Existing law, the Planning and Zoning Law, deems, except as provided in a development agreement, the rules, regulations, and official policies governing permitted uses of the land, governing density, and governing design, improvement, and construction standards and specifications, applicable to property subject to a development agreement to be the rules, regulations, and official policies in force at the time of execution of the agreement.

The Mitigation Fee Act requires a local agency that establishes, increases, or imposes a fee as a condition of approval of a development project to, among other things, determine how there is a reasonable relationship between the fees use and the type of development project on which the fee is imposed.

This bill would prohibit a housing development project, as defined, from being subject to a fee, charge, dedication, reservation, or other exaction that is more than that in effect at the time that the application for the housing development project is determined to be complete. The bill would prohibit the fact that a land use approval for a housing development project is considered legislative in nature from being construed to limit or narrow the applicability or scope of the this bills provisions. require, at the time that an application for a housing development project is deemed complete, a city, county, and city and county to provide a good faith statement disclosing the amount of impact and development fees applicable to the housing development. The bill would also prohibit these disclosed impact and development fees from being increased for 2 years following issuance of the good faith statement. The bill would make related findings and declarations. By increasing the duties of local officials, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Planning and Zoning Law, deems, except as provided in a development agreement, the rules, regulations, and official policies governing permitted uses of the land, governing density, and governing design, improvement, and construction standards and specifications, applicable to property subject to a development agreement to be the rules, regulations, and official policies in force at the time of execution of the agreement.

The Mitigation Fee Act requires a local agency that establishes, increases, or imposes a fee as a condition of approval of a development project to, among other things, determine how there is a reasonable relationship between the fees use and the type of development project on which the fee is imposed.

This bill would prohibit a housing development project, as defined, from being subject to a fee, charge, dedication, reservation, or other exaction that is more than that in effect at the time that the application for the housing development project is determined to be complete. The bill would prohibit the fact that a land use approval for a housing development project is considered legislative in nature from being construed to limit or narrow the applicability or scope of the this bills provisions. The bill would make related findings and declarations. By increasing the duties of local officials, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Date of Hearing: May 23, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 3147

Author:(Caballero) – As Amended Ver:April 30, 2018

Urgency: No State Mandated Local Program: Yes Reimbursable: Yes

SUMMARY:

This bill requires, at the time an application for a housing development project is deemed complete, a city or county to provide a good-faith statement disclosing the amount of impact and development fees applicable to the housing development. The bill prohibits the disclosed impact and development fees from being increased for two years following issuance of the good-faith statement, with certain exceptions. Specifically, this bill:

1. For purposes of this bill, defines “impact and development fees that are applicable to housing developments” to mean:
2. Fees imposed under the Mitigation Fee Act.
3. Parkland dedication fees imposed under the Quimby Act.
4. Affordable housing fees.
5. Other fees based on the impact of a project.
6. Utility connection fees and capacity charges established by the city or county.
7. Specifies that the prohibition against fee increases does not include fees within a community benefit agreement, fees charged by both water and utility companies, both public and private, and others.

FISCAL EFFECT:

Unknown, likely significant, state-mandated local costs to cities and counties statewide due to lost fee revenue to cover expenses associated with the proposed developments. Although this bill contains a local fee disclaimer, cities and counties may not be able to recover necessary costs from fees because of the bill’s prohibition on increasing applicable fees for two years.

COMMENTS:

1. Purpose. This bill intends to provide home builders with more certainty regarding fees assessed on a housing project. According to the author:

California is in the depths of a housing crisis – both in terms of supply and affordability. There is much to do to expedite the process of building homes and to make it less expensive to build. One of the largest barriers to home construction is the imposition of excessive exactions and impact fees, that were not required by the city or county in initial communications and that add significantly to the overall cost of the proposed housing units. Existing law is inadequate to address these problems.

