City considers raising impact fees

The Morgan Hill City Council is set to consider a proposal to increase and change the impact fees the city charges developers.

The proposed changes are based on an impact fee study completed by Wildan Financial and presented to the council in February. The report provides an analysis of “public fees and improvements” for facilities including general public, traffic, library facilities, park, water and storm drain.

According to the study, the purpose was to “ensure that new development pays the capital costs associated with growth. Although growth also imposes operating costs, there is no similar system to generate revenue from new development for services. The primary purpose of this report is to calculate and present fees that will enable the city to expand its inventory of public facilities as new development creates increases in service demands.”

Impact fees are periodically updated to keep up with city growth and help pay for city maintenance and projects. This particular study analyzed the impact fees needed to support development within the city through 2035. Wildan Financial found the maximum impact fee for a single-family residence could be $53,405 (currently $38,674 in Morgan Hill); the impact fee for a multi-family residence could be $41,551 (currently $32,377); and a senior, downtown or accessory housing project could have an impact fee of $35,313 (currently $28,672).

For the maximum fee schedule for non-residential developments, the study identified an impact fee of $19,544 for commercial projects; $12,377 for office developments; $8,481 for industrial; $15,371 for auto dealerships; and $4,170 for hotels.

These total fee amounts include all eight categories of public facility and infrastructure impact fees.

City staff has not recommended that the council adopt the maximum justified fee schedule for all categories. The city is already suggesting traffic and park impact fees be implemented at lower than the maximum fee schedule. Maureen Tobin, communication and engagement officer for the city, said that some impact fees wouldn’t increase if the city didn’t have the means to move forward on the projects. “We don’t just raise all impact fees willy-nilly; we’re actually looking at what makes sense,” said Tobin.

If the maximum suggested impact fees were all adopted, residential single-family development fees would see a 34 percent increase, multi-family would see a 28 percent increase and senior, fees for downtown or accessory developments would increase by 23 percent. Non-residential impact fees would also see a significant increase if the maximum fees were adopted. Commercial development impact fees would increase by 45 percent, office development by 37 percent, industrial by 39 percent, auto dealerships by 32 percent and hotels by 9 percent.

The study found that the city needs the following amounts to maintain, upgrade and repair the different categories of public facilities through 2035: $16,520,343 for general public facilities; traffic facilities would need $21,932,940; water would need $22,014,530 and sewer would need $13,185,533, for a total of about $73.7 million in funding. The study said that impact fees alone will not subsidize that full amount, and that the city will have to find alternate funding outside of just raising impact fees.

“Impact fee revenue must be spent on new facilities or expansion of current facilities to serve new development. Facilities can be generally defined as capital acquisition items with a useful life greater than five years,” the Wildan Financial study stated. “Impact fee revenue can be spent on capital facilities to serve new development, including but not limited to: land acquisition, construction of buildings and infrastructure, the acquisition of vehicles or equipment, information technology, software licenses and equipment.”

Tobin told the Times that Morgan Hill does not have a set time for updating impact fees. She said in an email that the most recent General Plan update in 2015 prompted the new evaluation of impact fees.

City staff has made several attempts to communicate the increase in fees to developers and residents, including email blasts and community input sessions, Tobin said. A public comment session was held March 21. The council is expected to make a decision on the fees at its April 17 meeting.

The proposed increases would not be the end of changes made to impact fees in Morgan Hill.

“Once a fee program has been adopted, it must be properly maintained to ensure that the revenue collected adequately funds the facilities needed by new development,” the study reads. “To avoid collecting inadequate revenue, the inventories of existing facilities and costs for planned facilities must be updated periodically for inflation, and the fees recalculated to reflect the higher costs.”

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