Updated: Sep 14, 2020
I often get asked about two Development Impact Fee “problems.” The first is the “five-year requirement” and the second is the difficulty of completing the Annual DIF Activity Report. The latter (The Annual DIF Activity Report) solves the former problem (the five year requirement). Of course, all of this assumes that your agency has a legitimate Development Impact Fee Nexus and Calculation Report, henceforth referred to as the “Initial DIF Report.” Your Initial DIF Report generally states that new or expended development is anticipated to exceed the capacity of the existing infrastructure. Therefore, the agency needs to acquire or construct specific projects to accommodate the new demands generated by that new development.
Let’s address the “five year requirement” first. A number of staff members make the mistake of assuming that any development impact fee receipts need to be “expended” within five years of being collected. This is completely incorrect; it is quite adequate that they merely be committed. Most DIF projects simply cannot be financed with DIF receipts within five years. As an example, Happy Valley has included the cost of a new 20,000 square foot community center to deal with the continually growing number of citizens anticipated from the 8,000 planned additional detached and attached dwelling units expected at General Plan build-out. Certainly the 8,000 units will not all be constructed within five years. Does Happy Valley have to give back the DIF amounts collected in those first five years? No they don’t. But they do have to make some findings to commit it.
Here is the requirement: Government Code §66001 (d)(1)?states:
For the fifth fiscal year following the first deposit into the account or fund, and every five years thereafter, the local agency shall make all of the following findings with respect to that portion of the account or fund remaining unexpended, whether committed or uncommitted:
(A) Identify the purpose to which the fee is to be put.
(B) Demonstrate a reasonable relationship between the fee and the purpose for which it is charged.
(C) Identify all sources and amounts of funding anticipated to complete financing in incomplete improvements identified in paragraph (2) of subdivision (a).
(D) Designate the approximate dates on which the funding referred to in subparagraph (C) is expected to be deposited into the appropriate account or fund.
Essentially the City has to restate the circumstances that allowed the City to make the five required legal findings necessary to adopt the community center DIF in the Initial DIF Report. This assumes that the Initial DIF Report and findings were completed and adopted prior to the current imposition of the DIF schedule. If not, then you probably do have a problem. If you did, you merely need to confirm that the findings in the Initial DIF Report still hold true (i.e. that you still need and intend to construct a new community center).
Your Annual Development Activity Use Report needs to be completed, as the name implies, annually. I suggest it as part of the budget process. It should contain:
An activity schedule for each of the DIF funds for which you agency has adopted. I suggest something like your “All Funds Summary”. Indicate (1) the name of the DIF fund, (2) the fiscal year start balance, (3) the amount collected in that FY, (4) the amount spent in that FY and then (5) the net amount anticipated at the end of the fiscal year.
After identifying the amount that was spent in the fiscal year, list the specific projects identified in the Initial DIF Report that the collected DIF receipts are to be spent on. The reports in following years would confirm the actual amounts. If you state that there was $5,000,000 spent on a Main Street bridge construction the previous fiscal year, then just tie that expense back to the claim in the Initial DIF Report that such a bridge along Main Street was needed and identified. I was asked by a client agency one time if they could use Police DIF collections to acquire a helicopter. So I said if they could find the word “helicopter” anywhere in the Police chapter of the Initial DIF Report then they could do just that. However, it was not anticipated and never mentioned, so they were limited to the projects that were listed. They also could have amended the Initial DIF Report and made new findings.
Prepare a DIF “receipts aging schedule” to identify any DIF proceeds that have been held by the agency over five years from the date of their original collection. Then address whether the findings in the Initial DIF Report hold true. This should not be difficult. In the instance of Happy Valley, they would need to confirm that new residential development will still generate the need for a second community center and that the proceeds currently being held in fund balance represent a portion of that facility and will ultimately be used for that facility. In the alternative, they could use the collected money to do a portion of the project such as purchase a parcel for the community center or have the architectural and engineering work undertaken.
In short, your Initial DIF Report states the problem that new development is generating new demands on all agency infrastructure, and the response to assess developers for the required and identified new infrastructure. The Annual DIF Activity report merely confirms what was stated in the Initial DIF Report still holds true and that the agency still intends to acquire the identified improvements.
There will be no problems if you state what you are going to do, confirm that along the way, do what you stated you were going to do, and then, at some point, tell them you did it.