2017 based on the Parks & Recreation Facility Condition Assessment “as is” replacement costs for park site and building assets and is included in the 2019 Nexus Study. At that time, an increased cost per capita amount was phased in over a four-year period per Council policy direction. Based on actual residential projects from 2018 to 2021, the policy impact was approximately $4,583,000 less in Park In-Lieu Fees collected over the four-year period.
In addition, the 2017 park improvement value is not indexed to construction cost increases. Table 2 below indicates that, from 2018 to 2022, construction costs have increased 30.4% based on the State of California, Department of General Services Construction Cost Index (CCI) reported by the Real Estate Services Division. If the park improvement value of $3,471 per capita were indexed to account for cost escalation, the park improvement value would be $4,641 per capita for FY 2023/24.
|
Table 2 Park Improvements/Construction Cost Escalation 2017-22 |
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|
|
+1.3% |
+3.6% |
+2.8% |
+13.4% |
+9.3% |
|
$3,471 |
$3,516 |
$3,643 |
$3,745 |
$4,246 |
$4,641 |
In order to recover 100% of improvement costs and provide recreational amenities in new parks at the same standard as existing parks, policy direction is needed to adjust the base cost per capita to reflect the accumulated changes in the current value since 2017. As shown in Table 2, this would result in the adjustment of the existing 2017 base cost of $3,471 per capita to the current value of $4,641 in 2022 dollars - an increase of 30.4%. Recognizing that such an increase would be too aggressive to achieve in one year, for purposes of discussion and community feedback, staff has proposed an initial adjustment of 10%, from $3,741 to $3,818 per capita. Since the park development cost is a much smaller component of the In-Lieu Fee calculations, the effect of a 10% increase in the base value from $3,741 to $3,818 per capita, if adopted, would be fully mitigated by the decrease of 2.6% to 4.6% in the current year land valuation component.
In no case can the improvement value used to calculate In-Lieu Fees exceed the reasonable/justifiable costs to provide parkland and amenities at the current standard (100% cost recovery).
Policy Options - Park Improvement Value Changes
Fees due in lieu of parkland dedication are not the only development fees charged by the City for new residential development. In the past, Council has provided a balanced approach in achieving mutual goals of cost recovery and provision of much needed housing.
a) Limit future increases by a maximum percentage. Given the recent volatility in construction costs due to labor and supply chain issues as well as inflation, Council may be interested in limiting future park improvement cost increases/decreases to an ongoing “not to exceed” amount of 10% per year. The annual value change may be much lower than 10% as shown in Table 2. This policy consideration, if adopted, would provide a necessary level of certainty and reasonably predictable cost escalation for new residential developers by limiting the some-times volatile increases during an inflationary period. The actual costs would also be reviewed and validated on a periodic basis, approximately every five years, as part of the required Parks and Recreation Facilities Development Impact Study (Nexus Study). This option is proposed and included in the Fee Resolution.
b) Index future increases/decreases by use of the Construction Cost Index. In order to keep close to 100% cost recovery and address the annual fluctuations, the established park improvement base value could be linked to an objectively determined index. Use of the State of California, Department of General Services Construction Cost Index (CCI) to adjust the value annually, would help ensure use of a more current improvement cost valuation in the calculation of the In-Lieu Fees. The CCI percent changes (increase/decrease) are published monthly and totals provided every calendar year. This policy consideration is included in the Fee Resolution and provides a level of certainty and reasonably predictable cost escalation going forward. Since the park development cost is a much smaller component of the In-Lieu Fee calculations, it is anticipated that the effect on fees will be small and negligible in years when land values decrease.
c) Phase in changes over a specified time by percentage or fixed amount. Council may be interested in phasing in any changes in the park improvement value over a specified period of time until 100% improvement cost recovery is achieved. This policy direction could be similar to the considerations and direction after the last Parks & Recreation Facilities Development Impact Fee Study (Nexus Study) which phased in the increased value by 25% per year over 4 years. This option is not included in the Fee Resolution. The values used in this option tend to lag changes in actual costs of park development and may result in lower cost recovery over time. Should Council be interested in this option, specific language would need to be added to the Fee Resolution to specify the value to be used and the timeframe over which values would be increased.
