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HomeMy WebLinkAbout02 19 2019 Infrastructure Development Fees and Affordable Housing U 4646 Dakota Street SE Prior Lake, MN 55372 `�rNNES��P CITY COUNCIL WORK SESSION REPORT MEETING DATE : FEBRUARY 19 , 2019 AGENDA # . A PREPARED BY : FRANK BOYLES PRESENTED BY : FRANK BOYLES AGENDA ITEM : DISCUSSION OF INFRASTRUCTURE DEVELOPMENT FEES ( STREET IMPACT FEES ) AND AFFORDABLE HOUSING INTRODUCTION : The Builder Association of the Twin Cities ( BATC) now known as Housing First Minnesota or the Housing Affordability Institute have undertaken two initiatives which appear to be targeted at lowering city fees and regulations . The initial thrust by BATC was a court challenge of the statutory basis for Infrastructure Development Fees . The second and most recent challenge is in the form of a " report" entitled : " PRICED OUT : The True Cost of Minnesota ' s Broken Housing Market . " The purpose of this agenda item and attachments is to provide the city council with the status of these two BATC efforts , the likely impact of each upon the City of Prior Lake and the actions the city council may wish to take to address each . To address these two initiatives will require collective actions by communities most affected as well as actions which each city may wish to take on its own . This agenda item is to encourage additional city council discussion on these topics so that the city' s collective and individual actions can be identified and executed to the city council ' s satisfaction . TOPICS : A) . INFRASTRUCTURE DEVELOPMENT FEES The City has relied on these fees also known as street impact fees to providing funding for street infrastructure needed for new development , Without this revenue the City is facing a significant infrastructure financing shortfall . We estimate that the gap may be as high as $ 26 million to build out our transportation system required to support developments of all kinds once we are 100 % developed . Rather than rely upon dated infrastructure fee estimates the City Council has hired SRF to conduct a study and provide a report on the street infrastructure needed for future development as well as the _estimated costs of that infrastructure and benefits to development . The primary purpose of the report is to provide objective information regarding the city' s financial situation to foster an evaluation of alternative approaches to collecting this funding . Such information can be used by Prior Lake alone as well as Metro Cities and other similarly situated municipalities to argue their plight . (The City of Dayton is undertaking a similar study) ! ' Phone 952 .447 . 9800 / Fax 952 .447 . 4245 / www. cityofpriorlake. corn The City has numerous options to address this funding gap including slowing/stopping development, special assessments , requiring developers to build additional infrastructure , supporting State-wide legislation , requiring deposits from developers , etc . In addition , there is legislation being proposed at the State level to address this issue . Based upon previous discussions with our legislators , there appears to be real concern that the state legislature will not provide the statutory basis for these fees . Nonetheless the Council is considering a Resolution to support such legislation at its meeting tonight . This is one of the individual and collective actions which may be taken . Attached for council information is a Prior Lake American newspaper article from Community Columnists John Diers in support of the city's position . In order to give the State time to consider legislation , to determine what option (s) are best suited for the City and how to implement those options the City needs time , One way to gain this time is to impose a moratorium on new development , Impact ; If the Council is interested in adopting a moratorium , staff recommends that the moratorium be crafted to temporarily halt new development . The proposed moratorium would prevent the filing of any new preliminary plats , prohibiting new subdivisions . The proposed moratorium would not affect any of the five previously approved preliminary plats and would not prevent building on any already subdivided lot. Adopting a moratorium would provide the City with the time needed to determine the full impact of the loss of the fee and to consider and implement a new strategy to fund street infrastructure needed for new development . Adopting a moratorium also confirms that the loss of the fee is significant to the city and has a major impact on our ability to provide essential capital infrastructure , However, adopting a moratorium could slow or even stop growth within the City . It also could have an impact on City revenue as a halt to new development could lead to a halt in building in the future if there are no buildable lots . To allay some of this fear the council should know that the City does already have approximately 250 buildable lots available for development . In addition , there have been 5 preliminary plats approved which will provide another 200 buildable lots . This creates a several year supply of buildable lots within the City In theory , there could still be lost building permit revenue because no preliminary plats can be filed during the moratorium , but due to the surplus inventory staff does not believe there will be a problem . If the City does not adopt a moratorium there is risk that new preliminary plats will be filed before the City has adopted a new system for financing street infrastructure . There could also be a perspective that the city is , "talking out of both sides of its 2 mouth " decrying how important this funding gap is while doing nothing on its own I nitiative to remedy the problem . Residents could look at such inaction as a failure on the part of the city to stand behind its long -articulated philosophy that development should pay for itself. If this were to happen the City could lose additional revenue and/or face more difficulty in financing needed street infrastructure , The direct costs of adopting a moratorium are minimal . Between legal and staff, it