Traffic mitigation fees paid by new development projects in Hollister are designed to cover only the impact of those new homes and not current or pending deficiencies, City Manager Bill Avera told the city council at its March 14 meeting, during which the value and hindrances associated with those fees were discussed.
In his report on the 2016 Traffic Mitigation Fee (TIMF) Study, Avera explained that at one time, San Benito County was divided into three zones to reflect different driving patters of residents of Aromas whom, it was rationalized, “don’t necessarily use a lot of roads that are local to our area. And the same with those in South County who are in Zone 3.”
Avera told the council he would be discussing Zone 2, which primarily includes Hollister, San Juan Bautista and the surrounding areas.
“In 2008 or 2009, we adopted a new traffic impact fee model and then the recession came around 2011,” he said. “The council took action and reduced the impact fee pretty substantially, which dropped from $22,000 a unit all the way down to $5,800 for a single-family unit. The intent was to spur development and get things rolling again.”
The newest study, submitted January 2016 to the Council of San Benito County Governments (Council of Governments) Board of Directors, in accordance to the California State Constitution and the Mitigation Fee Act, notes the roads that were left out of the TIMF of 2011. The costs for those roads have been added back to the tune of $496.7 million (TIMF share is $239 million) for all transportation improvements.
There are 14 projects that will be funded totally or in part by the TIMF program, including the widening of Highway 156 between San Juan Bautista and Union Road; widening of Airline Highway/25 from Sunset Road to Fairview Road; widening Fairview Road from McCloskey to 25; widening Union Road from 25 to 156 (divided into two projects); and four-lane widening of 25 from San Felipe Road to the Santa Clara County line (two phases). In addition to the 14 projects, there are 18 intersection upgrades in the program.
Avera wanted to discuss, in particular, how the study relates to commercial and industrial development. He said the cost in those areas has tripled.
“Several years ago, commercial and industrial didn’t pay any impact fee related to traffic,” he said. “The rationale behind that was that the houses being built in Hollister were the true impact. With industrial, to be an economic incentive, we tried to keep people off the roads, especially Highway 25 headed north. We may have gotten some pressure from the Home Builders of Northern California that it wasn’t equitable. The consultant that we hired to do one of the studies also felt that it was not permissible to continue to do that practice.” Avera was referring to not charging new commercial and industrial projects for potential traffic impacts.
Avera said that because of the proposed increases in those fees, it is becoming increasingly difficult for projects to move forward.
“If you’re talking about a cost of $22-a-square foot (in impact fees) for an office building, you’re not going to see a whole lot of people building when all they can get is about $1.25 a square foot in rent,” he said. “This leads people to go on the 25 north for that same service.”
He told, through a hypothetical example, that if a Ross store of 20,000 square feet were being proposed in Hollister, it would cost the company about $211,000 for traffic impact fees.
“I would argue that Ross is keeping people off of highway 25, in the sense that nobody living here is going to drive to Gilroy to go to Ross if they can go to Ross by Safeway,” he said. “Likewise, there are a lot of different businesses that are very similar.”
Avera asked the council to direct staff, “without making a mess of this particular document,” to talk to the consultant — Michael Baker International — that prepared the 2016 traffic impact fee study to prepare findings for the council to adopt on those uses that are truly local in nature.
“If we build a hotel, I believe it should pay traffic impact fees because we’re probably bringing those people from out of town,” Avera said. “If we built a Bass Pro Shop we’re probably bringing in people from other communities and they probably should pay a traffic impact fee. We should be able to make a clear distinction of businesses that we bring to town that keep people off of 156 or 25.”
Councilman Raymond Friend asked Avera, “At one point, you said the companies that are drawing traffic in should pay one level and now you’re saying that companies that would create jobs in the county wouldn’t be using 25, so in your scenario with the office building wouldn’t that be at the lower end of the scale?”
Avera answered that while it may be easier to visualize a Ross being a regional draw, a doctor’s office would not. He said an office building needs to be looked at differently than a department store or hotel.
Councilman Victor Gomez said he didn’t want to dwell on the residential fee that had been used for the past five years because it was used to attract economic activity in the city.
“Compared to 2011, we’re essentially cutting the fee by about 40 percent for residential,” Gomez said. “That’s a good thing. But for the commercial project are you asking that in special circumstances for our consultant to look at what the cost would be without Highway 25 impact? Or are you looking at a complete waiver of the fee?”
Avera said he didn’t believe the city could get away with a complete waiver. Instead, he recommended a hybrid of a waiver that has both.
“With all mitigation fees, once you’ve established that a fee is necessary, you can waive it, but the program still has to remain whole,” Avera said. “The council has the ability to do that. However, if it does that it needs to make it whole. If this is something the council wants to consider and the consultant can stand behind it, I would like to do an addendum to this report so it’s acknowledged that you’re not necessarily waiving a fee, but there’s a clear nexus. That’s what I want the study to be able to do, and a reason for your decision or the city not to charge an impact fee for retail space.”
Gomez said he believed that if Hollister was capable of reducing residents’ trips north on Highway 25, then it would be reasonable to remove the impact fee for the road.
“Now there’s another portion of that commercial impact fee that is designated for other purposes that I don’t agree with,” he added. “The concern that I have is from a legal perspective. We can’t just propose our own numbers, is that safe to say?”
City Attorney Brad Sullivan said Gomez was correct and that the council could, instead, ask the consultant to adjust some of the “trade-offs.”
