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HomeMy WebLinkAbout01/04/2011, SS2 - COMMUNITY DEVELOPMENT DEPARTMENT: APPLICATION ACTIVITY AND REVENUE ASSUMPTIONS I � Counck M tixD" 01/04/11 j acenaa nepont �N� SS2 C I T Y O F S A N L U I S O 8 I S P 0 FROM: John Mandeville, Community Development Director Prepared By: Doug Davidson, Deputy Community Development Director Tim Girvin, Chief Building Official SUBJECT: COMMUNITY DEVELOPMENT DEPARTMENT: APPLICATION ACTIVITY AND REVENUE ASSUMPTIONS RECOMMENDATION: Receive a presentation from the Community Development Department on application activity and revenue assumptions. DISCUSSION Background This Council Agenda Report is a preview and summary of the evening's presentation. The staff presentation will contain charts and graphs showing permit activity/revenues and staff will provide more detailed information relevant to workloads and staffing changes. This information responds to the concern within the community that because development activity is down, less staffing is required. Information provided in this study session will provide data and analysis about these concerns and help Council understand the issues related to the volume of development review activity and the corresponding revenues. City planning regulations and safe construction standards are incorporated into project and construction approvals through the City's development review process. The development review process ensures that the policies and standards of the General Plan, Zoning Regulations, Community Design Guidelines, and other documents are complied with to maintain and enhance San Luis Obispo's quality of life. Several City departments are involved in the development review process, including the Community Development, Public Works, Utilities, and Fire Departments, according to their areas of expertise. This report and presentation focuses on the Community Development Department: Planning Development Review and Building Division permit activities. A few slides are included related to the respective work done by other departments. However, Community Development plays the largest role in the development review process, because planning approvals and/or building permits are the drivers for the activity.. The presentation will show trends which Community Development used to adjust staffing to correspond to current planning application trends. The charts and graphs also reflect how the recession has affected application and construction activity. SS2-1 Council Agenda Report—Application Activity and Revenue Assumptions Page 2 January 4, 2011 Staff has made this presentation to the ARC, Planning Commission and the Developers Roundtable (another outgrowth of the Development Review Process - semi-annual feedback from the developer community). The presentation cleared up some misconceptions at all three of these forums. Members of these groups all stated that they would be better ambassadors for the City as a result of this information. Planning Division Activity Attachment A shows how staging has changed during the slowdown in development activity. During the boom years of 2003-2007, five planners were reviewing a total of 346 applications a year. Development Review staff was reduced to four in Fiscal Year (FY) 2008-2009 and then to three in FY 2009-10. So, while development activity has decreased, staff levels have been reduced accordingly. The average number of application per planner per year is currently about the same as it was in the peak years (346 divided by 5 = 69, while 200 divided by 3 = 67). This addresses a common misconception of the public; that with the development slowdown staff workloads are down. The statistics show that staff has the same caseload now as when the economy was humming along a few years ago. The Planning Division also plays a role in building permit application review. Most building permit applications are routed to Planning to confirm compliance with development standards and project conditions of approval. Planning staff often join in the review of over-the-counter approvals, as well. Building Division Activity Planning Application Review The Building Division plays an important role in reviewing the planning applications that are submitted for development review. Division staff provides feedback to applicants regarding code compliance that will affect the physical design of their proposed project. Over-the-counter approvals Building Division staff is able to process over 25% of the applications over the counter. Based on the scale and scope of a project, City staff works hard to allow construction at the earliest time code compliance has been confirmed. Much work such as electrical service upgrades, sewer lateral rehabilitation, residential solar photovoltaic systems, simple remodel and renovation work is approved as quickly as possible. Construction Applications The graphs provided will cover the information related to the more complex projects, ones that SS2-2 Council Agenda Report—Application Activity and Revenue Assumptions Page 3 January 4, 2011 are submitted for review by multiple departments. Although the tough financial times have hit many communities very hard the City of San Luis Obispo is only experiencing a slight decline in the number of construction applications. The scale and scope of the projects are less than when economic times were better, however, there is only a slight decline in the number of applications being processed. Work Delays, Expiring Permits and Code Enforcement activities These tough economic times have brought forward new challenges. Because construction activity has stalled, the City of San Luis Obispo has allowed extensions to applications and permits. Not coincidentally, there has also been 50% increase in the number of expiring permits that Building & Safety division staff has typically dealt with. Rather than immediately referring the delayed project to the Code Enforcement staff, the strategy has been to have Building Inspectors identify the construction activities needed to ensure safe and code complying structures and work with property owners to complete necessary work. It has caused increased workloads related to permit administration that we have not experienced before. Community Development Department Revenue Assumptions The steepest downturn in the economy since the Great Depression plus changes in the lending laws have resulted in a downturn in construction activity. Construction projects cannot obtain funding as easily as in the past. Subsequently, fewer building permits are being issued which has impacted this source of revenue for the City. Because the City's fee structure relies on collection of a major portion of the planning fees when building permits are issued the financial impact is even greater for the planning division. Planning Division We will review the impact of decreased development activity on the Department's revenues below and in the