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ACCEPT PUBLIC FACILITY FEE ANNUAL REPORTS FOR FISCAL YEAR 2015-16.
recommended action
RECOMMENDATION
It is recommended that the City Council accept by motion the Public Facility Fee Program Annual Reports for Fiscal Year 2015-16 (Attachment A) to comply with the Mitigation Fee Act reporting requirements.
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Summary
Under State law, cities are required to make available to the public an annual report on Public Facilities Fees (PFF) collected to support local infrastructure. State law also prescribes the required elements of the report, outlines public notice requirements, and specifies that the City Council review the report. The annual reports are required to be published within 180 days of the last day of the fiscal year. The Fiscal Year FY 2015-16 Annual Report was filed with the City Clerk’s Office on January 11, 2017, and made available for public review to comply with state law.
The combined PFF program available fund balances at June 30, 2016, for all PFF funds, is $22,325,456 as provided in Attachment B. The City programs PFF funds in the five-year Capital Improvement Plan (CIP) for projects that meet the commitments to local infrastructure at an amount more than double the available funds. The currently available fund balances are insufficient to cover these commitments, and future collections will be required.
DISCUSSION
Background
California Government Code Section 66006, known as the Mitigation Fee Act (“the Act”), requires the City make an annual report of fees collected to support City infrastructure publicly available. The Act spells out the elements of information about the fees that must be provided in the Annual Report and specifies that the report is to be reviewed by the City Council at a regularly scheduled public meeting. As required by the Act, the annual reports are to be filed and made available to the public no later than 180 days following the last day of the fiscal year. The City is also required to review the information at the next regularly scheduled public meeting not less than 15 days after the information is made public.
The Mitigation Fee Act of the California Government Code provides that Public Facilities Fees may be enacted and imposed on development projects. The City of Stockton has 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 projects cause 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 in some instances given the disproportionate costs to early development projects. This was the basis of the City establishing its PFF program beginning with the 1990 General Plan and the establishment of the original fees in 1991. In other words, the 1990 General Plan established the growth patterns and policies and the PFF program was established to collect impact fees to address facility impacts from those growth policies. The fees are collected to finance Public Facilities and collected for specific purposes.
Annual Report Requirements
The Mitigation Fee Act requires that each Annual Report contains the following information:
A. A brief description of the type of fee in the PFF fund.
B. The amount of the fee.
C. The beginning and ending balance of the fund in the year reported.
D. The amount of the fees collected and interest earned.
E. An identification of the public improvement on which fees were expended.
F. An identification of an approximate date by which the construction of future public improvements will commence, once sufficient funds have been accumulated (the City meets this requirement by including PFF funds in the CIP).
G. A description of each inter-fund transfer or loan made from the fund, the approximate date the loan will be repaid and the interest the account will receive.
H. Refunds made under the provisions of the Mitigation Fee Act.
The PFF report attached to this staff report (Attachment A) presents the required information for FY 2015-16. This report provides additional information (balance sheet and four previous years’ data) to be transparent and comprehensive.
Revenue
Attachment C summarizes the total PFF fee revenue received in each of the five years included in this report, by fee type.
Total revenues received in FY 2015-16 for the eighteen fee categories was $11.2 million; an increase of $5.8 million over the $5.4 million collected in FY 2014-15. The increase is due to an improving local economy and increased construction activity. Although PFF revenue trended upward in FY 2015-16, the revenue collected in the five years reflected in this report is still significantly less from that collected in prior years, reflecting the effect of the recession on the Stockton area economy. As an example, total PFF revenues collected in the 2007-08 fiscal year were $29.1 million.
The largest fee types by source in FY 2015-16 were Street Improvements at $3.3 million and Waste Water Connection fees at just over $2.4 million.
In September 2009, bonds (2009 Lease Revenue Bond Series A) were issued in the amount of $35,080,000 to finance various capital projects (Street Improvements, Fire Stations, Police Stations and Parks and Recreation) located throughout the City. The sources of repayment were to be PFF fees collected from Street Improvements, Fire Stations, Police Stations and Parkland. The bonds were due in installments ranging from $525,000 to $2,750,000 beginning September 1, 2013, through September 1, 2039, with interest rates ranging from 6.75% to 7.0%.
In March 2012 the City defaulted on those bonds and continued to be in default until the court confirmed the Plan of Adjustment in February 2015. During that time, principal of $1,090,000 and interest of $3,588,319 was not paid to bondholders and upon implementation of the Plan those balances have been written down.
Expenditures
Attachment D summarizes the total expenditures made in the PFF funds in each of the five years included in this report, by fee type.
FY 2014-15 expenditures totaled $1.6 million, while FY 2015-16 expenditures were $899,542. Again, given reduced development activity, expenditures in both years were down significantly from the amounts expended in prior years.
