HomeMy WebLinkAbout11/16/1999, 3 - INTERIM AIRPORT AREA INFRASTRUCTURE FEES UPDATE counc�l °;� - s9
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CITY O F SAN LUIS O B I S P O
FROM: Bill Statler, Director of Finance
SUBJECT: INTERIM AIRPORT AREA INFRASTRUCTURE FEES UPDATE
CAO RECOMN ENDATION
Increase interim airport area infrastructure fees from $15,538 per acre to $26,236 per acre for
annexation and development applications deemed complete after November 30, 1999.
DISCUSSION
Background
In March 1997, the Council approved criteria for considering annexations in the Airport Area.
As presented in the side bar, the purpose of the criteria is to allow interim annexations on a case-
by-case basis while the Airport Area Specific Plan is being prepared,which we knew at that time
would take several years to complete. The
criteria apply to those properties in the Interim Airport Area Annexation Criteria
Airport Area that would otherwise develop in Purpose. The purpose of the interim annexation
the near term in the County. It is not criteria is to allow annexation to the, City, and
intended to encourage new development prior development within the City, of those properties in the
airport area which will otherwise develop in the short
to adoption of the specific plan. term within the County. It is not intended to stimulate
new development prior to adoption of the specific plan.
In addition to establishing criteria in Criteria. Property in the airport area may be
considering Airport Area annexations, the considered for annexation prior to adoption of the
Council also set"interim fees"in March 1997 specific plan for the area provided it meets all of the
following criteria:
for infrastructure improvements. Attached is
IN It is contiguous to existing City limits.
the report presented to the Council at that ■ It is within the City's existing urban reserve line.
time which outlines the assumptions upon ■ It is near existing infrastructure.
which the interim fees were based in funding ■ Existing infrastructure capacity is available to
costs for water, sewer, storm drainage and serve the proposed development.
circulation improvements as well for ■ The applicant intends to proceed with
preparing the specific plan itself. Excluding development immediately whether annexed or
open space in-lieu fees, potential fees were not, and thus a development plan for the
$15,328 to $26,236 P depending on per acre d endin applicant's property accompanies the annexation
application.
various Cost and infrastructure configuration ■ The applicant agrees to contribute to the cost of
assumptions, preparing the specific plan and constructing area-
wide infrastructure improvements pursuant to the
The Council decided to set the interim fees at interim airport area annexation financing plan.
the "low-range" estimate of$15,328 per acre,
but with the understanding that fees would be updated as better information became available.
When the Council awarded the specific plan preparation contract to Wallace Roberts & Todd in
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Council Agenda Report—Interim Airport Area Infrastructure Fees Update
Page 2
September 1997, the Council increased this fee slightly to $15,538 per acre based on updated
plan preparation costs. There have been no other adjustments to the interim fees since then.
Current Status of the Financing Plan
The major work component of the Airport Area Specific Plan is preparing infrastructure master
plans for water, sewer, storm drainage and circulation improvements. An integral part of this
work is identifying the cost of these improvements, and preparing a financing plan to fund them.
The infrastructure plans are nearly complete and work on the financing plan is underway. The
results should be ready for public review by March 2000 in conjunction with the specific plan
and environmental impact report. While the financing program is not complete, initial results
show that final costs are unlikely to be less than the "high-range" fee in the interim fee report
(and most likely will be more). As such,we recommend setting the interim fees at the high-end
of the range at this time: $26,236 per acre.
Why Should We Adjust Interim Fees Now?
Setting interim fees at the "low range" estimate was not based on an empirical analysis of which
scenario was more likely; but rather, this was a "policy call" by the Council based on "order of
magnitude"assumptions. As recommended by the staff, at least part of the Council's rationale in
setting fees at the low-end of the range was to encourage developments such as Spice Hunter and
Ball Guitar to annex into the City,rather than develop in the County.
