Debate on homebuilder fees nearing finish line

Reducing developer fees was the main issue debated during the Nov. 3 Stockton City Council meeting, at least the third time the issue has been discussed in earnest. When the marathon session ended after several hours, the consensus was that more analysis was necessary before action could be taken.

Despite the glacial pace, the delay should be seen as progress. The council seems to be moving away from an original proposal written by the Building Industry Association and backed by Mayor Anthony Silva. The so-called “Stockton Economic Stimulus Plan” would have allowed developers to build up to 1,300 units with Public Facility Fees reduced by $17,000 per unit — a figure city staff said would likely force spending from the General Fund.

Instead, a plan by Councilman Moses Zapien is gathering steam as the preferred way to boost home building in Stockton, which has been stagnant since the beginning of the Great Recession. Zapien’s proposal would cut fees for up to 500 single-family units and 500 multi-family units by 40 percent. It would cut fees for these units by 50 percent if they are built in areas designated as Disadvantaged Communities by Senate Bill 535. Some suggested amendments to Zapien’s proposal would lower fees for Disadvantaged Communities even farther.

It seems a foregone conclusion that some type of “stimulus” will be passed by the City Council. But the details remain to be seen, specifically the level to which Public Facility Fees will be slashed. The council awaits a Nov. 17 analysis from city staff on Zapien’s plan.

A few things to consider as the process creeps forward:

The council voted on Nov.  3rd to consider in two weeks an alternative fee reduction plan proposed by Councilman Moses Zapien.

The council voted on Nov. 3rd to consider in two weeks an alternative fee reduction plan proposed by Councilman Moses Zapien.

The magic number

The City Council has the ability to reduce Public Facility Fees only so far until there are negative legal ramifications and adverse General Fund impacts. That magic number is $12,459.

Reduce fees beyond that level per unit, according to city staff, and the city will have to write checks to cover debt payments that go toward utility assets or to pay for fees legally due to entities like local school districts. Those checks will likely come from the General Fund, which is already stretched so tight that the Fair Oaks Library couldn’t be re-opened because the $500,000 annual price tag was deemed too high.

Though several commenters at the Nov. 3 council meeting stated the numbers were too much to understand, the math remains simple. Cut Public Facility Fees by more than $12,459, and the City Council will be on the hook for using the General Fund for developer benefit.

Bonus for struggling areas

The council will entertain the idea of cutting Public Facility Fees beyond $12,459 for units built in areas of the city identified by SB 535. The central, south, east, and northeast areas of Stockton all qualify as Disadvantaged Communities.

These census tracts face high environmental burdens, high unemployment, low income, and low opportunity, and certainly could benefit from reinvestment. It’s possible that capital could flow more freely toward those areas with the incentive of reduced development fees.

In fact, there is a reasonable argument to be made that fees should only be reduced for homes built in these neighborhoods, as they need more of a boost from the city than in northern suburban areas.

Risky business

But there is danger in reducing fees beyond the magic number, even for the cause of reinvesting in disadvantaged communities. An amendment to Zapien’s plan by Councilman Michael Tubbs that proposes just that course of action could cost the General Fund $4 million, according to a back-of-the-napkin calculation by city staff on Nov. 3. Their Nov. 17 report should show the possible impacts more clearly.

Though the stimulus is a one-time deal and not an ongoing annual expense, this represents a serious outlay for a city that just emerged from bankruptcy — a bankruptcy caused in large part because the city spent money short-sightedly.

There must be investment in our overlooked, disadvantaged neighborhoods. And we need to build more housing that is affordable to Stockton residents, especially housing of the multi-family variety. In fact, affordable housing is one of the biggest and most pressing issues facing Stockton today.

But the General Fund also must be wisely managed. Hopefully, the City Council takes the cautious route when it comes to the city’s finances, despite the temptation to spend this money on a worthy cause.

 

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Categories: Development News

Author:Jon Mendelson

Jon was born and raised in Stockton. He returned to the city following four years of college at Loyola Marymount University, in Los Angeles. He is an award-winning columnist and the former editor of the Tracy Press newspaper in Tracy. He currently is associate director of Central Valley Low Income Housing Crop., which assists homeless families and individuals. He lives in Stockton's Miracle Mile district.

One Comment on “Debate on homebuilder fees nearing finish line”

  1. Ned Leiba
    November 10, 2015 at 9:23 am #

    Hello Jon,

    The magic number is $12,459? I do not see where that number comes from looking at the just released (long delinquent) PFF reports. The PFF are restricted and have a combined balance at 6/30/2014 of positive 44.7m. That 44.7m is after debt, i.e., net fund balance for all PFF. There are fees that go to the general fund and fees that go to the restricted PFF. Perhaps that is where there is some confusion.

    “Those checks will likely come from the General Fund, which is already stretched so tight that the Fair Oaks Library couldn’t be re-opened because the $500,000 annual price tag was deemed too high.”

    The City has run significant surpluses over Council adopted budgets for the library year after year after year; same for police and fire and other general fund categories. The general fund balance at 6/30/2014 was positive 50.9m per the audited financial statements. The city says it will have an additional surplus of at least 20m for 6/30/2015. The City has not released any financial reports since 12/31/2014, and those reports were profoundly misstated on a GAAP basis, which is the basis as used for budgeting and the audited financial statements, i.e., the ones that showed the 50.9m positive balance at 6/30/2014. I would not recite the apparent claim by City Staff that the general fund is “already stretched so tight” that it cannot open the Fair Oaks Library. Folks who care, should drill into the published financial statements and see if the numbers used for this and other fiscal purposes make sense.

    The PFF and other fees should be set to cover avoidable costs associated with incremental development. That is the proper standard, and it is clear the fees are too high. We do not have good information from the City as to the avoidable (incremental) costs of development, and we do not have current, proper financial statements. And that is the scandal. If we do, let me know where you see the computation of avoidable costs and current, proper financial statements for the City 6/30/2015. The discussion about home builder fees is a largely blind without that information.

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