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County of Santa CruzDEPARTMENT OF PUBLIC WORKS

701 OCEAN STREET, ROOM 410, SANTA CRUZ, CA 95060-4070(831) 454-2160 FAX (831) 454.2385 TOD (831) 454.2123

JOHN J. PRESLEIGHDIRECTOR OF PUBLIC WORKS

AGENDA: MARCH 5, 2013

February 28,2013

SANTA CRUZ COUNTY BOARD OF SUPERVISORS701 Ocean StreetSanta Cruz, California 95060

SUBJECT: UNIFIED FEE SCHEDULE - REPORT ON TRANSPORTATIONIMPROVEMENT AREA FEES

Members of the Board:

On May 8,2012, your Board considered a report on Transportation ImprovementArea (TIA) fees and directed Public Works, in consultation with the Planning Department, toretain a consultant to evaluate TIA fees in relation to the Capital Improvement Program andcurrent economic conditions, and to return on or before December 1 1, 2012, with findings andrecommendations. However, additional time was needed for the work to be completed, anddeferrals of the report were requested until today's date.

Attached for your Board's information are a letter and memorandum datedDecember 12, 2012, from Fehr and Peers and Economic Planning Systems (EPS), the consultantsretained to evaluate the TIA fee issues. In summary, the consultants have determined:

. The County's TIA fees are in the mid-range for commercial and industrial uses ascompared to other jurisdictions, but are higher for residential uses.

. There is no clear evidence that strategic actions taken by other jurisdictions to

stimulate development through modifications to transportation impact fee programshave resulted in new development.

. Impact fees adjustments are unrelated to the primary causes of weak growth and

development.. The County should consider updating the TIA fee program and conducting an

updated nexus study.

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SANTA CRUZ COUNTY BOARD OF SUPERVISORSPage-2-

FEE COMPARISON

The consultants were satisfied with staff s previous attempts at fee comparisonswith other local jurisdictions and only attempted to fine tune the assessment with more in-depthcomparisons. There were base assumptions made in order to evaluate the fees on an apples-to-apples comparison. The results are indicated in Table 2 on Page 9 of the attached EPSmemorandum, with additional information in Table 3 on Page 10. Any adjustments to the TIAfees are recommended to be done as a result of a nexus study update.

ECONOMIC IMPLICATIONS

The economic implications of development impact fees are discussed beginning onPage 3 of the EPS memorandum. This section states that it is unlikely that a reduction indevelopment impact fees wil have a significant effect in stimulating new development, and anyproposed reduction in impact fees should not be made without consideration of the implications oflost development-related revenues and the impact on the County's infrastructure. Manycommunities offer flexibility in these areas to achieve economic development goals.

There are several possible fee modification strategies described in Table 1 on Page4 of the attached Fehr & Peers letter, with the first one being a short-term deferraL. Somejurisdictions have adjusted the timing of when impact fees must be paid to allow for payment priorto occupancy of a building rather than upon issuance of the building permit. This timing moreaccurately reflects when impacts actually occur but increases the risk that developers could buildthe development and then not have suffcient resources to pay the fees. This flexibility in thetiming of the payment may be of assistance to large commercial developments with higher thanaverage TIA fees that would allow for construction to commence sooner than otherwise.

The Board may wish to consider a deferral approach on larger developments. It isrecommended that only large commercial developments be considered for this deferral and notresidential developments. Commercial projects tend to have to pay the largest TIA fees comparedto residential projects. Please note that the current TIA fee process does allow flexibility in thisregard. Staff wil be discussing this issue with the new economic development study in thecoming months to see if other strategies are recommended for consideration.

NEXUS STUDY

The purpose of an updated nexus study is to establish the nexus, or relationship,between new development that occurs in a jurisdiction and the need for new and expanded publicfacilities. The consultants have provided extensive information about the topics addressed by anexus study to demonstrate the reasonable relationship between the cost of the public facility, theproportionate share of the facility used by each type of development, and the amount of the feeimposed on new developments.

SANTA CRUZ COUNTY BOARD OF SUPERVISORSPage-3- 3

In the case of circulation improvements, traffic impact fees are intended to providefunding to implement the roadway and roadside improvements contained in the Santa Cruz CountyGeneral Plan Circulation Element, which are needed to meet the demands generated by newdevelopment. The current traffc impact fees have been set to reflect the current General PlanCirculation Element planned facilities and projected levels of new development.

As your Board may recall, planning activity related to Sustainable Communityplanning is currently occurring both locally and regionally as coordinated through the Associationof Monterey Bay Area Governents and the Santa Cruz County Regional TransportationCommission. These planing efforts involve preparation of new population and employmentgrowth projections, which wil then allow for updated projections of residential and non-residentialdevelopment. The planing efforts will involve establishing land use designations and zoning forhow to best accommodate the development at locations throughout the County. An updatedanalysis of the transportation facilities that wil be needed to serve projected development can thenbe prepared, with recommended changes to the current Circulation Element identified. A draft ofthe County's Sustainable Community and Transit Corridors Plan is expected to be completed inabout a year, along with draft amendments to the General Plan Land Use, Circulation and HousingElements. A Draft Economic Vitality Strategy is also expected to be completed in this time frame,which may itself recommend certain General Plan amendments. After completion of a MasterEnvironmental Impact Report on a consolidated set of proposed General Plan amendments, theamendments are expected to be ready for consideration by your Board in early 2015.

An appropriate time for initiating a nexus study update may be during fiscal year2014/15, as the information needed to prepare the study wil have been generated by the above-described planing efforts.

Public Works recommends that we report back to your Board in June 2014,regarding whether to prepare a nexus study update. At that time, the department would provideinformation about a recommended approach to the study, and whether to also include analysis ofother public facilities that may need to be provided or expanded to meet the needs of newdevelopment.

It is therefore recommended that the Board of Supervisors take the followingactions:

1. Accept and fie this report on Transportation Improvement Area fees.

2. Direct Public Works, in consultation with the Economic DevelopmentCoordinator, to return on June 11,2013, with any further recommendations toprovide for deferral of payment of Transportation Improvement Area fees forlarge commercial projects until occupancy of the building.

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SANTA CRUZ COUNTY BOARD OF SUPERVISORSPage-4-

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Attachments

Copy to:

TIA 3-5-13.doc

3. Direct Public Works to report back in June 2014, with recommendationsregarding a nexus study update.

Yours truly,

InJOHN J. PRESLEIGHDirector of Public Works

R€CóMMet-\:eDPublic WorksPlanning

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FEHR1PEERS

December 12, 2012

Jack SohriakoffCounty of Santa Cruz

Department of Public Works701 Ocean Street, Suite 410Santa Cruz, CA 95060

Subject: Evaluation of the Santa Cruz County Unified Fee Schedule: TransportationImprovement Area Fees

Dear Jack:

Fehr & Peers, with assistance from Economic & Planning Systems (EPS), conducted an evaluation

of the Santa Cruz County Unified Fee Schedule: Transportation Improvement Area fees CTIA

fees"). Santa Cruz County established TIA fees over 20 years ago in four geographic subareas of

Santa Cruz County - Aptos, Live Oak, Pajaro Valley and Soquel. These fees have been used to

construct a variety of transportation and roadside improvements. The recent "Great Recession"

and persistent real estate downturn have heightened concerns regarding the effect of fees on

development feasibility and local economic competitiveness. The evaluation presented here

recognizes that the County has already compiled data related to transportation fee levels in

nearby jurisdictions within Santa Cruz and Monterey counties. In order to provide the County with

an evaluation of both the transportation planning effects and the economic considerations of the

current TIA fees, the following evaluation components were completed.

