Palo Alto overhauls development fees

The cost of doing business in Palo Alto is about to change for builders, home renovators and creators of parade floats — in some cases significantly so — under a newly approved overhaul to the municipal fee schedule.

The City Council on Monday night voted 7-1, with Councilman Greg Tanaka dissenting and Mayor Greg Scharff absent, to change more than a hundred fees pertaining to building and permit applications, add nearly 30 new building fees, and to approve a 5 percent fee hike that would fund a new reserve at the Development Service Department.

The idea behind the new fee schedule is simple: Fees should reflect the amount of time and money that the city spends on performing the service. Today, that is often not the case. Fees for building permits are based on “valuation,” which means that redesigning a lavish home to add gold-plated fixtures costs significantly more than a modest structure with the same exact square footage and number of rooms. Given that Development Services staff do the same amount of work inspecting either building, the fees will now be identical and based on the methodology of the International Code Council.

As a recent Development Services report puts it: “Construction values can vary even though the cost to the City in providing a plan check and inspection services may not.”

“This ordinance standardizes that, equalizes that, treats everyone fairly and allow us to base our fees on the amount of time it takes do the work,” Development Services Director Peter Pirnejad told the council Monday.

The switch to the common standard is just one of dozens of changes that the council approved to the fee schedule. In many cases, the new fee will be lower than the current one. A permit for construction and demolition of multi-family projects, for example, will go from $412 today to $305 under the new fee schedule. A re-inspection fee for multifamily and residential and nonresidential projects will drop from $315 to $137. The new schedule also includes lower fees for inspection, plumbing and gas piping fixtures. (The fee changes can be viewed here.)

But other fees will increase — in some cases, dramatically and seemingly unpredictably. A permit for a parade float will go up from $122 per hour to $351. And a permit for a tent or air-supported structure will rise from $307 to $734.

These numbers perplexed Tanaka, who called some of the proposed changes “bizarre.” Is the city really trying to discourage floats and go after “bouncy houses,” he asked? (Pirnejad assured him that his staff will not inspect bouncy houses.) Tanaka also marveled that the fee to inspect motor generators is set to go up from $75 to $441; even though the cost of inspecting a motor would go down from $75 to $58.

“The spirit of this is right, but when you look at the numbers — it’s not right,” Tanaka said. “It doesn’t make sense.”

Others were satisfied with staff’s explanation for the wide variation in fees. The city had recently completed the second phase of a cost-of-service study, which re-examined all the fees, analyzed the workload associated with each fee and helped develop the new cost structure. The council’s Finance Committee previously vetted the staff proposal and unanimously recommended adopting the new fees.

Councilman Eric Filseth, who chairs the committee, said Monday that the idea of aligning fees with the costs makes sense.

“If our fees are lower than the actual cost to the city, someone else has to pay the difference,” Filseth said. “This approach bases fees on what it actually costs the city, as opposed to what it costs the applicant — which is how we’re based on some of our fees now.”

Councilman Cory Wolbach said the fee changes made him “uneasy.” Unlike his colleagues, he saw nothing wrong with having a developer of a “gold-plated” home pay more than someone whose means — and project — are considerably more modest. And even though the council adopted in 2015 a goal of making development services revenue-neutral, Wolbach questioned whether this should be the aim of development services.

“Libraries aren’t cost-for-service; police isn’t cost-for-service — it’s kind of a regressive policy. … We might want to think if we’re going too far down the road with cost-for-service,” Wolbach said.

The council also approved the creation of a reserve fund for the Development Services Department, which will come from a 5 percent increase in development fees annually over five years. The fee will result in a reserve of about $3 million to $4 million, according to staff. This would obviate the need for the city to dip into the General Fund, which pays for most basic city services (not including utilities), Pirnejad said.

The new reserve would also “allow active continuous improvement programs to be completed or phased down in an organized fashion,” according to a report from Development Services.

“Furthermore, it will allow Development Services Department to maintain highly skilled staff to ensure that key projects stay on schedule, which correlates to earlier economic recovery,” the report states.