In Featured, Research Article

Over the last 30 years, cities, counties, and special districts have come to rely heavily on development impact fees to fund infrastructure and public facilities needed to serve new development. Impact fees are widely used in California and other states as well, although many are more restrictive than California in terms of the way impact fees may be used.

Since adoption of the California’s Mitigation Fee Act (aka AB 1600) in 1987 (it took effect in 1989), amendments to the laws governing impact fees in the State have been relatively minor. However, since about 2018, the need to address a shortage of affordable housing in California has raised questions about whether impact fees can be reformed in ways that would reduce the cost of producing new housing. The California Legislature has introduced several bills to address that issue. Some have become law, including SB 330, the Housing Crisis Act of 2019, and SB 13.

To date, no broad limits have been placed on the imposition of impact fees by local agencies, aside from a requirement in SB 330 that prevents fees for a development project from being increased once a complete development application has been submitted to a city or county for review and approval. However, housing affordability remains a critical concern and it seems likely that legislative scrutiny of impact fees will continue.

One area where some restrictions have been imposed on the application of impact fees is with respect to Accessory Dwelling Units (ADUs). State law has been amended in a variety of ways to promote the creation of ADUs, also known as secondary units, to ease the housing shortage. An ADU is a second small dwelling within, attached to, or on the same property as a primary dwelling. ADUs have several advantages over other forms of affordable housing, and California law now makes it much easier to get approval to construct them in both single-family and multi-family zoning districts.

One way the law was changed to facilitate ADUs was to restrict impact fees for those units. SB 13, signed into law by Governor Newsom in October 2019, prohibits imposition of any impact fees on ADUs of less than 750 square feet. Junior ADUs (JADUs) of up to 500 square feet within the primary residence are also exempt. Impact fees for ADUs between 750 and 1,200 square feet (the maximum size to qualify as an ADU) must be proportional to the fees that would apply to the primary unit in terms of the square footage relationship between the ADU and the primary unit. SB 13 and other bills made several other changes addressing density, setbacks, parking standards, residency requirements and homeowner association (HOA) rules regarding ADUs.

One proposed idea dealing with housing affordability is that impact fees for residential development should be charged on a square footage basis so that smaller units would pay lower fees. While that idea seems sensible on the surface—and has been proposed by some academics as a way of making impact fees more equitable—it could disrupt the required nexus between impact fees and the impacts of development. That could be an issue as the square footage of a residential unit is not necessarily related to the impacts of that unit on public facilities.

In calculating impact fees, the impacts of development are quantified using some attribute of development that represents the relative impact of different types of development on certain types of facilities. For example, the Quimby Act requires that park land dedication requirements and fees in lieu of dedication must be based on the relationship between park acreage and population, and park impact fees are normally based on that relationship. Traffic impact fees are generally based on the number of vehicle trips generated by development. However, at present, there are no good data to show that either population per unit or the number of vehicle trips generated by a residential unit is systematically related to the square footage of the unit.

Some studies using national data purport to demonstrate that, on average, larger units house more people per unit. However, that relationship does not appear to hold true for California, and even if it did, the relationship between square footage and population is far from linear. In other words, population per unit increases much more slowly than square footage, so impact fees based on square footage might exceed those justified by the actual impacts of larger units. On the other hand, economic pressures often require large families or even large groups of unrelated individuals to share moderately sized residential units, which means impact fees based on square footage might understate the impact.

Of course, impact fees calculated using currently available data and methods are far from perfect. If State law at some time in the future dictates that impact fees must be based on building square footage, the methods used to calculate impact fees will have to evolve to quantify impacts in a way that better match building size, and probably to define ranges of residential building size that prevent extreme cases from invalidating the nexus.

This issue is unlikely to fade away, so anyone involved in calculating or administering impact fees at the local level should monitor legislative initiatives that could upend accepted industry practices in establishing impact fees.

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