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STOCKTON ECONOMIC STIMULUS PROGRAM (SESP) UPDATE AND CONSIDERATION OF POTENTIAL PROGRAM AMENDMENTS
recommended action
RECOMMENDATION
It is recommended that City Council receive a program update and consider information regarding program performance to determine what, if any, amendments are warranted and act accordingly.
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Summary
Stockton established a Public Facility Fee (PFF) program in 1988 to fund mitigation efforts associated with new development and to provide the public amenities (i.e. infrastructure) required to serve new development. In 2010, City Council adopted the program’s first fee waiver program to provide an incentive to develop the “Greater Downtown Stockton Area” and single-family residential projects citywide. The Stockton Economic Stimulus Program (SESP) was introduced in 2015 by the Building Industry Association of the Greater Valley (BIA) and championed by then Mayor Silva.
The original goal of SESP was to accelerate the development of 1,000 single-family homes and 500 multi-family residential units throughout the City, subject to specific terms. The residential permit component of SESP was originally set to run for 36 months from the date of City Council adoption, with a review by the Council within 18 months of the program adoption. SESP was extended in 2018 and again in 2019. The current iteration of SESP is in effect until the Council adopts and implements new fees as outlined in an updated Public Facility Fee Nexus Report.
Since its inception in January of 2016 to December 31, 2024 (9 years), 3,461 single-family and 548 multi-family units were issued fee waivers under the SESP program. Further, 737,036 square feet of Commercial and 17,191,291 square feet of Industrial development also received fee waivers.
As a part of SESP adoption, the BIA forecasted (via a UOP Study - Attachment A) that the construction of 1,000 single-family homes would lead to 3,700 jobs, with more than 2,138 attributable to the direct effect of construction. Based on submitted SESP recipient self-certifications, the unduplicated count of individuals employed by SESP-assisted projects is 5,525, 2,883 residing in Stockton.
Over the 9 years of SESP, an average of 385 single-family units constructed and 614 unduplicated jobs reported (of which 320 were Stockton residents) were reported annually. Compared to the UOP study ratio of 2.138 construction jobs per single-family unit, job creation projections were not met. Based on said ratio that average should be approximately 823 jobs, based on SESP’s construction average of 385 single-family units per year (2016 - 2024).
Part of the rationale for the SESP program was that City Council recognized that the Envision Stockton 2040 General Plan Update would be different from the 2035 General Plan in effect at the time of SESP creation. The 2035 General Plan was prepared at a time of rapid growth under different conditions. The 2040 General Plan (adopted in 2018) encourages infill and focuses on smart growth to achieve public health and Climate Action Plan goals. This revised approach was forecasted to result in reduced mitigation requirements and different PFF fee amounts.
SESP reduced certain PFFs to provide an incentive to accelerate residential building in hopes of increasing local employment and economic growth. Additionally, SESP was approved in part because developers believed existing fees were too high and ultimately would be lowered as a result of an updated PFF program (i.e. Nexus Study) reflecting the 2040 General Plan. An updated nexus study and new PFF program is presently being drafted, and public drafts will be released this calendar year for stakeholder comment and input.
As of December 31, 2024, the total amount of fees waived by SESP is $94,009,668 million, resulting in reduced revenues for police stations, fire stations, street improvements, parks, libraries, recreation centers, city facilities, and repayment of prior PFF loans. A breakdown of said waivers by land use is itemized in the following tables:
Council has the option to maintain, extend or otherwise modify the existing SESP program. Council does not have the option to add or increase fees at this time as the public hearing notice did not include information pertaining to new or increased fees.
