City raises fees only slightly amid building slow-down
GILROY
The nationwide lull in construction means the cost of building roads and bridges has dropped, so the city has decided to pass on those savings to developers.
Whenever a developer builds a housing project or office building in Gilroy, it must pay so-called “impact fees” to offset its impact on city services. The traffic impact fee pays for the maintenance and construction of roads, bridges and sidewalks, but since a national credit crisis has put the kibosh on a once-booming construction industry, construction companies no longer charge the same high prices for the equipment, materials and labor they use to build Gilroy’s infrastructure.
So instead of raising the traffic impact fee by 13 and then 7 percent, as it did during the past two years, the city council voted unanimously Nov. 19 to raise the fee rates by only 2.8 percent.
“Those double-digit percent (hikes) were for building streets and bridges with expensive pavement and concrete and steel,” City Administrator Jay Baksa told the council. “That’s what the bids were coming in at.”
But now the bids are lower, and Councilman Peter Arellano said the city is covering slower-rising costs.
Still, if a developer wants to build houses, it must pay anywhere between $9,000 and $11,000 per unit to help pay for roads and other transportation infrastructure. If it wants to build a commercial building that expects high traffic, then it must pay nearly $26,000 per 1,000 square feet.
Larry Cope, the city’s Economic Development Corp. director, said his job becomes harder whenever the city raises impact rates. His job is to lure businesses and developers to the area, but he said this becomes difficult when he reveals the city’s higher-than-average impact fees, Cope said.
“It is cheaper to build in Palo Alto than it is in Gilroy,” Cope said. “It’s twice as expensive to build in Gilroy than it is in most places in California.”
Whereas a home builder will pay about $10,000 per unit here for just traffic fees, he or she will pay less than $1,000 in Palo Alto, according to 2007 figures.
But after paying everything – from the traffic and water to the school and park impact fees – the builder can expect to pay about $36,000 per unit here and about $28,000 in Palo Alto for a high-density housing project. When it comes to building a more spacious, 2,000-square-foot house in a low density residential area, though, the cost shoots up to $50,000 in impact fees here and around $41,000 in Palo Alto.
The costs and margins between the cities shrink when it comes to building industrial, but the overall numbers show, as Cope said, that Gilroy and Santa Clara County are two of the most expensive places to build in the state. Livermore in Alameda county and Ripon in San Joaquin are more expensive: Each charges around $55,000 in impact fees per low-density residential unit.
Such high fees, here or anywhere in California, are not sustainable in the long run, Cope said.
“A continued impact fee increase is going to make us less and less competitive when it comes to competing with other communities for projects,” Cope said before encouraging councilmen to study the numbers of nearby cities.
California’s impact fees rank among the nation’s highest partly because of Proposition 13, which has limited annual increases to property taxes since 1978.
