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Mayor's Board Room
Monday, May 23, 2011, 10:00 AM
Book: 65, Page: 1

Special Meeting

Called To Order The meeting was called to order by Commitee Chair Jack Weiss at 10:03 AM

Roll Call
    Jack Weiss, Council Member, First Ward
    Michael Lilliquist, Council Member, Sixth Ward
    Seth Fleetwood, Council Member, At Large


Planning and Community Development Committee Work Session on Impact Fees

Staff: Mark Gardner, Alan Marriner, Leslie Bryson, Ted Carlson, Chris Comeau, Brent Baldwin, Jeff. Thomas, David Webster

Other participants: Ralph Black

Jack Weiss reviewed context of the issue. Departments are involved in creating fees but Council has not been doing its job of looking at the whole system. One purpose is to create a dialog with staff and look at the big picture in the context of our broader policy goals and identify changes that may be needed to advance those goals.

Mark Gardner reviewed the background of the issues. A memo was created that looks at: delaying fees until later in the development process to reduce development costs; elimination or reduction of fees for affordable housing; varying fees by geography to reflect incremental costs of new development in different parts of the city; and, varying fees by unit size to reflect different levels of demand from different size residential units. The first two issues have to do with paying the fees – when, and whether they should be paid for affordable housing. These could apply to all fees. The second tier --varying by geography or by unit size -- reflect marginal cost pricing, which is setting the fees to reflect as close as possible the demand resulting from each new unit. This approach is being used in more and more cities but is still uncommon. The second tier requires in-depth analysis of the capital cost drivers of the different systems. You would need to do one study per fee. Some fees are not appropriate for some of these approaches – for example, stormwater is tied to impervious surface, not unit size. Stormwater does not vary according to number of people. School impact fees should not be varied by geography because the capital drivers are numbers of students.

Jack Weiss. Mark Gardner was charged twice to work on this, first for parks and then to look at it more comprehensively. The goal is to have everything close to revenue-neutral.

Seth Fleetwood. Are any of these approaches represented in how Bellingham currently does things?

Mark Gardner. There are some fees that embody this approach to some degree. While some fees are binary, others such as Transportation Impact Fees (TIF) include a wider range of unit types. TIF has the urban village (UV) variation.

Alan Marriner. System Development Charges (SDC’s) are also based on size of service.

Ted Carlson. Both sewer and water are based on size of meter.

Michael Lilliquist. I would like to advocate that the fee should be scaled to the genuine impact. Some of our fees are scaled where others are not and we can likely find an empirical basis for scaling them. While it is true that the first two changes discussed are done for policy reasons separate from the actual impact, scaling fees to unit size can also have policy effects such as encouraging infill. School and park fees are very crudely scaled.

Alan Marriner. We do scale for SDC’s and also for TIF. Any changes to school impact fees, we need the participation of the school district.

Leslie Bryson. When we did the parks impact fee we did look at scaling using a broader array of home types. We decided to simplify it and do an average. Census data could support a wider range of types.

Michael Lilliquist. When our policy analyst did a paper on park impact fees a proposed schedule started at studios, then scaled up by bedroom up to 4+ bedrooms. That is a simpler method than the TIF. Bedrooms or square footage is a simple method to administer and anticipate.

Jack Weiss. One of the things about SDC’s is that when we are talking about infill, if we have the existing infrastructure, those charges shouldn’t be as high as undeveloped areas in the newly annexed parts of the city where we have no infrastructure.

Ted Carlson. When you are talking about new development where the infrastructure is not already in place, the developer builds that and they take on that cost.

Jack Weiss. Would a development such as Caitac have to pay latecomer’s fees for lines put in on Meridian?

Brent Baldwin. A good example of that is an annexation proposal currently under review, where a sewer line is there and dry, so the discussion with the people who want to annex is that the proponents have to build a pump station and connection.

Jack Weiss. So they would pay for the pump station but not the excess capacity in the line?

Brent Baldwin. If the excess capacity was needed by the development it would be on their nickel to pay for the larger line.

Jack Weiss. We paid for the excess capacity of the line. Would we get reimbursed for the excess capacity of the line?

