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March 9, 2014

Study: Some building fees high in Merced

A group of business owners called the Merced Boosters Club presented a study it commissioned on the cost of new development in Merced and other cities in the Central Valley. Despite the fact Merced recently dropped development fees by about 55 percent, the numbers are still higher than many of its neighbors, according to the study. Officials blame other cities’ decisions to drop fees around the same time.

An independent study funded by Merced-area business owners found that although the city cut developer fees by 55 percent in 2012, the city’s commercial and industrial fees are relatively high for the region.

Merced’s fees for commercial space are the second-highest of the 15 cities from six counties studied, according to the Merced Boosters Club report.

The Boosters Club has 80 members and is made up primarily of business owners, according to President Matt Hoffman. The club hired a civil engineer from Merced to compare the city’s fees to other Central Valley cities, and presented the findings last Monday to the City Council.

It would cost a developer about $994,000 in various permitting and development fees to build a 50,000-square-foot retail space in Merced. That’s close to the numbers for Riverbank and Visalia, but about $211,000 more than it would cost in Modesto and $574,000 more than in Madera, according to the study.

Not all of the fees come from the city, which charges for wastewater, fire and police, among other services. Merced County and area schools also impose fees on development.

Merced’s industrial development fees are lower than those in Turlock and Ceres, and comparable to what is charged in Riverbank and Oakdale. The numbers are higher than several other communities,including Madera, Los Banos and Fresno.

“Our purpose for doing this was to educate the City Council members,” Hoffman said. “There are a few areas in there where Merced compares very well, and then a few where we feel like there’s some room to improve.”

The City Council voted in late 2012 to reduce all public facilities impact fees by an average of about 55 percent. That came after a study of the fees by city staff.

Councilman Tony Dossetti, who has been on the board since 2011, said the council lowered the fees to be more competitive in the region. He said he was not convinced the Boosters Club study compared to its 2012 counterpart.

Either way, he said, development fees are on the council’s radar. “We’re watching those things really close so we can bring business in here,” he said.

Merced falls to 10th most expensive out of 15 when it comes to fees to build homes or apartment buildings, according to the study.

Fees to build a home in Merced average about $31,000 and lower for multifamily dwellings, the study stated. That’s at least $10,000 less per home than building in Los Banos, Turlock, Ceres and Riverbank.

“I think there’s some inherent issues with this study but nothing that would make it invalid,” City Manager John Bramble said.

He said the council could use one of two methods to change development fees: restructuring them based on category or changing how capital improvements related to a project are funded.

Restructuring the fees would be possible if the city conducted a survey that determined, for example, residential housing created a greater impact on city services. In that scenario, the fees could go up for homebuilders, but go down for commercial building and other space.

“You’ve got to have a logical nexus as to the land use and how it impacts the particular set of public improvements,” Bramble said.

If the council decided to go the second route, Bramble said, then typically the cost of improvement is picked up by development that touches any particular project. For example, a new developer would pay into a fund to improve the street that runs in front of the new project. “You just shift who pays the fee,” Bramble said.

Any change to fees would be a lengthy process, officials said.

Mayor Stan Thurston has also been on the council since 2011 and was involved in the process to reduce developer fees in 2012.

He said more fee rollbacks could be on the way. “I think we were fully aware when we completed it, it wasn’t going to be the last time we’re going to do this,” he said.

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