These annexations (and several others) are now complete, and given the state of the local
economy, the City does not suffer from a lack of annexation interest. Accordingly, there is no
longer any need to provide an incentive for developing properties to annex,which was the case in
1997. Additionally, although the draft specific plan is not yet ready for public review, we now
have enough information to know that setting fees at the high-end of the range would be a better
policy decision for two reasons:
■ Interim fees will more closely approximate what the final fees are likely to be.
■ When the draft specific plan is ready for public review, the incremental increase in fees
from existing ones will be significantly less,which should help lessen the"sticker shock"
What if the "final fees"are lower than the new interim fees? Under the interim fee guidelines,
applicants are provided with the opportunity to either pay the fees in cash, or to defer them via a
letter of credit until the Council adopts "final" fees. Virtually all of the past applicants have
opted to use the letter of credit approach. In this case, applicants would have the option of
paying the"final" fees if these are lower than the interim fees.
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Council Agenda Report—Interim Airport Area Infrastructure Fees Update
Page 3
Implementation
There are several annexation applications currently in the review process (or that we expect to
receive in the very near future). For consistency with what has been communicated to these
applicants to-date regarding infrastructure fees, we recommend making the new fees effective for
applications deemed complete by the Department of Community Development after November
30, 1999. Open space in-lieu fees are not affected by the proposed increase: they will remain at
$2,500 per developable acre. Proposals currently in the "pipeline" that are likely to meet the
criteria for the lower fees include:
Applicant Developable
Farm Supply 5.0
A&R Welding 1.8
Pacific Bell(Fully-developed site) 0.0
Howard&Howard 7.8
FISCAL IMPACT
Setting fees at a level more likely to fully recover infrastructure costs will improve our ability to
fund needed infrastructure improvements in the Airport Area. However, as proposed, the
updated interim fees would only be applicable to applications deemed complete between
December 1, 1999, and whenever the Council sets updated fees again based on the specific plan
information. This could occur in several ways:
■ Once we complete the public review draft of the specific plan (and accompanying
financing program), the Council could set interim fees based on the draft plan. However,
since there will be four financing programs based on the four options evaluated in the
environmental impact report, it may not be apparent what an appropriate updated interim
fee would be. Further, the Council may want to defer consideration of fee issues until the
Planning Commission and other advisory groups have reviewed the draft plan.
■ The Council could wait to adjust any interim fees until final adoption of the specific plan.
The potential for lost revenues depends on how much time lapses between December 1, 1999,
and whenever the Council might again consider updated fees. This ranges from four months to
one year. Any lost revenues will need to be made-up from either:
■ Higher fees for those properties that annex once "final" fees are in place (which may be
problematical depending on the funding method we chose to use).
■ General-purpose resources in our general,water and sewer funds.
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Council Agenda Report—Interim Airport Area!Infrastructure Fees,Update
Page 4
ALTERNATIVES
The Council could defer updating fees until either the public review draft of the specific plan is
available, final adoption of the specific-plan, or some other time in between. However; given the
better information we have now compared with when we first considered interim fees, we do not
recommend this option.
ATTAC11WWNT
Interim Airport Area AnnexationTinancing Plan,March 1997
G:Airport Area Annexation/Intmim Fee Update Council Agenda Report
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i
I ♦ 1-EMM
Airport Area Annexation
Financing Plan
.March 1997
city of san luis OBIS'PO
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Interim
Airport Area Annexation Financing Flan
Overview 1
Proposed Fees 1
Implementation 1
Assumptions 1
Apportionment.of Costs 2
Funding Methods 3
Infrastructure,Open Space and Planning.Costs 3
Water System Improvements 3
Sewer System Improvements 4
Circulation System Improvements 4
Storm Drainage System Improvements 6
General Plan Open Space Requirements 6 -
Specific Plan PreparationCosts 7
Cost and Apportionment Summary 7
Implementation 8
Interim Fee Amount 8
Interim Fee Payment Terms 8
Other.Fees 9
Annexation Agreement 9
.Appendix: Airport Area Interim Annexation Criteria 10
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Interim Airport Area Annexation Financing Plan
OVERVIEW
The purpose of this report is to develop an interim financing plan for case-by-case airport area
annexations. Even with this financing plan, it is important to note that annexations can only
proceed in accordance with the City's overall interim annexation strategy. One important
element of this strategy is that interim annexations can only occur as long as the annexation itself
does not trigger the need to complete the improvements identified in this financing plan.
