Recently, the University of California's Terner Center for Housing Innovation (Terner) released a new study with recommendations regarding the developer fees local agencies depend upon to ensure adequate services for new housing. This is a follow up to a study released in 2019. Policymakers in Sacramento have frequently cited Terner’s work in recent years as California’s housing challenges have grown more acute. Terner’s new study primarily takes aim at nexus studies associated with development impact fees.
The Terner study offers three core policy suggestions:
- Clarify requirements around levels of service;
- Tie fees more closely to direct impacts of new development; and
- Incorporate consideration of feasibility and create mechanisms for triggering review
Terner chose a sampling of nexus studies from around the state to review and is offering policy makers some suggestions on how to change the nexus study requirements in an effort to address California’s housing crisis.
From Terner, "In the analysis published today, we conduct a review of nexus studies from a sample of California cities, and identify three key changes to improve how nexus studies are conducted and how impact fees are set:
Clarify expectations around the treatment of levels of service. Impact fee nexus studies should clearly identify the level of service currently provided by a city, and estimate the cost needed to keep that service at the same level after new housing is added. Cities that seek to increase their level of service should do so through a bond measure, parcel tax, or other less regressive approaches that do not disproportionately impact new residents.
Tie fees more closely to direct impacts of new development. The methodological best practices outlined in our analysis - such as targeting fees geographically - would help ensure fee calculations are closely tied to actual project impacts specific to new housing.
Incorporate consideration of feasibility and mechanisms for triggering review. Rigorous analysis of the financial consequences of new impact fees - as well as the total set of existing fees and exactions that the city would charge - on potential housing development should be a critical part of the nexus study process. In addition, the state should set a collective fee threshold at which point a city's fee program would be audited to verify the fees are reasonable.
These changes will help to ensure that fees are being set and used as intended: to support the expansion of critical infrastructure needed to accommodate more housing..."
Furthermore, Terner concludes that the state may wish to issue best practices and guidelines regarding nexus methodologies.
CSDA Members should expect to see legislation on these or other developer fees and connection and capacity charge related issues in future legislative sessions. If you have experience with these revenue sources, please consider joining CSDA’s Revenue Expert Feedback Team at csda.net/get-involved.