AGENDA ITEM
TO:
HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: CARLO TOMAINO
CITY MANAGER
BY: SIAMLU COX
ADMINISTRATIVE SERVICES OFFICER / FINANCE DIRECTOR
SUBJECT:
title
PUBLIC HEARING - DEVELOPMENT IMPACT FEE STUDY
summary
Summary:
recommendation
This public hearing item presents the Citywide Impact Fee Nexus Study. The study comprehensively evaluates and updates the City’s existing Development Impact Fee (DIF) program and proposes the establishment of updated impact fees to address the public infrastructure needs associated with future development. Specifically, the Nexus Study updates the City’s three existing DIF programs: Traffic, Parks and Recreation, and Water System and proposes three new fee programs: General Government Facilities, Police, and Program Administration. The City conducted this study to comply with Assembly Bill 1600 (AB 1600) and Assembly Bill 602 (AB 602) and provide the sustainable framework to fund future growth-related infrastructure and capital projects while balancing the necessary funding with the City’s economic growth objectives.
Strategic Plan Goal(s):
Goal No. 1: Financial Stability: Ensure the City’s long-term financial stability and
resilience.
Goal No. 2: Community Safety: Maintain Community Safety by supporting public safety
services and increasing emergency preparedness.
Goal No. 3: Economic Development: Improve the local economy, support local
businesses, and create a vibrant downtown core.
Goal No. 4: Infrastructure: Maintain and Improve the City’s physical infrastructure,
waste system, and recreational spaces.
Goal No. 5: High-Functioning Government: Strengthen internal communication,
recruitment, retention, systems, and processes to increase the effectiveness and efficiency of City services.
Recommendation:
1. Conduct a public hearing to adopt a resolution updating the citywide Development Impact Fee Nexus Fee Study and Capital Improvement Plan and establishing a fee schedule for development impact fees for Traffic, Parks and Recreation, General Government Facilities, Police, Water, and Program Administration.
2. Waive further reading and adopt the following resolution, entitled
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, ADOPTING THE CITYWIDE IMPACT FEE NEXUS STUDY, ESTABLISHING THE FEE AMOUNTS FOR THE CITY’S DEVELOPMENT IMPACT FEES, ADOPTING A CAPITAL IMPROVEMENT PLAN AS PART OF THE NEXUS STUDY, ESTABLISHING THE FEE AMOUNTS, AND MAKING FINDINGS OF EXEMPTION PURSUANT TO CEQA
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Fiscal Impact:
Implementation of the proposed impact fees would result in additional administrative responsibilities, including fee collection, accounting, expenditure tracking, and preparation of required annual reports. To address these costs, the proposed fee program includes a five percent (5%) administrative fee.
Under the current fee schedule, the City would yield approximately $72 million in anticipated revenue across the existing three fee categories at the buildout of the City’s General Plan. However, if a new nexus study is not adopted, the City will only be able to collect the current fees on projects through December 31, 2029. Adoption of the proposed fee schedule would increase the projected buildout revenue to approximately $126 million, representing an additional $54 million for the City’s General Plan. This revenue supports the construction of public facilities identified in both the Nexus Study and the City’s Capital Improvement Program.
Background:
Development Impact Fees (DIFs) are one-time fees assessed on new developments and are specifically used to fund capital facilities, vehicles, and equipment necessary to support the demands created by new growth. As such, impact fees must be based on a nexus that shows the fees are roughly proportionate to the impacts of new development. Impact fee revenues cannot be used to cover the operation and maintenance costs of these or any other facilities and infrastructure. In addition, impact fee revenue cannot be collected or used to cover the cost of preexisting infrastructure needs or deficiencies.
As the City experiences growth in both resident population and non-resident employment due to evolving workforces, housing affordability, longer life expectancies, and other trends, the demand for public infrastructure and services continues to increase. To address the need for expanded infrastructure and services resulting from the impact of new development, the City is authorized to impose Development Impact Fees pursuant to California AB 1600 (Mitigation Fee Act), adopted in 1987 and codified under California Government Code Section 66000 et seq. Further, AB 602 requires that effective January 1, 2022, but before January 1, 2030, local agencies conduct an impact fee nexus study to follow specific standards and practices, including adoption of an impact fee nexus study. Cities cannot impose new or increased development impact fees without adopting a nexus study.