Proposed Fees
Based on the analysis that follows, interim fee estimates range from$17,828 to $28,736 per
undeveloped acre as follows:
Cost Estimate Per Acre
Low Range High Range
Water system improvements 2,730 5,460
Sewer system improvements 4,485 7,545
Circulation system improvements 3,000 5,688
Storm drain system improvements 4,625 6,938
Specific plan preparation 488 606
Infrastructure and planning costs 15,328 26,236
Open space in-lieu fee 2,500 2,500
Total $17,828 $28,736
As discussed in greater detail below,these costs and apportionment methodology are very
preliminary, and will be refined further as part of the specific plan work effort. Consistent with
past practice in setting fees based on preliminary cost estimates(most notably water impact fees
as established in the Urban Waxer Management Plan),we recommend that interim fees
initially be set at the"low range" level. These fees will be modified to the appropriate level upon
completion of the specific plan.
Implementation
We recommend that the open space in-lieu portion of the fee($2,500 per acre)be collected
upon annexation. The balance of the fees($15,328 per acre)could be deferred(secured by a
letter of credit)until the airport area as a whole is annexed, or an assessment district is formed.
ASSUMPTIONS
The following outlines key assumptions in estimating interim airport area infrastructure fees. It
is important to note that these are rough "order of magnitude" estimates based on very
preliminary cost projections and a very simple apportionment methodology. This approximate, 3-7
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Interim Airport Area Annexation Financing Plan
interim methodology underscores the importance of proceeding with preparing a specific plan
that more fully develops infrastructure costs and funding plans.
Apportionment of Costs
Key assumptions in apportioning costs include:
■ There are about 950 developable acres in the Airport/Margarita area, of which about 150
acres are currently developed. These are very rough estimates, and will need to be further
refined and detailed by land use type as part of the specific plan work effort.
■ For this interim analysis, costs are allocated on a simple per acre basis. In the final work
that will be done as part of the specific plan, it is likely that a more detailed cost
apportionment methodology will be used that allocates cost by land use(such as single
family residential,multi-family residential, commercial, industrial or office).
■ For this interim analysis, infrastructure costs are spread only to new development(about
800 acres).
This may not be the final basis for apportioning costs.
In the final work that will be done as part of the specific plan, it is possible that
infrastructure costs will be apportioned to both existing and new development. There are a
number of good arguments for either approach, including a"blended" approach that weights
existing and new development differently.
Basis for Not Allocating Costs to Existing Development
Existing development doesn't need the new infrastructure— it is functioning without it
today, and therefore it will not benefit from fixture improvements and should not be
allocated costs. If existing development intensifies its uses in the future(or if existing
infrastructure fails or is inadequate), the cost of serving the expanded use can be recovered
at that time.
Basis for Allocating Costs to Existing Development
All properties in this area will benefit from the new infrastructure, and should pay their
fair share accordingly. In short, the future prospects of now-developed(or partially
developed)properties will benefit from full infrastructure development.
These are all critical methodological issues,which is why it is important that the financing
component of the specific plan be prepared by an expert specializing in these types of analyses. 3-8
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Interim Airport Area Annexation Financing Plan
Funding Methods
If costs are only apportioned to new development, then funding can probably be accomplished
through either impact fees (payable at the time of development) or an assessment district.
However, if costs are apportioned to existing development as well, then it is likely that at least
some part of the funding will have to be accomplished through an assessment district.
Regardless of the apportionment methodology,the success of an impact fee approach will
depend largely on an analysis of when infrastructure improvements will be needed, and whether
this can be phased successfully with when new development is likely to occur.
