The San Benito County Board of Supervisors this week approved the introduction of an ordinance to allow upfront collection of impact fees at the time of issuance of a building permit, which would reduce the potential of a certificate of occupancy being issued without the prior collection of the proper fees. The ordinance will come back before the board for potential adoption on Sept. 13.
Barbara Thompson, acting assistant county administration officer and acting assistant county counsel, said there are three ordinance sections on the books covering impact fees for traffic, fire mitigation and road improvements, all of which indicate that impact fees can be paid on or before the date of final inspection for the date that final occupancy certificate is issued.
“What we’re doing on all of these is requiring those impact fees be paid prior to the issuance of a building permit,” she said, “which is consistent with what you can do under state law. State law also lets the county go through a process to allow the fees to be paid later. We have not traditionally gone through that process. We’ve allowed some impact fees to not be paid and that creates a risk of building fees not being paid prior to the issuance of the certificate of occupancy.”
Thompson said this makes it possible for a new homeowner to purchase a property and only then find out that they owe impact fees.
“This moves the process a little bit sooner, so we can prevent that from happening,” she said.
Supervisor Jaime De La Cruz asked Thompson if the change would hinder developers in obtaining their certificates of occupancy from the state. She said by paying the fees sooner, it should not delay the development process. De La Cruz said he had heard some developers could not get the state certificates they needed because the county was either charging too much or some other issues weren’t being solved. Thompson assured him that the ordinance had nothing to do with that issue.
“Sometimes that’s come up with subdivisions where they need to know how much is going to be due so they can issue white papers for development projects,” she said. “This is not changing the amount of fees, it’s just changing the time the fees have to be paid.”
De La Cruz asked her how she would respond if developers claim that the county is hindering them from moving forward. She again said the fee has not changed and that most agencies probably collect at the time of the issuance of building permits.
“In order to protect ourselves and future purchasers of the property, you really need to go through a lot more administratively to enter into contracts with each of the landowners that we deploy the fee to,” she said, “and we have not been doing that. So there is the real risk that either you won’t collect the fees and/or the property could be issued a certificate of occupancy or sold without those fees being collected because you’re deferring it to the last possible minute.”
Thompson added that it’s important to move the fees up to an earlier point in the process in order to assure financial accountability.
“Same money, different time,” quipped Brent Barnes, Resource Management director, as he stepped up to the podium to clarify the process.
“This is a substantial issue for the county,” he said. “I estimate—my numbers are a little bit old, and they’ve actually increased—that we have about $1 million in outstanding impact fees across the permits that are in my office.”
Barnes said out of that million, about $600,000 is for approximately 55 to 60 single-family homes that have been deferred until the certificate of occupancies have been issued. He confirmed what Thompson said about a new homeowner discovering impact fees were due.
He told of a new owner who had applied for a permit to do minor work on her home, and it was only then that she discovered there was an outstanding bill for a $10,000 occupancy fee. He said neither the builder nor the Realtor had paid the fee and she ended up fighting with them to get it paid.
“More importantly, builders are living off the float on that $600,000,” Barnees said. “That’s money we could use, even if we just put it into a bank account and collected the interest on it over the life of that construction permit.”
He added that there is another $430,000 of outstanding permit fees on expired permits—money not collected at the time the permits were issued.
“Now we have no ability to collect the money,” he said. “Some of those have been final, some have simply expired, and it becomes a collections’ issue. You have to put a lien on the property and go out to a collection service and pay a substantial percentage to collect that money.”
Supervisor Anthony Botelho told Barnes that when he was hired this was the kind of issue that would be forthcoming and the fee schedule change needed to happen. Botelho said it shouldn’t surprise anyone to have to pay fees upfront. He said the amount Barnes had mentioned was enough to run his department for a year.
Supervisor Margie Barrios asked if the change would apply to industries coming into the county, such as an agriculture company wanting to build a processing center.
“We have talked about getting an ordinance that would address that sort of request,” she said, “so we could give them incentive to get it up and running, hire people, bring more money to the county. How does this address that?”
Barnes answered, “That would be an ‘in-kind’ contribution in some way. The board could establish policy and guidelines to create an in-kind provision of fees. Right now, if I’m understanding correctly, deferral of fees applies only to residential projects in our code.”