1. Background. Local governments can charge a variety of fees to a development. Cities charge service fees to pay for staff time for processing a development application, reviewing plans, approving permits, and inspections. Impact fees are imposed to pay for the cost of the infrastructure needed to support the development. The Mitigation Fee Act, passed in 1989, requires cities to identify the purpose of a fee, the use of the fee, and that there is a "reasonable" relationship between the fee amount and the impact of the project. Local agencies also charge open space and parks, school fees, water and sewer fees, and project specific fees through negotiated development agreements. The passage of Proposition 13 and the loss of property tax revenues have fueled cities' dependence on fees to fund infrastructure and services.

At the beginning of the development process a developer submits a development application. The Permit Streamlining Act requires a planning department to determine if an application is complete within 30 days. If the planning department determines that the application is incomplete it must provide, in writing, why it is incomplete. When the developer resubmits the application the 30 day timeline starts again.

Some jurisdictions publish development fee schedules that developers can use to estimate the cost of development. Some city planners provide estimates of the fees associated with a development at the application process. Not all cites publish fee schedules or provide estimates, which makes it difficult for developers to estimate the cost of the project. The development process can take several years, and the final cost of the development is not known until the permit stage.

1. Recent amendments. The prior version of this bill would have frozen all fees, exactions, and other charges at the time a housing development project application was deemed complete by a city or county. Recent amendments remove those provisions and instead require a city or county to provide a good faith-statement of the applicable fees at the time an application for a housing development is deemed complete, and prohibit the city or county from increasing those fees for two years following the issuance of the statement.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: May 9, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 3147

Author:(Caballero) – As Amended Ver:April 30, 2018

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill requires, at the time an application for a housing development project is deemed complete, a city or county to provide a good-faith statement disclosing the amount of impact and development fees applicable to the housing development. Specifically, this bill:

1. Prohibits the disclosed impact and development fees from being increased for two years following issuance of the good-faith statement, with certain exceptions.
2. For purposes of this bill, defines “impact and development fees that are applicable to housing developments” to mean:
3. Fees imposed under the Mitigation Fee Act.
4. Parkland dedication fees imposed under the Quimby Act.
5. Affordable housing fees.
6. Other fees based on the impact of a project.
7. Utility connection fees and capacity charges established by the city or county.
8. Specifies that the prohibition against fee increases does not include fees within a community benefit agreement, fees charged by both water and utility companies, both public and private, and others.

FISCAL EFFECT:

Unknown, likely minor, state-mandated local costs to cities and counties to provide fee statements. These costs are not reimbursable by the state because local agencies have authority to charge fees to cover their costs. It is unclear how this authority will interact with the bill’s prohibition on increasing applicable fees for two years.

COMMENTS:

1. Purpose. This bill intends to provide home builders with more certainty regarding fees assessed on a housing project. According to the author:

California is in the depths of a housing crisis – both in terms of supply and affordability. There is much to do to expedite the process of building homes and to make it less expensive to build. One of the largest barriers to home construction is the imposition of excessive exactions and impact fees, that were not required by the city or county in initial communications and that add significantly to the overall cost of the proposed housing units. Existing law is inadequate to address these problems.

1. Background. Local governments can charge a variety of fees to a development. Cities charge service fees to pay for staff time for processing a development application, reviewing plans, approving permits, and inspections. Impact fees are imposed to pay for the cost of the infrastructure needed to support the development. The Mitigation Fee Act, passed in 1989, requires cities to identify the purpose of a fee, the use of the fee, and that there is a "reasonable" relationship between the fee amount and the impact of the project. Local agencies also charge open space and parks, school fees, water and sewer fees, and project specific fees through negotiated development agreements. The passage of Proposition 13 and the loss of property tax revenues have fueled cities' dependence on fees to fund infrastructure and services.

At the beginning of the development process a developer submits a development application. The Permit Streamlining Act requires a planning department to determine if an application is complete within 30 days. If the planning department determines that the application is incomplete it must provide, in writing, why it is incomplete. When the developer resubmits the application the 30 day timeline starts again.

Some jurisdictions publish development fee schedules that developers can use to estimate the cost of development. Some city planners provide estimates of the fees associated with a development at the application process. Not all cites publish fee schedules or provide estimates, which makes it difficult for developers to estimate the cost of the project. The development process can take several years, and the final cost of the development is not known until the permit stage.