would likely cost no more than $750 to provide the notice for the hearing , prepare for the hearing and draft the ordinance to adopt the moratorium . The City already has a study in process . As such there would be no additional costs to provide a study . Once the Council determines how to finance future street infrastructure for new development there will be costs to implement the new policy, but these costs will be incurred regardless of whether a moratorium is adopted . Procedure : The City may adopt a moratorium of up to one year on all development in order to determine how to finance street infrastructure required by new development based on the effects of the Harstad v . Woodbury case . While the City can adopt a shorter moratorium , the Council should be aware that a moratorium can always be canceled early if the work is completed sooner than expected but extending an already adopted moratorium if more time is needed can be difficult . Adopting a moratorium does require that the City conduct a study , but the City has already hired SRF to conduct such a study , Because the proposed moratorium will affect housing proposals , the moratorium must be preceded by a public hearing and must be approved by a majority vote of the entire Council . The City must provide written notice at least 3 days prior to the hearing to anyone who has submitted a housing proposal or has a pending housing proposal or has provided a written request to be notified of any moratoria related to housing . In addition , the City must post notice of the hearing on the City' s website . The public hearing must occur at the next meeting after the notice or within 10 days of the notice , whichever is earlier. Next Steps : If the Council is inclined to consider a moratorium the first step is to adopt a motion scheduling a public hearing and directing staff to provide the required notice and prepare the required documentation . If the Council takes this action later tonight, the hearing could be held at the next Council meeting on March 4 . B . ) AFFORDABLE HOUSING While cities are reacting to the Harstad Supreme Court case , Housing First Minnesota has also launched a second attack in the form of a publication entitled , " Priced Out: The True Cost of Minnesota' s Broken Housing Market . " This 66-page 3 piece blames cities and the Metropolitan Council for developer' s inabilities to build affordable housing in Minnesota , I am taken aback by this thesis because frankly in my 45 years in municipal government there have been less than a hand full of times that a developer or builder notified me that they wanted to build smaller homes , Lot sizes have periodically become an issue but cities , including Prior Lake , have addressed this issue through Planned Unit Developments where lot sizes of 6000 square feet are possible in lieu of our standard lots of 12 , 000 square feet . Moreover, the piece is rife with comments suggesting that cities are duplicitous , One such claim is cities do not share their fee information . The city council is aware that fee schedules are ordinances and ordinances require public hearing , publication and become part of the city code book which is available by website or in paper form . A claim is also made that developer agreements are not available to developers for viewing . The cities I am familiar with request the developer review and sign the document prior to city council action . Our agenda reports are distributed to the city council five days before the actual meeting . Even if the developer was unable to see the document before its distribution , they can view them in laser fiche and failing that, may remove the item from the city council agenda . Seven cities are the target of Housing First Minnesota . Lakeville representatives have testified before the State House Committee on Housing . A copy of their testimony is enclosed . Lakeville has also written a letter to the Executive Director of Housing First Minnesota commenting about inaccuracies in the publication . The same letter has been forwarded to their State Representative . A draft letter has been prepared for Prior Lake for the mayor and city manager to sign . The draft will be loaded into the city council ' s drop box next Tuesday . It is proposed that the final version of that letter be shared with our legislative delegation and League of Minnesota Cities . If the council would desire to invoke a moratorium , the staff could use this time to look at the city code of other cities to see whether adjustments can be made that would provide for smaller lots in exchange for a contractual commitment by developers to build affordable housing in the subdivision , The League of Minnesota Cities has been actively testifying on behalf of cities at the legislature . They have also published articles in their Cities Bulletin , editorial pieces and articles regarding the city perspective on this topic . Staff is seeking city council direction with respect to the actions desired both to address infrastructure fees and affordable housing , I , 4 0246-09 Make Developers Pick Up The Tab "Failure on our part to prepare for demographic change will have substantial adverse effects on the economic welfare of our children and grandchildren and on the long-run productive potential of the U. S. economy. " The quote is Ben Bernanke' s ; then chairman of the Federal Reserve Board in 2006 . It' s on the cover of the 2011 Minnesota Demographer' s Report, which , like Bernanke ' s quote warns of changes we are only beginning to see and understand some eight years later . Have you noticed there are more graying heads ? They' re the baby boomers, the sons and daughters of the greatest generation . My wife , Marcia , and I are among them . We boomers showed up in the 40s . Our numbers went on to overwhelm the public schools in the 50s, the colleges and universities in the 60s ; thence on to decades long working careers , buying homes , raising kids, taking care of aging parents, and saving for retirement . By the end of this decade, Minnesota will have as many of us, age 65 and older, as children in K- 12 schools . Together, we