Monday, January 5, 2015

Are Development Impact Fees A Form Of Bribery?

A guy has gotta earn, you know.
We have all heard this story many times. Development Impact Fees are how the City of Sierra Madre recoups its costs for new development. Water main hook-ups, sewer hook-ups, things like that. All costly stuff we have been told, and as such expenses that need to be borne by developers, and not the City.

But what if I told you this isn't exactly true? Oh, there is a little bit of truth to be found there, all accomplished tall tales require at least an iota of verisimilitude to suck in the credulous. But the truth of the matter is that when it comes to Development Impact Fees, California is definitely an outlier. Not just that, but an exponential outlier. The impact fees we pay in this state are immensely higher than any other state in the nation. Nobody comes within 100 miles of us.

Joel Kotkin, in an opinion piece that ran in the Orange County Register, talks about the once Golden State's outrageously expensive impact fees. "California Homes Require Real Reach" is the title (link). Prepare to be a little stunned.

Beside regulatory restraints, California housing prices are driven up by the highest impact fees in the nation. An annual survey by Duncan and Associates shows that the average impact fee in California for single-family residence in 2012 was $31,100 per unit, nearly 90 percent higher than the next most expensive state and 265 percent higher than the norm among jurisdictions that levy such fees, which typically pay for capital improvements, like water and wastewater facilities, required by a new development. Many states and localities on the other side of the Sierras do not.

These fees also impact multifamily housing; the state's fees on multifamily units averaged $18,800, or 290 percent above the average outside the state.

Let me repeat that, just for the dramatic effect. California's Development Impact Fees are 90 percent higher than the next most expensive state. 290% higher for multifamily residences. These are outrageous figures, and the proclaimed need for them is in no way legitimate. If every other state in this country, with cities no different than ours, can hook up sewer and water lines at a cost of 10% or less than what we are being charged, then something is badly wrong.

What is the one thing Sierra Madre's City Hall wants out of development? Money, and lots of it. And because Development Impact Fees in California are the highest in the nation, and exponentially so, City Hall will reap millions of dollars in impact fees should the One Carter, Mater Dolorosa and other developments ever get built.

Why else would City Hall have dragged its feet for nearly half a decade over getting the new General Plan finished? Or have repeatedly attempted to thwart the desires of the people living here over community preservation and slow growth? Because they really like McMansions? Of course not. It's the money.

Since it is all they care about, high Development Impact Fees end up promoting more development. They enable government to get a lot more money than they in any way deserve from people who want something valuable from them.

In corrupt California vastly inflated Development Impact Fees are used by developers to influence city governments such as ours to grant them the permits required to build what they want. How else do you funnel tens or even hundreds of thousands of dollars to key local agency decision makers in order to get your plans approved?

Developers know that these impact fees costs are way above and beyond what it really costs cities such as Sierra Madre to hook up their new homes to sewers and water, but don't they always pay up without a peep of complaint? Of course they do. It's a pay to play state, and that works for them.

Another thing. When these Impact Fees are included in the cost of the house (naturally the developer never pays for them himself) then obviously the sale price is increased. A higher sale price translates into higher property taxes. Meaning the buyer gets to pay increased property taxes FOREVER because of those impact fees.

I'm pretty sure City Hall, and Los Angeles County for that matter, are wildly in love with this arrangement. But most new home buyers will never know what a crooked deal they got, and nobody in government is ever going to tell them.

I consulted with my financial guru, occasional Tattler contributor Captain Obvious. The guy does the numbers quite well, and a lot of the grist for this post came out of our conversations. Obvious then sent me the following information, and as usual it is great stuff.

The Captain Obvious take:
If you think about it, what is the one way a developer can pay a lot of money to a City Hall in exchange for being able to build what they want? Easy. The more units, the bigger the check to the city will be. These kinds of fees are the one thing that cities care about more than anything else; including the wants and desires of those whose taxes pay their way.

Captain Obvious’ thoughts: What we know now:
1. Each new Single Family Residence (SFR) makes about $45,000 of Development Impact Fees (DIFs) to Sierra Madre.

2. Each additional unit (such as an apartment or condo) is about $22,500.

3. Lot split application? Sure - approved! The additional unit is worth $45,000.

4. The Kensington paid over $750,000 in DIFs and permit fees in 2013.

5. Sierra Place condos would have been about $90,000 in DIFs.

6. EACH One Carter (Stonegate) house will be worth $45,000.

7. Goldberg (aka “Special Deal”) Park was purchased by “borrowing” General Fund monies that were to be paid back by DIFs from One Carter. The City Council figured since there were homes going in the DIFs would be a-flowing! I believe that there’s still a deficit of $100,000+ in the DIF Park fees subaccount. Otherwise, we’d already have new ADA-compliant restrooms at Memorial Park.

8. This is easy money for the City. It involves no pesky tax increases that the voters will shoot down, again.

Conspiracy Theory:
Capisce?
Bribes are illegal, but you can bet that every applicant (or their attorney) points out to the City that Capital Improvements paid by Development Impact Fees can offset other budget items. This important fact will be mentioned by the attorney in his best Tom Hagen “make them an offer they can’t refuse” voice.

The result? VoilĂ ! More money is available for Platinum Pensions. How cool is that? Don’t use water department funds to repair leaky water mains. Pay for the water mains with the 50% of DIFs that are required to go to water department expansion for increased population. Just replace the 10” pipe with a 12” pipe.