1. Recent amendments. The prior version of this bill would have frozen all fees, exactions, and other charges at the time a housing development project application was deemed complete by a city or county. Recent amendments remove those provisions and instead require a city or county to provide a good faith-statement of the applicable fees at the time an application for a housing development is deemed complete, and prohibit the city or county from increasing those fees for two years following the issuance of the statement.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: April 25, 2018

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

ABPCA Bill Id:AB 3147 (

Author:Caballero) – As Introduced Ver:February 16, 2018

SUBJECT: Fee mitigation act: housing developments.

SUMMARY: Limits fees, exactions, and other charges for specified housing development projects to no more than what was in effect at the time that the application for the housing development project was determined to be complete by the city or county. Specifically, this bill:

1. Prohibits a housing development project from being subject to a fee, charge, (including a fee or charge described in the section of law that specifies the imposition of water or sewer connection fees and capacity charges), dedication, reservation, or other exaction that is more than the fee, charge, dedication, reservation, or other exaction in effect at the time that the application for the housing development project is determined to be complete.
2. Provides that the fact that a housing development project may require a land use approval that is considered legislative in nature shall not be construed to limit or narrow the applicability or scope of the protection provided for in 1), above.
3. Defines housing development project to mean a use consisting of any of the following:
   1. Residential units only;
   2. Mixed-use development consisting of residential and nonresidential uses with at least two-thirds of the square footage designated for residential use; and,
   3. Transitional housing or supportive housing.
4. States that the Legislature finds and declares the following:
   1. Providing certainty in the housing approval and development process is essential for achieving the state’s housing policies;
   2. Although the Legislature has attempted to provide certainty through the enactment of Sections 65589.5, 65866, 65961, and 66474.2, among other statutes, these efforts have not been adequate. Applicants for housing projects continue to be subjected to demands by local agencies to comply with new or increased requirements after an application is determined to be complete, including through the imposition of conditions of approval that require the project to comply with whatever fee, charge, community benefit, public benefit or other requirement is in effect when a building permit or similar subsequent approval is issued; and,
   3. It is the intent of the Legislature in enacting this section to provide effective and meaningful certainty for applicants for housing projects by prohibiting them from being subjected to new or increased requirements not in effect when an application is complete, and it is the policy of this state that this section should be interpreted and implemented broadly to effectuate that intent.
5. Provides that no reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because a local agency or school district has the authority to levy service charges, fees, or assessments sufficient to pay for the program or level of service mandated by this act, within the meaning of Section 17556 of the Government Code.

EXISTING LAW:

1. Establishes the Mitigation Fee Act specific to local agency fees for development projects.
2. Defines, for the purposes of the Mitigation Fee Act, the following terms:
   1. “Development project” to mean any project undertaken for the purpose of development. “Development project” includes a project involving the issuance of a permit for construction or reconstruction, but not a permit to operate;
   2. “Fee” to mean a monetary exaction other than a tax or special assessment, whether established for a broad class of projects by legislation of general applicability or imposed on a specific project on an ad hoc basis, that is charged by a local agency to the applicant in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development project, but does not include fees specified in Section 66477, fees for processing applications for governmental regulatory actions or approvals, fees collected under development agreements adopted pursuant to Article 2.5 (commencing with Section 65864) of Chapter 4, or fees collected pursuant to agreements with redevelopment agencies that provide for the redevelopment of property in furtherance or for the benefit of a redevelopment project for which a redevelopment plan has been adopted pursuant to the Community Redevelopment Law (Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code);
   3. “Local agency” to mean a county, city, whether general law or chartered, city and county, school district, special district, authority, agency, any other municipal public corporation or district, or other political subdivision of the state; and,
   4. “Public facilities” to include public improvements, public services, and community amenities.
3. Requires the local agency to do all of the following, in any action establishing, increasing, or imposing a fee as a condition of approval of a development project by a local agency:
   1. Identify the purpose of the fee;
   2. Identify the use to which the fee is to be put. If the use is financing public facilities, the facilities shall be identified. That identification may, but need not, be made by reference to a capital improvement plan as specified in Section 65403 or 66002, may be made in applicable general or specific plan requirements, or may be made in other public documents that identify the public facilities for which the fee is charged;
   3. Determine how there is a reasonable relationship between the fee’s use and the type
      of development project on which the fee is imposed; and,
   4. Determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed.
4. Requires, in any action imposing a fee as a condition of approval of a development project by a local agency, the local agency to determine how there is 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.
5. Requires, upon receipt of a fee subject to this section, the local agency to deposit, invest, account for, and expend the fees, as specified.
6. Allows any action to be brought in the superior court relating to the Mitigation Fee Act. Specifies that an action may be subject to a mediation proceeding, as specified.