Brent Baldwin. I think the decision on the annexation project is that we would not do that.

Ted Carlson. We did not set that up as latecomers, it is paid for by all SDC’s and rates. With SDC’s a developer is paying their pro-rated share of what has already been built. They are paying for when we put in secondary treatment in 1994, as well as other improvements in the past. They are buying into the existing system. They are also paying for future capacity projects. They pay for new capacity at the time of their development if they need to. If someone builds where there is no capacity they are physically building the infrastructure. In that way it is already cheaper to build infill.

Michael Lilliquist. We are talking about the Kline-Kelly annexation area, and one of the solutions is a local improvement district (LID). We don’t want to annex until we can figure out how to pay for that big increment. What if we had an increment in the development charges built in to reflect that additional infrastructure?

Ted Carlson. I think the cleaner way to do it is through a LID, or the city does it as a general financing charge and then charges a fee for each lot. Developers can form a LID and pay for it all, or someone can pay for it all and latecomer people as they hook up, or the city could act as a developer. I don’t think SDC’s are a way to finance new utilities. That is how people buy into the system and pay for future upgrades of the system.

Jack Weiss. How does that work for the $47 million for Post Point? If Bellingham’s population had stayed at 70,000 we would have never had to go and spend $47 million dollars. Now we are at 80,000 and we are planning to build something that would allow us to go to 100,000. Should the last 10,000 people have paid for the $47 million?

Ted Carlson. Half of the upgrade is replacing what is already there because it is aged. New development does pay a higher proportion of that than existing ratepayers do. Based on a 20 year capital improvement plan, we estimate number of new residential units, and new developments pay a depreciated value of what is there plus their share of the new capacity. So the 70,000 are not paying for new capacity at Post Point. They are paying for the upgrade since a component of the rates is repair and replacement. New development pays for capacity projects. Very little of new capacity comes from rates, mostly it is maintenance and repair.

Jack Weiss. We are basing that on growth projections which may not be accurate.

Ted Carlson. It is all based on assumptions in the comp plan that deal with growth over the planning horizon. Right now we need to build Post Point because we are out of compliance with Department of Ecology (DoE). If we don’t experience the projected growth we’d have to pay for some of the debt service from rates.

Michael Lilliquist. I want to shift the discussion a bit, I recognize there is already some scaling involved in SDC’s and TIF. I’d like to get at the first two issue on the agenda.

Jack Weiss. The first is timing of collection of fees. My understanding is that the industry has some mixed views on whether they want that. Staff have some reservations about that.

David Webster. There have been some mixed messages, Tara met with banks regarding the notion that it was affecting the ability to get financing and the banks said that when fees get paid doesn’t, but it does help the cash flow of the developer. One of the disadvantages not listed in the memo was that when a fee is linked to Certificate of Occupancy (CO) there is some history and concern that the city would be left holding the bag particularly if someone moves into a building and the city would be in a position to evict.

Alan Marriner. I think of CO as with final inspection being the trigger point, it comes up more with rental housing. For owner-occupancy it may be at point of sale. We see issues with CO mostly in multifamily properties.

Michael Lilliquist. How does that happen that people occupy a building when it has not been certified for occupation?

Alan Marriner. It happens all the time. With residential you have an apartment and a unit does not have final inspection or CO and it gets occupied. Your action is against the occupants who are not at fault. My experience is that we do not take action unless there is a life-safety issue.

Michael Lilliquist. What is the BIA proposal that they were trying to pass in Olympia last session?

David Webster. I think they wanted fees paid at CO.

Jack Weiss. We have done a recent change to link the CO with final inspection. Would that make a difference?

Alan Marriner. People will still occupy prior to final inspection.

David Webster. It happens both on commercial and residential.

Alan Marriner. Most developers do the right thing. There is a subset of projects where that doesn’t happen.

Michael Lilliquist. Is there a penalty for this?

Alan Marriner. There are potential penalties. We can bring an enforcement action. This is very time-consuming and expensive.