. Transportation Fee Structure Comparison

. Transportation Impact Fee Program Modification Strategies

TRANSPORTATION FEE STRUCTURE COMPARISON

The attached EPS memo (Evaluation of the Santa Cruz County Unified Fee Schedule: Transportation

Improvement Area Fees, December 12, 2012) includes a background discussion on impact fees in

California, a description of the context for the current Santa Cruz County TIA fee, and a detailed

"case study" comparison of the transportation fee programs of four jurisdictions (City of Santa

Cruz, City of Watsonville, City of Salinas, and Placer County) that contain elements that may be

applicable or instructive to the County. Building upon the fee comparison presented by County

staff to the Board of Supervisors on May 8, 2012, this project team evaluated the County's current

160 W Santa Clara Street I Suite 675 I San Jose, CA 95113 t (408) 278-1700 I Fax (408) 278-1717www.fehrandpeers.com

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December 12, 2012Page 2 of 8 1fee collection and administration protocol and compared it with those in use or underconsideration in other jurisdictions, focusing on economic development and financial feasibility

issues. The following are some of the specific questions that County staff were interested to learn

more about; general answers are provided below, and more detail on each topic can be found in

the attached EPS memo:

. Do other jurisdictions separate "roadside" and "transportation" improvements i. as Santa

Cruz County does?

o This type of separation is used by some jurisdictions in California, but none of the

case study jurisdictions reviewed have roadside and transportation improvements

separated. In some jurisdictions, the road-frontage improvements that Santa Cruz

County characterizes as "roadside" projects are considered to be the

responsibility of the developer and are required through development guidelines

rather than through the fee program.

. Do other nearby jurisdictions include multi-modal transportation improvements in their

transportation fee programs? If so, what types of improvements are included, and what is

the basic nexus calculation?

o Many transportation fee programs include defined multi-modal transportation

improvements such as bicycle, pedestrian and transit improvement projects,

which are often completed in conjunction with other street improvements. It is

not common to include major transit investments such as rail service in fee

programs; these types of major investments are typically funded at the regional

or state leveL. Fee programs establish a reasonable relationship between the fee

and the cost of the public facility attributable to new development on which the

fee is imposed in various ways: some set aside a specific percentage of fee

revenues for "alternative" mode (e.g., pedestrian, bicycle, transit, etc.) projects

identified in a transportation plan, while others calculate a nexus for multi-modal

improvements based on proportional population and job growth, and/or

changes in mode share.

. How do other jurisdictions apply fee credits, and how do those systems differ from what

is used in Santa Cruz County?

i Roadside related improvements include physical improvements such as curbs, gutters, landscape buffer,

and sidewalks, while transportation related improvements include physical infrastructure such as bicyclelanes, turn lanes, bus stops, and traffic signals.

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Jack SohriakoffDecember 12, 2012Page 3 of 8 1

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o In-kind fee credits are commonly applied; see the EPS memo section titled

"Credits, Reimbursements and Exemptions" for more details.

. Do other jurisdictions implement upper-limit trip rates when calculating transportation

fees, or apply any other similar type of fee cap?

o There was no indication that the four case-study jurisdictions applied any upper-

limit caps on fees for specific uses.

TRANSPORTATION IMPACT FEE PROGRAM MODIFICATION STRATEGIES

The Circulation chapter of the Santa Cruz County 1994 General Plan and Local Coastal Program,

includes transportation policies that articulate the local community vision of the land use and

transportation system and is a guiding document for the County TIA fee program. The County

General Plan includes illustrations of the planned transportation system, policies to reduce vehicle

trips and support the development and expansion of multi-modal transportation system. The

General Plan supports the implementation of the TIA fee program with the following policies:

. Policy 3.12.3 Transportation Impact Fees as Mitigation: Payment of an approved

Transportation Impact Fee proportional to the forecast trip generation will be required.

. Policy 3.21.3 Transportation Impact Fees: Require those benefiting from transportation

improvement to pay fair share of the costs through assessment of fees on new

developments.

. Policy 3.21.4 Mitigation Requirements: Require new development projects to mitigate their

impacts on transportation on facilities through system improvements and/or

transportation impact fees.

County staff has received questions about the amount of its transportation fees relative to other

jurisdictions, and the effects that those fees might be having on economic development activity in

the County. While the transportation fee comparisons provided in the EPS memo indicate that the

County's TIA fees are in the mid-range for commercial and industrial uses, the TIA fees do seem

to be on the higher end of the range for residential uses.

In response to the Great Recèssion, many jurisdictions around the country have chosen to adjust

their fee programs in a variety of ways, often reducing or deferring fees with the stated goal of

stimulating more development activity. It should be noted that, based on research conducted in

California and in other states, there is currently no clear evidence of a direct correlation between

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Jack SohriakoffDecember 12, 2012Page4of8 1fee reductions and increases in development activity. Nevertheless, some of the fee program

modifications applied by other jurisdictions include:

. Delaying/deferring fee collections until later in the development process;

. Applying temporary fee discounts to some or all land use types;

. Temporarily waiving collection of fees;

. Phasing in any new fees over several years; or

. Conducting a nexus study update to cover fewer capital projects and/or to account for

reduced project costs.

These options are described in more detail in Table 1 below, with some comments about the

potential applicability of each strategy to Santa Cruz County.

TABLE i TRANSPORTATION FEE MODIFICATION STRATEGIES

ImplementationTime-Line

Approach

Short-term Deferral

A developer can apply for a feedeferral which is approved by aDepartment head assuming

certain criteria are met.

Short-term

County Board of Supervisorsapproves short-term fee

discounts to some or all of theland uSe types.

Discount

Short-termBoard of Supervisors temporarily

suspends collection of fees.Waiver

Mid-TermNexus Study

Update

Conduct new nexus study toaddress current list of capital

projects and costs, and toaccount for current knowledge of

development patterns.

Impact onFee Revenue

StaffCommitment

Deferred feecollection, butno change tototal revenue

Low

Reduced feerevenue;amount

depends on

level ofdiscount.

Low

Reduced feerevenue,amount

depends on

duration of

waiver.

Low

Not knownuntil nexus

study iscompleted.

Moderate

Notes: Both near-term and mid-term actions can be undertaken simultaneously (i.e., they are not mutually exclusive).Source: Fehr & Peers, November 2012.

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Jack Sohriakoff

December 12, 2012Page 5 of 8 1ADDITIONALINFORMATION ABOUT NEXUS STUDIES

This section provides additional information about the steps that would be involved if the County

chose to conduct a nexus study to update the TIA fee program.

Purpose of a Nexus Study

The purpose of a "nexus study" is to establish the nexus (or relationship) between new

development that occurs in a jurisdiction and the need for new and expanded transportation

facilities. After establishing the nexus, the study calculates the development impact fees to be

levied for each land use in the areas of benefit, based on the proportionate share of the total

facility use for each type of development.

In general, the relevant state legislation governing fee programs (the Mitigation Fee Act,

California Government Code sections 66000 et seq.) requires that a nexus study address the

following topics:

. Identify the purpose of the fee.

. Identify how the fee is to be used.

. Determine how a reasonable relationship exists between the fee's use and the type of

development project on which the fee is imposed.

. Determine how a reasonable relationship exists between the need for the public facility

and the type of development project on which the fee is imposed.