FISCAL EFFECT: This bill is keyed fiscal and contains a state-mandated local program.

COMMENTS:

1. Bill Summary. This bill would freeze all fees, exactions and other charges at the time a housing development project is deemed complete by a city or county. This bill is sponsored by the California Building Industry Association.
2. Author’s Statement. According to the author, “California is in the depths of a housing crisis – both in terms of supply and affordability. There is much to do to expedite the process of building homes and to make it less expensive to build. One of the largest barriers to home construction is the burden of excessive exactions, often through imposition of development impact fees and other requirements beyond those in effect when a project’s application is complete and the project proponent has made key financial decisions about the project including the cost that can be paid to acquire the land.”
3. Mitigation Fee Act. In 1987, the Legislature adopted AB 1600, which set forth certain requirements a city or county must follow in establishing or imposing certain fees. In 1996, the Legislature relabeled AB 1600 and other related section (Government Codes 66000 – 66025) as the “Mitigation Fee Act.”

Section 66001(a) requires any city that establishes, increases, or imposes a fee as a condition of approval of a development project to do all of the following for both ad hoc fees and those established by legislation of general applicability: a)Identify the purpose of the fee; b) Identify how the fee will be used; c) Demonstrate there is a reasonable relationship between the purpose of the fee and the type of development project on which the fee is imposed; and, d) Demonstrate that there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed.

Under the Mitigation Fee Act, a developer may challenge the imposition of a fee, dedication, or other exaction if the developer follows a specified procedure that includes protesting the fee in writing, at the time of approval or conditional approval of the development or within 90 days after the date of the imposition of the exactions. A city is required to provide written notice of the 90-day protest period to the developer at the time of project approval or imposition of the fees, though the statute is silent regarding any consequences of a city’s failure to provide such notice. Any party who files a protest may then file an action attacking the imposition of the fees within 180 days after delivery of the city’s notice.

1. Connection Fees and Capacity Charges. Water retailers and sanitation agencies levy connection fees to ensure that a new development pays for the costs that it imposes on the water system, such as to maintain water pressure for firefighting or expand wastewater treatment capacity. These fees are a key part of these agencies’ rate structures – monthly water and sewer bills do not entirely fund an agency’s operations. Local agencies are authorized, pursuant to Government Code Section 66013, to impose fees for water connections or sewer connections, and impose capacity charges, but are prohibited from exceeding the “estimated reasonable cost of providing the service for which the fee or charge is imposed, unless a question regarding the amount of the fee or charge imposed in excess
   of the estimated reasonable cost of providing the services or materials is submitted to, and approved by, a popular vote of two-thirds of those electors voting on the issue.”

This section of law requires an order to attack, review, set aside, void, or annul the fee or service charge, to be commenced within 120 days of the effective date of the ordinance, resolution, or motion adopting the new fee or service charge, and to be brought pursuant to Chapter 9 of Title 10 of Part 2 of the Code of Civil Procedure.

1. Policy Considerations. The Committee may wish to consider the following:
   1. AB 879 (Grayson), Chapter 374, Statutes of 2017. AB 879 (Grayson) requires the Department of Housing and Community Development, by June 30, 2019, to complete a study to evaluate the reasonableness of local fees charged to new developments, and requires the study to include findings and recommendations regarding potential amendments to the Mitigation Fee Act to substantially reduce fees for residential development.

The Committee may wish to consider waiting for that report to be completed and reviewed before enacting major policy changes to the Mitigation Fee Act.

