Developers looking to build in Palo Alto will have to pay significantly more to support local parks, libraries and community centers under a fee revision that the City Council voted to adopt on Monday.
By a 6-1 vote, with council member Greg Tanaka dissenting, the council agreed to overhaul its "impact fees" for new developments, which includes both commercial and residential projects.
The most significant change pertains to park fees, which for residential projects currently range from $4,116 for a small apartment or condominium to $18,570 for a single-family home with more than 3,000 square feet of floor area (smaller homes are required to pay a fee of $12,436). Under the revised fee schedule, a builder of any single-family home would have to pay $57,420 in park fees, while multifamily developers would pay $42,468 per unit.
While park fees represent by far the largest change, impact fees for libraries and community centers are also going up. Today, a single-family home pays $3,321 in community center fees and $1,126 in library fees. These would go up to $4,438 and $2,645, respectively, under the new schedule.
Overall, someone building a single-family home would have to pay $64,504 in impact fees for the three categories, up from the current level of $16,883. For a small unit in a multifamily residence, the total cost goes up from $5,557 to $47,707.
Commercial developers would have to pay $18,914 per 1,000 square feet in impact fees, while hotels would be assessed $3,322 per 1,000 square feet. That's up from current levels of $5,863 and $2,641, respectively.
The new numbers are based on a study that the city had recently commissioned as part of its effort to revise its fees for the first time in 20 years. The study from the firm DTA evaluated local values and the costs of providing and maintaining parks, libraries and community centers before calculating how much it would take to support new amenities without degrading existing levels of services.
"The idea is that as new residents and new employees come, you need to attach the same level of service to those folks," said Nate Perez, managing director of DTA. "If you don't do it, the level of service to the resident group will be deteriorated and you will see the degradation to your inventory of assets and things of that nature."
In approving the changes, council members suggested that even the new fees may not be enough to cover the city's costs, particularly for parks. In assessing the fair market value of Palo Alto land, the firm settled on the figure of $5.7 million per acre. Vice Mayor Pat Burt was among those who argued that the figure is far too low and pointed to recent land sales — including the 2017 purchase of the Buena Vista Mobile Home Park by the Santa Clara County Housing Authority for $40.4 million — for evidence.
Burt argued that as the city explores the creation of new multifamily projects to meet both local and state housing goals, the neighborhoods where these developments will occur will require new parkland.
"I think we ought to have market-rate projects be able to pay for that," Burt said. When we have density, it's not supposed to be at the detriment of the community values and services that are presently provided."
Council member Lydia Kou said she was shocked to learn that the fees haven't been updated in two decades. She also suggested that the DTA study underestimates the number of employees that occupy new commercial developers. The council voted 5-2, with Tanaka and council member Alison Cormack dissenting, to further evaluate employee densities and land values over the coming year. It also requested that the city evaluate a fee structure that differentiates between retail and other commercial developers.
Tanaka, who opposed both the analysis and the Monday revision, suggested that hiking the fees so sharply will discourage construction, including of much-needed affordable housing. He also noted that the city has seen its revenues plunge — and its vacancies rise — over the past year.
"I do wonder if our intent is to actually create more affordable housing," Tanaka said. "My impression is that there's not a lot of people clamoring to develop in our city, per se."
Cormack supported a more moderate approach: phasing out the fee increase over a two-year period. That proposal failed by a 2-5 vote, with only Tanaka joining her.
"These are big changes. … I think it's reasonable to provide an on-ramp," Cormack said.
Council members largely agreed, however, that the current fees are outdated and far too low. Mayor Tom DuBois suggested that raising them will help the city obtain funding for some of the items in the city's Parks and Recreation Master Plan.
"These fees go right to the quality of life for residents and they're going to be needed as our population grows," DuBois said.