AGENDA #8

MEMORANDUM

TO:	Roger L. Stancil, Town Manager
FROM:	Ray L. Kisiah, Jr., Director of Parks & Recreation Bill Webster, Assistant Director of Parks & Recreation
SUBJECT:	Response to a Petition Related to Impact Fees for Parks and Recreation
DATE:	November 19, 2007

PURPOSE

The purpose of this memorandum is to provide a response to the petition by the Mayor of Chapel Hill regarding the use of impact fees to help support the Town’s recreation and parks program. Currently, two of the most pressing needs of the Town’s recreation and parks program are the renovation and repair of existing parks, trails and facilities and the acquisition of property to provide for future needs. This memorandum provides background information on the usefulness of impact fees as compared to the existing payments-in-lieu ordinance to meet these tremendous needs within the Town.

The Manager recommends that the Council adopt Resolution A, which would continue the use of the current ordinance to require payments-in-lieu of recreation area when such payments would better serve the public than the dedication of land.

Resolution B would authorize the Manager to research the steps that would be necessary to implement an impact fee program including schedule and costs and to report back to the Council in February 2008.

BACKGROUND

In 1986, the Council requested and received special authorization from the North Carolina General Assembly to pursue an impact fee program. The Town of Carrboro was also granted this authority. The legislature granted the Town the authority to collect impact fees for streets, bridges, sidewalks, bikeways, drainage improvements, and public recreation. Please see the attached copy of the enabling legislation (Attachment 1).

In 1988, an Intergovernmental Work Group was formed to explore options related to impact fees and taxes. The group consisted of elected officials and staff members of Chapel Hill, Carrboro, and Orange County. In 1989 the Work Group concluded that an impact fee would be too complex to administer and instead issued a report that called for Orange County local governments to request legislative authority to levy a new local impact tax. Legislation to authorize a local impact tax was introduced in the General Assembly, but was not enacted. Please see the attached copy of the Work Group’s report (Attachment 2).

In 1993, the General Assembly authorized the Town to require payments-in-lieu of recreation area if the required recreation area was 2 acres or less. Please see the attached copy of the enabling legislation (Attachment 3). In 2005 and 2006 the Council took action that simplified the Town’s payment-in-lieu process for both recreation area and recreation space.

On October 8, 2007, the Mayor requested information related to the possibility of collecting development impact fees for parks and recreation capital projects.

DISCUSSION

Capital Needs for Parks & Recreation: Capital needs for parks and recreation generally fall in two distinct areas – renovation of older parks and provision of new facilities. We believe that at this time the greatest capital needs are in the areas of renovation and repair. Several of our parks were built in the 1970s and never experienced a major renovation or replacement of facilities. Almost all of our older parks have major infrastructure components and facilities that now exceed their expected life spans. The best examples of parks that currently require renovation include Cedar Falls, Oakwood, and Umstead. Almost all Town parks require some major work including replacement of walkways, utility lines, electrical components, parking lots, play equipment, athletic lights, and other features.

New facilities are also required. Examples of new facilities that would assist the Town recreation program include administrative offices, a multi-purpose building, greenway trails, and athletic fields.

Capital Funding for Parks and Recreation through Development: Currently the Town receives some parks and recreation capital funding from developers of residential properties through the occasional collection of payments-in-lieu of recreation area or improved recreation space. Recreation area is a requirement of subdivisions and involves the dedication of land either to a homeowners association, the Town, or occasionally some other entity such as a land preservation organization. Developers are required to provide recreation area, but not improve it for recreation purposes. In Chapel Hill recreation area is seldom improved and effectively becomes open space. Recreation space is a requirement of planned unit developments such as mixed use projects, condominiums, and apartments. Recreation space is required to be improved for active recreation at the time of development. Examples of improved recreation space include swimming pools, tennis courts, play areas, and basketball courts.

The Town does have the right to change the current system to require impact fees. In the past the Town attempted, without success, to receive enabling legislation for an impact tax.

The current payment-in-lieu of recreation area provisions in the Land Use Management Ordinance share some common elements with impact fees as authorized by the legislature.

Both would have to show a clear connection between the impacts of the new development and the use of the funds.
Use of the funds could not be far removed geographically from the source of the funds.
Both systems would require spending the funds in a reasonable amount of time.

Because both impact fees and payments-in-lieu of land dedication require a reasonable relationship between the payments and the impacts of new development, we believe that imposing both programs at the same time would not allow the Town to receive any greater benefits than the use of the current program. For example, if the impact fee program is pursued we believe that the provisions in the development ordinance requiring land dedication and/or payments-in-lieu would have to be reduced proportionally.

Land Dedication and Payments in Lieu: Since the 1980s the Town has required that all residential development provide either Recreation Area (subdivisions) or improved Recreation Space (multi-family and planned unit developments).

In the 1980s and 1990s the Town was primarily interested in securing land for recreation and open space. This included public open space, greenway corridors, and private recreation spaces and areas. During that period the number of payments-in-lieu was relatively small. Since the late 1990s, the sizes of developments have been smaller with corresponding reductions of recreation areas/spaces.

As the size of development shrinks, we expect to more often use the provision approved by General Assembly that allows the Town to require payments-in-lieu of recreation area if the amount of required recreation area is 2 acres or less.

In recent years we have worked with developers to increase the numbers of payments-in-lieu, especially in cases where on-site dedications would be small and have relatively little impact on the inventory of recreation amenities in the community. In 2005 and 2006 the Council amended the Land Use Management Ordinance to make it easier to administer the payment-in-lieu program, predict the costs of payments-in-lieu, and reduce the uncertainty related to these payments.