Public Comment & Commission Recommendation
The Annual Land Valuation appraisal report was posted on the City website for the two-week review period of March 7, 2023 to March 21, 2023. Members of the public and development community were invited to review the report and to provide questions and comments to the Director of Parks & Recreation. There were no comments or questions received.
On March 21, 2023, the Land Valuation Report and the park improvement cost information was presented for Parks & Recreation Commission for consideration and public comment (File ID No. 23-343). The Commission was shown how the In-Lieu Fees are calculated with the decreased land valuation and a potential 10% increase in the improvement value.
The Commission comments and questions primarily focused on the park improvement values/costs and are summarized below.
1. QUESTION: Did the City receive $4.6 million less in park fees from 2018 to 2021, based on use of less than 100% cost recovery for the park improvement value?
RESPONSE: Yes, the estimate was based on actual residential project applications for 2018-2021 and use of the 2017 value of $3,471. However, the City had two policy goals, that of moving the park improvement value toward 100% cost recovery and that of supporting the delivery of needed new residential housing.
2. QUESTION: Is a 10% increase in the park construction value a reasonable ask given that moving to 100% cost recovery may discourage more residential development?
RESPONSE: An increase in improvement value of 10% is reasonable this year, given that it represents less than 1/3 of the total increase in the construction cost index over the past five years. In addition, Land values have decreased this year, meaning that even with a 10% increase in the park improvement component, the overall In-Lieu Fees would still decrease year over year from FY 2022/23 to FY 2023/24. Lower fees should not discourage new residential development.
3. QUESTION: If the City wants full, 100% cost recovery, why shouldn’t the improvement value be linked to the construction cost index and make the cost more predictable from year to year?
RESPONSE: It is a reasonable/justifiable approach to update average cost per capita for park improvements based on changes in the construction cost index (increases/decreases). Currently, there is no policy direction to update annually by the annual change in the construction cost index. The periodic revaluation of the public park system’s assets on a five-year basis and annual increase/decrease based on the construction cost index would assure the cost projections are accurate and stay closer to 100% cost recovery.
4. QUESTION: Does the City immediately use park fees that have been collected?
RESPONSE: No, the In-Lieu Fees received are placed separately into unallocated accounts for Quimby Act and for Mitigation Fee Act. The City develops a list of projects in the Capital Improvement Program (CIP) Budget including the acquisition/expansion and development of new parkland and amenities, and the rehabilitation of existing parkland and facilities that would reasonably serve the new residents and meet the nexus requirements of the Quimby Act and/or Mitigation Fee Act. Projects usually take a period of time from when they are proposed, community outreach and design completed, and construction publicly bid, awarded and completed.
5. QUESTION: The City wants to be competitive and encourage developers to construct residential housing; has the City encountered historical resistance to the In-Lieu Fees or to the percentage increase in Fees charged by the City?
RESPONSE: The development community is sensitive to both the amount of fees charged and to the percentage of any increase because they present an additional cost to residential development. Over the past 8 years, the Building Industry Association (BIA), the California Apartment Association (CAA), and residential developers have advocated for reasonable increases and suspension of increases. Developers and City recognize that public parkland and recreational amenities add to the quality of life for residents and the measurable benefits contribute to City goals of improved health and wellness for individuals and the community