Again, these are important methodological issues that need to be addressed by an expert
specializing in these types of analyses.
INFRASTRUCTURE, OPEN SPACE AND PLANNING COSTS
The following summarizes the cost assumptions for building needed infrastructure
improvements,meeting General Plan open space requirements, and preparing the specific plan.
Because the cost estimates are so rough at this time, a low and high-range cost estimate is
provided for each of the major cost areas:water, sewer, circulation, storm drainage, open space
and specific plan preparation.
Water System Improvements
The following cost estimates are based on major trunk line distribution system improvements
only. They do not include main and lateral improvements that would typically be required of
new development on a project-by-project basis. They also do not include any treatment plant
improvements or new source of supply costs. These will be the same as City-wide impact fees
for these improvements. These fees are already in place, and are payable at the time of building
permit issuance($6,228 per single family equivalent).
The improvement costs are based on a very preliminary plan that runs a major 16 inch trunk line
down Tank Farm Road. The actual placement of these improvement has not been determined,
and will be the main focus of the water system infrastructure plan that will be prepared as part of
the specific plan.
The major difference between the low and high cost estimate is how much hazardous materials
are encountered along Tank Farm Road in trenching for this line, and the related costs for
handling and disposing of this material.
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Interim Airport Area Annexation Financing Plan
Rater System Improvements
Cost Estimates
Quantity Low High
16 inch water line 12,000 lf 1,820,000 3,640,000
Contingencies @ 20% 364,000 728,000
Toth 2,184,000 4,368,000
Sewer System Improvements
The following cost estimates are based on major trunk line collection and lift station system
improvements only. They do not include main and lateral improvements that would typically be
required of new development on a project-by-project basis. They also do not include any costs
for any needed treatment plant improvements. These will be the same as City-wide impact fees
for these improvements. This fee is already in place, and is payable at the time of building
permit issuance($2,566 per single family equivalent). However, an analysis of treatment plant
capacity, and related expansion costs if needed,will be part of the specific plan infrastructure
work, and as such,this fee may change significantly in the near future.
The improvement costs are based on a very preliminary plan that runs both gravity and force
main trunk lines down Tank Farm Road. The actual placement of these improvements has not
been determined, and will be the main focus of the sewer system infrastructure plan that will be
prepared as part of the specific plan.
The major difference between the low and high cost estimate is how much hazardous materials
are encountered along Tank Farm Road in trenching for this line, and the related costs for
handling and disposing of this material.
Sewer System Improvements
Cost Estimates
Quantity Low High
15 inch gravity sewer line 5,500 If 825,000 1,650,000
18 inch gravity sewer line 3,500 If 630,000 1,260,000
12 inch force main 4,500 If 585,000 1,170,000
Access holes 30 each 150,000 150,000
Lift station 1 each 800,000 800,000
Contingencies @ 20% 598,000 1,006,000
Total 3,588,000 6,036,000
Circulation System Improvements
The following cost estimates are based on major street improvements only. They do not include
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Interim Airport Area Annexation Financing Plan
street, sidewalk and landscape frontage improvements that would typically be required of new
development on a case-by-case basis.
They also do not include costs for City-wide transportation impacts. These will be the same as
City-wide impact fees for these improvements. This fee is already in place, and is payable at
the time of building permit issuance($1,265 per single family equivalent,with a 50% credit for
retail and hotel uses).
The improvement costs are based on a very preliminary plan for Tank Farm Road (no other
road improvements are included) and various intersection improvements. More specific street
improvements will be the main focus of the.circulation system infrastructure plan that will be
prepared as part of the specific plan.
The major differences between the low and high cost estimate are:
■ How much hazardous materials are encountered along Tank Farm Road in widening this
street and the related costs for handling and disposing of this material.
■ The level of median and landscape improvements.