. Demonstrate a reasonable relationship between the amount of the fee and the cost of

the public facility or portion of the public facility attributable to the development on

which the fee is imposed.

Typical Steps in a Nexus Study

The TIA fees are intended to provide funding to implement the roadway improvements contained

in the Santa Cruz County General Plan Circulation chapter. These improvements were specifically

designed to accommodate the County's planned population and employment growth within

established level of service (LOS) thresholds. In many jurisdictions, a General Plan update often

triggers a comprehensive update to the impact fee program, because impact fees are one of the

key methods for implementing the General Plan. However, updating the fee program can also be

done independently of a General Plan update; in those cases, an updated nexus study would be

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\ú Jack SohriakoffDecennber 12, 2012Page 6 of 8 lprepared to address changes in the circumstances or assumptions used in the original nexus

study and to reflect the most recent available information about transportation facility needs and

costs. The typical steps involved in conducting the technical analysis for a nexus study update are:

. Define the Transportation System: Determine the extent of the transportation system that

could be eligible for funding through impact fees, based on the County General Plan

Circulation chapter, and Santa Cruz County regional transportation plan.

. Identify Geographic Structure of Fee Program: The current TIA fee is applied to four

subareas within the County. The nexus study update could maintain these same subareas,

define additional subareas where new development is anticipated and new transportation

facilities are needed, or even define a single countywide fee if desired. Maintaining the

four subareas would be the simplest approach, although it would limit the potential to

apply fee revenues to address transportation needs in other parts of the County.

Expanding the TIA program to address additional subareas could readily be done by

developing the same type of information described in this bullet l.st above (such as a list

of transportation improvement projects and costs, and a projection of future

development activity) for any additional areas where the County would like to establish

TIA fees. Establishing a single countywide fee would likely require more effort; the

technical analysis would not be substantially more complex, but a greater level of

institutional coordination would be required to establish equitable methods for collecting

and distributing the resulting fee revenues.

. Identify Growth Potential: Determine the amount of population and employment growth

anticipated in the County during the planning horizon, consistent with the General Plan

and local specific plans or development applications. If the fee structure maintains

separate fees for different geographic subareas, then the growth potential should also be

summarized for each subarea.

. Identify Transportation Improvements and Costs: Develop a list of needed transportation

improvements that accommodate and support the travel demands of the new population

and employment growth anticipated in the County. The list of transportationimprovements should reflect the County's policies on achieving transportation system

performance standards, supporting multiple travel modes, and ensuring fair-share

payments as mitigation for development impacts. Cost estimates for each improvement

project should also be developed.

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. Calculate Fair Share: Calculate the share of the cost of future transportation

improvements that is related to the demands of new development in the County; this will

represent the maximum fee that could be charged. The actual fee amount charged may

be less than the maximum calculated, by accounting for anticipated revenues from other

sources or making policy decisions to adjust fees for specific land uses in order to reflect

policy direction.

. Develop Nexus Study Report: The report will serve as the technical basis for the updated

fee progràm.

In addition to the technical procedures outlined here, a nexus study update also typically benefits

from an outreach process in which key stakeholders are involved in reviewing and commenting

on the technical analysis throughout the course of the study. Such a process helps to ensure that

questions on the updated fee program are answered during the planning process rather than at

the end, and that the updated fee program can be readily implemented once adopted.

CONCLUSION

Because the County TIA fee has not been comprehensively updated since it was adopted in 1989,

our recommendation is that the County considers conducting an update to the transportation fee

program at this time. The updated nexus study would be able to account for current development

projections and project cost information, and would be responsive to the County's current

policies on transportation system performance and design. The updated nexus study would

identify the maximum allowable fee, but would not determine a particular fee level; the Board of

Supervisors has the authority to decide specifically what fees will be charged within the

framework provided by the nexus study. This update would be consistent with the periodic

updates specified in sec;tion 15.12.040(d) of Ordinance No. 3969 "Ordinance Repealing Chapter

15.11 of the Santa Cruz County Code Relating to Transportation Improvement Fees and Adding

Chapter 15.12 of the Santa Cruz County Code Relating to Transportation and Roadside

Improvement Fees" adopted in 1989.

Please contact us with any questions.

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Jack SohriakoffDecember 12, 2012Page 8 of 8

Sincerely,

FEHR & PEERS

A L -tW\~4-Julie K. Morgan JDaniel Rubins

Senior Transportation Engineer

5112-1275

Cc: Kathy Previsich, County of Santa Cruz Planning DirectorJason Moody, Economic & Planning Systems

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Attachment: Evaluation of the Santa Cruz County Unified Fee Schedule: Transportation

Improvement Area Fees, EPS, December 12, 2012.

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Economic & PliJnnlrg Systems, Jnc.

2501 Ninth Street, Suite 200Berkeley, CA 94710-2257510841 9190 tel510841 9208 fax

BerkeleyDenverL05 Angeles

Sacramento

',,ww. epsys. com,-

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MEMORANDUM

To: Jack Sohriakoff, Santa Cruz County Senior Civil Engineer

Kathleen Previsich, Santa Cruz County Planning DirectorDaniel Rubins, Fehr & Peers

From: Jason Moody and Michael Nimon, EPS

Subject: Evaluation of the Santa Cruz County Unified Fee Schedule:

Transportation Improvement Area Fees; EPS# 121065

Date: December 12, 2012

This memorandum provides an evaluation of the Santa Cruz CountyUnified Fee Schedule: Transportation Improvement Area (TIA) fees,including a comparison to other fee programs and a discussion of feestructure options. It has been prepared by Economic & Planning Systems

(EPS), as a sub-consultant to Fehr & Peers, at the request of Santa CruzCounty to address a range of financial, economic, and administrativeissues about the existing fee program.

This evaluation supplements the staff report prepared for the Board ofSupervisors in April 2012. The County's long-term objective is to updatethe current TIA fee program. However, the prolonged real estatedownturn associated with the "Great Recession" has heightenedconcerns regarding the near-term impact of such fees on developmentfeasibility and regional economic competitiveness. Therefore, beforecompleting a full update to the TIA fees, the County is seeking additionalanalysis related to economic and administrative issues.

This memorandum includes the following key sections designed toinform an update of the TIA fee program:

. Background on Impact Fees in California: This section providesan overview of the role of impact fees and their consequences.

. County Context: This section summarizes the derivation, structure,and current status of the Santa Cruz County TIA fee program.

. Fee Structure Comparison: This section discusses various impactfee implementation options, including case studies from fourcomparable jurisdictions surveyed as part of this study.

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

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Background on Impact Fees in CaliforniaThis section is designed to give an overview of the role impact fees play in funding infrastructurein California and their potential economic implications. It is designed to frame the policyconsiderations related to the County's TIA and place that discussion in a broader economiccontext.

A development impact fee is a one-time charge on new development designed to cover a "fair-share" of the total capital cost associated with providing necessary public infrastructure andfacilities. The creation and collection of impact fees are allowed under California Assembly Bill

(AB) 1600, or California Government Code Section 66000, known as the Mitigation Fee Act. Thislaw allows one-time fees to be charged on new development to cover the cost of constructing theinfrastructure needed to serve the demands created by new growth. To the extent that requiredimprovements are needed to address both "existing deficiencies" as well as the projectedimpacts from growth, only the portion of costs attributable to new development can be includedin the fee. Consequently, impact fees are frequently just one of many sources used to financeneeded infrastructure improvements.

