To: Honorable Mayor and Members of Town Council
From: David L. Corliss, Town Manager
Title
Ordinance Repealing and Reenacting Section 3.16.030 of the Castle Rock Municipal Code Adjusting the Development Impact Fees for Residential Uses and Amending Stormwater Development Impact Fees for Residential and Non-Residential Uses and Amending Section 3.16.035 of the Castle Rock Municipal Code for Inflation (Second Reading - Approved on First Reading on September 3, 2019 by a vote of 6-1)
Body
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Executive Summary
The Town collects impact fees on new construction projects to ensure the Town’s levels of service to the community can be maintained as Castle Rock continues to grow. The Town updates these and other fees periodically to ensure they are aligned with market conditions.
In early 2018, staff engaged Economic & Planning Systems (EPS) to perform an assessment of impact fees for non-utility areas for the Town. This analysis concluded the Town should be charging significantly higher impact fees, based upon the estimated future project needs of a high-growth community, and on higher construction costs.
In conjunction with the 2019 budget process, Council approved an ordinance to implement the proposed fees, which gradually phased the fees up closer to needed levels over a multiyear period. Given the immediate capital needs in the community as necessitated by growth, staff is requesting Council consider increasing all non-utility impact fees to the maximum supportable level as indicated in the EPS impact fee study. Staff has prepared an ordinance to adopt concurrently with the 2020 Budget to make this increase effective January 1, 2020. (Attachment A)
If impact fees are not increased, choices include 1) providing reduced levels of service to the community and/or 2) asking voters to provide for additional revenue sources to address the capital needs of a growing community, such as a property tax increase.
Discussion
The Town, like other Colorado municipalities, collects impact fees on new construction projects to ensure the Town can meet its established levels of service to the community as Castle Rock continues to grow. Impact fees are collected when a building permit is issued to pay for growth-related improvements, facilities and equipment in the areas of transportation, fire, police, parks and recreation and municipal facilities. (System development fees for Castle Rock Water are calculated separately, as part of the annual rates and fees study.) These one-time payments must be used solely to fund system improvements that benefit multiple development projects and the entire Town.
The Town updates these and other fees periodically to ensure they are aligned with community growth and market conditions. Given the economic conditions associated with the recession in early 2008, coupled with the slowdown in growth, the Town engaged a consultant to re-evaluate the level of impact fees being assessed. At that time, single family residential impact fees were adjusted, including a significant reduction in the park and recreation ($955, or 28% reduction, for a 2,600-square-foot home) and transportation ($84, or 3%, for a 2,600-square-foot home) fees. After the economy began to rebound, and growth increased in the Town, impact fees were once again updated; an external consultant performed an impact fee study in 2016. At that time, Council approved a fee structure that increased building use tax to industry standards, along with impact fees, in total by 9% in 2017 and 8.5% in 2018, exclusive of any needed Castle Rock Water system development fee increases.
Given the high growth rates over the past several years, and to stay responsive to changing market conditions, the Town engaged consultant EPS in 2018 to help determine whether the fees being collected for development activity were adequate, given current economic conditions. The consultant analyzed residential and nonresidential impact fees for transportation, fire, police, parks and recreation, and municipal facilities. EPS’ Impact Fee Nexus Study: Proposed Castle Rock 2019 Impact Fee Program (Attachment B) identified that the Town should charge significantly more for these fees, based upon estimated growth and associated future project needs, as well as higher construction costs.
Given the immediate capital needs in the community as necessitated by growth, staff is requesting Council approve increasing all non-utility impact fees to the maximum supportable level as indicated in the EPS impact fee study effective January 1, 2020. An overview of the proposed fees and associated projects, as well as comparisons between the proposed fees and fees in other communities, is included in Attachment C. The following table shows impact fees over the past 12 years, as well as a projection for the next five years, on a 2,600-square-foot house.
Residential Fees
In order to accommodate capital needs necessitated by growth, and to maintain current levels of service, the Town would need to increase the current non-utility impact fees by approximately $2,758, or 19.4%, from the currently adopted 2020 fees for a 2,600-square-foot home. (This is the average home size in Town for the past 10 years). Such an increase equates to approximately 0.61% of the value of a $450,000 home in Castle Rock. As noted in the 2018 ordinance, impact fees will then continue to increase each year based on an inflationary index.