Circulation System Improvements
Cost Estimates
Low High
Street improvements 1,900,000 3,800,000
Intersection improvements 500,000 750,000
Total 2,400,000 4,550,000
Note on Prado Road Interchange Responsibilities
As part of previous work on City-wide transportation impact fees and initial funding strategies
for the Prado road road/Highway 101 interchange,it was determined(based on traffic
generation projections)that about 87%of the estimated cost of$10 million for this project was
attributable to three basic areas: Dalidio,Prado road area to the east of Highway 101, and the
Margarita area
Of this $8.7 million apportionment, about 10%was allocated to the Margarita area (or about
$870,000). The balance of the project benefit(13%, or about$1.3 million)was attributable to
the balance of the City,with 69.4%of this residual amount(or about$900,000)allocated to
existing development, and 30.6% (about$400,000)allocated to new development in other areas
of the City.
Under this concept for funding the Prado road interchange improvements,this means that: 3-11
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Interim Airport Area Annexation Financing Plan
■ The Margarita area will be responsible for about $870,000 in costs,or$4,300 per acre based
on about 200 developable acres in this area.
This cost will probably be collected as part of the Prado road project assessment district.
Because part of this project is included in the transportation impact fee, the Margarita area
will receive a small transportation impact fee credit when it develops.
■ The balance of the airport area will not have a direct responsibility for the Prado road
interchange project; its contribution is included in the transportation impact fee.
Storm Drainage System Improvements
The following cost estimates are based on the storm drain master plan prepared by Wallace
Engineering in 1986. Estimated costs provided in this plan have been adjusted for inflation since
that time (approximately 5%compounded annually).
More specific improvements and cost estimates will be the main focus of the storm drain system
infrastructure plan that will be prepared as part of the specific plan.
The major differences between the low and high cost estimate are the uncertainty of the
appropriateness of this plan, and the reliability of these cost estimates, 10 years later.
Storm Drainage Improvements
Cost Estimates
Estimates adjusted for inflation from the 1986 Wallace Engineering report Lowl High
Total 3,700,000 5,550,000
General Plan Open Space Requirements
Annexation areas are required to make open space dedications. Based on past practice, this can
either be in the form of direct land dedications or the payment of an in-lieu fee. The costs of
recent open space protection purchases by the City have ranged from$12,500 per acre for"in
fee" ownership to $270 per acre for open space easements. This is consistent with a recent
review of"in fee" property values in our greenbelt area ranging from$1,500 to $15,000 per acre
depending on the circumstances.
Based on these factors as well as the analysis that was performed for the TK annexation(the
City's first case of using an open space in-lieu fee as part of the annexation process), the
average cost for open space acquisition in the greenbelt area is estimated at$2,500 per acre.
The General Plan does not set specific targets for how much open space should be dedicated per
developed area However, for the Dalidio, Froom, and De Vaal annexations,the General Plan
sets a 1:1 ratio - for each acre of developed property,one acre of permanent open space should,.3-12
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Interim Airport Area Annexation Financing Plan
be preserved. Based on this policy guideline for these other areas,the open space in-lieu fee is
estimated at$2,500 per acre.
Specific Plan Preparation Costs
The costs for preparing the specific plan have previously been estimated as follows:
Specifu Plan Preparation Costs
Cost Estimates
Low Likely
Infrastructure improvement plans 200,000 280,000
Infrastructure financing plan 50,000 50,000
Urban design plan 35,000 50,000
Environmental impact report 80,000 80,000
Plan preparation/integration 25,000 25,000
Total 390,000 1 485,000
Cost and Apportionment Summary
The following summarizes infrastructure,open space and planning costs, and allocates them to
undeveloped property on a per"developable" acre basis. As discussed previously,this
apportionment is based on an estimate of 800 developable acres in the Airport/Margarita area
Cost and Apportionment Summary
Low-Range Cost Estimate High-Range Cost Estimate
Cost Cost Per Acre Cost Cost Per Acre
Water system improvements 2,184,000 2,730 4,368,000 5,460
Sewer system improvements 3,588,000 4,485 6,036,000 7,545
Circulation system improvements• 2,400,000 3,000 4,550,000 5,688
Storm drainage system improvements 3,700,000 4,625 5,550,000 6,938
Open space in-lieu fee — 2,500 — 2,500
Specific plan preparation 390,000 488 485,000 606
Total 12,262,000 17,828 20,989,000 28,736
As discussed above, this excludes costs of about$4,300 per acre for the Margarita area for its share of costs for
the Prado road interchange.