• 1. Can Fees be Finalized at Application Stage? The American Planning Association, California Chapter (APA California), notes that “there are important reasons that fees cannot be finalized at the time an application is determined complete. Preventing fees from being imposed if they were ‘not in effect’ at the time an application is complete is an odd deadline. Many fees or exactions cannot be determined at the application stage as they depend on the scope of the project at the time the project is approved and entitled.”
  2. Tracking Nightmare. APA California writes that “the concept of freezing fees and other charges at the time a housing project application is determined to be complete would be impossible to track and appears to encourage developers to delay building the housing that we are all trying to accelerate…what if the developer doesn’t build for many years? What if it is part of a subdivision map? How are cities and counties going to be able to track what fees were in place at the time the project is deemed complete when it may take the developer seven years or more to build after the completeness determination?”
  3. Legal Jeopardy? Limiting local agencies’ ability to charge necessary fees to operate and maintain these impacted facilities and services in some cases could put local agencies in legal jeopardy due to their obligation to comply with Propositions 218 and 26.
  4. Will the Bill Discourage Speedy Approval of Housing? The Rural County Representatives of California, the Urban Counties of California, the California State Association of Counties, the League of California Cities, and the California Special Districts Association, write that this bill “perversely discourages speedy approval of housing developments. If the “freeze” commences with the very first development entitlement, conscientious local governments, who desire to fully fund and provide adequate public facilities and services, will be encouraged to defer that approval until the developer can provide positive assurances that the project will actually proceed immediately without delay. Further, the inability to ensure that the applicable fees will actually produce sufficient funding to construct the necessary facilities within a reasonable timeframe may make it more difficult to rely on those fee mechanisms as mitigation for environmental impacts under CEQA, thereby encouraging legal challenges and delays.”
  5. Circular Thinking. If the Legislature does not allow local agencies to charge the estimated reasonable cost, there may be a reimbursable state mandate cost. This bill, however, in Section 2, states that no reimbursement is required because “a local agency has the authority to levy service charges, fees, or assessment sufficient to pay for the program or level of service” mandated by the bill’s provisions.

1. Arguments in Support. Supporters argue that the bill will help spur housing production by making the fee process more transparent and possibly reducing extraneous fees assessed on a housing project, and will provide home builders certainty, at least with regard to fees assessed on a project.
2. Arguments in Opposition. Opposition notes that certainty often comes with social costs and that the roads, fire stations, water and sewer facilities and other necessary assets that will serve future residents of the development, or to mitigate the development’s environmental impacts, are not without cost. Opponents also note that these costs do not become less expensive as time goes on, and that the bill’s freezing of fees ultimately means that the local government cannot recover the ever-increasing costs of those facilities.
3. Double-referral. This bill is scheduled to be heard in the Housing and Community Development Committee on April 25, 2018.
4. Committee Amendments. Housing Committee has suggested the following committee amendments, which would need to be taken in Local Government Committee because of the timing of the bill being heard in both Committees on the same day.

The Committee may wish to consider the following amendments:

• 1. Require each city, county, and city and county to publish, on their website, a schedule of impact and development fees applicable to housing developments. This information should include the fee rate, the method of calculation, factors that could adjust the fee up or down, and at what stage in the development process the fee is charged.
  2. Define "impact and development fees" as those fees that are established by the local government separate from its action on a specific application" and are limited to fees imposed under the Mitigation Fee Act, other fees based on the impact of a project, parkland dedication fees imposed under the Quimby Act, and affordable housing fees.
  3. Freeze impact and development fees (this does not include community benefit agreements) at the point that a project is entitled instead of when the application is approved. Require the fees to be frozen for up to two years.

