Something slipped through the cracks at City Hall.
Back in 2008, Milpitas’ City Council adopted the Transit Area Specific Plan (TASP) for all the new residential and commercial developments springing up around the Great Mall area.
Along with that plan, they also adopted a fee program that included collecting Transit Area Development Impact Fees (TADIF).
According to staff reports, the purpose of the fee is to “proportionally share the costs of public infrastructure that benefit the new residences and businesses that are developed within the TASP area and thereby minimize adverse overburdening of other existing City facilities.” This would include covering expenses for areas like parks, utilities, and roadways.
Since 2008, land and construction costs have increased; however, somewhere along the way, the raising of impact fees for the TASP never happened…
City staff discovered that impact fees hadn’t been raised since 2014. This means that for the last 5 years, the City of Milpitas has lost the opportunity to collect an estimated $14.6 million in fees.
Economic and Planning Systems, Inc. (EPS), a consultant for the City, found that since 2014, construction costs have increased by 16.2%, while land value has increased by 43.8%. They also found that from 2014 to 2019, the costs to fund the TASP Basic Infrastructure Plan went up by about $50 million — an increase from $233,788,200 to $286,968,018. In order to make up for this increase, EPS proposed a fee of $40,487 per residential unit. Currently, the residential unit fee is at $32,781. Implementing the change would mean a sudden 23.5% increase to account for the last 5 years. For retail spaces, the new proposed fee would be $26.49 per square foot (up from $22.80), and for office spaces, it would be $42.52 (up from $36.60).
At last night’s City Council meeting, councilmembers took in all of this information while trying to search for answers as to why this fee hadn’t been raised in 5 years.
“We were supposed to update the fee and look at it every year,” said Interim City Manager Steve McHarris, who was just appointed to his position this past June. “The fact of the matter is the City hasn’t done that since 2014. So each year, we were collecting a fee based on 2014 prices of property, prices of construction, and we’re adjusting after that point…I couldn’t tell you why that happened…”
TASP Manager Kevin Riley mentioned that fees must increase every year, under Council’s direction. However, for whatever reason, nobody brought the item in front of Council and informed them of the necessity of raising this fee after 2014.
“For the last 4 years, if staff didn’t want to bring it back to us, I’d go back and ask those last two city managers, the last two permanent ones, why they didn’t…” said Councilmember Bob Nuñez, as he digested the news of the lost funds. He went on to say that he was never aware of this TASP impact fee situation. “I think it’s important that if you bring things to us, there is an educational component, so that we understand what we’re doing and why we’re doing it. The money that was lost, I’d go back and ask two people at least…if not more…” Nuñez added.
Taking a cue from Nuñez, The Beat reached out to former City Manager Tom Williams about the issue. Williams has been City Manager of Millbrae for almost a year now. He had served as City Manager of Milpitas from 2006 to 2017, when he resigned surrounding allegations of misusing public funds.
“When I was there, we took an annual resolution to the Council to increase fees consistent with inflation during budget hearings,” shared Williams. “If I recall, twice the council at that time chose not to raise fees due to the economic circumstances. During the era of the Great Recession, costs went down, property values declined, and there was no legal basis to raise fees for a few years.” He added that he felt the $14.6 million number might be “inflated and incorrect.”
The Beat was not able to reach former Milpitas City Manager Julie Edmonds-Mares, who resigned back in May, after being in her position for just over a year.
A Similar Incident Earlier This Spring
This fee oversight seemed like déjà vu all over again.
Back in 2015, the City Council passed Resolution 8491, which called for residential developers who were building 5 or more units to provide 5% of those units at “very low” or “low income.” Any developer who wasn’t able to do that, for whatever reason, would be responsible for paying the City 5% of the construction costs. Back in June of 2018, Council voted to adopt an ordinance asking for 15% of affordable housing units or fees from developers, in order to replace the 5% resolution. However, at a Council meeting back in March 2019, Building Director Sharon Goei made mention of the fact that, from 2015 to 2018, it looks like the City had lost the opportunity to collect $59 million in funds that should have been paid by developers who were not building affordable housing units.
“In doing the research, our understanding is that the language and the criteria for completely new residential development applications from the Resolution..they were interpreted in a way that exempted a lot of those projects,” said Goei at the March council meeting.
What she was referring to is the fact that, in the actual resolution itself, it mentioned that…
Affordable housing requirements shall apply to all completely new residential development applications submitted to the City after June 16, 2015. “Completely new residential development applications” shall mean any residential development project for which no written application of any sort has been previously submitted to the City…
City Attorney Christopher Diaz mentioned that with this kind of language, an applicant could essentially apply, pull their application, and then apply a second time. In this way, they would be completely exempt from having to contribute anything in the way of affordable housing.
Councilmember Bob Nuñez, trying to wrap his mind around what exactly happened there, spent some time questioning Staff about the issue. “Correct me if I’m wrong. I’m just trying to understand. The staff that presented that to Council…to get 5% per unit…they interpreted their own language to exempt everyone? Is that what I’m hearing?” asked Nuñez. In other words, he was wondering whether or not exempting everyone had been intentional.
At first, the City Attorney said that he believed that the way the language was written in the resolution had an “unintentional effect.” However, he later admitted there was a chance that some intentionality might have been involved in exempting developers.
“If it were having an unintended effect by the very language in the resolution that Council adopted, somebody should have come back to Council and said this is what we’re seeing as a result…and we might want to change course,” said Diaz. “…And if it did not come back to you, then potentially it was intended.”
Notably, after The Beat made Public Records requests to look at the planning documentation for these units, we found no loss of funds. And during a follow-up with Goei, she mentioned that the matter had been looked into more thoroughly, and that all exemptions that occurred were due to the fact that the projects had come in before the Resolution was signed in 2015, and that there was thus no real loss of funds.
“With a lot of staff departures, we didn’t have enough time to do this major research…We inherited the info from prior staff. But with all the transitions and departures, and taking care of the day to day things, we presented what we knew at the time,” said Goei.
Goei mentioned that prior staff, before vacating their positions, alerted her to the $59 million dollar loss in 2018, but that it appeared they were just lamenting over what they could’ve collected from developments that came before the Resolution was in effect. The Beat was not able to get a hold of previous staff to verify what they meant by the $59 million loss.
In an interview with The Beat, Goei mentioned that when she did take her position as Building Director in June of 2018, she found that there was “a lack of record keeping” in her department and that certain things had to be “built from scratch.”
Although there was obviously confusion earlier this year surrounding affordable housing fees, the situation surrounding the TASP impact fees appears to be more straight-forward. The City’s consultant EPS wrote up a Technical Memorandum detailing potential 2019 TASP impact fees; and it was EPS that noted that the City would have received an estimated $14.6 million over the last 5 years, if the fees had gone up each year.
Where to Go From Here
After hearing about the loss of fees and discussing it at last night’s meeting, Council voted to move to continue the Public Hearing at another meeting, and have City Staff bring back additional information.
Mayor Rich Tran mentioned that his heart was broken due to the City not collecting impact fees over these last several years: “I know that our city has been waiting 5 years to update our TASP fees. And every day, and every month, and every year that we wait, we continue to lose money for our city,” said Mayor Tran. “We take a look at the increase in the TASP fees from ’14 to ’19 and it looks like it’s going up about 23 and a half percent over five years…that’s maybe about 4 and a half percent a year in TASP fee increases which is pretty close to the Consumer Index I think, which is fair. I really am saddened right now as one person on this body.”