The City is focused on proactively bringing new development into the City through the Opportunity Study Area (OSA) initiative, which is aimed at transforming underutilized industrial properties, storage yards and vacant lots north of East Willow Street into a vibrant, walkable, and missed-use town center. This initiative will shape the City’s economic future for decades. As such, the City anticipates that future development will continue to increase the demand for public amenities and infrastructure. In an effort to both comply with State law and prepare for the opportunities that would result from the OSA initiative, the City is proactively preparing to approve and adopt DIFs in a timely manner. The City contracted with Harris and Associates to initiate discussion regarding DIFs, and establish proposed, justified fee updates to adequately support anticipated future needs resulting from development in the City.
Analysis:
The City continues to experience impacts resulting from various external economic trends and will continue to experience increased demand for public facilities and corresponding capital costs associated with new development. The City anticipates near-term residential development projects as well as future development through the Opportunities Study Area effort. As the City continues to buildout over the next several years, it is important to ensure that growth remains sustainable relative to the City’s ability to support necessary public infrastructure improvements and continue to meet the needs of anticipated growth in resident population, businesses, and key community stakeholders. For example, the proposed development impact fees ensure the City can make necessary improvements to accommodate new traffic patterns, update or build new parks, maintain the City’s water system infrastructure which provides safe drinking water, and continue to provide adequate public safety services for the growing population. The purpose of the fee study is to evaluate the City’s current needs and assess future community needs based on anticipated new development.
DIFs ensure that new development contributes its fair share toward the construction of necessary infrastructure improvements. To understand the relative impact of new development on the City’s infrastructure needs, the City worked on a Nexus Study with Harris and Associates to perform the study necessary to establish updated fees. The Nexus Study identifies the legally justifiable fee levels based on expected infrastructure capacity to accommodate new residents and population growth in the City. Staff also considered the potential impact on future development costs and had extensive discussions with Harris and Associates to ensure the proposed fees continue to encourage future development opportunities DIFs are not necessarily a barrier to development but are an investment in the infrastructure and amenities that make growth possible. By ensuring that new development contributes to roads, parks, libraries, community centers, water systems, public facilities and essential services needed to support a growing population, DIFs help preserve and enhance the quality of life that residents and businesses seek, encouraging continued expansion and tourism. These investments create safer, attractive and more livable communities, strengthening the City’s appeal to prospective developers while positioning the community with a plan for sustainable, long-term growth and economic success.
For the City Council’s reference, the City currently administers three DIF programs, as outlined in the Signal Hill Municipal Code:
1. Traffic Impact Fee (Chapter 21.48): All development projects, unless exempt under Section 21.04.050, are required to pay traffic impact fees. These fees fund improvements to the City’s transportation infrastructure necessitated by new development.
2. Park and Recreation Impact Fee (Chapter 21.40): Pursuant to Section 21.40.030, any development project resulting in the construction of residential housing units, unless exempt under this title, must pay a park and recreation impact fee. These funds support the expansion and enhancement of parks and recreational facilities to meet the needs of the growing residential population.
3. Water System Impact Fee (Chapter 21.44): Applicants for development projects that include residential dwelling units or consist wholly or partially of commercial/industrial properties are required to pay water system impact fees. These fees ensure the City’s water infrastructure can adequately serve the additional demand created by new development.
The City has not conducted an update to its DIF program since the fees were originally established, or current City staff is not aware of a prior update study. The purpose of this study is to comply with AB 602, evaluate the existing fees, and consider the potential for updated fees to ensure new development contributes its proportional fair share toward mitigating citywide impacts on public infrastructure.
Following a review of the City’s existing DIF programs, the study concluded that new development in the City will require additional general government facilities, including additional police facilities through the expansion of the police station to accommodate additional officers and the equipment associated with outfitting these officers in a safe manner; the expansion of the corporation yard to further accommodate an increase in police and utility vehicles; and additional administrative requirements of a development impact fee program associated with compliance with the Government Code. In order to mitigate the effects of new development on public infrastructure, a General Government Facilities Fee, staff recommends a Police Fee and a Program Administration Fee as part of the proposed DIF structure.