Jeff Thomas. To clarify Jack’s comments a bit regarding the cleanup of the CO process. We don’t issue COs for single family residences. Final inspection serves as occupancy inspection. We made some system changes in the order of our inspections. On the commercial side the building inspection is the final inspection, and the CO is issued if the building passes inspection. This is not a global fix that would change the concerns about fee collection.

David Webster. One proposal is to delay payment until final framing. The facility is not habitable at that time.

Jack Weiss. Is that really a benefit since they will end up financing fees anyway? It will be part of the construction load.

Ralph Black. I’m of the school that believes that delaying fees does not have any structural impact on the issue. It is a cash flow issue but does not affect financing. For larger commercial projects it would have more impact on cash flow. You could require the developer to post a bond in the amount of the impact fees and then require payment at CO stage.

Leslie Bryson. We already have that ability in the Park Impact Fee. No one has used it.

Michael Lilliquist. Is that really an advantage for the developer?

Ralph Black. For larger multiunit structures it could be helpful. It might also help single family builders who could do more starts. But the total cost is still a factor.

Ted Carlson. Would a bond for impact fees be more difficult to get?

Ralph Black. It should not make much difference. You could also have a cash set-aside.

Ted Carlson. We are having trouble even getting cash-in-lieu from banks for one project.

David Webster. On face value the bond approach seems like a good solution but the process of getting the money out of a bond would not necessarily be easy.

Jack Weiss. Regarding the timing of the fee issue, a developer will pass the price of the fee on to the house and a homeowner will buy a home, with the fees included in the real estate price, but the odd thing is that there is a 6% real estate commission that happens so the buyer ends up paying commission on the fees as well. For affordable housing this is a real issue.

Michael Lilliquist. This approach was tried at the state level but failed, I think it is worth saying what we want to do locally. Pleasanton CA allows delays of 24 months after which interest accrues.

Tara Sundin. The City of Kent instituted this years ago and nobody has used it. The City thinks the banks don’t like it.

Alan Marriner. In escrow the lien is taken care of at point of sale.

Mark Gardner. Sammamish has it in place and people are using it, the city staffer I spoke to indicated that as long as it is monitored it works well. One developer is building houses in batches and often has final buyers identified. The deals are clearing quickly. These programs tend to be sunsetted and monitored closely.

Alan Marriner. Right now we collect at permit, if we go to a later collection stage the City does not have the resources to foreclose or go to court.

Jack Weiss. There are a couple of ideas floating out there, bonds, final framing, the Pleasanton example. We can keep the conversation open, if people come up with ideas on how this could work better let us know. Otherwise the idea may just die.

Jeff Thomas. One final point, the City will always be in some secondary position v. other creditors.

Jack Weiss. Let’s move on to exemptions or reductions in fees for affordable housing. With this Economic Development Investment (EDI) loan program it is for homeownership only, and $1.2 million is allotted.

David Webster. The EDI board did not rule out a broader program in the future. Multifamily may come back for a separate vote before the board.

Jack Weiss. The EDI money does represent part of a solution that came up after our project was initiated. It is a loan program. Paying back the loan increases the mortgage. So we still have a problem, the EDI makes it so it is not an upfront cost but it is still there. The real difference is paying a low interest loan v. a commercial market rate. We can’t deal with impact fees without providing for those fees. We may be able to address this in policy through SDCs and other fees.

Michael Lilliquist. I’m a big fan of this idea and I’d like to see it work. I asked the Council to support me to advocate for changes at the state level so that backfilling for impact fees was not required. If we make the process mandatory rather than an option that would allow us to reduce impact fees say 50% provided it is infill rather than on the periphery. We could put a cap on it, or do a reduction rather than an elimination.

Jack Weiss. The issue is that we’d have to pay from general fund, that is the problem with the impact fees. Not so for SDC’s.

Ted Carlson. There has already been some Council direction re: reduction of SDC’s, for example, when houses on septic connect to the sewer system.

Jack Weiss. When we did that did you look at the entire rate structure when setting rates?

Ted Carlson. Not sure, it should be done depending on how big the loss is. If we make an adjustment for affordable housing we should reflect that in the rate structure. Our cost of service is the same so we’d take the lost revenues and spread them over the other ratepayers. You could say the impact is not great overall but we are already low on revenues. I’d want to put any changes for affordable housing into rate planning.