grew the economy and changed Minnesota from a rural, agricultural state to a center for science, medicine , education , and technology . Now, we' re changing it again from a young state to an old state — from a work- based economy to a retirement economy . With that change comes the potential for generational conflict over disparate needs and priorities . Issues of economic growth and development, housing and taxes are among them . That' s Ben Bernanke' s warning . If growth and development doesn 't pay for itself, who does ? Not homebuilders and developers says the Housing and Affordability Institute in a 66- page report prepared on behalf of Housing First Minnesota , a trade association and interest group representing builders and developers . The report claims municipal fees and regulations make it impossible to build a ' single -family home in the Twin Cities for less than $ 375 , 000, a price that' s beyond the reach of many Minnesotans, especially new buyers , or anyone who can ' t come up with a hefty down payment, or the $ 100, 000 plus income needed to sustain a mortgage payment, not to mention saving for kids education and retirement, buying and maintaining a car, child care, medical emergencies and all the rest . Housing costs are up, more so since the 2008 financial debacle crushed the real estate market . But is it really about city fees , which go to the infrastructure costs associated with the roads and sewer and water systems that are required to support and sustain growth and development ? Or is it about real estate promoters and developers fattening their profits by passing on the costs of development to taxpayers ? Growth doesn ' t pay for itself. Why should current businesses and homeowners pick up the tab ? In January 2016 New Brighton developer Martin Harstad sued the City of Woodbury over the $ 1 . 3 million in fees the city demanded to pay for future road improvements made necessary by a 180 home housing development Harstad wanted to build in Woodbury . Last August the Minnesota State Supreme Court found that Woodbury lacked authority in state statute to impose the fees — a decision that affects every growing community in the state, including Prior Lake . E Before the court ruled , the City of Prior Lake charged developers $ 6 , 549 per buildable acre for road improvements . That includes everything from a new road , to a road extension , widening, or traffic signals and other safety improvements . None of these improvements and associated expense would be needed were it not for the developer' s project . Now, after the court' s ruling, all of the expense will fall on current taxpayers . Why should current residents pay more in taxes so a developer can create a need for more roads , not to mention additional city services , schools and the like, then collect its profits and wave goodbye ? Is that how growth pays for itself? Developers think so, but should current residents and taxpayers go along with it ? The city has 3 , 755 acres of developable land . Multiply that by $ 6, 549 per acre for street oversize fees and you have a revenue loss to the city of over $ 25 million — all of it to be made up by current taxpayer, unless, of course , the city takes a page from the City of Lake Elmo and says no to all future developers and development . Our mayor and council are working with other cities to force the legislature to take up the issue . It will be an uphill fight . Meanwhile, the council is taking stock of the city' s overall financial exposure and the costs of future projects . It could go on and suspend annexation agreements to forestall future development, or declare projects premature until infrastructure is in place to sustain them . It should also revisit the 2040 plan and reconsider the financial consequences of plans for future development . This is a pocketbook issue that affects everyone — homeowners , renters , businesses , retirees and young people just getting started . The mayor and council need our support Residents should also reach out to our state legislators : Representative Tony Albright and Senator Eric Pratt . The ball is in their court . Thank you Mr. Chair and committee members for the opportunity to testify today. My name is Justin Miller and I am the City Administrator for the City of Lakeville . Before I address the Housing First report, I thought it might be helpful to provide some context to housing development in Lakeville . Since 2010, we have added over 3900 housing units across all housing types - single family, townhomes, senior assisted and independent living, market rate and workforce apartments . We currently have almost 2000 lots that are available for sale, and 1200 units currently going through our city review process . Needless to say, housing development is of utmost importance to the City of Lakeville and we take this subject very seriously. We realize that Lakeville has many advantages that are attractive to homebuilders - plenty of available land, access to transportation corridors, proximity to major labor centers, but we believe one of our biggest assets is the relationships our city staff, advisory commissions, and city council have built with residential developers . These relationships create results that are not quantifiable in a report that solely analyzes city fees . These relationships allow us to respond to concerns of the development community and provide something that developers tell us is as important as any fee - flexibility and speed. As a result of these relationships, we have responded to developers concerns in the following ways : • Allowing for smaller lot sizes, which provides more units per development, although we have seen that many developers continue to develop the same, larger size homes on smaller lots, which is simply responding to market forces, which we understand, • Fast track approval process, removing extra planning commission meetings and allowing site work to begin before final approvals have been received. • Lowered fees when appropriate . In past years we have reduced park dedication fees to reflect decreasing land prices and lowered engineering