Negative Development Impact - It was bound to happen

Over the many years of calculating development impact fees, RCS has largely worked with cities/public agencies that have had significant tracts of vacant land within their boundaries.  Often because of the availability of old vineyards, orange groves, and dairies that have passed their economic usefulness combined with significant land value increases.  Remember, the City of La Palma was once named “Dairyland”. With all that vacant land to be developed for a higher purpose one can clearly see the increased demands for services dependent upon government infrastructure. With local governments continually strapped for revenues, if developers want to develop their vacant land, they have to contribute financially for the infrastructure needed to accommodate that new development, or the private development could not reach fruition. If a General Plan indicates the increase of 7,500 detached dwellings, a couple of hotels, 250 acres of commercial properties and 200 acres of light or heavy manufacturing, and you pretty well have to recognize there will be a need to construct/equip an additional fire station.  It is simple, and there is no reason for the existing community to pay for any of it.

So, RCS Development Impact Fee (DIF) Calculation and Report clients were largely limited to public agencies that had a significant amount of vacant land. We never particularly heard from the largely developed cities that had maybe a very old set of static impact fees that they merely increased by the ENR/CPI indices. Enter AB602, which restated Section 66000 of the Government Code’s need to document/update any existing impact fees.  AB602 put some serious teeth into the DIF process, as now the public agency has to have a new set of impact fees, supported by a calculation report with the appropriate findings.   We often find that these older built-out cites have adopted impact fees, but cannot produce the report or calculation that established the impact fees. 

Due to the passage of AB602, RCS began to hear from these largely built-out cities that have a modicum of vacant parcels but are undergoing significant changes to existing development via zone changes.  Now this is important: do not confuse new construction via a zone change with increased infrastructure demands. I’m going to use an unnamed client example, City X, from the Los Angeles area.

Their situation is that the city recently received a development proposal for a new use of a very large vacated major mall that could not sustain itself any longer.  Because of edicts from Sacramento about building more affordable (or any) residential dwellings and a continuing return on their properties, the owners of the defunct mall indicated a desire to construct high density residential rental dwellings.  From an owner’s standpoint, this is far better than no income from a vacant mall. When completed the demolition of 35 acres of commercial mall (about 385,000 square feet of commercial uses) will be replaced with 350 or so high density dwellings. City X also anticipates the demolition of many acres of strip mall commercial uses throughout the City and replacing those with high density dwellings. So, exit the unneeded commercial uses to be replaced with high density residential dwellings.  Now, let us consider what that does to the demands upon that City’s service infrastructure.

Public Safety Demands. The 35 acres of the commercial mall uses generated about 530 police calls-for-service annually, while the replacement 350 high density dwellings will generate 340 annual police calls-for-service annually, demonstrating a reduction in police demand.  There would also be a decrease in fire/medic calls-for-service.

Circulation Demands. In terms of vehicle traffic, the previous commercial mall use would have generated about 5,534 peak-hour trip-miles, while the replacement 350 high density dwellings will generate a lesser traffic demand at about 1,132 peak-hour trip-miles daily. Again, we see a reduction in traffic demand.

Thus, because of the changes in the mix of zones in City X, it would be very difficult, if not impossible, to claim that general development is causing impacts, because citywide they simply are not. There could be instances where one of these land-use changes will generate a very specific circulation project and those could be handled by Condition of Approval language.

Keep in mind that a long-standing court case involving the Tustin School District established that when a previous use is demolished and replaced with a different use the public agency must give a financial credit for the reduction in demand from the demolished structures against the new impact fee.  So in this case City X will have to extend credits to all of these commercial-to-residential development proposals.  In each case it will not end up in a positive impact fee.  This would not be the case for development on a vacant parcel that has always been vacant, and they would still pay an impact fee.  However, it would be very difficult for that city to claim that numerous street widenings are needed to deal with development when the overall traffic demands are decreasing.  The same is true for the diminishing police calls-for-service.  No impact, no fee. It’s as simple as that.

There is a plus side for City X though.  City X will benefit from updating/adopting “Quality of Life” impact fees for expanding parks, library space, community center space and aquatic centers, all of which would see increases in demand from the increase in residential dwellings.

It was bound to happen that a city could not demonstrate the greater service demands, and thus, the need for some impact fees.  City X is the first we are aware of.  There will likely be more.