Seth Fleetwood. The unanimous CHAT recommendations supported this approach and one of the funding sources identified was Real Estate Excise Tax (REET).

Ralph Black. One unanimous recommendation was to establish an Affordable Housing Trust Fund funded through REET, we had about 6 or 8 different funding options. That was one of the bases that Paul used to go to the County on EDI money. That was not to be a loan but a fund that didn’t have to be paid back.

Michael Lilliquist. Didn’t they establish an account that was not funded?

Seth Fleetwood. The county did.

David Webster. We did some preliminary work ahead of the recession to see what surplus properties the City had that could be sold to create a fund. If a house had impact fees paid and then rotated out of affordability we might run into the “gifting” issue so we’d have to look at the legal implications.

Jack Weiss. I do hope that if we did this it would be for housing affordable in perpetuity.

Michael Lilliquist. Port Townsend requires that a market-rate buyer pay the fees to make a program whole.

Alan Marriner. I’d also raise the issue of whether state law is silent on SDC’s so you just waive them and adjust fees accordingly. I’d want to do the research to make sure that is OK because I’m not sure it is OK.

Jack Weiss. If we requested that research would you do that?

Alan Marriner. Yes. We should do that if we’re going down the road of SCD’s.

Mark Gardner. I did look into state law and I could not find anything on SDC’s but that doesn’t mean that aren’t issues we need to look into.

Jack Weiss. Does the committee agree we should ask the legal department to do research into this issue? From my perspective, I won’t want to eliminate fees but they could be reduced.

Michael Lilliquist. Does the committee like this idea in principal, and now it is just a matter of finding a way to make up the waived fees?

Jack Weiss. It is really 2 things, one is impact fees and the other is SDC’s.

Michael Lilliquist. Are we in favor or waiving or reducing impact and or SDC fees? [general agreement of Committee] So the next step is research on how to make up the reduced or waived fees.

Jack Weiss. It would either come through general fund or some other mechanism. For SDC’s we don’t need to repay and with the rate review it may become a revenue-neutral thing through adjustment of rates, or some other mechanism.

Michael Lilliquist. Does the committee have a preference on how to make up the fees.

Jack Weiss. My understanding is that the choice is the general fund.

Chris Comeau. It just says public funding source.

Jack Weiss. So it could be REET. The next issue is whether we want to adjust fees in areas where infrastructure is already in place. This came up during multifamily (MF) tax exemption discussion and the second issue is the work on the TIF reduction which included urban villages. We want to see development in infill areas, especially downtown. If we want to keep it revenue-neutral we might want to see if it costs more in areas with very little infrastructure. Perhaps we need a three-tiered structure with downtown being lowest, second being rest of the City, and the third being the areas we’ve annexed. This could apply over a number of different fees or charges.

Leslie Bryson. When we looked at the Parks Impact fee we looked at different service areas that would have different fees based on need or lack of parks in an area. We went with a system where people are buying into the system at 35% of our value of parks per capita. Communities with service areas have had more court challenges, and a single area is easier to administer. If we did go to a service area approach I’d recommend we only do it for the neighborhood component. Community—wide facilities will be needed as we add more people.

Jack Weiss. You mean the 80% component of the park impact fee?

Leslie Bryson. 20% could be looked at for area parks. In the last park and open space plan we’d started developing UV’s. Neighborhoods getting infill are concerned about crowding of local parks. We allow parks to be supplemented with plazas in Old Town and Samish Way. That would be funded with Park Impact Fees generated in that area.

Ted Carlson. I think we’ve started that with the TIFs by adopting the UV proposal. In the past we had many different services areas for TIF and it was problematic. Since our TIF is based on capital plans 6 years back and 6 years going forward, you’d get huge disparities between zones. If we had that now, for example, the downtown area TIF would be very high because we have huge infrastructure projects planned for the waterfront. In that scenario the area where you’d like to see infill the TIF would be the highest. When we look at transportation it really is one network.

Brent Baldwin. We also ran into an issue where someone would be having a house built on one side of the street and someone on the other, and there would be a huge difference in fees. It was hard to explain the difference. The new system was also developed in response to some lawsuits and Olympia’s system had just survived a court challenge.