6. QUESTION: If the City sets fees, can City Council still negotiate with developers to reduce fees?
RESPONSE: In-Lieu Fees are not negotiated, and In Lieu Fees are not set on a per project basis. The Council sets its In-Lieu Fee policy in accordance with state law and the provisions of the Mitigation Fee Act and the Quimby Act. The Council may set In-Lieu Fees up to 100% of the reasonable cost for the parkland and amenities and apportions that cost equitably on a per capita (new resident) basis, minus the value of the parkland that is dedicated. If a developer dedicates 100% of the City parkland requirement of 2.6 acres (MFA) or 3 acres (Quimby) of parkland per 1,000 new residents, then no In-Lieu Fees are due. Council may also set fees lower than 100% cost recovery, and/or Council can set fees for a certain area of the City within a zip code that are different from the rest of the zip code area where the fees would apply to all projects in that specific area of the City as was done in the Patrick Henry Drive Specific Plan area in FY2022/23 Developers may also receive credit for 50% of the eligible private recreational space/amenities against In-Lieu Fees due.
7. COMMENTS: (a) Most new parks in residential developments do not have a restroom; (b) When parks are developed in phases, it seems like Phase Two park development rarely happens, so it is important for the City to require payment of fees and development of the park facilities in the first phase of development.
RESPONSES: (a) The City provides a standard level of service and park amenities similar to existing parks based on the number of residents served (per capita) and the size of the park to be dedicated. The City’s General Plan defines parks under one acre in size as mini parks; they have few recreational amenities and typically do not have a restroom. Neighborhood parks are defined as between 1 and 15 acres in size and have multiple amenities and spaces that support a diversity of recreational activities that typically engage patrons for over one-hour duration, which may necessitate use of a restroom facility. The restroom may be in the park proper or in an adjacent building open to the public during park hours so as to not reduce the amount of usable park space.
(b) The parkland requirement and In Lieu fees are in proportion at 2.6 to 3.0 acres per 1,000 new residents and are recorded in agreements that conform to any applicable Specific Plans, Parks & Recreation Amenity and Design Standards, and Council approved park master plans which include the required parkland, fees, amenities and phasing schedule, if applicable.
Following discussion, the Parks & Recreation Commission recommended that Council approve for the FY 2023/24 In-Lieu Fees calculation:
(a) use of the Land Valuation Appraisal Report dated December 31, 2022 setting the average per acre values at $5.500 million in 95050, $5.840 million in 95051, $5.240 million in 95054, and
(b) use of an increased park improvement value of $3,818 per capita (2018 value of $3,471 plus 10% for cost escalation recovery), and
(c) index future park improvement value changes (increase/decrease) to the State of California, Department of General Services Construction Cost Index (CCCI).
Proposed Fee Calculations
This report proposes calculating the In-Lieu Fees for FY 2023/24 as recommended by the Parks & Recreation Commission and are found in the Fee Resolution (Attachment 4). The proposed Fee Resolution includes policy direction to use of the Land Valuation Appraisal Report dated December 31, 2022, use of an increased park improvement value of $3,818 per capita, and to link future changes in the park improvement values to the Construction Cost Index, but no greater than 10%. If adopted as proposed, the In-Lieu Fees would decrease between 0.37% and 2.1% depending upon the area of Santa Clara, the housing type (single family/multifamily), and whether the residential project is subject to Quimby and/or MFA. Table 3 provides a comparison of the current and proposed fees.
|
Table 3 Proposed In-Lieu Fees |
|
Housing |
Quimby |
MFA |
|
Area |
Type |
Current |
Proposed |
% Diff. |
Current |
Proposed |
% Diff. |
|
95050 |
SF |
$62,664 |
61,759 |
(1.45%) |
$55,716 |
55,072 |
(1.16%) |
|
|
MULTI |
$50,468 |
49,738 |
|
$44,872 |
44,353 |
|
|
95051 |
SF |
$65,263 |
64,859 |
(0.62%) |
$57,968 |
57,758 |
(0.36%) |
|
|
MULTI |
$52,561 |
52,235 |
|
$46,686 |
46,517 |
|
|
95054 |
SF |
$60,658 |
59,388 |
(2.09%) |
$53,977 |
53,017 |
(1.78%) |
|
|
MULTI |
$48,852 |
47,829 |
|
$43,472 |
42,698 |
|
Per Council direction in 2022, the reduced In-Lieu Fees approved for FY2022/23 for Patrick Henry Drive Area Plan will reset to be the same as the rest of 95054 on July 1, 2023.