Updated Fee Study
Since the implementation of the existing DIF program, there have been changes in the Mitigation Fee Act, which governs the collection of impact fees. AB 602 went into effect in 2022 and added Section 66016.5 to the Mitigation Fee Act and imposed several new requirements on impact fees. Two of those requirements directly impacts the existing DIF Programs. First, AB 602 requires that local jurisdictions update nexus studies every eight years, from the period beginning on January 1, 2022. To ensure the continued authority to charge developer fees beyond January 1, 2030. Second, AB 602 requires that all fee studies calculate a fee imposed on a housing development project proportionately to the square footage of proposed units in the development, unless certain findings are made, and a local agency that imposes the fee utilizing this method shall be deemed to have used a valid method to establish the reasonable relationship between the fee charged and the burden posed by the development.
The Nexus Study demonstrates that all fee components comply with the Mitigation Fee Act. The assumptions, methodologies, facility standards, costs, and cost allocation factors utilized to establish the nexus between the fees and the development on which the fees would be charged are summarized in the Nexus Study. The Nexus Fee Study and Capital Improvement Plan are based on information derived from the City’s General Plan, Seventh Cycle Housing Element, 2025 Water Master Plan, 2022-2027 Pavement Management Plan, the 2021 Parks and Recreation Master Plan, and the 2024 Civic Center Master Plan.
Development Impact Fee Comparison
As noted earlier in this report, the City discussed with Harris and Associates the proposed fees, which include costs related to infrastructure, and their potential impact on future development. The City requested that Harris and Associates compare the current and proposed fee structures to provide an order-of-magnitude understanding of the change and to also compare the DIFs to the surrounding region. The evaluation included Artesia, Lakewood, Los Alamitos, Bellflower, Carson, and Long Beach. Each city differs in size, the range of municipal services, and Development Impact Fee (DIF) program categories. There are inherent differences between the fees assessed across cities. Not all comparison cities are full-service municipalities; therefore, fees for services like police and water may be absent from their Development Impact Fee schedules. Program categories may also differ from the Traffic, Park and Recreation, and Water categories used by Signal Hill. Harris and Associates found that most cities in the region have not conducted a comprehensive update of their Development Impact Fees. To comply with AB602, cities will need an updated nexus study to be able to legally assess fees; therefore, staff expects that while these cities have comparably lower DIFs today the coming years will bring fees from surrounding cities closer to Signal Hill.
When agencies do not assess the cost of development through DIFs, they create financial subsidies for new development that have a direct cost to the City. Under such circumstances, the City’s Capital Projects Budget must directly subsize these costs; impacting and limiting an agency’s ability to maintain a capital improvement program model at an adequate level. Consequently, existing fees may no longer accurately reflect current infrastructure costs. Some cities have made incremental adjustments based on Consumer Price Index (CPI) increases. However, these adjustments do not substitute for a comprehensive nexus study, as now required by AB 602. Over time, the gap between the ongoing costs created by new development and the fees collected by a local jurisdiction can create a significant burden on the General Fund, resulting in more limited resource distribution. In some instances, the ongoing subsidy can lead to a structural operating deficit. To avoid this scenario, it is important for cities to regularly update development fees
AB 602 further established stricter requirements for cities regarding the periodic review and update of DIFs. As reflected below, DIFs vary by jurisdiction substantially. The proposed total DIFs for Signal Hill would increase by $29,468. The difference is due to the gap in time between fee updates and the cost of addressing infrastructure improvements. As noted, neighboring cities currently reporting lower fees will likely increase their DIFs to achieve compliance with AB 602. While the City’s proactive approach to achieving compliance and conducting a comprehensive Nexus Study may create the perception that the proposed DIFs are higher than those of neighboring jurisdictions, the distinction is largely attributable to the fact that many agencies have not yet completed similar analyses or updated their fee structures. By addressing these requirements early, the City is positioning itself ahead of the curve, whereas jurisdictions that delay their studies may be challenged with more substantial fee adjustments in the future as infrastructure costs continue to escalate and the gap between existing fees and actual service demands widens.