Avera clarified: “In retail commercial, you have an impact fee of $3,395, and I’m assuming that’s with Highway 25 and those other roads out of there. You put them back and you’re at almost $11,000. Having an impact fee for commercial around $3,400 is a lot easier to swallow than $11,000. We’re working on a very large retail center and their impact fees went to a little over $1 million just in traffic (impact fees).”
Gomez said he thinks that the council will eventually get to the point where it will need to re-evaluate the fees once it comes to a consensus with Caltrans on an actual Highway 25 widening project that’s feasible and the city could afford, rather than the $300 million estimate for the proposed widening project. He said the council will most likely have to work with the other jurisdictions to come up with either an amendment or a new evaluation of impact fees.
Friend wondered if the consultant recommended $10,000 for commercial retail if the council could legally say it didn’t want to charge that amount and opted for a much lower dollar figure.
“The (California) mitigation fee law says such a waiver or reduction may not result in increased cost to other development projects and are allowed only if the agency offsets that revenue from another funding source,” Avera said. “If the council wants to commit general fund dollars to offset that waiver it can absolutely do that. That’s your decision. That could be a substantial number on a large project.”
Friend said high impact fees will price the city out of the commercial real estate market and that it would be difficult to convince retail stores to come to Hollister. Avera said that is exactly what he has been hearing.
“There are developers out by the airport whose job was easier 15 years ago when there weren’t any impact fees for industrial, land costs were relatively cheap, the process was easy to get through, and they could erect a building relatively easy,” Avera said. “That’s changed. With our sewage treatment plant and traffic impact fees, there is a substantial amount of money going into those.”
Friend asked Avera if the traffic mitigation fee would drop by 40 percent if Highways 25 and 156 were removed from the equation. Avera didn’t confirm that number, but said the drop would be substantial.
“Whatever it is, it’s a huge number,” Friend said. “I think it’s worth looking at. The county has already approved this, so if we go with a lesser number that puts us in the driver’s seat for economic development. They’re not going to want to build across the street in the county at $10k when we’re offering the same deal for $3k a square foot.”
Avera said at least one county supervisor was also concerned about the industrial and commercial rate. He said if there were an addendum to the report, the county would probably follow suit and adopt a same fee.
“I think it’s important to put this out so the people know that new development is paying their fair share, but I would also like to have the opportunity to look at those commercial and industrial fees,” Avera said.
Councilman Karson Klauer said that while he agreed with Avera’s assessment, he would be interested “to see how it actually works in practice.” He said he felt that what was getting lost in the document was multi-family residences, for which he said the fee will be increasing by as much as 120 percent. Avera said that the figure for was actually 266 percent on multi-family homes and a 264 percent increase on single-family homes, but even so, the fees were about a 40 percent less than in prior years.
Klauer countered with, “Forty percent of nothing is nothing. It doesn’t matter what the number is. It could be zero and we probably still won’t get any units built.”
He said he couldn’t find much fault with the study, but thought it a joke that the consultant estimated that 2,300 multi-family units would be built over the next 20 years.
“If you look at what’s been built in the last 20 years, it’s probably 100 units,” he said. “The fact that we think we’re going to do 2,300 in 19 years is not going to happen. It’s definitely not going to happen when you raise the traffic impact fees, and I don’t have an answer how to fix that.”
Long-term impacts on the community are probably the single most important item in the study, Klauer said, adding that he feels that the way the prices are going up with single-family units, the impact fee can be absorbed. Because no one is building multi-family at this time, and because there are few, if any, public funds for them, he doubted if any would be built.
“In terms of the affordability of housing, it’s not going to be any better from this study unless we do something about it in the near future,” Klauer said, “but this takes us in the wrong direction. Unfortunately, I don’t have a solution for it, but I know this isn’t it.”
Mayor Ignacio Velazquez told Avera that he thinks it is vital that the council understand how other cities and counties develop impact fees. He reminded them that other areas attempt to lure businesses with incentives, such as reductions in fees.
“That’s why these areas have a lot of retail,” he said. “They gave breaks or money back. I understand we’re basically an island and the people shopping here are from our area and they’re not using the 25 or 156. The question was asked of the consultant about that and the answer wasn’t clear. It would be worth it to have that conversation. We’re not bringing people from out of town. We’re just trying to keep our people here to spend money in our own town.”
In public comments, Marty Richman complimented the consultant’s report, saying it explained impact fees very well and recommended that the public read it to better understand how impact fees are calculated.
“We are an island, unfortunately,” he said in agreement with council members. “Commercial people are not going to drive down here and we ought to do something to take that into account. It’s my understanding if you do a development agreement, you can do all kinds of off-sets, trading and impact fee adjustments. Since every one of these are going to be unique, it’s very difficult to say ‘let’s just change it for all commercial.’”
Kristina Chavez Wyatt, executive director of the San Benito County Business Council, said impact fees for businesses were climbing from $6,000 to $24,000.
“If it’s that high, nothing will be built,” she said. “If we’re seeking to attract higher-paying jobs, it will be counter-productive and virtually impossible, especially to attract those retailers that are desired by our newer residents being attracted by Santana Ranch and Del Webb.”
She asked the council to remember that when retailers build in a community, they expect to pay impact fees. She said the report did not indicate that any other California communities had been surveyed to determine if Hollister is competitive and how much it could ask in fees.
“We shouldn’t be leaving these fees at the table when we do need support for our roads,” she said. “We also need to look into incentives and look at what has worked and what hasn’t in other communities. The business council is taking the position of adopt and amend (the report) in order to have these fees brought to the table and approved in the near-term.”
Read the 2016 Traffic Impact Mitigation Fee Report here: http://www.sanbenitocog.org/pdf/COG_Item%208_012116_A1.pdf.
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