From Today to TOD – Impact Fees

Over the past few weeks, I’ve written about the hurdles of converting from drivable suburban to walkable urban, with particular reference to the pending Petaluma Station Area Plan.  I’ve discoursed on subjects as varied as parking, adjoining properties, and transitional uses.   Today, as I near conclusion, I’ll grapple with the thorniest issue, impact fees.

Impact fees are charges that are collected on new development and are intended to fairly assess new residents for their share of the infrastructure improvements needed to support a growing population.  Impact fees are usually collected at issuance of building permits, although alternative arrangements are sometimes permitted.

The breadth of possible impact fees are limited only by municipal imagination.  The most common fees are for roads, water, sewer, storm drainage, schools, and parks.  An impact fee can only be imposed if a study has been done justifying the amount of the fee.

(Note: “Impact fee” is a generic term for this type of development charge.  It is also the term used in California.  However, other states use alternative terms.  In Oregon, these fees are called “system development charges” or “SDCs”.  I was involved in setting the SDC rules for the Oregon community where I lived before moving to the North Bay.)

By law, an impact fee can only consider the incremental impact of new homes or businesses.  It can’t be used to remedy existing infrastructure deficiencies.  However, that’s a fine line that is often erased by shuffling feet.

The StrongTowns theory tells us that many communities are increasingly victims of infrastructure maintenance shortfalls and are dependent on the fees from new development to cover the gap.  As a result, city councils and their consultants often struggle with the distinctions between new impacts and existing deficiencies.

Transit-oriented development (TOD) further confuses the question.  Although the point is rarely noted, most impact fees studies include an implicit assumption that new development will follow the same pattern as existing development.  That each new single-family home will generate the same ten vehicular trips as existing homes, will water the same area of lawn, and will produce the same number of school children.

What should a city do about impact fees when new development is targeted toward residents who prefer to make trips by transit, by bicycle, or by foot, rather than by car?  Who generate fewer school children because they are predominantly millennials or seniors?  Or who live in smaller spaces because much of their social life is conducted in the public realm?

Looking at Petaluma, as least as seen through the lens of the proposed Petaluma Station Area Plan, the answer is unclear and potentially unsatisfying.  Early in the station area planning process, the consultant team determined that the current impact fee structure would overburden the station area, with the result that development might not be financially feasible.  Combined with the knowledge that TOD residents generally require less infrastructure to live their daily lives, this put a burden on city staff to reassess the impact fees.

(Note: There is also a time factor to the infrastructure demands for TOD residents.  Early in the life of a TOD, residents may make nearly as many car trips as other city residents because the commercial elements of the TOD are still evolving.  But as the TOD begins to meet more daily needs, these car trips will likely reduce.  The impact fee standards don’t address this possibility.)

Concurrent with the findings of the consultant team on the impact fees for the station area, there was a growing concern in Petaluma that the impact fees were too high for all development.  The recently adopted General Plan included infrastructure improvements that were to be funded by impact fees.  Many argued that the resulting impact fees were stifling development.  (Once again, there were hints of the StrongTowns-predicted conflation of infrastructure needed to support new development and infrastructure needed to sustain the existing community.)

The city decided to reduce impact fees throughout the community.  The reduction for residential housing was about 30 percent.  The station area planning consultant was directed to reconsider the financial viability of the station area plan with the lower fees.  The results of this update haven’t yet been released.

This impact fee reduction was likely appropriate and the city should be applauded for taking the step.  But it sidesteps the question, which is fundamental to this discussion, of whether people who live in a TOD should be subject to the same impact fees as those who choose to live on the urban fringe.

To be fair, there is a distinction in the impact fees between single-family homes and multi-family homes.  Thus, the average TOD residence will have somewhat lower impact fees that the average residence at the urban fringe.  However, the impact fees remain the same between walkable TOD multi-family units and apartments at the urban fringe which are surrounded by parking lots and require a car for nearly every daily task.  And that seems flawed.

I concur that it would be an overly difficult task for a city to finely tune impact fees to each set of circumstances throughout a city.  However, the burden on cities under the California Government Code, Section 66020, is to make “proper and valid findings that the construction of certain public improvements or facilities, the need for which is directly attributable to the proposed development”.  “Directly attributable to proposed development” would seem to require acknowledgement of alternative types of development such as TODs.

There is one other point on which TODs differ from other types of development.  Like most cities, Petaluma’s impact fees are the same regardless of the size of the residence.  This feels appropriate for most situations.  From personal observation, a 1,200 square foot home is likely to have a similar number of residents as a 3,500 square foot McMansion.

However, many TODs include a new size of residence.  Micro-units of perhaps 300 to 400 square feet that are intended for a single person.  If the impact fees remain the same for these units, the incentive for a developer is not to build micro-units, because the fees per square foot might be four times greater than for conventionally-sized units.  And yet micro-units can fill a housing niche and add vibrancy to a TOD.

The station area consultant recognized this conundrum early in the process and suggested that impact fees for TOD units be scaled to unit size.  Thus far, the suggestion hasn’t been acted upon.

I won’t pretend that setting impact fees is an easy task.  Indeed, it’s complex and multi-faceted.   But the ultimate goal is the fair distribution of infrastructure costs.  I’m not sure that we’re yet approaching that goal when it comes to TOD.

As always, your questions or comments will be appreciated.  Please comment below or email me.  And thanks for reading. - Dave Alden (davealden53@comcast.net)