Barrios said she didn’t want to give anyone a pass, but to encourage people to come to the community and create jobs. She asked if this was something apart from what the board was considering at that moment.
“This is a great idea, but I don’t want to lose sight of that and I’m hoping these are not intermixed,” she said.
Barnes said her thoughts on industry were valid, but said he would like to see that part of a broader, more comprehensive economic development program, and not just “plucked out as an individual item.”
“If we take it from here we’re either going to be out money or we’re going to have to find another way to backfill that income,” he said. “Let’s look at that from both sides and see if we can better align our fee system. Does that make sense?”
Barrios said it did, but was still concerned that a company might come to the county wanting to build a processing plant and needs to hire hundreds of people and they discover they have to pay impact fees upfront.
“How is that an incentive?” she asked.
Barnes responded by saying while he didn’t want to point fingers, there were two industrial buildings on the expired list and fees were not paid amounting to $375,000. Barrios said that while she understood his concern, but placed the blame on the county for not having collected the fees.
“We have tightened up our procedures,” Barnes said. “There have been abuses in the past and we’re working on that. There are two things, an ag business like that is a big-money operation. I absolutely agree they should be given a break because there are lots of benefits to the county. At the same time, these are impact fees for traffic, fire, and other things, and those businesses definitely have impacts on our roads. If we’re going to rob Peter to pay Paul, we need to figure out how that works.”
While Barrios said she understood where he was coming from, she said she was concerned that other counties were offering incentives and are attracting new businesses, while San Benito County was losing out to surrounding counties.
“I don’t want to give anything away, but we could incentivize it by saying you pay a portion coming in and midway through your project you pay the rest,” she said.
Supervisor Robert Rivas said he thought the ordinance and incentives were separate issues.
“This is necessary,” he said. “It’s a house-cleaning ordinance and we need to get this done.”
De La Cruz said he wanted to share with the other supervisors that the tire company for which he works (West Coast Rubber Recycling) is about to expand and is talking to areas outside the county.
“One of them is offering to waive all impact fees if we can prove to them we’ll generate so much revenue over X-number of years,” he said. “That incentive is actually motivating us to build a second facility somewhere else.”
During the public comments part of the meeting, Hollister resident Marty Richman was quick to point out that he believed De La Cruz’s comment showed a clear conflict of interest.
“He’s talking about his firm and what they’re getting somewhere else,” Richman said and then castigated the county: “I would hope you guys do a better job. You all have the intelligence to know when you’re in trouble.”
Richman went on to say that he supported the ordinance, but said he was perplexed about when impact fees are frozen.
“People come out and take a development project on, and then 10 years later they haven’t built a house, or anything,” he said. “I don’t know if they made a development agreement. Many times you can make a development agreement and get around the impact fees. And then somebody freezes up the allocations, the land, and the process for 10 or 15 years.”
Richman recommended that the board ask the staff to draft a “use-it-or-lose-it” item. He said because there is no such rule, people sit on a residential development until the market is hot.
“Then everybody builds and the market goes down and nobody builds,” he said. “That’s not the way we want to grow. We want to grow incrementally across the timeframe because that’s the way we use the impact fees. We want to make sure the impact fees don’t get frozen by some development project, so when we come back 15 years later it costs it costs 18 times as much to build a mile of road, and we’re still stuck with the original number.”
He added that when it comes to impact fees, he thinks people believe there are two sets of rules: those for outsiders and those for insiders.
“You can say all you want about it’s not true, but that’s people’s conceptions,” Richman concluded.
Supervisor Anthony Botelho said he didn’t necessarily disagree with Supervisors De La Cruz or Barrios, but he is for an “iron-clad position” to collect the fees.
“The next step for economic development is through a process or procedure to prove the county is benefiting from an expansion or attraction of a business through a fiscal analysis that offsets the cost of that new entity,” he said. “That’s for a later time. This is the first step. The next step would be some sort of an exemption policy.”
Botelho made the motion to vote on the ordinance; Barrios seconded it, but added that she understands that even though the county is short-staffed, she would like to see it made a priority that a second ordinance be drafted to address incentives.
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