Chris Comeau. We also updated our comp plan and had a new paradigm of what our system was, which is a citywide network.

Jack Weiss. You could have boundary issues even with the revision we passed in January.

Brent Baldwin. Urban villages have boundaries defined after an analysis and it is not an arbitrary designation.

Michael Lilliquist. If you can justify your boundaries then it’s a policy decision on why someone down the street gets a deal you don’t get.

Chris Comeau. With streets when someone on one side was getting charged when it was not just them using it -- there is public benefit to the streets yet the cost was being borne only by the development on their side of the street. It was really unequal.

Brent Baldwin. With UV planning you get to do things that other people don’t get to do. So there is a benefit to the area.

Chris Comeau. The other issue is that it is based on research, it has been substantiated.

Jack Weiss. Where is the makeup money when we give a reduction in TIF?

Chris Comeau. There is no makeup money. We reduce the trips.

Ted Carlson. By taking the actions in the proposal you’ve actually reduced the impact.

Brent Baldwin. With the ITE manual used for trip generation a multifamily building will have fewer trips generated.

Jack Weiss. Is it appropriate to use the ITE tables when they are a national average?

Chris Comeau. They are a compilation of studies across many locations.

Jack Weiss. How does that match up with Bellingham?

Chris Comeau. In a large city you’d be able to justify a lower fee because you have light rail etc. We are about average.

Ted Carlson. We haven’t talked about utility charges yet. One difference with the TIF proposal is that it is based on geography and infrastructure in UVs. It is challenging to do that with utilities. Cost to serve has less to do with geography than with elevation and other things. So you create categories of residential, industrial and commercial and the costs are not differentiated between parts of town. It becomes challenging if you vary rates within those categories of customers. That would be hard to justify based on Cost of Service.

Jack Weiss. This is a question for Alan, do we need to defend this or can we just have a policy decision to say we want to create incentives for certain areas of town? For MF tax exemption there was no nexus at all.

Michael Lilliquist. Even if we could prove there are no difference in costs could we have a different fee based on policy considerations?

Alan Marriner. I haven’t done the research, I don’t know of any restrictions in state law.

Mark Gardner. In my review it is a reasonableness test, and you have to tie it back to nexus somehow. You need to have some evidence. For example, many of our urban village are pretty flat, you could say there is capacity in sewer and water that would not be exceeded even in full build-out. A lot of states don’t differentiate SDC’s from Impact Fees.

Jeff Thomas. Is there any research trying to establish nexus between transportation and park impact fees?

Mark Gardner. Some areas do tier their fees for parks, it is a policy question -- is there a neighborhood focus or citywide? Many areas are reducing park fees in older areas of the city, and also reducing fees for some utilities.

Jeff Thomas. Regarding school impact fees, we’ve received a request to reduce school impact fees based on the size and type of the units within a multifamily complex.

Jack Weiss. On that, let’s move into discussion on potential reduction in fees for smaller units.

Mark Gardner. This is a new but expanding approach, and there is pretty good data to indicate there is variation. There is stronger variation between bedroom numbers than with square footage. The question is what is the overall impact over the life of the building. Some areas are using this to design a new fee structure, including for school impact fees since smaller units have lower student generation rates.

Leslie Bryson. When we were looking at the Park Impact Fee I think we found you could get Census data based on number of bedrooms. You can’t get it for square footage.

Mark Gardner. You have to go to different sources, national housing surveys do contain this information. Other reports recommend using data from an assessor to get residents per square foot. Most areas have a higher cutoff and a lower cutoff, since a large mansion does not have 8 people living in it, and there are on average more than 1 person in a studio.

Michael Lilliquist. Looking at data from the 2003 American Housing Survey, it shows you get more people as square footage goes up but it slows down as you get to the top. If you set a base fee for a unit between 1400 and 2800 sq. feet, it is a decrease of about 10% under that and an increase of 10% over that. So you could use a three tiered formula.