review fees to account for efficiencies in staff review processes . • Increased the allowance of model homes when multiple developers are building in a single development, and allowed for longer street construction timeframes when weather caused extended delays . • Provide for a "similar plan review" process, where we charge a reduced plan review fee for cases where a similar floor plan has already been reviewed. But since the Housing First report highlighted city fees, I feel it is worth highlighting areas that are specific to Lakeville that were either inaccurate or did not provide appropriate context : • A private pool was constructed for the benefit of a homeowner's association at a cost of $ 5600 per home and was included in the "green space " calculation, yet the City did not require this pool. • The developer claims that $ 8900 was added to the cost of each home for oversizing sewer and utility lines, but they did not disclose that it is city policy to credit or reimburse the developer for this fee . • A $ 3000 landscape escrow is included in the price of their building permit, yet they do not mention that this money is returned once the landscape requirements are met. These examples are specific to the case study for Lakeville in the Housing First report, but I am confident that other inconsistencies could be found when reviewing the report for other cities . This, along with the difficulty in determining exactly how they calculated "regulatory fees " does raise concerns regarding the accuracy and thoroughness of this report. Fees that we collect are dedicated to specific uses . Park dedication fees are restricted to new park development demands due to growth. Sewer and water hookup fees are dedicated to expanding the system, again due to growth demands . Lakeville, similar to many other communities, has a goal of having growth pay for itself in a fair and equitable way without burdening existing taxpayers . If growth is not paid for by growth, the bill must be paid in some other manner, specifically higher property taxes or increased utility rates . We recognize that residential development is a complicated business with inherent risks and is subject to very competitive market forces . But we also value the partnership that we have with the development community and hope to be able to continue the conversation to identify areas we all agree can be streamlined and improved to help provide more housing options to our residents . Thank you for your time and I would be happy to stand for any questions . City of Lakeville Positioned to Thrive -memo February 12, 2019 David Siegel , Executive Director Housing First Minnesota 2960 Centre Pointe Drive Roseville, MN 55113 Dear Mr . Siegel . As one of the cities highlighted in Priced Out: The True Cost ofMinnesota s Broken Housing Market report, we believe it is important to point out some key issues that were either misinterpreted or lacked context related to the expense of city fees as part of the residential housing industry . First of all , we gladly replied to your data request knowing that you were preparing this report . In contrast to the insinuation , we do not try to hide fees or make the process `opaque". In fact, all of our fees are approved by the city council each year as part of the budget process and we routinely provide a breakdown of these fees to developers as they submit their plans to the city for our various review processes . Second , there are many examples of "fees " that are included in your calculations which , without further context, simply are not an accurate representation of the costs associated with city requirements . For example . • " Builder B " noted that they built a private pool for their homeowner's association , which added $ 5 , 614 to the cost of the home, yet they include this in the " Green Space" calculation . The City of Lakeville did not require this pool to be built. ( page 58) • The same builder added $ 8, 923 to the cost of each home for "oversizing sewer and water lines", however they do not disclose that it is standard city policy to reimburse or credit the developer for this fee . ( page 58) • A $ 3 , 000 landscape escrow is listed as a fee under building permit calculations, yet nowhere is it noted that this fee is fully returned once the landscaping requirements are met . ( page 46) • Calculations shows that construction costs in Wisconsin are $ 15, 522 less than in Minnesota , but only $ 5 , 500 of this difference is due to local " building permit and escrow charges". The remaining are State of Minnesota or building code requirements . (page 61 ) These misrepresentations, among others, cast doubt on the calculations of " regulatory costs", which are difficult to piece together in the first place . Corrections and clarifications to this report in light of these and other comments would be greatly appreciated . Lastly, there is very little recognition of market forces that impact the cost of building a new home in Minnesota . Land costs, labor and materials are all factors that are not controllable by cities . In fact, the City of Lakeville has been extremely flexible in responding to desires of the 20195 Holyoke Avenue, Lakeville, MN 55044 952-985-4400 . 