DISCUSSION
Background
Legal Framework for PFF
Public Facilities Fees provide revenue to implement the goals and objectives of the City of Stockton General Plan and to mitigate impacts as a result of new development within the City. The fees ensure that new development projects pay their fair share of public amenities (i.e. infrastructure) required to mitigate development and serve Stockton residents. Title 7, Chapter 5, Section 66000 et seq. (Mitigation Fee Act) of the California Government Code provides that Public Facilities Fees may be enacted and imposed on development projects. In 1988, the City of Stockton found and determined that new development projects cause the need for construction, expansion, or improvement of public facilities within the City and create new permanent spending obligations. PFFs are established as new development causes the need for construction, expansion or improvement of public facilities within the City of Stockton. In some jurisdictions, PFFs are known as Impact Fees or Development Impact Fees.
Utilization of a PFF program allows for the allocation of improvement costs across development projects. Absent a city-wide PFF program, improvement costs would not be apportioned, and the full cost of mitigation improvements would be borne by the first project that established the need for the improvement. Such an approach would be a barrier to development given the disproportionate costs to early development projects.
If the fees collected for construction, expansion, or improvement of Public Facilities to accommodate the increased demands of new development are waived, the requirement to mitigate the impact of development does not go away. To elaborate, under AB 602 (2021), said waived funds must be supplanted by alternate city funding sources. If PFFs are waived, installation of public amenities could be indefinitely delayed absent another funding source and the result could be inadequate Public Facilities within the City and noncompliance with State law.
Complete or partial waivers of PFFs effectively eliminate/reduce the benefits of the cost allocation model described above and delay public facility development. In other cases, it could violate City contractual obligations or fail to meet California Environmental Quality Act requirements (i.e. mitigations) - creating significant new issues. The PFF program enables individual projects to move at their own pace based on the proportionate cost and allows for incremental development.
Prior to a city approving new or increased development impact fees or establishing or increasing other fees which have no specific statutory notice requirement, a city is required to hold at least one public hearing with appropriate legal notice published at least 10 days prior to the public hearing. A waiver, reduction or elimination of a fee does not require a public hearing.
Program Adoption
On August 18, 2015, former Mayor Silva introduced the Stockton Economic Stimulus Program (SESP) for City Council consideration. Sponsored by the BIA, SESP is an incentive-based program to promote economic development through residential construction through the reduction of certain Public Facilities Fees (PFF). At the time, the hope was that the economic benefits of home construction would offset lost PFF revenues.
The City of Stockton uses PFF revenues to provide community benefit through the completion of capital projects required to serve or mitigate new development. SESP was not the first incentive program implemented in Stockton. In September 2010, the City Council adopted Resolution No.10-0308 to authorize a reduction program providing incentives for development in the Greater Downtown Area, and non-residential development and residential development citywide. A multi-family housing PFF reduction program was added in October 2010.
On November 17, 2015, the City Council adopted the SESP program (Attachment B-Resolution No. 2015-11-17-1602). The adopted program reduced certain PFFs by 100 percent for applicants that comply with program requirements. Fees totaling more than $57,000 were reduced by almost $20,000. SESP was not expected to overcome prevailing economic forces because the existing 2010 fee reduction program had not resulted in a notable increase in development. There was hope that SESP could accelerate planned residential development and stimulate economic activity in the City. SESP was originally authorized for 36 months and went into effect on January 19, 2016.
The specific fees reduced by SESP are as follows:
*Or up to $19,997, whichever is less
†Decimals included where the fee amount was not a whole dollar
SESP program terms and requirements have evolved since 2015 as follows:
2015 (Resolution 2015-11-17-1602 - Attachment B)
• Program to expire on December 31,2018
• SESP waivers only apply to the first 1,000 single-family and 500 multi-family permits issued citywide
• Only units within the existing City Limits as described in the 2008 General Plan Settlement Agreement are eligible
• Developers must comply with local hire and disadvantaged individual requirements:
o At least 50% of the workforce on a permit residing within Stockton.
o By permit issuance, builder(s) must provide a list of all employees (including names and addresses) that worked on SESP permits
§ From the time that the first residential building permit is issued to a developer, quarterly reports identifying the above must be submitted to the City
o Disadvantaged communities will be included in the local workforce to the greatest extent feasible. Projects (i.e. developers) participating in this program shall work with the BIA and NAACP to coordinate the hiring of disadvantaged Stockton residents.