presentation. This will include analyzing why the department's revenues have failed to meet projections even though application projections have been exceeded slightly. Staff projected 180 applications for FY 2008-09 and FY 20019-10 and the actual totals were 185 and 200, respectively. Despite the applications received being right on target (or actually a little over the projection), revenues were less than projected for that number of applications. There are several reasons for this. Fee Exemptions First, not all applications produce revenue. Affordable housing projects, such as the Housing Authority, Habitat for Humanity, and ROEM developments are exempt from application and impact fees. Updating development standards, such as the Zoning Regulations, downtown beautification standards, and the Water Efficient Landscape regulations are City-generated SS2-3 i Council Agenda Report—Application Activity and Revenue Assumptions Page 4 January 4, 2011 projects with no application fees. One of the major functions of development review is inter- department support; numerous capital improvement projects require environmental analysis and review by the Architectural Review Commission and Planning Commission. The Planning Division has processed many of these types of non-revenue projects recently: Palm-Nipomo Parking Structure, Pref imo Creek Bridge, Skate Park expansion, and several creek stabilization projects. Fee Collection Policies The major factor in revenues falling short of projections is the delay between planning approvals and building permits which causes lag time in the collection of planning fees. Fifty-five percent (55%) of planning applications fees are collected at the time of building permit issuance. Or to put it the other way, only 45% of the planning fees are collected at the time of planning application submittal. This is a long standing practice to put off the full planning application fee until the entitlements have been received and construction financing secured. During the "boom" years this was never an issue; the time period between planning applications and building permits was brief as project financing was available to start building right away. In an economic recession as severe as this one, however, the crisis in the lending industry has created a huge delay between planning approvals and pulling building permits. Thirty-seven (37) projects have received planning approvals over the last two years that have not been issued building permits. It appears that several of these projects will not move forward and it is unlikely that the remaining portion of the fees will be collected. Others are large projects, such as the Hampton Inn, Vaquero, and other downtown projects. One or two of these large projects not pulling permits in a timely fashion can really skew the projections. The 40 projects represent approximately $254,000 in uncollected development review fees. This revenue would have kept the two-year projections on track and not resulted in lowering of the expected revenue totals. All of these factors add complexity to the revenue projections process. The fee collection lag time in our permit system should be re-evaluated if it continues to have such an impact on revenue projection and collection. Application projections Finally, another reason for variation between revenue projections and actual revenues is inherent in the process of projecting revenues. Development Review revenues are based on compounding assumptions. First, how many applications will be received in the upcoming year(s)? Then, what type of applications — what mix of small, medium, and large projects? The severity of the current economic recession and its impact on construction financing has added a third wrinkle to our projections; how many applications and their corresponding revenues are likely (or not) to pull building permits within the financial plan time period? SS2-4 i Council Agenda Report—Application Activity and Revenue.Assumptions Page 5 January 4,2011 Building Division The tough economic times have had their effect on building permit revenues as well. The Mid- year budget projections represent a reduced level of activity from the previous year which had reflected a reduction from the development boom years. Not knowing if the City of San Luis Obispo had hit rock bottom regarding development activity the revenue projections were conservative and relied somewhat on the pool of projects that had been granted extensions. Now it appears that the changes in lending laws have presented hurdles too great to overcome and only a few of the projects that had hopeful prospects of pulling building permits will be able to do so. Examples of such projects, include the Laurel Creek Condos, Hampton Inn and the Railroad Square additions. The relevant slides in this presentation will show that construction application activity is meeting or exceeding the latest projections and the respective revenues are coming in as estimated for the 2010-2011 fiscal year. Increasing Regulations In the midst of these tough economic times construction codes and other regulations have become stricter. There are new State mandated storm water regulations and Green Building codes; increasing requirements for documenting energy compliance and changing strategies for complying with disabled access laws. These changes not only burden project applicants but also mandate increased levels of oversight by city plan review and inspection staff. Even if the number of applications did not change, the scope of what to check for is ever increasing. There are new challenges to ensure code compliance which are different than eight to ten years ago. As a result of these new regulatory obligations, even if the number of applications is down the staffing requirement may not fluctuate.. Conclusion Staff is continually analyzing workloads and using the best information available to make revenue projections. Projections and staffing levels are aligned for now. The Community Development staff is realistic in projecting revenues and takes seriously our obligation to be good stewards of public resources by adjusting staff levels to correspond to workloads. Staff will remain on guard to ensure the increasing regulations will not have a negative impact on timely reviews or project approvals. When the economy or work volumes pick up or if increasing regulations create additional staff work, we will use statistical information to identify when it is necessary to add resources to maintain a timely development review process. ATTACHMENTS Attachment 1 - Staffing Reductions in Response to Application Revenue Shortfall T:CouncilAgendaReports7CommunityDevelopmentCAR/PertnitActiv ityRevenueAssumptions(2) SS2-5 ATTACHi"iINT 1 (Do 00 a` E c 0 T- a� T- a f0 U O > 'Q J C C N Dal Q N _N Oc) o �i . a .�..� U E i .> a is Zoe0 PO4 - Fs4 } Y6t o Mimi• r ry\ }iii V r .r.,.. 8ZE .tom blo CU pr t V4. 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