Jack Weiss. One of the problems with bedroom counts in Santa Barbara, where I have some history, is that there was cheating going on, people would build big bedrooms and then split them up after the fact. Santa Barbara was doing a blend of square footage and bedroom count. You could get charged on whatever the larger amount is between the two methods. I had a question for Chris, for these tables does it account for, say, a 4000 sq. foot house on Samish compared to an 800 sq. foot cottage.

Chris Comeau. No, but we would treat the cottage like an ADU, we would charge for an ADU, and that is a lot less than a single family home. An ADU is in an urban environment as opposed to a suburban environment.

Jack Weiss. That sounds like an internal staff decision.

Chris Comeau. If you look at the chart, a condo or townhouse usually does not happen in outlying areas. You could have exceptions like Cordata which was done differently. Generally speaking the rates are based on where you would be most likely to find those housing forms.

Jack Weiss. So even if we had these fee simple infill units, such as from the Toolkit, they would get treated as if they were ADUs?

Chris Comeau. We would charge as an ADU, and if they are in an Urban Village they would get additional discounts.

Jack Weiss. What about a small detached house such as Kulshan is building with a small footprint?

Chris Comeau. They would get charged as a single family home since there is nothing to justify that they would have a lower trip generation rate than a regular SF home.

Jack Weiss. Kulshan is talking about 20 additional units in there, do those 20 units get a special preference.

Chris Comeau. The trip generation rate would be based on, what are the factors that would justify a lower trip generation rate? They are not near transit. So it is similar to a single family detached unit.

Brent Baldwin. Whenever anything comes in, Chris looks at it according to trip generation and the developer can supply additional information to justify a lower number.

Michael Lilliquist. One advantage of the TIF change is that someone always could go in and make the argument, but now we’ve made the argument for them. We could make the argument for them on the basis of different size of SF units and associated lower impact.

Brent Baldwin. I think it is a harder argument to make, Chris was able to take into consideration high frequency routes, etc. It all goes back to defensibility.

Seth Fleetwood. Are we anticipating any recommendations from this meeting?

Jack Weiss. Mainly it is a general conversation, we would like some additional research from Alan on SDC’s.

Mark Gardner. It sounds as if you also want more research on funding mechanisms for a housing fund, from CHAT, EDI and other sources?

Jack Weiss. Yes.

Michael Lilliquist. The memo makes some distinctions about what fees might be appropriate for which modification. Since SDC’s are scaled according to other means, are we only talking about school and park impact fees which are related to person number? Does the committee want to focus on school and park impact fees and not the other charges?

Jack Weiss. Do we also look at MF bedroom count?

Alan Marriner. You would have to re-do the analysis to make sure it is revenue-neutral.

Michael Lilliquist. We can set rates so that it is likely to come out revenue-neutral.

Seth Fleetwood. Are you asking if the committee should limit item 4 to schools and parks? [committee agreement]

Jack Weiss. With SDC’s and TIF if there are other mechanisms to meet policy goals, we want to drive smaller residential units and infill, and more affordable housing.

David Webster. If we are thinking real long-term, eventually we need to look at LOS.

Seth Fleetwood. Does LOS get examined at the time of the comp plan updates?

Leslie Bryson. That’s when we’ve done it for the parks LOS, but we update every 6 years regardless of the Comp Plan update.

Seth Fleetwood. Comp Plan was set for 2011 but has been put off?

Jeff Thomas. We are still moving forward, Bellingham’s major update has been pushed to 2017 and then every 8 years thereafter. The Mayor asked staff to produce a brief analysis this year and going into next year. An amended comp plan could come before the Council next year, starting at Planning Commission this year.

Leslie Bryson. We were not going to do a full analysis because we just did the park LOS in 2008, we would keep that LOS and look at the next 10 year population because we will have to do it again in 2014.

Jack Weiss. Did the state legislation deal with Parks updates?

Leslie Bryson. It is every 6 years.

Jack Weiss. The county is also on 2017?

Jeff Thomas. The County should be 2017.

David Webster. Discussion of timing of Comp Plan update will occur at your retreat.

There being no further business, the meeting adjourned at 11:47 AM. Jack Weiss, Committee Chair

ATTEST: Mark Gardner, Legislative Analyst

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