REGISTERED SUPPORT / OPPOSITION:

Support

California Building Industry Association [SPONSOR]

Bay Area Council

California Apartment Association

California Association of REALTORS

California Business Properties Association

CalChamber

California Council for Affordable Housing

California Housing Consortium

California YIMBY

National Federation of Independent Business

Opposition

American Planning Association, California Chapter (unless amended)

California Special Districts Association

California State Association of Counties

League of California Cities

Rural Counties of California

Urban Counties of California

Analysis Prepared by: Debbie Michel / L. GOV. / (916) 319-3958

Date of Hearing: April 25, 2018

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 3147 (

Author:Caballero) – As Introduced Ver:February 16, 2018

SUBJECT: Fee mitigation act: housing developments

SUMMARY: Prohibits a local agency from imposing a fee, charge, or other exaction that is more than the fee, charge, dedication, reservation, or other exaction in effect at the time the housing development application is determined to be complete pursuant to the Permit Streamlining Act. Specifically, this bill:

1. Makes legislative findings and declarations including:
2. Providing certainty in the housing approval and development process is essential for achieving the state's housing polices;
3. Although the Legislature has attempted to provide certainty to the development process, applicants for housing projects continue to be subjected to demands by local agencies to comply with new or increased requirements after an application is determined to be complete; and
4. It is the intent of the Legislature to provide effective and meaningful certainty for applicants for housing projects by prohibiting them from being subjected to new or increased requirements not in effect when an application is complete and that it is the policy of the state that this section shall be interpreted broadly and implemented broadly to effectuate that intent.
5. Provides that a housing development project shall not be subject to a fee, charge, dedication, reservation, or other exaction, including a fee for water or sewer connection, charged by a local agency, that is more than the fee, charge, dedication, reservation, or other exaction in effect at the time that the application for a housing development project is determined to be complete.
6. Provides that the fact that a housing development project may require a land use approval that is considered legislative in nature shall not be construed to limit or narrow the applicability or scope of the protections provided in 2).
7. Provides that the state is not required to reimburse local agencies because they have the authority to levy service charges, fees, or assessments sufficient to pay for the program or service mandated by this act.

EXISTING LAW:

1. Requires the Department of Housing and Community Development (HCD), by June 30, 2019, to complete a study to evaluate the reasonableness of local fees charged to new developments and make recommendations of potential amendments to the Mitigation Fee Act to substantially reduce fees for residential development.
2. Defines "housing development project" to mean any of the following:
3. Residential units only;
4. Mixed-income developments consisting of residential and non-residential uses with at least two-thirds of the square footage designated for residential use; or
5. Transitional or supportive housing.
6. Establishes the Permit Streamlining Act and requires the following:
7. No later than 30 days after any public agency receives an application for a development project, the agency must determine in writing whether the application is complete and provide that determination to the applicant of the development project;
8. If the written determination is not made within 30 days then the application is deemed complete;
9. If the application is determined not to be complete, the public agency must provide an explanation of the specific information needed to complete the application; and
10. The public agency to provide an appeals process for a developer to challenge a determination that an application for a development project is incomplete.
11. Authorizes a local government to enter into a development agreement with a party that has a legal or equitable interest in a property.
12. Requires a development agreement to specify the duration of the agreement, the permitted uses of the property, the density of intensity or the use, the maximum height and size of the proposed buildings, and any dedication of land for a public purpose. The agreement may provide construction shall begin within a specified time and that the project or any phase must be completed within a specified time.
13. Allows the development agreement to include conditions, terms, restrictions, and requirements for subsequent discretionary actions provided they do not prevent the development of a project at the density and intensity in the agreement.
14. Allows a development agreement to be amended or cancelled, in whole or in part, by mutual consent of the developer and the local government.
15. Establishes the Mitigation Fee Act and requires a local agency to do all of the following when establishing, increasing, or imposing a fee on a development project:
16. Identify the purpose of the fee;
17. Identify the use to which the fee is to be put;
18. Determine how there is a reasonable relationship between the fees use and the type of development project on which the fee is imposed; and
19. Determine how there is a reasonable relationship between the need for a public facility and the type of development project on which the fee is imposed.

FISCAL EFFECT: Unknown.

COMMENTS:

Background: Local governments can charge a variety of fees to a development. Cities charge service fees to pay for staff time for processing a development application, reviewing plans, permit approvals, and inspections. Impact fees are imposed to pay for the cost of the infrastructure needed to support the development. The Mitigation Fee Act, passed in 1989, requires cities to identify the purpose of a fee, the use of the fee and that there is a "reasonable" relationship between the fee amount and the impact of the project. Local agencies also charge fees to fund open space and parks, school fees, water and sewer fees, and project specific fees through negotiated development agreements. The passage of Proposition 13 and the loss of property tax revenues have fueled cities' dependence on fees to fund infrastructure and services.

