Modesto took the first step toward lowering development fees last week, moving to form a task force that will look at whether fees charged to builders and businesses are too high.
Some worry pricey fees are stalling the city's economic recovery. They say businesses pass up Modesto in search of cities with cheaper fees.
Others say dropping development charges would leave Modesto on the hook for costly improvements that should be underwritten by the builders and businesses who would benefit from their projects.
Developers pay the fees when they build new houses, stores and other businesses. The money pays for parks, roads, sewers and other improvements needed when development happens and populations swell.
The 13-member task force will look at how Modesto's fees compare with other cities. It will also examine the formulas used to calculate fees. In some cases, fees are pegged to factors that ebb and flow, such as property values. That means fees that spiked during the development boom are out of whack with today's economy.
Someone building a three-bedroom, 1,500-square-foot home in Modesto would pay more than $35,000 in city, county and school fees, according to a permit calculator on the city's Web site. In June, Modesto delayed a scheduled increase in the main charge, holding steady so-called capital facility fees that would account for more than $21,000 of the charges for the 1,500-square-foot home.
Those charges stand out to builders now that the median prices for home sales in Stanislaus County is $140,000, down by more than $200,000 since 2006.
The city fee task force will include city staff and representatives from the building, construction, real estate and manufacturing industries. Three seats will go to members of the public.
The City Council's Finance Committee approved forming the task force last week.
Boosting building industry
Cities across California have lowered development fees in an effort to perk up a weakened building industry.
Others have put off scheduled increases in fees. Modesto did that in July when it froze the cost of water and sewer connections.
Some worry that dropping fees could come back to bite the city. Earlier this decade, Modesto failed to collect enough development fees to pay for streets, storm drains and parks in Village I. The shortfall, estimated at $43 million at the time, was widely blamed on previous city councils setting development fees too low and then not raising them.
Houses are important, but Modesto officials are especially concerned about development fees for businesses. Charges for a new fast food restaurant would top $115,000, while fees for a supermarket would total more than $1 million.
"We want our economy to grow and we want to create jobs," City Manager Greg Nyhoff said. "In order to do that we want to make sure we have competitive rates."
Modesto Chamber of Commerce President Joy Madison said she's heard horror stories about mom-and-pop businesses stuck with five- figure fees. She says too-high fees hurt small businesses.
"We have to get out of the mindset that these fees are for deep-pocketed, national developer types," Madison said. "This is for you and me, just folks that are trying to make a living and open a business."
Right now the City Council adjusts development fees on a piecemeal basis, looking at each fee in a vacuum, such as sewer and water connection charges. The task force will look at all of the city's fees at once, with an eye toward understanding how all fees impact development.
It's been 10 years since the city looked at some of its fees. In the future, officials plan to have the council review all city fees once a year.
"It just makes it a lot cleaner," said city auditor Frank DeMattos. "It's all right there and you can review it, and if someone has an issue with it, they can bring it up."