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Draft Memorandum November 30, 2017 Tri-Valley Fee Comparison and Page 5 Pleasanton's Competitiveness Assessment and Economic Implications Economic Implications Cities are often concerned about the effect that development impact fees may have regional competitiveness. Specifically, if Pleasanton's fees are substantially higher, the additional cost may provide a competitive disadvantage when trying to attract new regional development. However, if fees are too low, the City may miss out on potential infrastructure funding opportunities. The following section describes a general framework by which the economic implications of Pleasanton's proposed capital facility fees may be viewed and then provides an overview of potential implications by land use type. General Considerations On an economic and financial level, development impact fees should be considered from two perspectives: 1. Fee Revenues and Economic Benefits. Development impact fees provide an important contribution to funding for development of infrastructure and capital facilities. As such, they support the policy goals of a jurisdiction in terms of providing adequate public facilities and infrastructure such as transportation infrastructure, parks and recreation amenities, and public safety facilities/equipment. These improvements mitigate the impacts of new development help in maintaining the quality of life that both residents and employers seek. Development impact fees can also help overcome infrastructure development obstacles by providing an opportunity to spread the cost burden of improvements over a broader range of developments where substantial upfront infrastructure investment is required. 2. Development Costs and Economic Impacts. Development impact fees directly add to the costs to construct new residential and commercial buildings (i.e., vertical development costs). In the short term, development impact fees increase overall development costs, reducing the expected return on investment/profit margin on an individual development project at a particular point in time. Over the medium to long term, a portion of these vertical development cost increases is absorbed by reductions in land value, while improvements in the quality of infrastructure support higher property values. As a result, under normal market conditions, reductions in development impacts fees can, in the short term, bring forward the timing on projects that are close to showing the level of return required to support financing and risk. As a general principle, these competing benefits and costs associated with development impact fees point to the importance of establishing aggregate fee levels that strike a balance between providing an appropriate level of facilities/infrastructure to new residents and businesses consistent with jurisdiction's goals/vision, while avoiding excessive costs on development and thereby slowing the pace of growth. Implications by Land Use Residential In general, residential development is less reactive to fee increases than nonresidential uses. While employment opportunities create residential demand, residential development is also dependent on the presence of other amenities such as schools, parks, cultural institutions, natural beauty, and other quality of life characteristics. To the extent that impact fees help finance these other amenities, they can actually improve the market performance of residential development over the long run. Given that the proposed residential fees provide funding for public facilities and improvements, it is not expected that the adoption of the maximum traffic, P:\151000s\151111PIeasantonFee\Corres\151111PIeasantonDlFMem03.docx