Fremont City

Staff Report

FEE DEFERRAL PROGRAM AMENDMENT - Citywide - Public Hearing (Published Notice) to Consider Planning Commission Recommendation of a City-Initiated Zoning Text Amendment (PLN2019-00309) to Amend FMC Chapter 18.290 (Development Impact Fees) and FMC Chapter 18.165 (Density Bonus and Affordable Housing Incentives) to Modify the Timing of Payment of Development Impact Fees for Certain Types of Development Projects and to Consider an Exemption from the Requirements of the California Environmental Quality Act (CEQA) per CEQA Guidelines Section 15061(b)(3) in that it is not a Project Which has the Potential to Cause a Significant Effect on the Environment.


Department:Community DevelopmentSponsors:
Category:Code Adoptions & Amendments

Item Discussion

Executive Summary: On April 2, 2019, City Council conducted a work session to discuss balanced growth, one of its top priority issues. At this work session, Council reviewed Fremont’s current framework for reviewing residential development projects, housing approval data over the past few years, recent and proposed State legislation related to housing development, and discussed actions Council could pursue to modify current housing development practices. A specific action Council elected to pursue was modification of the fee deferral program to only allow affordable housing and non-residential development to defer payment of certain fees. The proposed zoning text amendment modifies the Fee Deferral Program as directed by City Council on April 2, 2019.


On June 13, 2019, Planning Commission reviewed the proposed project and recommended that the City Council approve the proposed Zoning Text Amendment to amend FMC Chapters 18.290 and 18.165 to only allow affordable housing and non-residential development projects to defer payment of impact, art, and affordable housing fees after building permit issuance.


BACKGROUND: Development impact fees are established under the Government Code Section 66000 et. seq., known as the Mitigation Fee Act. This act allows local agencies to establish fees to charge new development their fair share of the cost to expand or construct new public facilities to support this new development.


Fremont has five development impact fees, including: Traffic; Capital; Fire; Park Facilities; and Parkland. These five fees include the following:


·         Traffic impact fees fund traffic facilities needed to serve new development, including intersection improvements, roadway segment improvements (distances between intersections), bicycle and pedestrian improvements (e.g., sidewalks, bike lanes), signal interconnect improvements (adjustments to signal timing as traffic patterns and intensity change), and general signal/intersection projects (i.e., conversion of non-signalized to signalized intersections when warranted).

·         Capital facilities fees fund the construction or purchase of buildings, land, and equipment that are part of the system of capital facilities serving new development (e.g., city administration, senior service facilities, police facilities, library service facilities).

·         Fire facilities fees fund fire protection facilities in the form of buildings and equipment needed to serve new development.

·         Park facilities fees fund the initial facilities and improvements (e.g., play areas, restrooms, ball fields) at City parks.

·         Parkland fees fund the acquisition of new parkland to maintain the Citys standard of five acres of parkland per 1,000 residents.


In addition, residential projects sometimes owe two additional fees that were not established under the Mitigation Fee Act but which are also eligible for deferral:


·         Art District Fees: There are four zoning districts that require payment of an art fee: Downtown, City Center, Warm Springs Innovation, and Ardenwood Technology Park Planned District (PD-2015-23).

·         Affordable Housing In-lieu Fees: Under the City’s Affordable Housing Ordinance, residential developers have the option to pay a fee toward off-site construction of affordable housing in-lieu of building on-site affordable housing. 


Until 2009, the impact fee ordinance required payment of impact fees prior to building permit issuance. In 2009, in response to a severe slowdown in development activity due to the economic recession, Council approved an amendment to the development impact fee ordinance to allow deferral of fee payment up to 18 months after building permit issuance or prior to issuance of the certificate of occupancy, whichever came first. The program is implemented via a Deferral Agreement, which is recorded on the title of each property the fees are deferred on as a lien. With the lien on the property, the applicant cannot sell the property because lenders will not issue a loan to a purchaser with the lien in place. When the fees are paid, the lien is removed. Since this change became effective, the majority of new development applicants have requested to defer their impact fees.


Over the past 10 years, approximately $168 million in Mitigation Fee Act impact fees have been deferred. Of this $168 million, 78% ($131 million) was for market rate housing projects and the remaining 22% ($37 million) was for affordable housing and non-residential projects.  In addition, $54 million of the $168 million deferred fees were deferred affordable housing fees.


DISCUSSION/ANALYSIS: At its April 2 work session, Council provided direction to staff to end the fee deferral program for market rate housing projects. Councilmembers indicated that incentives were no longer necessary or appropriate, and also noted that timelier payment of fees should allow timelier use of the fees to address the impacts from residential development.