At the beginning of the development process a developer submits a development application. The Permit Streamlining Act requires a planning department to determine if an application is complete within 30 days. If the planning department determines that the application is incomplete it must provide in writing why it is incomplete. When the developer resubmits the application the 30 day timeline starts again.

Local governments and developers can enter into development agreements to negotiate the conditions of development. Development agreements and vesting maps provide greater certainty to developers throughout the process, because once those terms are negotiated they cannot be altered unless by mutual consent.

This bill would "freeze" the fees that a city or county or a utility can charge a developer at the application stage. Under the existing process fees can be locked in when a developer enters into a development agreement or secures a vesting map. Those are subject to negotiation between the developer and the city and all of the details of the development are part of the agreement.

Some jurisdictions publish development fee schedules that developers can use to estimate the cost of development. Some city planners will provide estimates of the fees associated with a development at the application process. Not all cites publish fee schedules or provide estimates which make it difficult for developers to estimate the cost of the project. The development process can take several years, and the final cost of the development is not known until the permit stage.

University of California Impact Fee Report: In March 2018, the Terner Center for Housing and Innovation at UC Berkeley, published a study It All Adds Up: the Cost of Housing Development Fees in Seven California Cities, that looked at the development fees charged in seven different cities (Berkeley, Oakland, Fremont, Los Angeles, Irvine, Sacramento, and Roseville) to determine the total amount of fees charged in each city, the makeup of the fees, and the extent to which information on the development fees is available to builders. The results showed a wide range in the amount of fees charged for multifamily housing from $12,000 per unit in Los Angeles to $75,000 per unit in Fremont. In addition, the report found several issues with the way that development fees are implemented including difficulty in estimating fees, lack of oversight or coordination between city departments in setting fees, variability in type and size of impact fees across cities, the way in which individual fees add up and substantially increase the cost of building housing, and the fact that projects are often subject to additional exactions not codified in any fee schedule. The report made several recommendations to improve state and local development fee policies including: 1) adopt objective standards for determining the amount of fees that can be charged, 2) adopt a fee transparency policy and implement best practices for setting and charging fees, 3) define when fees can be levied and changed during the development process, and 4) identify alternative ways to pay for the cost of growth to reduce cities' reliance on fees.

Purpose of this bill: According to the author, "California is in the depths of a housing crisis – both in terms of supply and affordability. There is much to do to expedite the process of building homes and to make it less expensive to build. One of the largest barriers to home construction is the imposition of excessive exactions and impact fees, that were not required by the city or county in initial communications and that add significantly to the overall cost of the proposed housing units. Existing law is inadequate to address these problems. Common law vested rights are not secured until very late in the development process – after building permit issuance and substantial reliance on the permit. The existing statutes previously enacted by the Legislature to provide greater transparency and certainty than common law vesting -- Vesting Tentative Maps (VTMs) and Development Agreements (DAs) -- are inadequate because:

• They do not limit new or increased fees and charges being imposed by other local agencies (school fees, sewer fees, water fees). These fees are often some of the largest imposed on new housing.
• Local governments often impose additional procedural and substantive requirements on projects that seek a VTM.
• Local governments often demand payment of fees in excess of those allowed under the Mitigation Fee Act as the price for agreeing to enter into a DA.
• Local governments often impose conditions--even on projects with VTMs or DAs-- that require projects to pay whatever fee or exaction is in effect when a building permit is sought--often these are far in excess of what was in effect when the project application was deemed complete.

