Fresno May End Low-Fee Policy for Developers
In an effort to give developers one of the best deals in California, this city has dug itself into a deep financial hole that could undermine its future even as a construction boom is turning orchards into suburbs on every side of town.
As the city looks to overtake Long Beach as the fifth largest in the state, officials project a shortfall of billions of dollars to build streets, parks, police and fire stations and other facilities to serve its 470,000 residents -- and the hundreds of thousands more expected in the next 20 years.
“We’re facing a world of challenge,” said Mike Kirn, assistant director of public works.
The reason for the shortfall is plain, city officials say: Developer fees are far lower than those charged in most other California cities.
In an era when state and federal dollars are tight and politicians are loath to raise local taxes, most cities look to developers to pay for a big share of the infrastructure required by new homes. For years, Fresno officials have been reluctant to do so.
Today, Fresno’s City Council will get a first look at a plan to raise fees to build police and fire stations. If they agree to fee hikes, the move will reverse a two-decade pattern.
Through the 1990s, while comparable cities were charging builders from $7,000 to $20,000 a house for new infrastructure, the fees in Fresno stayed at $3,500. Only last year, with its infrastructure kitty in the red, did the city raise the amount to $5,000.
Commercial developers also have paid cut-rate fees. While Modesto, just up the road, collected $520,000 for a four-story office complex, Fresno charged only $90,000.
For years, successive mayors, city managers, development directors and city councils failed to raise the fees even to keep up with inflation. Such an increase is required every year under municipal code.
Critics of Fresno’s approach call those low fees a billion-dollar subsidy for the building industry and blame the low payments for a host of shortfalls in city services. For instance, some city fire crews work out of mobile homes and a 1,200-square-foot duplex and park their engines in makeshift garages.
“Fresno is still a good old boy system, and whatever the good old boys want, that’s what gets greased,” said Tom Boyajian, a city councilman who favors higher fees. “One of the biggest shames in this city is that growth isn’t even covering its own costs.”
Those views, however, aren’t shared by the majority of elected officials in this conservative farm belt.
If the state government took less revenue from local coffers, the city would have more money to pay for new projects, argues City Councilman Jerry Duncan. High fees drive up the costs of houses and drive off builders to even cheaper places, he and other conservatives argue. Low fees, they believe, eventually will generate enough growth to cover the new costs.
“I’m philosophically opposed to impact fees,” Duncan says. “Impact fees are hidden taxes.”
That school of thought has dominated this city for decades. In the mid-1990s, an FBI investigation of extensive corruption here sent 16 developers and politicians to prison and demonstrated how influential builders dominated the city’s zoning and development policies. Many of those involved in the scandal were key players in keeping development fees low.
The fact that the pattern may now be giving way is the result of prodding by a new set of city administrators who are charting a different course for the city. Fresno, they say, needs to raise developer fees significantly or face an additional shortfall of several billion dollars to serve growth from now to 2025.
“Of all the cities I’ve worked with, Fresno faces the biggest challenge because its developers have been under-funding the infrastructure for so long,” said Bob Spencer, an Oakland-based municipal finance expert recently hired by the city to update its fee program.
“Once you get as far behind as Fresno, it’s almost impossible to catch up and fix the holes in your infrastructure. Not unless you’re willing to raise local taxes.”
Builders here acknowledge that they have lobbied to keep fees down at a time of record profits -- $60,000 and more on each house. But they say their opposition to higher fees isn’t driven only by bottom-line concerns. For many years, they say, the fee program was poorly run.
“They start charging a fee in Fresno, and they couldn’t tell us how or why they set it up,” said Mike Prandini, head of the local building industry association.
The cost to a city of each new residence depends on such factors as the location of the subdivision, its density and whether residents are commuters or retirees. But municipal finance experts say that, on average, developer fees need to be about $35,000 for each house to fully cover the costs of services.
With its patchwork services, the city’s new consultants warn, Fresno may be consigned to the status of third-rate city, attractive to big-box bargain stores but not to Nordstrom.
“Good infrastructure is what the best industries and retailers are looking for when they locate to a city,” said Walter Kieser, a Sacramento-based consultant who works with both developers and cities on fiscal issues.
“In Fresno, they’ve done such a miserable job with the roads, parks, libraries and schools that they haven’t created a nice place to live. Instead, they’ve allowed developers to just maximize their profits.”
Over the last 25 years, as the population doubled, Fresno built one new library. The park acreage for a city its size is among the lowest in the state. For example, Sacramento, which has a slightly smaller population, has 4,400 acres of parkland compared to Fresno’s 1,400.
The police headquarters, built in 1960, is so cramped that several units overflow into an annex of the old City Hall. The Fire Department’s main repair and maintenance division sits in a crumbling building that dates to 1928.
When it came time for developer Farid Assemi to build a fire station to serve his new subdivisions in northwest Fresno, the city allowed him to put in a tract house instead of a firehouse. Three firefighters and their single engine will soon reside there.
The transportation system struggles with its own problems. Only 10% of the traffic lights, for instance, are synchronized, adding long minutes to cross-town trips and more pollution to an air basin already ranking as the nation’s smoggiest.
California Department of Transportation officials have taken the extraordinary step of suing the city. The suit cites the failure of Fresno’s fee program to deal with the problems that growth causes on state highways. Fresno has risked the safety of motorists by failing to widen and improve dozens of one-lane country roads that now serve areas with dense populations, Caltrans says.
“It takes a lot for the state to sue another government entity,” said Mike Leonardo, district director for Caltrans. But, he added, “Fresno doesn’t seem to think it has to do environmental studies or mitigate for the impacts of growth.”
Even one of the building industry’s chief lobbyists, Jeff Roberts, now agrees that “the fees need to go up.” In the absence of any local lobbying restrictions, Roberts, who served 14 months in federal prison for his role in the corruption scandal of the 1990s, has become a full partner with the city as it drafts a new fee program.
Because of decades of low fees, the fund managing the fees is in the red. Builders who put in the basic streets and curbs to serve their own subdivisions are spending more on infrastructure than the small amount the city requires them to pay in fees.
Not surprisingly, builders are pressing to keep the new fee on the low end -- $12,000 a house. But consultants say Fresno needs to raise the fees higher to reflect the true costs of growth.
“High fees don’t raise the price of homes. The market does that,” said Spencer, the consultant preparing the new fee proposal. “In fact, it’s the fastest-growing cities that charge the highest fees for a simple reason: They need the infrastructure to keep growing.”