Don’t use General Funds for a Police raise. Offset the current PD budget and buy improved equipment using the Public Safety Funds from DIFs. Better and bigger stuff, sure! We need it to protect a larger population.

Then, use the money freed up by DIFs for higher wages. That will result in higher and higher Platinum Pensions. No need to cut costs like the voters told them to, twice. You can pretend 2012 and 2014 never happened.

Oversight of the DIF slush fund (or lack thereof):
What if the Goldberg “Special Deal” Park deficit is paid off by DIFs? Who will be able to track if that money is ever paid back to the General Fund? Or will it get set aside in a special fund, Sacramento style, so the City can keep telling us how they poor they are? Who the hell knows?

Remember Rules Number One & Number Two:
1. It’s all about paying for Platinum Pensions.

2. Don’t agree? Read Rule Number One again.

Seems obvious, right?

http://sierramadretattler.blogspot.com

42 comments:

  1. Where are the taxpayers' Platinum Pensions?

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  2. How much more in yearly property taxes would a homeowner have to pay to cover a $45,000 development impact fee?

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  3. Good question, Tattler Reader!

    Property tax base (not including local assessments) is 1% of purchase price.

    If sales price is increased by $45,000, the increase in property tax = $ 450 each year.

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    Replies
    1. The $450 increases every year by 2% forever

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    2. For what? So they can sell us out to the highest bidder?

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    3. They need to attract and retain quality employees. get with the program!!

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    4. Uh, yeah. Sure. Otherwise something bad will happen. And when I figure out what that might be I'll get back to you.

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    5. They......might.....Quit!

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    6. Wouldn't we lose services?

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    7. Somewhere there is a ping pong table praying for a home.

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  4. Pasadena anyone?

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  5. Rule Number Three:
    Never pass up a chance to post a picture of Robert Duvall.

    Why?
    Because Robert Duvall is very cool

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    Replies
    1. i second that emotion

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  6. Isn't there a special City Council meeting tomorrow night to move the General Plan Update along?

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    1. Yes, and I am going to write about that tomorrow. The CC is also considering a moratorium on the demolition of existing homes, which is pretty cool. Had something up about that on Dec 12. Here is the link:
      http://sierramadretattler.blogspot.com/2014/12/next-moratorium-on-demolition-of-older.html

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  7. I must be a very slow learner, but I finally get the idea "They're selling the town out from under us."

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    Replies
    1. Open spaces and small houses on big lots are seen by city govt as assets to be used to fund pay increases and pensions for life. It's a parasitic relationship.

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    2. City: Me HUNGRY!

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  8. I thought the city got the money to buy the lot that became the Goldberg Park (naming something after someone usually is done with the something donated not paid for--which is the real outrage here) from the sale of the land above the Co-operative Nursery School at Sierra Vista Park. The money from that sale could only be spent on like use, i.e. a park. All this at the conniving of City Council member Enid Joffee, a close friend of the Goldbergs. For shame on this whole subterfuge.

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    Replies
    1. What I recall is that the city bought that lot from the Goldbergs for half a million dollars, but it wasn't common knowledge that it was a loan from the General Fund. This was the Buchanan/Joffee crew again? What areas of our city's life did they NOT damage?

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    2. That makes what grows there some of the most expensive California native plants on the planet.

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  9. If anyone is going the special meeting of the Pasadena City Council regarding embezzlement is at 5PM tonight. Address is 100 N. Garfield Ave room S249. Should be quitea show!

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    Replies
    1. The rumor is the Pasadena City Council will be offering up a sacrifice to cleanse the city of their sins.

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    2. I can see the memo that went out to the Finance clerical staff: "Anyone willing to be fired for cause will receive 10 years of severance pay and free utilities for life."

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    3. Be sure to bring your sign:

      $6.4 million stolen
      Why should Terry Tornek be Mayor?

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    4. He blamed the help first.

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  10. I think South Pas and other cities along the freeways should charge impact fees for the homeless camps along the freeway. Those camps really need design guidelines and code inspections.

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  11. No wonder the old Developer Servicing Department bent over backwards, and forwards, for any and all developers, even ones they knew were crooks.

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    Replies
    1. I don't think anyone at City hall has a realestate license. Shouldn;t they be required to get one?

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  12. How do the impact fees help replenish the wells?

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    Replies
    1. One thing the folks working at city hall and developers have in common is they don't live here. Once they get paid they go someplace else. They don't miss the water when our wells go dry.

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  13. Wait a minute - doesn't the DIF money go to precisely what it says it goes to? How much latitude is there in how to spend the money?

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    1. Good question. Has anyone ever tracked it? Does it go into a slush fund? Or a cookie jar?

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    2. If the DIF money went precisely to where its supposed to, then how did the city "loan" the money to itself to buy the Goldberg park? It doesn't look like precise accounting, does it.

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    3. They were counting their One Carter chickens before they were hatched.

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    4. Those chickens still haven't hatched!

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  14. If the staff's pensions are directly or indirectly financed by development impact fees, it's an impossible conflict of interest for them to overcome.

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    Replies
    1. You could almost call it bribery. Y'know?

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    2. 2:07, reread the Captain's remarks. That explains how the game is played...

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