Selected Program Highlights
Street Improvement Program
The Street Improvements Impact Fee provides for traffic improvements necessary to accommodate increased traffic generated by new development.
In FY 2015-16, revenues into the Street Improvement Impact Fee Fund totaled $3.3 million, and expenditures totaled $5,047. In FY 2014-15 revenues totaled $1.4 million, and expenditures totaled $599,009. The ending fund balance at the end of FY 2015-16 was $17.7 million.
Through the end of FY 2015-16, the City had entered into five different Street Improvement Reimbursement Agreements with outstanding balances as of June 30, 2016, of $10,578,543 for future infrastructure projects. The details are found in the notes to the Street Improvements Impact Fee section of this document.
Community Recreation Centers
The Community Recreation Center Impact Fee provides for the construction and expansion of community centers as required by new development.
This fund has an outstanding balance of inter-fund loans to the Street Improvement Fund and the General Capital Projects Fund. In FY 2010-11, in recognition of the fact that a loan repayment schedule could not be developed given the lack of revenue collections, an allowance for the inter-fund loans payable of $3,730,031 was posted. By the end of FY 2015-16, this inter-fund loan balance was $3,860,380. Repayment of these loans will occur when the development climate improves, and sufficient revenues are available. Annual revenues have averaged slightly more than $48,000 over the last five years.
Fire Stations
The Fire Station Impact Fee provides for new or expanded fire stations as driven by new development.
The Fire Impact Fee showed improvement in FY 2015-16 with total revenues of $301,497 compared to $111,679 in FY 2014-15 as the economy has started to improve. In FY 2015-16, total expenditures were $22,742.
This fund has an outstanding balance of inter-fund loans to two different City funds: Street Improvement Fund and the Libraries Public Facility fund. In 2010-2011 fiscal year, in recognition of the fact that a repayment schedule could not be developed given the lack of revenue collections, an allowance for the inter-fund loans payable of $2,444,435 was posted. By the end of FY 2015-16, this inter-fund loan balance was $2,534,676. Repayment of these loans will occur when the development climate improves, and sufficient revenues are available. Annual revenues have averaged approximately $145,000 over the last five years.
Library Facilities
The Libraries Facility Impact fee provides for new libraries as required by growth and new development.
In FY 2015-16 the fund had collections of $359,986 and capital project expenditures of $206,938. At the end of the 2015-16 fiscal year, the fund balance for this fund was $8,993,243. The fund balance was reduced by the posting of allowance for an uncollectible loan to the Fire Stations PFF fund (discussed above), in the amount of $1,948,126.
The CIP earmarks most of the fund balance to construct a new Northwest Branch Library.
Police Station
The Police Stations Impact fee provides for expansion of police stations as required by growth and new development.
The Police Impact Fee showed improvement in FY 2015-16 with total revenues of $248,820 compared to $90,494 in FY 2014-15 as economy and construction has started to improve. In FY 2015-16, total expenditures were $14,094.
This fund has an outstanding balance of inter-fund loans to the Street Improvement Fund. In 2010-11 fiscal year, in recognition of the fact that a repayment schedule could not be developed given the lack of revenue collections, an allowance for the inter-fund loans payable of $1,234,714 was posted in this fund at the end of FY2015-16. Repayment of these loans will occur when the development climate improves, and sufficient revenues are available. Annual revenues have averaged slightly more than $115,000 over the last five years.
Parklands
The Parkland Impact fee provides for the acquisition of land and the development of regional and neighborhood parks.
In FY 2015-16 the fund had collections of $746,092 (as compared to $346,679 in FY 2014-2015) and expenditures of $53,107. At the end of the FY 2015-16 fiscal year, the fund balance for this fund was $6,422,846.
Air Quality
The Air Quality Impact Fee provides for the partial mitigation of adverse environmental effects and establishes a formalized process for air quality standards as growth and development require.
The Air Quality Impact Fee showed improvement in FY 2015-16 with total revenues of $557,373 compared to $210,274 in FY 2014-15 as the economy has started to improve. In FY 2015-16, total expenditures were $14,631. At the end of FY 2015-16 fiscal year, the fund balance for this fund was $2,461,641.
An inter-fund loan of $1,040,086 was repaid to this fund from the Central Parking District in FY 2014-15.
Deferred Impact Fees and Inter-fund Loans
The “Supplemental Reports” section of the attached Annual Report contains information regarding deferred PFFs (accounts receivable balances) and inter-fund loans representing borrowing amongst City government funds. Per the City’s Administrative Guidelines for the PFF Program, the City has a fee deferral program and the total fees deferred under this program as of June 30, 2016, were $194,992.
FINANCIAL SUMMARY
This is an informational item only. There is no financial impact.
Attachment A - PFF Report for FY 2012-16
Attachment B - PFF Funds Available Fund Balances
Attachment C - Total Impact Fee Revenues
Attachment D - Total Impact Fee Expenditures