Fee Implementation
In conformance with State law, the proposed City of Santa Clara FY 2023/24 Municipal Fee Schedule and the Parkland In-Lieu Fee Resolution are presented for consideration during a Public Hearing. Approval of the Resolution provides the required findings and implementation dates of fees for projects subject to Quimby (immediately after adoption of the resolution), and projects subject to MFA (no sooner that 60 days after adoption of the resolution). However, based on a public hearing date of April 18, 2023 and Council policy direction to implement fees no sooner than the new Fiscal Year on July 1, 2023, the Quimby In-Lieu Fees would apply to new residential housing projects with applications deemed complete on or after July 1, 2023; and, the MFA In-Lieu Fees would apply to new residential projects with applications deemed complete on or after July 1, 2023. For applications deemed complete prior to July 1, 2023, the existing In-Lieu Fees adopted in Resolution No. 22-9080 (Attachment 5) and Resolution 21-8970 (Attachment 6) will apply.
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.
FISCAL IMPACT
Fees are calculated and updated on an annual basis. If adopted as proposed, the In-Lieu Fees charged would decrease between 0.37% and 2.1% and the percentage of cost recovery will be closer to actual costs for FY2023/24. The actual amount of Parkland In-Lieu Fee revenue collected in the future will vary based on the project application type (Quimby/MFA), the area of the City (Zip codes 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 recreation amenities (which can reduce remaining fees due by 50%), and/or 15% credit for one hundred percent affordable or senior housing developments.
For historical perspective, Table 4 provides a summary of fees collected for FY 2015/16 to FY2022/23 year to date (YTD).
|
Table 4 Summary of Parkland In-Lieu Fees collected FY 2015/16 to FY 2022/23 |
|
Fiscal Year |
Quimby |
MFA |
Total |
|
2015/16 |
130,320 |
0 |
130,320 |
|
2016/17 |
1,108,300 |
14,780,447 |
15,888,747 |
|
2017/18 |
3,557,835 |
0 |
3,557,835 |
|
2018/19 |
4,265,053 |
268,091 |
4,533,144 |
|
2019/20 |
1,655,255 |
7,159,545 |
8,814,800 |
|
2020/21 |
1,252,917 |
1,522,149 |
2,775,066 |
|
2021/22 |
3,778,469 |
14,634,898 |
18,413,367 |
|
2022/23 YTD |
0 |
23,237,740 |
23,237,740 |
|
|
15,748,149 |
61,602,870 |
77,351,019 |
In-Lieu Fees collected from past projects are provided by Fiscal Year and Zip Code in Attachment 7.
COORDINATION
This agreement has been coordinated with the Community Development Department, 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.
RECOMMENDATION
Recommendation
Adopt a Resolution to set the Parkland In-Lieu Fee Schedule For New Residential Development in accordance with Title 17 (“Development”) Chapter 35 (“Park and Recreational Land”) of the City Code establishing the average per acre land values as contained in the Annual Land Valuation Appraisal Report and the Park Development cost per capita value as contained in the Parks & Recreation Facilities Development Impact Fee Study (Nexus Study Update) and adjusted by the Construction Cost Index.
Staff
Prepared by: James Teixeira, Director of Parks & Recreation
Approved by: Office of the City Manager
ATTACHMENTS
1. Nexus Study Update 2019
2. Supplemental Instructions for Appraisal - Approved by Council June 6, 2016
3. Land Valuation Appraisal Report 12-31-2022
4. Fee Resolution
5. Resolution No. 22-9080
6. Resolution No. 21-8970
7. In-Lieu Fees Collected by Fiscal Year