952-985 -4499 fax www.lakeviRemn.gov development community, and that can be shown in the multiple developments recently approved by the City . In numerous cases, we have allowed for smaller lot sizes, which allow developers the opportunity to create more lots and spread development costs across a greater number of homes . However, we also see that home builders are still building the same size home on these smaller lots, understandably due to market demand . It can only be assumed that their construction costs would be lower if they used fewer materials in constructing smaller homes on these smaller lots . The City of Lakeville's 2019 legislative policies and our Envision Lakeville plan have components that relate to housing . In response to the Harstad vs . Woodbury decision , the City believes that local units of government should have the authority to collect an infrastructure fee so that development pays for both the on -site and off-site impacts of development, while not burdening existing taxpayers . More importantly, however, is that one of our Envision Lakeville Community Values is "A Home for All Ages and Stages of Life". Over the past few years we have seen the construction of single family homes, townhomes, senior facilities, and both market rate and workforce apartment projects . Lakeville is a welcoming community for all housing types and we will continue to work with developers and landowners to help meet the growing need for more housing in the Twin Cities metropolitan area . In summary, we recognize that residential development is a complicated business with inherent risk built into the business model . We are appreciative of the partnership we have with the development community and their willingness to make Lakeville the number one issuer of single family permits in the metropolitan area each of the past six years . However, without appropriate context, this report is inadequate in telling the whole picture of this partnership between cities and developers . We hope that as discussions regarding this topic continue we will be offered the opportunity to be included and help provide a complete picture . Sincerely, Justin Miller Douglas P . Anderson City Administrator Mayor cc : Lakeville City Council City of Lakeville Positioned to Thrive February 8, 2019 Representative Jon Koznick 367 State Office Building 100 Rev . Dr . Martin Luther King Jr . Blvd . St . Paul , MN 55155 Dear Representative Koznick : As you have probably seen , Housing First Minnesota (formerly known as the Builders Association of the Twin Cities) recently released a report titled Priced Out.• The True Cost of Minnesota 's Broken Housing Market. As one of the cities highlighted in this report, we believe it is important to point out some key issues that were either misinterpreted or lacked context related to the expense of city fees as part of the residential housing industry . First of all , we gladly replied to a data request from Housing First Minnesota knowing that they were preparing this report . In contrast to their insinuation , we do not try to hide fees or make the process "opaque ". In fact, all of our fees are approved by the city council each year as part of the budget process and we routinely provide a breakdown of these fees to developers as they submit their plans to the city for our various review processes . Second , there are many examples of "fees" that are included in their calculations which , without further context, simply are not an accurate representation of the costs associated with city requirements . For example . • " Builder B " noted that they built a private pool for their homeowner's association , which added $ 5, 614 to the cost of the home, yet they include this in the " Green Space" calculation . The City of Lakeville did not require this pool to be built . • The same builder added $8, 923 to the cost of each home for " oversizing sewer and water lines ", however they do not disclose that it is standard city policy to reimburse or credit the developer for this fee . • They also add a $3 , 000 landscape escrow as a fee under their building permit, yet nowhere do they show that this fee is fully returned once the landscaping requirements are met . • They calculate that construction costs in Wisconsin are $ 15, 522 less than in Minnesota , but only $ 5, 500 of this difference is due to local " building permit and escrow charges ". The remaining are State of Minnesota or building code requirements . Lastly, there is very little recognition of market forces that impact the cost of building a new home in Minnesota . Land costs, labor and materials are all factors that are not controllable by cities . In fact, the City of Lakeville has been extremely flexible in responding to desires of the development community, and that can be shown in the multiple developments recently approved by the City . In numerous cases, we have allowed for smaller lot sizes, which allow developers the opportunity to create more lots and spread development costs across a greater , number of homes . However, we also see that home builders are still building the same size 20195 Holyoke Avenue, Lakeville, MN 55044 952 - 9854400 . 952 - 9854499 fax www.lakevillemn .gov home on these smaller lots, understandably due to market demand . It can only be assumed that their construction costs would be lower if they used fewer materials in constructing smaller homes on these smaller lots . The City of Lakeville's 2019 legislative policies and our Envision Lakeville plan have components that relate to housing . In response to the Harstad vs . Woodbury decision , the City believes that local units of government should have the authority to collect an infrastructure fee so that development pays for both the on -site and off-site impacts of development, while not burdening existing taxpayers . More importantly, however, is that one of our Envision Lakeville Community Values is "A Home for All Ages and Stages of Life ". Over the past few years we have seen the construction of single family homes, townhomes, senior facilities, and both market rate and workforce apartment projects . Lakeville is a welcoming community for all housing types and we will continue to work with developers and landowners to help meet the growing need for more housing in the Twin Cities metropolitan area . In summary, residential development is a complicated business with inherent risk built into their business model . We are appreciative of the partnership we have with the development community and their willingness to make Lakeville the number one issuer of single family permits in the metropolitan area each of the past six years . However, without appropriate context, this report is inadequate in telling the whole picture of this partnership between cities and developers . We hope that as discussions regarding this topic continue at the legislature we will be offered the opportunity to be included and help provide a complete picture . Sincerely, Doug Anderson Mayor cc : Lakeville City Council {