California Reviews Impact Fees on Developments

A U.S. Supreme Court ruling earlier this year in favor of an El Dorado County landowner has thrown into question the proportionality of the impact fees California municipalities impose on new housing projects.

Impact fees routinely are imposed on projects, ostensibly to offset the cost of roads and other public infrastructure that need to be upgraded to make way for development.

California municipalities have levied some of the highest impact fees in the country for decades, dating back to 1978, when Proposition 13 limited the property taxes that local jurisdictions could collect.

In an economic environment that already offers substantial impediments to new development, including high interest rates and rising construction costs, there can be a difference between a project penciling out or being abandoned by a developer.

Housing advocates now are hoping the court-ordered review of California’s impact fees results in a new standard that reins in these charges, which they say are blocking much-needed housing development, the Mercury News reported.

“These fees are costing us a lot of housing—housing that we never see proposed,” Dylan Casey, executive director of the California Housing Defense Fund, told the newspaper.

Matthew Lewis, spokesperson for the pro-housing group California YIMBY, said there is “no connection between what cities are charging and what they’re spending it on.” He cited unreasonable fees that Sunnyvale charges, ranging from $34K for a single-family house home to more than $114K per unit in a multifamily, which the city allocates for parks.

A spokesperson for Sunnyvale noted in a statement that the city has surpassed its goals for market-rate housing between 2015 and 2023.

As high costs slow down the development pipeline, some cities are opting to waive impact fees and other local construction taxes to spur new projects.

Last month, the San Jose City Council unanimously agreed to waive several fees over the next seven years, including a five-year waiver of all city construction taxes and a 50% reduction in park fees. In the final two years of the program, construction taxes will be cut in half and park fees will be reduced by 30% for all qualifying downtown apartment tower projects.

San Jose officials have identified 14 projects for residential towers encompassing 4,078 homes that have been approved but have yet to begin construction.

In a memo supporting the new incentives, the city’s Economic Development Office said housing towers in San Jose must overcome a “feasibility gap” caused by high interest rates, soaring labor costs and rapidly rising prices for building materials.

Earlier this month, Cupertino waived $77M in fees for developers of The Rise, a housing development at the site of the former Vallco Mall.

Impact fees traditionally have been seen as a way for local governments to augment their budgets for services including schools, parks and transportation infrastructure.