Since 1985, the Town has accepted $654,000 in voluntary payments-in-lieu of providing recreation area and space. These payments have all been spent in a manner that had a direct connection to the development that generated the funds. Funds were used for a variety of purposes including capital renovations, facility upgrades, and new development.

Advantages to the Use of Payments in Lieu of Recreation Area and Space:

Funds can be used to upgrade and renovate inadequate capital facilities. Impact fees can only be used to expand facilities.
The Council would retain the ability to require dedication of land. With the implementation of an impact fee program the ability to require land dedication would be compromised because the courts have placed limits on the value and types of requirements that developers can be required to bear.
In the case of subdivisions the Council can currently require either money or land if the amount of required land is 2 acres or less. The Council could request enabling legislation to extend the rule requiring payments-in-lieu to recreation space. If granted by the legislature the Town could then require either land or payment from smaller planned unit developments as the situation dictates.
The current program is easy to administer and would require no additional staff.
The payment amounts are easy to calculate which makes it easier for the developer to anticipate costs at the beginning of a project.

Disadvantages to the Use of Payments in Lieu of Recreation Area and Space:

The ordinance applies only to residential development.

Impact Fees: These fees would be derived from a governmental unit’s police power. They would be collected from new land development to pay for new public facilities. The fees could be collected from all development including commercial and residential.

The Statute establishing the Town’s right to impose impact fees (Attachment 1) spells out how an impact fee program would need to be administered:

The Town would have to estimate the total cost of recreation improvements over a set planning period, not to exceed 20 years. The process would involve establishing two or more geographic impact fee districts for administering the program. The calculations determining costs would have to be periodically revisited. The purpose of this exercise would be to determine the estimated costs of the capital improvements in each district over the study period.
A formula would have to be developed to fairly apportion a percentage of the total cost of needed improvements to each new development. The formula would have to address the type of development. For instance, non-residential development would likely have a lower impact on parks and recreation than residential development. The formula would have to fairly apportion a cost to every type and size of development allowed within the Town.

Advantages to the Use of Impact Fees:

Unlike the current payment-in-lieu of recreation area system, some fees could be obtained from non-residential development such as new office buildings, restaurants, and retail establishments.
The Council could collect fees from projects that currently provide land or improved recreation. There are some developments in which a payment, rather than a land dedication, would better serve the public. This situation usually occurs when the amount, configuration, or location of land would result in only a small benefit to the community.

Disadvantages to the use of Impact Fees:

The requirements of the enabling legislation would result in an impact fee program that would be complex to start and administer. We anticipate the need to hire a consultant or new staff to implement and run such a complex program.
Funds cannot be used to upgrade or renovate existing, inadequate facilities. Funds can only be used to build new facilities. The current ordinance related to payment-in-lieu of recreation funds allows funds to be used for either capital renovations or new facilities.
The amounts of money raised from non-residential development are likely to be small because the impacts of such developments on recreation facilities are likely to be minimal. For example, it would likely be difficult to show that construction of an office building development would have a significant impact on the need for recreation facilities.
We could not require dedication of land in the same manner as we currently do. Although the Town is fast approaching build out of its corporate boundaries there still remain several significant open space and greenway corridors that could be acquired at little or no cost under the current system. Any gains in revenue from an impact fee system might be negated by the need to purchase property that could have been acquired free of cost under the current system.
Revenues derived from impact fees cannot be used to purchase land.
The complexity of the system might invite lawsuits challenging the Town’s stated “rational nexus” between the impact of the development and the size of the fee. These types of lawsuits would be expected unless the apportionment formulas are well reasoned and frequently updated.

CONCLUSION

Although the use of impact fees would allow for funding from a wider variety of sources, this use would not assist the Town with its most pressing park and recreation needs: capital repair and renovations of existing facilities and the purchase of land. On the surface it appears that there may be significant administrative issues with such a program, as noted by the intergovernmental work group in 1988.

An alternative approach would be to maximize the use of current ordinances to increase payments-in-lieu of land dedication and to request authorization from the General Assembly to make further changes to the Land Use Management Ordinance.

The existing provision in the current Land Use Management Ordinance that allows the Town to require payment if a recreation area dedication of 2 acres or less has been used only twice. In both cases the projects have not yet progressed to the point of making payment. We believe that in the future the staff will more often recommend that the Council require payments with smaller projects unless there is an overriding public benefit in accepting land. For example, we would likely prefer land if a development project is located on an identified greenway corridor or is adjacent to an existing protected open space.

The Council could request enabling legislation to require payments in-lieu of improved recreation space in much the same manner as is now required for recreation areas.

We believe that a consultant would be necessary in order to fully evaluate the potential costs and benefits of an impact fee program for Chapel Hill.

RECOMMENDATION

We recommend that the Council adopt Resolution A, which would continue the current use of the Land Use Management Ordinance to require payments-in-lieu of recreation area (subdivisions) when such payments would better serve the public than the dedication of land.

We also recommend that the possibility of legislation be discussed in the spring, along with other potential legislation, that would allow the Town to require payments in-lieu of improved recreation space if the required space is two acres or less. This action, if approved by the legislature, would enable the Council to enact an ordinance requiring payments-in-lieu of recreation space for smaller Planned Unit Development, condominium, and apartment projects.

The alternative Resolution B would authorize the Manager to research the steps that would be necessary to implement an impact fee program including schedule and costs and to report back to the Council in February 2008.

ATTACHMENTS