Role in Infrastructure Funding

There are various ways that California jurisdictions have typically funded the construction ofinfrastructure (roads, parks, water treatment, wastewater treatment, etc.) needed to serve newdevelopment. These approaches include:

1. Impose exactions on new development, through conditions of approval of developmententitlements. Developers privately construct infrastructure which is dedicated to a city.

2. Establish development impact fees payable by new development pursuant to the MitigationFee Act.

3. Establish financing districts, such as assessment districts or Community Facilities Districts

(CFDs). Revenue streams can be used to issue bonds to fund infrastructure construction.

4. Use a city's General Fund to pay all or portion of cost of certain infrastructure projects.

5. Use Redevelopment Agency funds to pay all or portion of cost of certain infrastructureprojects.

6. Receive grants andjloans from other public agencies, such as federal, state, or regionalagencies.

7. Obtain voter approval for tax measures to finance bond issues such as general obligationbonds or bonds funded by sales tax increases.

For a variety of legal, political, and economic reasons, many of these options are severelyconstrained.

1. Tax measures often require a two-thirds majority vote to approve and voters are reluctant toapprove additional taxes, particularly in a weak economy.

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

December 12, 2012Page 3

2. The weak economy has caused a sharp decrease in General Fund revenue to most Californiajurisdictions. The General Fund supports essential city services, severely limiting theavailability of funds available to construct new facilities.

3. The weak economy has also caused a sharp decrease in revenues accruing to the State andfederal government, resulting in more limited availability of State and federal grant or otherfunding for local government.

4. The recent elimination of Redevelopment Agencies has significantly reduced the amount of

redevelopment funds available to local agencies for the funding of infrastructure.

5. The reduction in land values and the higher risks of real estate development due to theeconomy and real estate market downturn have made the establishment of new financingdistricts more challenging.

Because other options are so constrained, development impact fees are becoming an increasinglyimportant source of funding for new infrastructure at the local leveL. Such fee programs allowlocal jurisdictions to require new development to pay up to, but no more than, their "fair share"of facilities included in a jurisdiction's Capital Improvement Programs. The fees are used toconstruct infrastructure to mitigate the impact of new development, allowing jurisdictions to bothgrow and maintain service standards for existing and future residents and businesses.

Economic Implications

On an economic and financial level, development impact fees should be considered from twoperspectives:

1. Fee Revenues and Economic Benefits. Development impact fees, especially in growingareas, provide an important portion of the funding for development of infrastructure andcapital facilities. As such, they support the policy goals of a jurisdiction in terms of providingadequate public facilities and infrastructure such as transportation infrastructure, parks andrecreation amenities, and public safety facilities/equipment. These improvements mitigatethe impacts of new development on public improvements and help in maintaining the qualityof life that both residents and employers seek. Development impact fees can also helpovercome infrastructure development obstacles by providing an opportunity to spread thecost burden of improvements over a broader range of developments where substantialupfront infrastructure investment is required. The presence of essential public infrastructureand an attractive public realm serves to increase the demand and value of housing and canalso help to support job-generating development. The fee revenues collected fromdevelopment must also be directly spent on new capital facilities, supporting constructionjobs during the construction period.

2. Development Costs and Economic Impacts. Development impact fees directly add to thecosts to construct new residential and commercial buildings (i.e., vertical developmentcosts). In the short term, development impact fees increase overall development costs,reducing the expected return on investment/profit margin on an individual developmentproject at a particular point in time. Over the medium to long term, a portion of thesevertical development cost increases are absorbed by reductions in land value, whileimprovements in the quality of infrastructure support higher property values. As a result,under normal market conditions, reductions in development impacts fees can, in the short

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term, bring forward the timing on projects that are close to showing the level of returnrequired to support financing and risk. And, by extension, the earlier timing of those projectswould bring forward the timing of construction and the associated construction jobs and theother impacts of new development.

As a general principle, these competing benefits and costs associated with development impactfees point to the importance of establishing aggregate fee levels that strike an appropriatebalance between providing an appropriate level of facilitieslinfrastructure to new residents andbusinesses consistent with jurisdiction's goals/vision, while avoiding excessive costs ondevelopment and thereby slowing the pace of growth.

The root causes of the current downturn and the slow pace of economic recovery make it unlikelythat a reduction in development impact fees will have a significant effect in stimulating newdevelopment. In the longer-term, post-recovery time frame, no reduction in development impactfees should be made without consideration of the implications of lost development-relatedrevenues and the implications for the County's infrastructure, and public realm. At the sametime, increases in development impact fees should be made with consideration of the potentialimpacts on development feasibility and the associated pace of new development.

Based on previous EPS analysis, there does not appear to be any clear evidence that recentreductions in fees by other jurisdictions have stimulated substantial new development. SomeCalifornia jurisdictions have introduced temporary measures to seek to stimulate growth anddevelopment as well as lasting changes based on a detailed review of their prior nexus studiesand revisions to some combination of standards, project lists, costs, andlor investment fromother sources. However, for the most part these fee program adjustments have not appeared tostimulate significant new levels of economic growth or real estate development in the currenteconomic context as they are unrelated to the primary causes of weak growth and development.New building permit issuance data for surveyed cities that refined their fee programs a year ortwo ago do not indicate that the cities have experienced any clear stimulative effects.

County ContextThe existing Santa Cruz TIA fee program was adopted in 1989 and covers four (4) planningareas within the County-Aptos, Live Oak, Pajaro Valley, and Soquel.1 Other areas of the County

with minimal levels of anticipated development were excluded from the TIA because theirimpacts on transportation were presumed to be low.

The current TIA fee includes two components: (1) a transportation improvement fee (TIF) toprovide funding for major transportation infrastructure (i.e., bicycle lanes, turn lanes, bus stopsand traffic signals) and (2) a roadside improvement fee (RIF) to provide funding for roadsiderelated improvements (i.e., curbs, gutters, and sidewalks). Each of these components accountsfor equal parts of the total fee amount. In both cases, the revenue generated is dedicated to

1 See Ordinance No. 3969 "Ordinance Repealing Chapter 15.11 of the Santa Cruz County Code

Relating to Transportation Improvement Fees and Adding Chapter 15.12 of the Santa Cruz CountyCode Relating to Transportation and Roadside Improvement Fees." The original ordinance includedthree planning areas with Pajaro Valley added later.

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

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improvements identified in the Santa Cruz Capital Improvement Program, which is updatedevery year.

In addition, the enabling local ordinance for the TIA fee allows annual escalations to account forincreases in the cost of construction. However, before 2005, the TIA had not been increased in10 years while construction costs increased by about 24 percent during this same periodaccording to the San Francisco Area Construction Cost Index (CCl) reported by the Engineering

News Record. Consequently, starting in 2005 the Board allowed the TIA fee to increase by theCCI plus 4 percent per year for six years so that the fees would gradually catch up withconstruction costs. Although the current TIA fee varies by planning area, as described furtherbelow, it has increased by about 67 percent since its approval in 1989, an average of about2.2 percent per year.

According to the implementing ordinance for the TIA program, the initial TIA fee levelsestablished in 1989 were based on an analysis of the impacts of new growth on transportationand roadside facilities, although the detailed nexus calculations were not clearly documented.Based on a review of available information, it appears that the TIF portion was derived bydividing the unfunded portion of the 1989 CIP by the expected number of new residential unitsauthorized at build-out of the General Plan within the planning areas subject to the fee.Meanwhile, the RIF portion is based on the actual cost of constructing required roadsideimprovements.