§ To be considered disadvantaged, an individual or firm must be a member of one of the following groups:
• African American
• Asian Pacific American
• Native American
• Women
o The BIA shall provide opportunities to youth from SJCOE YouthBuild, Lincoln High School's Engineering Construction Academy, SUSD Edison's woodworking and construction program, and Jane Fredrick's masonry program.
• A monthly report to the City identifying the total number of lots in their project, the number of permits issued, the number of homes under construction and the number of homes with a final permit.
• Applicants must start construction within six months of permit issuance unless an extension is approved.
• Builders may receive no more than twenty (20) building permits at any given time for each final map, or forty (40) citywide for builders involved in more than one subdivision under SESP.
• Builders must start and receive a first inspection for each permit within six months of the permit being issued, unless an extension is approved (permits in SB 535 disadvantaged areas exempt)
• Noncompliance with SESP regulations result in builder reimbursement of all waived fees (during noncompliance period) back to the City and ineligibility for future program waivers
2018 (Resolution 2018-07-17-1302 - Attachment C)
• SESP expiration extended to December 31, 2020.
• Increase of developer's permit limitations in non-disadvantaged areas to 30 per subdivision and 80 citywide.
• All other program components remained "as is"
2019 (Motion 2019-08-20-1405 - Attachment D)
• Removal of specific program expiration date; expiration is now triggered by adoption of new PFF nexus study and associated PFF fee schedule
• Elimination of the program cap of 1,000 single-family residential permits
• Elimination of the program cap of 500 multi-family residential permits
• Removal of local hire requirement for multi-family projects
• Removal of permit limitations for builders (i.e., construction and inspection timing requirements)
• All other program components remained "as is"
The current iteration of SESP is in place until adoption of a new Development Impact Fee Nexus Study and associated PFF fee schedule.
University of the Pacific (UOP) Study
Presented by the BIA in 2015, the UOP Study analyzed the economic benefit of constructing 1,000 single-family units and quantified the effect of a PFF reduction program on permit fees. The study highlights economic benefits of constructing 1,000 new Single-Family Homes, including: 3,700 jobs in San Joaquin County, $492 million in economic output for San Joaquin County, $244 million value added, $56 million in permit and fee revenue for local governments, and $64 million in tax revenue to federal, state, and local government. However, the author of the study was quoted as being “neutral” on SESP and commented that the study was “not meant as a policy analysis on how to achieve that” (Stockton Record quote of Dr. Jeffrey Michael, October 12, 2015).
The UOP study estimated the broad economic benefits of home construction and did not distinguish the economic effect in Stockton from the whole of San Joaquin County. Further the UOP study did not illustrate baseline information such as underlying market conditions or projections. In 2013, the City commissioned Economic Planning Systems (EPS) to prepare an analysis of the market conditions of the City’s housing market. EPS estimated that upon economic recovery, new housing construction would normalize at 700 units per year. Additionally, EPS analyzed how fees affect the feasibility of housing construction and concluded that impact fees do not directly influence price. The analysis stated that the housing market determines the price.
Since SESP was implemented, the median market price of new single-family residential construction exceeded the amount of PFFs waived. The median sales price of new single-family residential construction increased by $234,950, from $224,600 in 2015 to $459,550 in 2024 - more than 104.6 percent. Given that new single-family home pricing is based on market conditions, and market price increases outpaced the PFF fee waiver amount by over eleven times, there is a possibility that the SESP fee waivers are no longer necessary to “close the gap” for new residential construction.
The UOP study also did not consider the ongoing cost to the City of providing services. Statewide, the cost to serve residential development exceeds the revenues generated from development. In Stockton new residential development is estimated to add net General Fund costs not included in the Long-Range Financial Plan (L-RFP). In 2018, it was calculated that the annual service and maintenance General Fund deficit created by residential development ranges from $453 to $787 per unit depending on the specifics of the single-family construction. Consequently, while the UOP study accurately forecasted an increase in local tax revenues, it did not call out the net negative effect on the City’s General Fund and ability to provide services. On April 2, 2019, the Stockton City Council formally approved the formation of a city-wide Community Facilities District (CFD No. 2018-3) to address the net cost of new residential development and improve the ability to provide long-term citywide services.
