GILROY
– The city has a plan to restructure the fees it charges to
developers building homes in Gilroy, following a nearly two-year
study that shows the plan would save builders or homeowners $3,000
now and as much as $23,000 in 30 years.
GILROY – The city has a plan to restructure the fees it charges to developers building homes in Gilroy, following a nearly two-year study that shows the plan would save builders or homeowners $3,000 now and as much as $23,000 in 30 years.
The plan also raises rates for a separate group of utility fees, which means builders would actually be charged more next year, but less over time.
If City Council approves the plan this fall, the city starting in December would charge builders $48,494 per single family home in “developer impact fees” to support police, fire and public facilities and expand utilities and streets. Without the fee restructuring, the city would charge $45,803 per home next year. But by 2037, total impact fees would cost $30,000 less under the proposed plan.
“Where the difference occurs is, that number is set and that number will not go up, except with the cost of living,” City Manager Jay Baksa said. “The other fee had jumps that occurred every several years.”
The city has been under pressure from the Home Builders Association since mid-2002 to restructure – and thereby lower – the impact fees, which are generally passed from the builder to the homebuyer.
The new plan continues to draw criticism from builders and, following a City Council study session Monday, left some councilmen with lingering questions due in part to a wordy and complex study completed by a city-hired consultant.
Lump-sum fee structure
Under the current system, the city charges five separate fees for future upgrades to parks, libraries, the police station, fire department and general public facilities like City Hall. Builders are susceptible to large fee increases because the city charges for both current and future projects, based on its cash flow.
The Home Builders Association challenged the city’s fee structure in 2002, claiming builders were paying more than their fair share for the public infrastructure. The group threatened to sue the city if the impact fees were not justified or revised.
The city’s recently completed “nexus” study, by Oakland-based MuniFinancial, on the city’s fees demonstrates Gilroy’s need for projects and their relationship to new development.
If the city lumps its five impact fees into one, it will charge developers $3,618 less per single family home next year, according to the study.
Flexibility vs. accountability
Baksa said the city chose to look at a lump-sum fee for several reasons. It prevents the city from having to separate individual improvements that could fall under more than one impact area: for example, improvements around City Hall and the library, which currently pull from different funds. The lumped fee would also save slightly in administrative costs, costing one-third the maximum allowable amount.
“It allows the council more flexibility in priority-setting,” Baksa said.
Because the funds from all five fees will be lumped, more money will be immediately available in the facilities improvement budget should the council want to move forward with another project, say, build a park that wasn’t necessarily in the general plan.
It’s precisely that flexibility that has some council members and builders worried.
Beverley Bryant, executive director with the local Home Builders Association chapter, said the group wants the city to keep the impact fees separate.
“The money designated for one thing should be used for what it’s designated for,” she said.
Councilman Craig Gartman said he also worries that money for future planned projects could get eaten up too early.
“Yes, we have a master plan for each one of them, but master plans can change and if we put money into this big pot, then other projects can move forward,” he said. “How the master plan changes is due to the whim of the council. … If we collect (money) for a park, we want to make sure that it’s spent on the park.”
Mayor Al Pinheiro said he’s not concerned that City Council would misuse the co-mingled funds.
“We’re still going to have master plan for each of those, we’re still going to prioritize as a council, we’re still going to do all the things we did as far as prioritization and all that.”
Higher utilities and traffic fees
In a separate study on utilities and traffic fees, the city is proposing to increase the charge for storm drains, water, sewer lines and traffic facilities to $28,852 per single family home. The current per-home fee would have been $22,543 next year – it was $15,361 this year – before they were recalculated based on growth projections through 34 years and using an updated master plan.
“Basically, the outcome of the new general plan shows us going into new areas, new virgin areas where water and storm drains don’t exist,” Baksa said. “That also means we’re going to have more wells to draw water.”
The increase is necessary to maintain an appropriate level of service to residents, Pinheiro said.
“That’s where we’ve got to be mindful and I leave it to council to work with staff, work with HBA to find a way to provide the correct amount of service,” he said. “It doesn’t do us any good to charge $10,000 less per home now and find in the future there are streets that need widening … because of the additional homes and we can’t afford to do it.”
If Council adopts the new fees, even with the lower lump-sum amount for public facilities, builders would be charged about $2,700 more for total impacts next year. The fees will only increase with the cost of living, representing a savings down the road of potentially tens of thousands of dollars per home.
With the high cost of housing in Gilroy already a subject of frequent discussion, the savings might be a welcome thought for homebuyers.
“There’s no question that housing prices to us is very important that we try and be at a competitive level to which we can provide services, and so on,” Pinheiro said. “We just have to be concerned that we are not asking for more or for less than we need to provide the level of service for our city.”
More work to do
Before implementing the new lump-sum fee, City Council will discuss the issue in study sessions between now and September. Council and city staff will also be working with the HBA in August to work out some of that group’s concerns.
One is an $80 million gap that will exist in the city’s improvement budget due to the lowered fees, that could potentially postpone projects that rely heavily on impact fee revenue, such as a new library.
“That has to be made up by grants, that has to be made up by special revenue that we may come into over the next 30 to 35 years,” Baksa said.
The HBA already is asking to see a plan for closing that gap.
“I believe that that’s way too premature right now, until we dig into this some more,” Pinheiro said.
Gartman said he also would like to see the “wordy” study simplified to make it more understandable. He also wants to see some of the projections included in the study need justified more clearly.
“If you don’t have base information in a terminology that is understandable to everyone, then everything else is moot because people won’t be able to understand the information,” he said. “And the whole point of a nexus study is to make the information more available to the people out there.”
