AGENDA #4a

BUDGET WORKING PAPER

TO:                  W. Calvin Horton, Town Manager

FROM:            Roger S. Waldon, Planning Director

SUBJECT:       Revised Proposal for Adjusting Development Application Fees

DATE:             April 12, 2000

RESUBMITTED:  JUNE 5, 2000

On March 3, the Town Council conducted a Work Session to discuss issues related to the Planning Department’s proposed budget for the 2000-01 fiscal year.  We presented a proposal at that time for increasing development application fees (please see attached February 24, 2000 memorandum).  The Council asked us to consider a more aggressive fee schedule, one that would attempt to reflect the full Town cost of reviewing and processing major development applications.

We have revisited the fee schedule as suggested by the Council.  This memorandum discusses a new proposal.

REVISED APPROACH TO CALCULATING APPROPRIATE FEES

Based on the Council’s guidance, we took the following approach:

·        Estimate the cost of staff time (all departments) that is spent on review of major applications (Master Plan, Special Use Permit, Major Subdivision, Site Plan Review), from the point of application to issuance of a Zoning Compliance Permit, over the course of a year.

·        Determine the number of such applications that were submitted during each of the last two fiscal years, and the first part of this year, to determine a typical number of applications received.

·        Use these figures to determine the average staff cost involved in processing a major development application.  Use this figure as a benchmark.

·        Using this benchmark, adjust the fee schedule such that the application fee for a typical Master Plan, Special Use Permit, or Major Subdivision generates revenue corresponding to the benchmark.  Fees for Site Plan Approval, which go only to the Planning Board typically involve about one-third of the staff time of the other three, and should have a fee that is approximately one-third the fee of the others.  

The staff work that is covered by this paper includes the work of all Town departments involved in review of major development applications, from the time an application is originally submitted through the time that the application has been approved for construction, and a Zoning Compliance Permit has been issued.  This estimate of staff time involved also includes, for the Public Works Department, the time spent in inspection of construction.  Other staff time involved in inspection of construction is covered by other fees:  by a Building Permit fee for building inspections, and by an Engineering Construction Permit fee for inspections of construction by our Engineering Department.  None of this accounts for fees paid to the Orange Water and Sewer Authority, or the School Impact Fees paid to Orange County.

Following is an estimate of the approximate number of staff hours typically spent by each of the following Town departments in a typical year in the review of major development applications.  (Note: a full-time position is approximately 2,000 hours per year, excluding vacation, leave, holidays, etc.):

Planning:                                   8,000

Engineering:                              2,850

Public Works:                           1,850

Parks and Recreation:                  500

Fire:                                         1,000

Manager’s Office:                        500

Town Attorney’s Office:              200  

                                                _____

Total Hours:                            14,900

Other Town departments are involved on occasion in development review, but not as consistently as is the case with the seven departments listed above.  We note that the Town Manager is seeking proposals for study of this issue by a consultant, to determine more precisely the number and allocation of hours devoted to the review and processing of development applications.

For purposes of this calculation, we have used an average hourly staff cost that is established based on the range of salaries of staff involved in this process.  This hourly average staff cost covers personnel-related Town expense:  salary, and also non-salary personnel-related cost (such as Social Security, insurance, and the cost of annual leave and sick leave).  The figure for such a typical average hourly staff cost that we have used is $30.00.  The total figure estimated for the cost of staff time devoted to development review of major applications then becomes approximately $447,000 annually. (14,900 hours times $30 per hour.)

Looking at the last two full program years, we received the following number of major applications:

                                                      1997-98                     1998-99

Master Plan:                                           0                                  0

Special Use Permit:                               18                                23

Subdivision:                                          10                                  3

Site Plan Review:                                    8                                10

_______________                  ____________              ____________

Total applications:                                 36                                36

The first half of the 1999-2000 year looks like a similar pattern. 

For each of these applications, there is a fee for initial application.  Then following approval by the Town Council or Planning Board, final plans are prepared and there is a fee accompanying that application as well (normally set at ½ of the fee for the initial application).   Given workload demands involved in processing these applications, Site Plan Review applications should be set at about one-third the cost of the other three types listed above.