Present Situation
The following data was prepared to inform on the current program. The following information is derived from statistics dating from January 1, 2016 through December 31, 2024.
Counts: A total of 3,649 single-family residential permits, 1,343 multi-family residential permits, 164 commercial permits, and 118 industrial permits were issued between January 2016 and the end of December 2024.
Nearly all single-family residential building permits (3,461 or 95 percent) were issued under the SESP program. SESP vs. Non-SESP Building Permit Residential Unit Counts from January 2016 to December 2024 are as follows:
Approximately 41 percent (548) of multi-family residential units constructed during this period were issued permits under the SESP program (this lower ratio can be attributed to other available waiver programs for multi-family development). A report showing the monthly residential counts (SFR and MFR) is included as Attachment E (SESP Summary Unit Counts for Issued Residential Permits).
Total Single-Family and Multi-Family SESP Unit Counts by Council District from January 2016 to December 2024:
All figures are rounded to the nearest whole dollar
All commercial and industrial (nonresidential) permits automatically receive the 50 percent SESP reduction.
Total Nonresidential SESP Counts by Council District from January 2016 to December 2024:
Summary of Distribution: The tables below identify recipients of SESP waivers from program inception through December 31, 2024.
Approximately 79 percent of single-family residential building permits issued under the SESP program were built by housing developers, the remainder by individuals or small builders. Further, approximately 21 percent of all SFR permits issued under SESP were issued to builders located in Stockton.
Single-Family SESP Permit Distribution by Recipient:
*Company based in Stockton
All figures are rounded to the nearest whole dollar
All multi-family residential building permits issued under the SESP program were built by housing developers. Further, 57 percent of all MFR permits issued under SESP were issued to builders located in Stockton.
Multi-Family SESP Permit Distribution by Recipient:
*Company based in Stockton
All figures are rounded to the nearest whole dollar
SESP Credits: As of December 31, 2024, the total amount of fees waived under the SESP program is $94,009,668. As displayed in the table below, the City has foregone resources that could have been used for city facilities, recreation centers, libraries, police stations, street improvements, fire stations, and parks.
Total PFF Fees Waived by Category:
All figures are rounded to the nearest whole dollar
In 2015, one of the justifications for SESP was that City Council recognized the Envision Stockton 2040 General Plan update would differ from the 2035 General Plan in place at the time. The 2035 General Plan was prepared at a time of rapid growth under different conditions. The 2040 General Plan (adopted 2018) encourages infill and focuses on smart growth to achieve public health and Climate Action Plan goals. This revised approach was forecasted to impact PFF fee calculations and reduced mitigation requirements.
Further, SESP was adopted in part because developers believed existing fees were too high and that an updated PFF Nexus Study and accompanying PFF Fee Schedule would result in reduced fee amounts. The study is currently being developed and will be available for public comment during this calendar year.
From 2015 to 2024, the increase in median sales price for single-family homes was $234,950, approximately over eleven times the amount of fees waived ($19,919.61). Remembering the BIA’s prior comments to Council that builders would sell new homes at market rates, there is a possibility that the SESP fee waivers are no longer necessary to “close the gap” for new residential construction.
Further, taking into account that approximately 79 percent of the SFR SESP and 43 percent of MFR permits went to builders located outside of Stockton, not only did the City forego $94 million for needed improvements but at least $59 million of waived fees left the local economy.
SESP Employment Effect: The UOP study estimated that nearly 3,700 jobs (2,138 attributed to the direct effect of construction) would be created by the construction of 1,000 single-family homes per year. Based on submitted SESP recipient self-certifications, the unduplicated count of individuals employed by SESP-assisted projects (attributed to construction) is 5,525, of those, 2,883 reside in Stockton.