Four FMC Title 18 sections are proposed to be amended to achieve Council’s direction, including three sections in FMC Chapter 18.290, Development Impact Fees, and one section in FMC Chapter 18.165, Density Bonus and Affordable Housing Incentives. The draft ordinance is attached for reference. The proposed changes generally include:


1.     Definitions (FMC Section 18.290.050): Adding definitions for “affordable housing” and “market rate housing”

o        “ ‘Affordable housing’ means any residential units restricted for persons at or below 120% of the area median income.” This income limit includes all persons at or below the established moderate income level.

o        “ ‘Market rate housing’ means any residential units with no affordability restrictions (excluding the manager’s unit in an affordable housing project).” Affordablility restrictions include a regulatory agreement on any property with a unit identified as “affordable,” which ensures the affordable rental or for-sale rate will be maintained for the life of the agreement. The affordability restriction is typically 30 years for for-sale units (also known as below market rate (BMR) units) and up to 99 years for rental projects.

2.     Modifying the Timing of Payment After Permit Issuance section (FMC Section 18.290.070(b)): Specifying that affordable housing and non-residential projects may defer payment after building permit issuance;

3.     Adding an “Exclusion” to FMC Section 18.290.110: Clarifying that market rate housing of two or more units is excluded from utilizing the provisions payment of impact fees after permit issuance allowed for under FMC Section 18.290.070(b). With this language, builders of a single unit constructed on a lot would be able to defer payment of impact, affordable housing, and art fees. This is staff’s recommendation based on input received on the proposed ordinance changes, and is intended to allow residents building their own homes to defer fees.  If Council does not wish to allow single units to defer fee payments, then the exclusion language should be changed to clarify market rate housing of “one or more units” is excluded from the fee deferral program.

4.     Removing FMC 18.165.080(a)(5), which allows market rate senior projects to defer impact fee payment after permit issuance as a concession under this ordinance. The fee deferral concession in this code section is specific to Fremont and not required by State law. Consistent with Council’s direction, removing this provision will ensure that market rate senior housing would not be able to defer impact fees. 


PLANNING COMMISSION RECOMMEDATION: On June 13, 2019, Planning Commission reviewed the proposed zoning text amendments and recommended Council approval with a vote of 5(approve) – 1(absent) - 1(vacant). With its recommendation, the Planning Commission recommended modifying the “Exclusion” language in FMC Section 18.290.110 to allow small, market rate units (i.e., 700 square feet or smaller) to continue to participate in the fee deferral program. If Council concurs, FMC Section 18.290.110(c). would read:


Market rate housing developments consisting of two or more housing units are excluded from using the provisions of FMC Section 18.210.070(b), excepting small units that are 700 square feet or smaller.


FISCAL IMPACT: All costs associated with managing the fee deferral program are currently paid for by the applicants requesting the service, so there should be no net fiscal impact related to program administration.


The effect of the program change on impact fee collections is likely to be mixed. On the one hand, by collecting the fees sooner, the City should be able to use the fees sooner for infrastructure/affordable housing, which would save money in an environment of escalating construction costs such as that existing today.  On the other hand, eliminating fee deferrals will increase borrowing costs for residential development, which in some cases could prevent projects from being built, which in turn would reduce the impact fees collected.  


PUBLIC HEARING: On May 9, 2019, staff conducted an informational meeting on the proposed fee deferral program amendment. No persons attended the meeting. On June 25, 2019, a public hearing notice display ad was posted in the Tri-City Voice. Also, on June 25, 2019, the 1,343 persons on the NotifyMe Builder’s Interest List received the public hearing notice for this item.


Prior to the Planning Commission June 13 hearing on this item, a letter was received from the Building Industry of Association (BIA) requesting that the proposed zoning test amendment be denied. The BIA letter is provided as Informational 1.


ENVIRONMENTAL REVIEW:  The proposed project is exempt from the requirements of the California Environmental Quality Act (CEQA) per CEQA Guidelines Section 15061(b)(3) in that it is not a project that has the potential to cause a significant effect on the environment.

Document Comments


1.              Open the public hearing;

2.              Find that the project is exempt from the requirements of the California Environmental Quality Act (CEQA) per CEQA Guidelines Section 15061(b)(3) in that it is not a project which has the potential to cause a significant effect on the environment;

3.              Introduce the ordinance, as shown in Exhibit “A,” adopting the proposed Zoning Text Amendment PLN2019-00309 to amend FMC Chapter 18.290, Development Impact Fees, and FMC Chapter 18.165, Density Bonus and Affordable Housing Incentives, to only allow affordable housing and non-residential development to defer payment of development impact fees after building permit issuance.

4.              Direct staff to prepare, and the City Clerk to publish, a summary of the ordinance.