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Fees Reduce New Housing A Chamber eNews story and a Santa Cruz Sentinel OpEd piece recently focused on the many public fees assessed against new housing. These articles began with the notion that California communities used to pay for much of the administrative and infrastructure expenses of growth from property taxes. However, since the adoption of Prop 13, cities and counties have turned to assessing fees against new development to cover these costs. These “development fees” are significant constraints on the creation of housing. They sometimes exceed the costs of the land. They are real public costs and they are expensive; for example the new rate for connecting a house to the water systems is $11,231. Prior to June 2015 it was $6,530. For an ADU these fees are $5,616. (See a partial list of fee categories below.) Proposition 13 was adopted in 1978 primarily because real estate taxes were escalating at a rate rather substantially higher than inflation. Like today, the escalation in housing cost was the direct results of a housing shortage. In 1978 the cause of that shortage was predominantly emigration from other states in the U.S. to California. Today it is primarily the result of two factors. First is the result of the Great Recession; for the past eight years we have less housing than is needed to accommodate “natural” population growth. Beginning in 2007 new housing construction plummeted and is still sluggish. The second is a population shift within California to coastal cities. This has been driven in part by more rapid economic recovery in the cities following the recession including the drought’s economic impacts inland. It is particularly acute in Silicon Valley as a result of growth of technology-based industries. Prop 13’s remedy was to tie the real estate tax rate not to current value but, rather, to the value at the time the property was purchased. There were other options to address this problem but the legislature failed to address it. A landslide victory for Prop 13’s roll back of property taxes and constraints on inflation adjustments was the result. Today’s problems could have been avoided notwithstanding the adoption of Prop 13. The issue is whether the entire community pays for the governmental costs of creating new housing or whether we tax new housing units for that growth. Local governments have significant revenue from other sources. A core question is how should this money be spent. Another key issue is to what extent is a community willing to tax itself. And, perhaps the ultimate questions - on which public services and infrastructure does a community choose to spend its revenues. Today, throughout the country, particularly in the State of California, and, for us, especially in Santa Cruz County, how much are we willing to tax ourselves and on what should the receipts be spent. We suspect that for the vast majority of the economic community – workers and employers, property owners and renters, investors and the retired – the answer is housing. It is important to note that the services provided with these fees are important and that local governments are required to be able to justify the relationship between the amount of the fee and the cost of the service. For instance, the above water connection fee for the City of Santa Cruz was recently adjusted after an extensive review of the water systems costs and a careful allocation of those costs to new service users. However, it was also possible to not require such a fee and to instead include these costs in the rates paid by all water users. Here is a partial list of the categories of fees that must be paid to construct new housing in the County and its four cities. These fees vary significantly based upon the jurisdiction in which the project is located and a number of other factors, from the type of housing, the size of the project, its location, review and appeal processes, a variety of possible allowances and penalties related to size, location and other factors. Categories of Fees for New Housing: 1 - Planning fees for submission and review of a design permit. 2 - Fees for review of that design permit by departments and other independent reviews including: Building Energy conservation Fire Green building Planning Public works Storm water Water conservation Water engineering 3 - Impact fees for the following services Schools Water Sewer Affordable housing Traffic 4 - Additional fees paid for Computer system development Preparation of the General Plan In addition and especially for multi-family projects and non-conforming and planned development projects, “exactions” can be assessed for public improvements, ranging from design features in the projects itself from street and sidewalk improvements, to parks. For multi-family projects there may also be required either inclusionary housing (below market rate rents or sale prices) or additional inclusionary housing fees. Once approved the project will then be required to pay for inspection of the work at various stages of the project by both building and fire inspectors.