Over 9 years of the SESP, an annual average of 385 single-family units were constructed, with 614 unduplicated jobs reported (of which 320 were Stockton residents). Compared to the UOP study ratio of 2,138 construction jobs per 1,000 new units, job creation projections were not met. Based on the above ratio (2.138 jobs per unit) that average should be approximately 823 jobs based on the program’s annual construction average of 385 single-family units.
SESP Compliance: All participants of the SESP program are required to submit monthly reports to the City. Participation in the SESP program is contingent on at least 50 percent of the workforce for a permit residing in Stockton (excluding multi-family). Based on the reported data, the Local Hire requirement is being met. If a participant does not satisfy the conditions of the SESP program, they will be required to reimburse the City the equivalent PFF fee reduction for each permit issued during the period of noncompliance.
The adopted SESP program included the direction that individuals from disadvantaged communities within Stockton be included in the local workforce to the extent possible. An agreement between the BIA and the Stockton Branch of the National Association for the Advancement of Colored People (NAACP) was referenced in the enacting resolution, but not subject to the monthly reporting requirements or City enforcement. Either the BIA or the NAACP would have to comment on the relative success of the agreement to employ individuals from disadvantaged communities.
Conclusion
It is recommended that Council consider the impacts/results of the SESP to-date and provide staff direction on how to move forward. Council has the option to maintain, eliminate, extend, or otherwise modify the existing SESP program. Potential options include (but are not limited to):
|
Action |
Summary |
Result |
|
None |
Maintain current SESP |
All waivers will remain until new PFF fees are adopted by Motion No. 2019-08-20-1405. PFF fund balances will continue to accrue at current rates. |
|
Amend SESP |
Adoption of a future SESP sunset date |
All waivers will cease as of the date identified in the Council action. PFF fund balances projected to increase upon cessation of program. |
|
Amend SESP |
Remove waivers for single-family development |
Waivers will remain for multi-family residential, commercial, and industrial development. PFF fund balances projected to increase upon cessation of SFR fee waivers. |
|
Amend SESP |
Retain waivers for multi-family residential development only |
Waivers for single-family residential, commercial, and industrial development will cease. PFF fund balances projected to increase upon cessation of SFR and nonresidential fee waivers. |
|
Amend SESP |
Decrease or eliminate certain waiver categories |
PFF fund balances projected to increase due to increased revenues. |
|
Elimination of SESP |
Adoption of an immediate SESP sunset date |
Waivers will cease immediately (upon Council action). PFF fund balances projected to increase due to increased revenues. |
FINANCIAL SUMMARY
As of December 31, 2024, the total amount of fees waived under the SESP program is $94,009,668. As a result, the City has foregone resources that could have been used for city facilities, recreation centers, libraries, police stations, street improvements, fire stations, and parks.
For example, these resources could have been used towards the new City Hall or funded a portion of the new Northeast Library. If PFF fees were available and utilized for the Northeast Library, City Council could have an additional $4.5 million in available Strong Communities (Measure M) funding to immediately expand or improve library and recreation services at existing locations. Furthermore, had the $10.6 million in parkland PFFs been collected, additional park space could have been developed for residents as identified in the Capital Improvement Plan (CIP). If continued, the reduced PFF collections will further delay public infrastructure, and absent other resources, a permanent facility deficit will exist.
Public Comments
Notice for this public hearing was published in The Record on May 23, 2025, and a mailed notice was sent to all SESP recipients, the Building Industry Association of the Greater Valley (BIA GV) and NAACP Stockton - San Joaquin Branch at least ten (10) days prior. As the writing of this staff report, no written comments have been submitted to the Community Development Department.
Attachment A - UOP Study
Attachment B - Resolution No. 2015-11-17-1602
Attachment C - Resolution No. 2018-07-17-1302
Attachment D - Motion No. 2019-08-20-1405
Attachment E - SESP Summary Unit Counts