Development Fees on the Rise – Again

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Officials seek city council approval; Increase will make Gilroy
one of the most expensive places to build in the entire United
States
Gilroy – Local officials plan to jack up housing development fees for the second time in less than a year – a move that will cement Gilroy’s ranking as one of America’s most expensive places to build.

Developers currently pay more than $45,300 for each single family home they construct in Gilroy. Those fees wind up in different pots of money used for new roads, sewers and other improvements that help the city keep pace with growth.

The increase of roughly $2,100 per home comes in response to spiraling construction costs after last summer’s hurricanes, according to city staff, who plan to ask city council June 12 for approval of the increase.

“I think everyone’s well aware prices have skyrocketed in the last few months regarding oil, and the basic component of asphalt is oil,” City Engineering Director Rick Smelser said. “The other (cost) ingredient is diesel…. These costs affect city projects, as well as development projects, home projects, food and groceries – everything is affected.”

Gilroy already has the third highest “impact” fees in California, which in turn far outstrips the rest of the country, according to a survey by Duncan Associates, a national consultant on such development costs. The 2005 survey of 245 cities and counties sets the national average for impact fees at less than $8,000.

Proposed increases in Gilroy will inflate the base price of homes in a city where growth control has already choked off housing supply, according to Terry Feinberg, a Gilroy resident who helps developers across the country shepherd projects through the government permitting process.

Rather than supporting vital new infrastructure, he suggested that city leaders are using ever-increasing fees to finance lavish, multimillion-dollar projects such as the new police station and sports complex.

“You can look at a narrow slice of the pie and say the cost of asphalt has gone up and therefore the traffic impact fee has to go up. That’s hard to argue with,” Feinberg said. “But when you look at the capital improvement budget and see the Taj Mahal facilities they’re building, I think it’s all suspect. The city has a very luxurious capital improvement program because it’s paid for by new renters and homeowners. Then the city decries the fact that housing costs are going up.”

Since completing a two-year study in 2004 of Gilroy’s future infrastructure needs, city leaders have signed off on two impact fee increases. As a result, a home in Gilroy costs $10,000 more to build today than three years ago, with similar spikes in costs for commercial and industrial projects.

Councilman Craig Gartman said he would scrutinize the latest proposal for increases to ensure they are justified, but he dismissed the notion that impact fees drive up home prices. The market determines housing costs, Gartman said, confident that $2,100 in new fees would not slow growth.

“With as many developers as we have banging on our doors to build, I don’t think it will have an impact,” he said.

With city council approval June 12, the new fees would take effect by mid-July.

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