The original ordinance also states that the Board will periodically review the fee levels todetermine if they are reasonably related to the impacts of new development and whether thedescribed transportation and roadside improvements are still needed (e.g., if they have beencompleted or are still planned).It appears that the fee levels have been escalated based on CCIfactors instead of a comprehensive review of the need or status of transportation projects.

Fee Structure ComparisonAlthough the Mitigation Fee Act outlines the general requirements of an impact fee program,jurisdictions generally have a fair degree of flexibility with regard to how such programs arestructured and implemented. Consequently, there is wide variation within California, even amongtransportation fees, in terms of:

. Fee structure and magnitude

. Timing of fee payments

. Credits, reimbursements and exemptions

. Updates and adjustments

. Geographic components

. Use of funding

As part of this analysis, EPS has reviewed the County TIA relative to the common practices ofother jurisdictions to highlight the range of options that might be considered as part of apotential update. For illustrative purposes, this memorandum references detailed "case study"information on the fee programs of four jurisdictions that contain elements that may beapplicable or instructive to the County. Of these four jurisdictions, three are the nearby cities ofSanta Cruz, Watsonville, and Salinas. The fourth is Placer County, a county near Sacramento

P: \121 00 0\12 i 065Santa_ Cruz_ TIF\ Report\EPSRvsd memo 7 .docx

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

December 12, 2012Page 6

that shares several characteristics with Santa Cruz County, such as containing a mix of urbanizedand rural areas, and being proximate to a major metropolitan area. A summary of the keyattributes associated with the fee programs from these other jurisdictions is provided in Table 1and discussed further below.

Fee Structure and Magnitude

The total fee level or amount charged per unit of development (e.g., per single-family home) isprobably the most important element of a fee program. It determines how much will becollected, and thus a program's contribution to required infrastructure, as well as how much eachdeveloper must pay, and thus the potential economic impact on new development.

As part of an April 2012 staff report to the Santa Cruz County Board of Supervisors, the PublicWorks staff presented data on transportation fee levels in nearby jurisdictions within Monterey,San Benito, Santa Clara, San Mateo, and Santa Cruz counties. In general, this analysis foundthat the Santa Cruz County TIA fee was near the top of the jurisdictions surveyed, with one ortwo jurisdictions higher but most lower. However, simple comparisons such as these can bemisleading since actual fees can vary significantly depending on the unique attributes ofa particular project. For example, some jurisdictions charge fees on a pertrip basis, others basedon land use (e.g., single-family residential, retail, industrial), and still others based on DwellingUnit Equivalent (DUE) factors. Conversions from one fee type to another can make generalized"apples-to-apples" comparisons difficult.

Given these difficulties, EPS has supplemented the County survey with a more detailed analysisof a smaller set of comparable jurisdictions identified in consultation with County staff. Theresults of this analysis are summarized in Table 2 for a representative sample of land use types.As shown, the County TIA is generally higher than the other jurisdictions for the residential landuse categories, but is in the mid-range for retail and industrial uses. Specifically, the City ofSalinas and the City of Santa Cruz have higher retail fees while Placer County has a higherindustrial fee. Watsonville has the lowest fees of all the jurisdictions surveyed and exemptsindustrial uses entirely.

P :\12 lOOO\121065Santa_Cruz_ TIF\Report\EPSRvsdmemo 7 .docx

Ó\

Table 1

Impl

emen

tatio

n O

verv

iew

of T

raffi

c Im

pact

Fee

s in

Cas

e S

tudy

Citi

es a

nd th

e C

ount

y

Dec

embe

r 12

, 201

2Page 7

City

/Cou

nty

Fee

Str

uctu

re a

nd M

agni

tude

City

of S

anta

Cru

z

A c

ityw

ide

char

ge o

f $41

8 pe

r ve

hicl

e tr

ipap

plie

d to

res

iden

tial a

nd c

omm

erci

alus

es w

ith a

sub

sequ

ent v

ehic

le tr

ipge

nera

tion

rate

s to

det

erm

ine

an o

vera

llfe

e pe

r la

nd u

se

Wat

sonv

ile (

1)

A c

ityw

ide

char

ge o

f $15

5 pe

r ve

hicl

e tr

ipfo

r re

side

ntia

l and

$11

7 pe

r ve

hicl

e tr

ipfo

r co

mm

erci

al u

ses

with

a s

ubse

quen

tve

hicl

e tr

ip g

ener

atio

n ra

tes

to d

eter

min

ean

ove

rall

fee

per

land

use

Salin

as

A c

ityw

ide

char

ge o

f bet

wee

n $3

01 a

nd$4

37 p

er v

ehic

le tr

ip a

pplie

d to

new

deve

lopm

ent w

ith a

sub

sequ

ent v

ehic

letr

ip g

ener

atio

n ra

tes

to d

eter

min

e an

over

all f

ee p

er la

nd u

se. C

harg

es v

ary

byin

fill a

nd g

reen

field

loca

tion

Pla

cer

Cou

nty

(2)

Cre

ated

in 1

996

to c

over

11

Ben

efit

Dis

tric

ts in

the

Cou

nty.

Fee

am

ount

base

d on

a D

wel

ling

Uni

t Equ

ival

ent

(DU

E)

that

var

ies

by lo

catio

n, r

angi

ngfr

om $

3.2K

- $

6.8K

. DU

E fe

es b

ased

on

deta

iled

trip

rat

e as

sum

ptio

ns fr

om IT

E.

Tim

ing

of F

ee P

aym

ents

Cha

rged

as

a co

nditi

on o

fde

velo

pmen

t app

rova

l prio

r to

build

ing

perm

it is

suan

ce. I

n so

me

case

s to

a p

rom

isso

ry n

ote

toph

ase

in th

e pa

ymen

t pla

n ov

er 3

to 4

yea

rs

At b

uild

ing

perm

it or

cer

tific

ate

ofoc

cupa

"ncy

Cre

dits

, Rei

mbu

rsem

ents

&E

xem

ptio

ns

Offe

rs r

eim

burs

emen

ts fo

rco

nstr

uctio

n fa

cilit

ies

that

exc

eed

requ

irem

ents

; fee

s us

ed to

reim

burs

e de

velo

pers

of

over

size

d fa

cilit

ies

as w

ell a

s to

pay

cost

s re

quire

d fo

r th

ead

min

istr

atio

n (in

clud

ing

cost

sin

curr

ed in

con

duct

ing

hear

ings

)

The

cre

dit i

ssue

has

not

com

eup

; the

City

cur

rent

ly d

oes

not

offe

r re

imbu

rsem

ents

Fee

cre

dits

or

cash

. reimbursements are granted to

Prio

r to

issu

ance

of b

uild

ing

perm

it; d

evel

oper

s fo

r co

nstr

uctio

n of

for

deve

lopm

ent n

ot r

equi

ring

a im

prov

emen

ts o

r de

dica

tions

inbu

ildin

g pe

rmit

(e.g

. cha

nge

of u

se e

xces

s of

the

requ

irem

ents

. For

or in

tens

ifica

tion

of u

se)

paya

ble

inte

nsifi

catio

n of

exi

stin

g us

es,

prior to the initiation of the

new

use

fees

are

cha

rged

net

of t

he

orig

inal

am

ount

.

Due

upo

n is

suan

ce o

f bui

ldin

gpe

rmit.