Placed in perspective,this represents a range of$3,600 to $5,700 per"equivalent dwelling unit."
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Interim Airport Area Annexation Financing Plan
DIPLEMENTATION
Interim Fee Amount
Consistent with the City's past practice in setting fees based on very preliminary cost estimates
(most notably water impact fees as established in the Urban Water Management Plan), we
recommended that interim fees initially be set at the "low range" level as follows:
Proposed Interim Annexation Fee
Per Acre
Infrastructure and Planning Fees 15,328
Open space in-lieu fee 2,500
Total $17,828
Interim Fee Payment Terms
Deferral Option
Fees will generally be due upon annexation based on the amount of property proposed for
development at that time. However, since it is likely that the costs that drive these fees will only
be incurred if annexation of the balance of the airport goes forward, an option would be to defer
payment of the infrastructure and planning portion($15,328 per acre, secured by a letter of
credit)until the rest of the airport area is annexed,or an assessment district is formed. .(The
open space portion at$2,500 per acre would be due upon annexation, and would not be available
for deferral). If this does not occur within five years after annexation,this payment obligation
would no longer exist;however,property owners would continue to agree to participate in any
future area-wide assessment district.
In exchange for this deferral,the amount payable at that time (or the share of assessment costs)
should be whatever the airport area impact fee/assessment spread is at that time.
Under this conceptual approach,no fees would be due for already-developed portions of
annexed property. However, if the final financing plan allocates costs to all developable
property(both existing and new), and the property owner has deferred fees and agreed to
participate in a future assessment district, there would be some liability for the existing
developed property.
Lump Sum Payment Option
Under this option, the property owner could make a lump sum payment upon annexation and
avoid any future liability or uncertainty for the entire site.
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Interim Airport Area Annexation Financing Plan
Other Fees
In addition to this interim fee,annexed properties in the airport area will pay all other City
impact and development review fees in the amount and at the time that they would otherwise be
required under existing City policies, including water, sewer and transportation impact fees.
ANNEXATION AGREEMENT
Usually,the City would formally adopt this fee under the standards of AB 1600,which
establishes the framework for adopting and implementing development impact fees in
California. Under AB 1600,impact fees are generally collected at the time of development as
measured by building permit issuance. However,because annexation and development are not
synonymous, and because the future annexation of the airport area and development of
infrastructure is not certain,the commitment to pay this fee should be made earlier in the
process-at the time of annexation.
Accordingly,while the terms should be similar for each annexation, an agreement should be
entered into between the property owner and the City on a case-by-case basis clearly setting
forth the financial terms for annexation.
G:Finance/Airport Area Annmation/Interi n Airport Area Financing Plan
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Interim Airport Area Annexation Financing Plan
Appendix
Airport Area Interim Annexation Criteria
PURPOSE
The purpose of the interim annexation criteria is to allow annexation to the City, and
development within the City, of those properties in the airport area which will otherwise develop
in the short term within the County. It is not intended to stimulate new development prior to
adoption of the specific plan.
CRITERIA
Property in the airport area may be considered for annexation prior to adoption of the specific
plan for the area provided it meets all of the following criteria:
■ It is contiguous to existing City limits.
■ It is within the City's existing urban reserve line.
■ It is near existing infrastructure.
■ Existing infrastructure capacity is available to serve the proposed development.
M The applicant intends to proceed with development immediately whether annexed or not,
and thus a development plan for the applicant's property accompanies the annexation
application.
■ The applicant agrees to contribute to the cost of preparing the specific plan and
constructing area-wide infrastructure improvements pursuant to the interim airport area
annexation financing plan.
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