|
Total Fee Burden by Land Use Comparison |
|
Jurisdiction |
Single Family |
Multi-Family |
Commercial |
Office |
Industrial |
|
|
|
$ per DU |
$ per DU |
$ per sq. ft. |
$ per sq. ft. |
$ per sq. ft. |
|
Signal Hill Proposed |
90,726 |
88,246 |
35.72 |
40.01 |
10.99 |
|
Signal Hill Existing |
50,364 |
42,632 |
12.61 |
6.66 |
6.09 |
|
Artesia |
28,346 |
20,613 |
6.65 |
6.29 |
3.55 |
|
Lakewood |
34,527 |
28,401 |
9.11 |
7.61 |
4.86 |
|
Los Alamitos |
22,871 |
19,786 |
3.36 |
0.87 |
0.31 |
|
Bellflower |
56,325 |
45,756 |
9.66 |
12.52 |
5.72 |
|
Carson |
16,353 |
20,441 |
6.38 |
4.43 |
3.56 |
|
Long Beach |
11,233 |
52,859 |
3.71 |
2.86 |
1.45 |
|
Average |
37,197 |
39,443 |
10.66 |
10.66 |
4.35 |
|
Notes: |
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1 |
County Fees excluded. |
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The recent study for Signal Hill found that increases in DIFs across the residential, non-residential, and industrial sectors are necessary to accurately reflect the full cost of providing public infrastructure and services. The proposed adjustments ensure that these expenses are not subsidized by the General Fund but rather are equitably allocated based on development impacts.
Although Signal Hill does not currently have lowest development impact fees in the region, its prime location, combined with the ongoing efforts to make the City “Development Ready”, continues to make the City an attractive destination for new development. These advantages help ensure that Signal Hill remains competitive and desirable for prospective developers, even with both the current and proposed fee structures.
While the proposed development impact fees would position Signal Hill at a higher level among neighboring cities, this cost-recovery mechanism is strategically offset by the unparalleled financial and administrative advantages of projects like the City’s new 210-acre Opportunity Overlay Zones. By relaxing development standards, expanding "by-right" uses, allowing economic data to right-size residential and commercial projects, and implementing optimized parking ratios, the City is drastically lowering the traditional barriers to entry for developers. Replacing rigid, traditional development standards with a fluid regulatory framework grants developers the ability to maximize buildable square-footage, pivot fluidly to market demands, and design highly efficient, site-customized projects. Furthermore, because the City has proactively undertaken the necessary General Plan and zone changes to accommodate the vision of these overlay zones, developers save substantial time and money by avoiding individual entitlement hurdles. More importantly, by proactively undertaking a programmatic Environmental Impact Report (EIR) for the entire overlay area, Signal Hill is effectively eliminating the lengthy, costly, and legally precarious CEQA process for future projects. The immense savings in time, upfront costs, and litigation risk afforded by the zones far outweigh the increased impact fees, offering developers a highly predictable, expedited, and lucrative environment that is not currently replicated in surrounding jurisdictions.
All the facilities included in the fee update and the Capital Improvement Plan are expansion-related projects that will provide additional capacity necessary to serve new development. The City Council will annually review the Impact Fee Capital Improvement Program and update it as necessary pursuant to the Mitigation Fee Act. Implementation of this Nexus Study is necessary to provide ongoing funding for the identified capital facilities. In accordance with the nexus study, staff recommends an annual inflationary increase to these fees that occur every July 1st based on the increase in the Engineering News Record (ENR) Construction Cost Index (CCI) for the Los Angeles Area. The proposed revised and new fees would become effective sixty days (60) after the adoption of the resolution.
Attachment(s):
A. RESOLUTION NO. 2026-06-XXXX
B. Exhibit “A” to Resolution - Citywide Impact Fee Nexus Study and Capital Improvement Plan
C. Exhibit “B” to Resolution - Citywide Impact Fee Schedule