App

lican

ts c

an a

pply

for

ade

ferr

al, w

hich

is g

rant

ed b

y st

aff

(not

Boa

rd)

on a

cas

e-by

-cas

ebasis. Applicant must provide a

secu

rity

for

paym

ent (

i.e.

irre

voca

ble

lette

r of

cre

dit,

sure

tybo

nd, p

rope

rty

lien,

CO

D)

Allo

wed

on

a ca

se-b

y-ca

se b

asis

whe

n de

velo

pers

con

stru

ct o

rot

herw

ise

expe

dite

spe

cifie

dfa

cilit

ies.

Rei

mbu

rsem

ents

limite

d to

cos

ts in

CIP

.

(1)

Incl

ude

Airp

ort I

ndus

tria

l Par

k A

rea,

Cre

stvi

ew A

rea,

Pen

nsyl

vani

a A

rea,

and

Wes

t Sid

e A

rea.

(2)

Var

ious

com

pone

nts

of th

e T

raffc

Miti

gatio

n F

ees

beca

me

effe

ctiv

e on

diff

eren

t dat

es.

Eco

nom

ic &

Pla

nnin

g Sy

stem

s, I

nc. 1

2/12

/201

2

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Impl

emen

tatio

n O

verv

iew

of T

raffi

c Im

pact

Fee

s in

Cas

e S

tudy

Citi

es a

nd th

e C

ount

y

Dec

embe

r 12

, 201

2P

age

8"Ó

City

/Cou

nty

Upd

ates

and

Adj

ustm

ents

Geo

grap

hic

Com

pone

nts

Use

of

Fund

ing

The

fee

is c

harg

ed c

ityw

ide

with

the

Bea

ch /

Sout

h of

Fee

s fu

nd a

ran

ge o

f im

prov

emen

tsF

ees

are

revi

ewed

on

an a

nnua

l bas

is b

y La

urel

are

a an

d D

ownt

own

incl

udin

g tr

affic

sig

nals

, roa

dth

e C

ity C

ounc

il to

mai

ntai

n a

reas

onab

le a

s ar

eas

of b

enef

it. im

prov

emen

ts, a

nd tr

affc

cal

min

gsc

hedu

le. A

nnua

l rev

iew

s ar

e ba

sed

on th

e D

ownt

own

has

a lo

wer

trip

mea

sure

s (e

.g. t

raff

c ci

rcle

s). T

he C

ityan

nual

cos

t of E

NR

con

stru

ctio

n in

dex.

The

gen

erat

ion

rate

s re

lativ

e to

cha

rges

an

addi

tiona

l 15%

for

alte

rnat

ive

nexu

s st

udy

is n

ot p

ublic

ly a

vaila

ble

onlin

e ci

tyw

ide;

Bea

ch /

Sou

th o

f tra

nspo

rtat

ion

mea

sure

s, li

ke b

ikew

ayLa

urel

are

a ha

s an

add

ition

al fa

cilit

ies

and

tran

sit s

ervi

ces

fee

City

of S

anta

Cru

z

Wat

sonv

ile (

1)

Ann

ual r

epor

t on

rece

ipt,

use,

and

com

mitm

ent o

f de

velo

pmen

t im

pact

fees compiled by the City's Finance

Dep

artm

ent.

The

nex

us s

tudy

is n

otpu

blic

ly a

vaila

ble

onlin

e

Salin

asU

pdat

ed b

ased

on

the

EN

R C

onst

ruct

ion

Cos

t Ind

ex. T

he n

exus

stu

dy is

not

pub

licly

avai

labl

e on

line

Pla

cer

Cou

nty

(2)

Sub

ject

to a

nnua

l cos

t ind

ex (

EN

R)

upda

te.

Als

o up

date

d pe

riodi

cally

to a

ccou

nt fo

rup

date

s to

CIP

(e.

g. c

ompl

etio

n of

desi

gnat

ed p

roje

cts)

. All

tran

spor

tatio

npr

ojec

ts in

fee

are

assu

med

100

%at

trib

utab

le to

new

gro

wth

so

no n

exus

anal

ysis

was

nec

essa

ry.

The

fee

is c

harg

ed c

ityw

ide

as w

ell a

s in

four

spe

cific

Impl

emen

tatio

n of

the

City

's tr

affic

CIP

area

s (1

)

The

fee

is c

harg

ed in

two

Fund

new

art

eria

ls a

nd c

olle

ctor

s an

dar

eas

of b

enef

its, i

nclu

ding

roa

dway

miti

gatio

n im

prov

emen

ts (

e.g.

with

in e

xist

ing

City

lim

its (

as fr

eew

ay in

terc

hang

es, m

ajor

inte

rsec

tions

,of

Jan

uary

1, 2

000)

, and

str

eet w

iden

ing)

. For

art

eria

l and

col

lect

orw

ithin

are

as fo

r fu

ture

gro

wth

fund

ing,

traf

fic fe

es p

ay o

nly

for

the

cent

erou

tsid

e of

and

adj

acen

t to

port

ion

of th

e pa

vem

ent a

nd m

edia

nC

ity li

mits

; fee

rat

es v

ary

by is

land

s be

yond

the

deve

lope

r'sar

ea r

espo

nsib

ility

The

11

sepa

rate

"be

nefit

sdi

stric

ts"

enco

mpa

ss b

oth

citie

s an

d un

inco

rpor

ated

area

s.

Fun

d ca

n on

ly b

e us

ed fo

r pr

ojec

ts li

sted

on th

e se

para

te C

IPs

uniq

ue to

eac

hbe

nefi

t dis

tric

t. B

ut c

ount

y ad

min

iste

rslo

ans

betw

een

dist

ricts

to fa

cilit

ate

proj

ect

phas

ing.

The

pro

ject

s ar

e pr

imar

ily r

oad

rela

ted

(e.g

. wid

enin

g, s

igna

lizat

ion,

inte

rsec

tions

).

Oth

erC

onsi

dera

tions

The

City

is c

urre

ntly

upda

ting

its f

eeba

sed

on th

eGeneral Plan

adop

tion;

the

over

all f

ee w

ill li

kely

redu

ce a

s a

resu

lt

The

City

als

ocharges $78 per

vehi

cle

trip

for

non

-re

side

ntia

lad

ditio

ns/r

emod

els

(1)

Incl

ude

Airp

ort I

ndus

tria

l Par

k A

rea,

Cre

stvi

ew A

rea,

Pen

nsyl

vani

a A

rea,

and

Wes

t Sid

e A

rea.

(2)

Var

ious

com

pone

nts

of th

e T

raffc

Miti

gatio

n F

ees

beca

me

effe

ctiv

e on

diff

eren

t dat

es.

Eco

nom

ic &

Pla

nnin

g Sy

stem

s, I

nc. 1

2/12

/201

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

December 12,2012

Page 9;¡ ,

Table 2 Traffic Impact Fee Comparison of Case Study Cities and Counties

Residential (per unit)* Commercial (per 1,000 sq.ft.)*City/County Single Family Multi-Family Retail Industrial

City of Santa Cruz $4,280 $2,782 $18,832 $2,996

Watsonvile 1 $2,170 $1,550 $6,903 $0

SalinasExisting Development Footprint $3,010 $2,107 $15,351 $2,107New Greenfield Development $4,370 $3,059 $22,287 $3,059

2$4,287 $2,971 $7,241 $3,425Placer County

Santa Cruz County3 $6,000 $4,200 $14,400 $3,000

* Note: reflects a sample range of land uses for comparison purpose.

(1) Exemptions: industrial uses, shipping cold storage, packing sheds, processing plants. Residential applicationincludes a mix of single family detached as well as apartments, townhomes, co-op, and condominiums.

