GALT, CA (MPG) - The City Council unanimously adopted a resolution at its Feb. 3 meeting reducing some construction fees in the hope it will spur developers to build more multifamily projects and residential units on smaller parcels in the city.

The resolution implements a two-year reduction on certain impact fees in order to help developers with costs preventing them from proceeding with various infill and multifamily projects in Galt. The measure reduces traffic impact and recreation impact fees by 75% while eliminating the policy document maintenance and recovery fee, a fee calculated by taking the total valuation of construction times $0.0031.

Assistant City Manager Amie Mendes told council these projects are often challenging to do, with infill constrained by irregularly shaped, smaller sites, aging existing infrastructure and smaller-sized units leading to decreased return on investments. Multifamily projects experience increasing construction costs, high interest rates on loans, impact fee “burdens” and lower rental revenue in Galt due to its distance from larger urban job centers such as Stockton and Sacramento. 

Mendes said these factors have led a number of projects to “stall,” adding the last apartment complex built in the city was in 2008.

“So it’s been 18 years since we had a multifamily built in Galt,” she added.

Fee reductions for both development types are contingent upon several factors. For infill, the parcel size must be 10 acres or less, be located in one of six zones and previously developed for urban uses or have adjoining parcels with urban uses on 75% of its perimeter. Multifamily developments must be in one of three zones, be a minimum of 10 acres and provide residential housing, including townhomes, other than single-family detached structures.

Both infill and multifamily fee reductions are only available to developers’ selling units and not utilizing “additional infrastructure financing programs that result in a future assessment on the property (i.e., Statewide Community Infrastructure Program or “SCIP” financing).”

Mendes said there would be some impact to city revenues from fees, although how much would depend on how many stalled or new projects utilizing the reductions get underway. According to the example in the report, a seven-unit apartment complex valued at $1.55 million would see traffic and recreation fees drop by $93,474 (30%) from $310,385 to $216,911.

Staff noted impacts to traffic and recreation funding should not be as dramatic as infill development utilizes existing roadway and park facilities, and these fees generally go towards new infrastructure construction.

The Policy Document Maintenance and Recovery Fee of $4,830 would also be eliminated.

While fee revenue would decrease temporarily, city funds would realize an increase in property taxes from these newly developed parcels. As an example, Galt is currently receiving $274 in property taxes from an undeveloped, 9,000-square-foot residential lot valued at $130,000.

If a 1,650-square-foot single-family residence were built on that lot, the tax received would increase to $1,054, amounting to a 285% increase over the undeveloped parcel. A three-acre high density lot valued at $500,000 is generating $738 in property tax for the city, while if that same lot had a 15-unit condo valued at $2.5 million built on it, it would return $5,269 to city coffers, a 614% increase.

“So the property tax increase obviously is a benefit to the community or to the city as these properties develop,” Mendes said.

During discussions, council expressed some concerns, mainly over some of the resolution’s language and potential loss of fee revenue. Vice Mayor Tim Reed, doing math using staff provided statistics, noted the difference in loss of fee revenue versus gaining property tax revenue for both multifamily and single-family developments was substantial.

“It goes into possibly decades for us to get our money back,” Reed said.

City Manager Chris Erias accepted Reed’s calculations, but added the intent of the temporary reduction program is not to have increased property taxes through construction offset lost fee revenue. The intent is to incentivize construction on vacant property that is incurring other costs to the city besides minimal property tax revenues.

“The property sitting vacant actually costs you money,” Elias said. “They cost money in code enforcement, police activity and then really, you know, the blight on the city.”

Elias said there are “numerous other reasons” for developing these properties, reasons that lead to “smart growth” where development is taking place on existing internal properties rather than larger “greenfield” developments leading to urban sprawl. He added the multifamily reductions could also apply to greenfield multifamily developments as well, leading to “multifamily that we want.”

Councilman Shawn Farmer expressed concerns about townhomes, how the city defined them and if that definition prevented misuse of the fee reductions by developers who might build “20 acres of townhomes.” Elias, reading the city’s definition of townhomes, said the Municipal Code should prevent that misuse.

Farmer also expressed concerns about the multifamily lot size requirement of a minimum of 10 acres, feeling that was too open, again, for misuse where a developer could come and build a multifamily complex and sell the units instead of renting them. He said it would something defeating one of the city’s intentions in the resolution of providing more affordable housing options.

Council agreed to include an amendment to the original resolution that the fee reductions apply only to multifamily projects with rental units.