Further study: As the Berkeley study points out; there is a need for greater transparency in the development process. Despite, the requirement that fees be reasonable under the Mitigation Fee Act, there is a wide discrepancy between the amounts of fees charged by local jurisdictions for development. This bill does not address that issue, but rather would freezes relying upon the existing requirement that the fee being reasonable. Last year, as part of a package of housing bills passed by the Legislature, AB 879 (Grayson) Chapter 879, Statutes of 2017 required HCD to complete a study to evaluate the reasonableness of local fees charged to new developments and make recommendations for potential amendments to the Mitigation Fee Act to substantially reduce fees for residential development. The study must be completed by June 30, 2019. The committee may wish to consider if this bill responds to the underlying issue or if further information is needed to develop a comprehensive response.

Arguments in support: According to supporters, "AB 3147 will help spur housing production by making the fee process more transparent and possibly reducing extraneous fees assessed on a housing project. This would provide home builders certainty, at least with regards to the fees assessed on a project. In turn it will potentially reduce costs by prohibiting local governments from takin on additional fees, charges, etc. late in the process as a condition of approval. The doubt and lack of transparency further escalates home prices. A recent study by the UC Berkeley Terner Center for Housing and Innovation identifies the lack of transparency and the imposition of fees late in the approval process as having serious consequences for housing development. "

Arguments in opposition: According to opponents, "the existing statute governing the 'freezing' of development fees and conditions place clear time limits upon the duration of the 'freeze' – carefully defining both the beginning of that period (complete application for a vesting tentative map) and the end (generally one to five years after the recordation of the final map, depending on the nature of the project). As the Legislature, has progressively lengthened the life of tentative maps (and the duration of the 'freeze'), it has taken deliberate steps to "mitigate some of the impacts of repeated subdivision and parcel map extensions on cities and counties" by allowing local governments to levy or impose a condition that requires the payment of a fee upon the issuance of a building permit for map that have been extended".

Policy considerations: Although there appears to be a lack of transparency in the development process regarding fees and an over reliance on the part of local governments on fees to pay for infrastructure and public projects, it’s unclear if this bill adequately addresses the underlying issue. The bill does not deal with the process for determining the fees under the Mitigation Fee Act or local governments overreliance upon fees as a result of their inability to capture more property tax under Proposition 13.

Although the bill rightly attempts to create more certainty in the development process, it requires fees to be frozen too early in the development process. At the application stage, the project has not completed design review, CEQA, and other planning milestones to provide enough detail to set fees. The committee may wish to consider whether fees should rather be locked in when a project is entitled.

The bill also proposes to freeze fees charged by utilities which is problematic because the city does not control fees charged by utilities for infrastructure and connection charges. The fees that are knowable are impact and development fees under the Mitigation Fee Act, fees imposed under the Quimby Act, and affordable housing fees. Public benefit agreements come later in the development process and would not be captured in the previous list of fees.

The bill also does not place a limit on how long fees would be frozen after the applications is deemed completed. A developer could receive approval for an application and then not develop the project for several years, but under this proposal, a city would be unable to revisit the fees based on changes in infrastructure needs or other cost drivers.

Committee amendments: Due to timing constraints, the following amendments cannot be taken in committee. If the committee supports them they must be taken in the next committee.

The committee may wish to consider the following amendments:

• Require each city, county, and city and county to publish, on their website, a schedule of impact and development fees applicable to housing developments. This information should include the fee rate, the method of calculation, factors that could adjust the fee up or down, and at what stage in the development process the fee is charged.
• Define "impact and development fees" as those fees that are established by the local government separate from its action on a specific application" and are limited to fees imposed under the Mitigation Fee Act, other fees based on the impact of a project, parkland dedication fees imposed under the Quimby Act, and affordable housing fees.
• Freeze impact and development fees (this does not include community benefit agreements) at the point that a project is entitled instead of when the application is approved. Require the fees to be frozen for up to two years.

Double-Referred: If AB 3147 passes out of this committee, the bill will be referred to the Committee on Local Government.

REGISTERED SUPPORT / OPPOSITION:

Support

California Building Industry Association (sponsor)

Bay Area Council

California Apartment Association

California Association of REALTORS

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Council for Affordable Housing

California Housing Consortium

California YIMBY

National Federation of Independent Business

Opposition

American Planning Association, California Chapter

California Special Districts Association

California State Association of Counties

League of California Cities

Rural County Representatives of California

Urban Counties of California

Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085