(2) Reflects a blend of 11 benefi districts, including Auburn/Bowman, Dry Creek, Foresthill, Granite Bay, MeadowVista, Newcastle/Horseshoe Bar/Penryn, Placer Central, Placer East, Placer West, Sunset, and Tahoe.

(3) Reflects the total for the existing Transportation Improvement Area (TIA) fees within the four areas of benefit in theCounty where TIF is collected (i.e. Aptos, Live Oak, Pajaro Valley, Soquel). Note, in Parajo Valley TIF is higher and RIF islower than other areas but the total TIA fee is equal across the board. Retail fee is based on 24 vehicle trÎps which fallswithin the range of 15 to 40 trips for retail uses.

It is worth noting that jurisdictions surveyed lack consistency in application of land usecategories to vehicle trips generated, as summarized in Table 3. Some jurisdictions have verydetailed definitions of land uses and a range of trip generation assumptions for each, whereasothers use more generalized categories. For example, the City of Watsonville has a total of 104development categories with each reflecting a unique set of vehicle trip assumptions adopted bythe ordinance. Similarly, Placer County has 87 land use categories and charges a transportationfee on the basis of DUEs (Dwelling Unit Equivalents). On the other hand, the City of Santa Cruzonly has 16 land use categories.2 Again, these variances can make a direct comparison betweenfee programs more difficult, but they also provide flexibility for determining local fee programneeds.

2 The City of Santa Cruz is currently updating its traffic fee structure and the new fee will be

based on the Peak Trips approach.

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

December 12,2012Page 10

Table 3 Comparison of Traffic Generation and Fee per Trip Rates in Case StudyJurisdictions

Vehicle Trips per Land Use Fee iMedical Vehicle

City/County SFR MFR Retail Industrial Office Hotel Office Trip

City of Santa CruzCityide 10.0 6.5 44 7 20 9.5 34 $428Downtown 3.9 3.9 26.2 na 6.7 8.5 20.7 $428Beach i South of Laurel (1) 10.0 6.5 44 7 20 9.5 34 $99

Watsonville (2) 14 10 59 5 na na na $117-$155

SalinasExisting Development Footprint 10 7 51 7 11 8 36 $301New Greenfield Development 10 7 51 7 11 8 36 $437

Placer County (3) 10 7.0 16.9 8.0 10-14 5.9 37.2 na

Santa Cruz County 10 7 15-40 5 18 10 18 $600

(1) In addition to the citywide fee.(2) Includes Airport Industrial Park Area, Crestview Area, Pennsylvania Area, and West Side Area; some land uses are exemptincluding industrial, shipping cold storage, packing sheds, processing plants. Residential application includes a mix of single familydetached as weil as apartments, townhouses, co-op, and condominiums.

(3) Reflects a blend of 11 benefit districts, including Auburn/Bowman, Dry Creek, Foresthill, Granite Bay, Meadow Vista,Newcastle/Horseshoe Bar/Penryn, Placer Central, Placer East, Placer West, Sunset, and Tahoe. Charges are based on vehicle milestraveled rather than trip rates with estimates shown reflecting peak hour rates as 10% of total trips.

Sources: Economic & Planning Systems, Inc.

Finally, it is very important to note that the comparison of transportation fee levels shown aboveonly tells part of the story. A comprehensive analysis of the potential economic effects ofdifferent fee levels would need to aggregate and compare across all impact fee categories, notjust transportation fees. This is because developers are generally most concerned about total feeburdens, rather than merely single categories of fees.

Timing of Fee Payments

State law provides local jurisdictions with some flexibility with regard to when impact feepayments must be collected. The County's current practice is to require payment at the time abuilding permit is issued for commercial and non-land division residential projects. Residentialland divisions are required to pay TIA fees when the final map is filed with the County. This isconsistent with the practice of most jurisdictions in California. However, most of the jurisdictionssurveyed as part of this study provide for case-by-case exceptions to this practice. By way ofexample, Placer County allows developers to apply for a fee deferral which must be approved bya Department head assuming certain criteria are met.

However, in recent years, some jurisdictions, in an effort to improve the financial feasibility ofreal estate projects, have implemented policies that allow for delayed fee payment. The mostcommon approach is to allow payment upon issuance of a certificate of occupancy for residential

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

December 12, 2012 -- 2Page 11 ~)

and commercial uses, as applicable3. In theory, this practice can improve financial feasibility byallowing developers to delay costs until their project begins to generate revenue (and until thetraffic impacts are actually generated). However, this practice may pose some problems toimplementing jurisdictions, such as increased administrative, enforcement, and monitoring costs.For example, developers can apply for and receive temporary certificates of occupancy,potentially escaping fee payments while still generating impacts. Although fee payment canultimately be secured by requiring developer security bonds, letters of credit, and liens, this maynecessitate ongoing monitoring and tracking.

Credits, Reimbursements, and Exemptions

Most jurisdictions with impact fee programs allow developers to receive various forms of credits,reimbursements, andlor exemptions provided certain conditions are met. For example, a feecredit may be allowed if a developer provides a particular transportation facility or improvement"in-kind" rather than through payment of the fee. The fee credits generally equal the mostcurrent cost estimate of the infrastructure item (as defined by annual cost review or other recentevaluation of cost) regardless of the actual cost to construct. The County and all of the otherjurisdictions surveyed for the study allow for fee credits under certain circumstances.

Fee credits or deductions are also often granted in the event that a particular project representsa change in or minor expansion to an existing use rather than an entirely new project. Undersuch circumstances, the standard practice is to only charge developers the incremental impact

(e.g., an amount proportional to the difference between the number of trips generated by theprevious use and the new use).4 In addition, small expansions are generally charged a lower ratethan entirely new projects. For example, Watsonville charges a fee of $78 per vehicle trip fornon-residential additions and remodels.5

Many jurisdictions also allow for, or actually administer, reimbursement agreements that providea mechanism for developers to be repaid should they contribute more funding andlor build anddedicate infrastructure items that exceed their proportional obligation under a fee program. Suchreimbursements are generally provided as fee revenue becomes available and often include areasonable factor for interest earned on the reimbursable amount. Reimbursements aregenerally on a discretionary basis only and not granted as a right.

Finally, some jurisdictions elect not to impose fees on certain categories of development or forparticular projects. For example, the jurisdiction may elect to exempt developers from payingfees on any affordable housing units they build. For example, in Watsonville, industrialdevelopment is exempt from the fee. Likewise, jurisdictions can enter into a DevelopmentAgreement that specifically exempts all or a portion of the jurisdiction's fees, usually in

3 Some jurisdictions, including Santa Cruz County, do not issue certificate of occupancy for certain use

types.

4 Under the current County Ordinance, the redevelopment of space that has been vacant for more

than a year is not eligible for this credit.

5 Defined as the site improvement for which reconstruction cost exceeds $25,000 with improvement

resulting in an increase in the number of trip rate units over the prior land use category.

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

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consideration for other project-related benefits. The County currently allows applicants to applyfor a fee waiver, but such an exemption generally requires a finding of over-riding public benefit.In any case, a jurisdiction would need to identify an alternative funding source to compensate forthe corresponding loss in fee revenue.