This leads to a conclusion that it would be reasonable to set a fee schedule such that an average Master Plan, Special Use Permit, or Subdivision would be accompanied by an initial application fee of approximately $ 10,000  (average Site Plan Review application at $3,400).  It makes sense for part of the fee to be a base fee, and part to be calculated by the size of what is proposed.  For purposes of constructing a new fee schedule, we will assume here that an “average” subdivision proposes 25 lots, and that an “average” Special Use Permit application proposes 25,000 square feet of floor area, and that an “average” Site Plan Review application proposes 10,000 square feet of floor area.  Then, if half the fee were a base, and half were to be size-dependent, the following fee structure would emerge:

Special Use Permit and Master Plan:                 $ 5,000 plus $ 20  per 100 sq ft of floor area

Site Plan Review                                               $ 1,700 plus $ 17  per 100 sq ft of floor area

Subdivision                                                       $ 5,000 plus $200 per lot

If development applications were received in the 2000-01 fiscal year in the pattern seen in the 1998-99 year, and all the applications were exactly “average” as described above, the resulting revenues from initial and final application fees for major applications would be    $ 440,000.  Application fees generated from other types of development activity combined (Minor Subdivisions, Final Plats, Building Elevations, Administrative Zoning Compliance Permits, Sign Plans) would likely be under $5,000 for a full year.

Given this analysis above, and the discussion in our February 28 memorandum, we now suggest that the approach to revising our fee schedule be as follows:

·        Continue the “No fee” policy for a Certificate of Appropriateness.

·        No change to the fee schedule for a Home Occupation permit.

·        No change to the fee schedule for Appeals and Variances.

·        No change to the fee schedule for Rezonings.

·        Significantly raise the base fee for Master Plans, Special Use Permits, Major Subdivisions, and Site Plan Reviews, reflecting the staff costs involved in processing those applications.  This would be accompanied by an increase in the “per lot” and “per 100 square feet” fees, continuing to reflect the fact that a larger project will likely need more staff time in processing and evaluation.

·        Change the schedule such that a Special Use Permit Modification would have the same fee as an original Special Use Permit, reflecting the fact that the process is the same for both types of applications.

·        Fees for review of final plans would be set at one-half the original application fee, reflecting a lesser amount of staff time required (compared to an original application).  Final plan approval is an administrative function, and does not involve review and evaluation by the Town Council and multiple advisory boards.

·        Applications that are submitted after a development has already begun would pay double the standard fee.

·        Any application for residential development in which documentation is provided that at least 15% of the dwelling units will be affordable to low-moderate income families would be exempt from 100% of all development application fees.

JUSTIFICATION

We note that there is recent case law that offers guidance as to the reasonableness of a fee structure.  In the case of Homebuilders Association of Charlotte, NC v. The City of Charlotte, the Supreme Court of North Carolina in 1994 upheld the validity of Charlotte’s application fees.  The court quoted from a publication by Institute of Government faculty member David Lawrence as follows:  “Because the purpose of such a fee or charge is to place the cost of regulation on those being regulated, a rough limit to ‘reasonableness’ is the amount necessary to meet the full cost of the particular regulatory program.”  We believe that this language could be used to justify the attached fee schedule, marked “Revised 4/12/00.”

ESTIMATED REVENUES FOR 2000-01

Revenues from development application fees in 1998-99 were $137,000.  Using the current fee schedule, we had previously estimated that revenues for 2000-01 would be approximately $131,000 assuming continuation in the current volume of applications and no change in the fee schedule.  If the attached revised fee schedule (dated 4/12/00) were applied to the level of major development application activity that occurred during 1998-99, the result would have been revenue of approximately $440,000.  Applying that to the upcoming year, assuming a continuation in the current volume of major development applications, and accounting for slight additional revenue from non-major applications, we believe it would be reasonable to assume that, with the new fee schedule, total revenues from development application fees for 2000-01 might be approximately $445,000.  This is based on the maximum that we believe could be set for a fee schedule, given the “reasonableness” concept outlined in the recent court decision noted above.  We believe that the Council could choose to adopt this “Revised 4/12/00” fee schedule, or any variation of it that is lower.

We note that projections of expected development activity are uncertain, due to many unknowns about market conditions 12-15 months from now.  We cannot accurately predict how many applications of what type would be submitted, nor how large or small they might be. Therefore, the revenue projections are similarly uncertain.  The Town Manager has noted that the $445,000 revenue projection might be too high, given the possibilities of a lower volume of major applications next year.  (Higher fees could be a contributing factor to a possible lower number of major applications).  The Manager suggests that, for budgeting purposes, it would be prudent to include 75% of the projected revenue from application fees, rather than 100%.