The table below summarizes the proposed single-family residential fee changes for a sample 2,600-square-foot home. Inflation has not yet been applied to these figures.
The supportable multifamily fee in the EPS impact fee study is 61.4% higher than the Town’s 2019 fee. Town staff is recommending that fee be increased to 100% of the maximum supportable fee in 2020. The table below summarizes the proposed changes to multifamily fees.
Nonresidential
Similar to residential development, nonresidential development also pays impact fees to account for the additional burden it puts on the Town’s capital needs and levels of service. Nonresidential development includes retail, office, hotel, industrial, and warehouse. EPS analyzed the fees for these categories based on metrics specific to commercial development.
As approved by ordinance in 2018, Town staff is implementing a 15% increase in the nonresidential impact fees over a four-year period, with an inflationary index applied annually beginning in 2020. The inflation index used for nonresidential is the same used for residential.
In past years, the Town has discounted the impact fees for nonresidential development in order to incentivize specific types of building within Town. Town staff is recommending the continuation of this approach. Worth noting is that in order to maintain our current levels of service, the discounted amount of nonresidential impact fees will continue to be supplemented with general government funds.
Also worth noting is that, as is customary in other communities, the Town does not charge a parks and recreation impact fee to nonresidential development. Although employees or visitors to the Town may use the parks and recreation system, data shows the majority of the use is after hours and on the weekends. As such, no parks and recreation impact fee is assessed on nonresidential development.
Funding and Level of Service Considerations
In the 2019 community survey, residents said traffic congestion is the growth-related item that causes them the most stress. They also said additional parks and recreation opportunities was one of the top two benefits of growth. Increasing the transportation and parks and recreation impact fees, then, would go toward addressing a negative aspect of growth and enhancing a positive aspect of it.
Increasing the parks and recreation impact fee would allow the Town to construct two additional neighborhood parks in the next five years as opposed to one. It would also allow the Town to pay off early the financing for the Miller Activity Complex, so that a third indoor recreation facility may be added in the nearer term to help meet growth demands.
The Town has not constructed a gymnasium or competitive lap pool since 1988, when 8,000 Town residents lived in a County with 50,000 residents. Now, the Town has roughly 70,000 residents, with a County population of about 350,000. If the parks and recreation impact fee is not increased, the Town’s level of service for indoor facilities and parks will continue to decline as growth continues. There are five park sites in Town ready for construction. At the current impact fee rate, the Town only has the fiscal ability to construct one park in the next five years.
In the 2019 community survey, nearly 90% of residents said they had visited a Town park in the past year. About half had visited the Recreation Center, and more than two-thirds had visited the Miller Activity Complex. These high usage rates indicate the value of these parks and recreation amenities to the community.
Increasing the transportation impact fee, meanwhile, would allow the Town to accumulate funds toward construction of a fifth interchange in Town on Interstate 25, at Crystal Valley Parkway. This interchange is needed in the nearer term to allow the Plum Creek Parkway interchange to continue to function adequately, and to maintain proper traffic flow on I-25. Further, an increase to the transportation impact fee would allow for construction of roundabouts at Wilcox and South Streets, and along Crowfoot Valley Road, which were not previously included within the Town’s five-year transportation financial planning. Additional improvements would also be constructed around the Town based upon forecasted needs. See Attachment C for further details on current transportation project planning that incorporates the proposed increase in the transportation impact fee.
Residents’ ratings of transportation items have been improving since the 2015 community survey, reflective of the increased investment the Town has made in transportation since 2017, which increased impact fees have afforded. If the transportation and parks and recreation impact fees are not increased, choices include 1) providing reduced levels of service to the community and/or 2) asking voters to provide for additional revenue sources, such as a property tax increase, to continue providing improvements necessitated by growth.
Staff Recommendation
In order to ensure levels of service can be maintained as the Town grows, staff recommends Council approve an ordinance to increase all residential, non-utility impact fees to the supportable level identified in the EPS Impact Fee Nexus Study beginning in 2020.
Proposed Motion
“I move to approve the ordinance as introduced by title on first reading.”
Attachments
Attachment A: Ordinance
Attachment B: Impact Fee Nexus Study: Proposed Castle Rock 2019 Impact Fee Program, EPS
Attachment C: Impact fees overview