The case study jurisdictions have a range of credit and reimbursement methods to compensatedevelopers for provision of public facilities that exceed requirements created by theirdevelopments. In the City of Santa Cruz, the credits are based on reimbursement agreementsthat specify participation based on the appropriate component of the traffic impact fee (ifimprovements are funded through other financing mechanisms). Santa Cruz also uses fees toreimburse developers for installation of oversized facilities with supplemental size, length, orcapacity, relative to demand generated by their project, as well as to pay costs required for theadministration (including costs incurred in conducting hearings).

Similar to Santa Cruz, Salinas grants fee credits or cash reimbursements to developers forconstruction of traffic or street improvements or dedication of right-of-way in excess of therequirements of development in the fee program. For development that intensifies existing useand increases the amount of traffic generated by the parcel, credit is given for the amount offees paid and/or traffic improvements constructed before the land use change. In contrast,Watsonville fee program does not appear to formally provide for developer reimbursements.

Updates and Adjustments

Most impact fee ordinances provide jurisdictions with the flexibility to update their fee rates onan annual basis to keep pace with construction costs. By way of example, Watsonville adjusts thefees based on the Consumer Price Index for the San Francisco Bay Area for the preceding April toApril period. Salinas conducts an annual cost update based on the ENR Construction Cost Index.However, as was the case in Santa Cruz County from 1995 through 2004, many jurisdictionsoccasionally elect to not exercise this option over concern of the potential impact on real estatedevelopment or other factors.

Over time, annual inflation-based adjustment to the fees and costs often get less accurate asdevelopment forecasts, capital facility needs, and capital facility costs evolve. Consequently, theMitigation Fee Act also requires jurisdictions to periodically monitor the underlying basis for theirfee programs to account for long-term changes in:

. development patterns;

. infrastructure needs and costs;

. the availability of alternative funding sources; and

. other factors that might affect the nexus relationships and corresponding fee levels.

Thus, many jurisdictions conduct periodic updates of their fee program in order to confirm thenexus is adequate relative to forecasted infrastructure costs and growth in development.

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Generally, comprehensive fee updates should be completed every five years; however, nouniform approach for doing this exists.6 For example, two of the jurisdictions surveyed wereunable to report the last time they completed a comprehensive fee update. Moreover, only oneof the case study jurisdictions was able to supply a copy of their last nexus study or theunderlying basis for the fee calculations and this information was not available online. However,the City of Santa Cruz reports that the Council reviews its fee program on an annual basis tomaintain a reasonable fee schedule relative to development in public facilities and communityneeds. The City is currently updating its traffic impact fee based on the recently adopted GeneralPlan.

Geographic Components

Local impact fees can consist of one jurisdiction-wide fee or a number of different fee districts orsub-areas. Both approaches offer trade-offs, as summarized in Table 4. For example, a primarybenefit of multiple fee districts or sub-areas is that they can more accurately account for sub-regional differences in growth, transportation needs, and travel patterns. This allows for a moreprecise "nexus" between the fee level of a particular area and the program investments thatserve it. Moreover, the developers who pay fees are often concerned that areas of highdevelopment should experience direct benefits from impact fee investment rather than areasfurther from their projects. A disadvantage of establishing multiple fee districts is that they maynot fully reflect the inter-connected nature of a modern transportation network and may implydivisions or differences where none really exist. In addition, multiple fee districts generallyrequire more complex, precise and reliable transportation modeling capabilities and results inorder to support the nexus findings, and they are also more costly and complicated toadminister.

The decision about whether to establish multiple fee districts typically hinges on the size anddiversity of the area where the fee will be levied, and the nature of the capital improvements tobe supported by the fee revenue. A single uniform fee is typically preferred if the geographicarea is relatively small, if the capital improvements to be funded are fairly evenly distributedacross the area, or if the intent of the fee is to fund a small number of important regionalfacilities that provide benefit to all area residents. Multiple fee districts are typically preferred ifthe geographic area is large or has particularly diverse needs, or if the capital improvements tobe funded are concentrated in specific areas.

6 Section 66001 of the Mitigation Fee Act requires local agencies to do an accounting of their fee

programs every five (5) years to ensure that funds collected are being used or are allocated tolegitimate purposes, consistent with the provisions of the law (i.e., there is a reasonable relationshipbetween the amount collected and the corresponding need for capital improvements).

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Memorandum AppendixEvaluation of the Santa Cruz County Transportation Impact Fee

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Table 4 Comparison of Fee District/Sub-Area Options

ImplementationOption

Description Advantages Disadvantages

Single Jurisdiction-Wide Fee

Simplifies the fee modelingrequirements and reinforcesthe regional nature of the fee

program

Less precise accounting ofsub-regional differences intransportation needs and

impacts

One fee is calculatedfor the entire City

Multiple FeeDistricts orSubareas

Separate fee levels fordefined sub-areas inthe jurisdiction based

on unique tripdistribution

Counter to the regional intentof fee program; requires

more complex modeling andadministrative oversight

Accounts for sub-regionaldifferences in growth,

transportation needs, trippatterns, and correspondingfee program contributions

Similar to the County, all of the case study jurisdictions maintain separate fee zones or sub-areas. For example, the City of Santa Cruz charges the Beach/South of Laurel area-of-benefit feeas an addition to the citywide charge. This area has a unique set of transportation improvementsthat allows the City to better address the needs. It also has a downtown area, where lower trafficgeneration rates result in lower fees. However, as noted, the City is updating its nexus study andthe new fees structure is expected to eliminate these zones. In Salinas, the geographicdistinction is made between infill and greenfield development, reflecting the notion of newgreenfield growth typically requiring a higher level of transportation improvements. In contrast,Watsonville charges a uniform fee citywide, though it does have separate areas of benefit.7

Use of Fee Revenue

Generally speaking, transportation fee revenue can be used to fund any transportation relatedimprovement required to serve new growth. However, a wide range of transportation facilitiescan fall into this category, everything from more traditional roads and bridges to facilities thatserve transit, pedestrians, and bicyclists (e.g., bus shelters, bike paths, and sidewalks). By wayof example, the City of Santa Cruz uses fees to fund a range of traffic signals, roadimprovements, and traffic calming measures (e.g., traffic circles). In addition to road and trafficrelated improvements, the City of Santa Cruz also sets aside 15 percent of the fee proceeds foralternative transportation measures, such as bicycle and transit improvements. Meanwhile,Salinas uses fees to fund new arterials and collectors and roadway mitigation improvements

(e.g., freeway interchanges, major intersections, street widening). For arterial and collector

7 Areas of benefit include Airport Industrial Park Area, Crestview Area, Pennsylvania Area, and West

Side Area.

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funding, traffic fees pay only for the center portion of the pavement and median islands beyondthe developer's responsibility.s

With the exception of Watsonville, all of the jurisdictions target their impact fee programs to apredefined list of transportation facilities. Watsonville's approach appears more akin to theCounty's, using fee revenue to fund transportation projects listed on the annually approved CIP.

ConclusionsThe material presented in this memo has been intended to:

. Give the reader some background on the purposes for transportation impact fees inCalifornia.

. Provide information about the County's current TIA fee program.

. Compare the County's fee structure and administrative characteristics with the fee programsfrom four other jurisdictions, and discuss some of the pros and cons associated with differentprogram characteristics.

The next steps for Santa Cruz County will be to consider their current TIA program in light ofthese comparisons and decide what types of changes in program characteristics would best suittheir short-term and longer-term needs.

S The proposed traffic fee method requires the developer to pay the cost to construct 20 feet of

pavement (half street section) plus curb, gutter, sidewalk, street lighting, and sound wall, if required,as well as dedicate up to 30 feet of ROW (half street section) for major arterial projects.

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