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Friday, September 23, 2005 | Sometimes our government, which was established to serve the populace, gets things so turned around that a good citizen can’t figure out whether they should laugh or cry. So it is with a proposal being promoted by the city of San Diego’s Park and Recreation Department for an almost ten-fold increase in the average impact fee being charged to support new parks. The fee would rise from $2,637 per new housing unit to $24,755. Mind you, this is just the average fee. New construction in Mission Valley would be assessed a whopping $34,137 per unit!
My swim-workout partner has read about the fee increase and is convinced that the city must intend to build each one of us our own private swimming pool. Now mind you, I use our parks as much as the next person. However, having a practical mindset, I always thought that human beings had three basic needs; food, clothing and shelter. It just never dawned on me that swimming pools came before housing.
Anyone possessing a small ration of common sense realizes that a housing development that cannot command a high enough rent or sales price to cover its development costs, including the impact fees, is not economically justified and is rarely built. Therefore, like all of the other costs incurred in providing new housing, park fees have to be paid by the eventual tenant or homeowner of any dwellings that are constructed.
In 1993, I performed an analysis for the San Diego County Apartment Association to investigate the effect of development impact fees on apartment rents. At that time, the total package of impact fees being charged for a two-bedroom, two-bath, 1,000-square-foot apartment in Carmel Valley amounted to $20,024. These fees raised the minimum rent level needed to justify new construction by $158 per month.
The Department of Parks and Recreation has made the case that the park fees have not been adjusted upwards to account for the impact of inflation for a number of years. Let’s give them a hand with that analysis. Subtracting the water and sewer hookup and school fees from the above referenced $20,024 fee package left a Facilities Benefit Assessment of $8,325 in 1993. Those are funds that were earmarked toward city-provided infrastructure, from firehouses to parks, and most everything in between.
Adjusting this Facilities Benefit Assessment of $8,325 by the Consumer Price Index for the past 12 years justifies an increase of 31 percent, to $10,902 in 2005 dollars. Now remember, the park fee was just a portion of this Facilities Benefit Assessment. Perhaps the requested increase in the park fee needs to be fine-tuned a little, seeing as how the requested increase of 938 percent somewhat overcompensates for the effects of inflation.
Is it fair to ask how much the Parks and Recreation Department is asking of San Diego’s apartment tenants? More precisely, has the city of San Diego’s Parks and Recreation Department calculated how much this fee will add to the rent paid by residents of new apartments within San Diego? These public servants clearly care for the quality of life here in America’s Finest City, so I’m sure they’ve examined these human impacts closely. For our own edification, let’s crunch through the numbers in the accompanying analysis.
Has the city of San Diego’s Parks and Recreation Department calculated how much this fee will add to the rent paid by residents of new apartments within San Diego?
Now think hard: Are apartment owners masochists who embrace the ever increasing hassles and risks involved in owning rental property without any expectation of a financial return? No, most apartment owners are rational decision makers who choose from among a variety of investments to provide for their eventual retirement. They’ll invest in new apartment buildings when there is a reasonable expectation that they can achieve a return that justifies exposing their hard-earned savings to the inherent risks.
As shown in the accompanying analysis, the addition of a $24,755 park impact fee raises the minimum rent level needed to justify new construction by $161 per month. It’s important to reiterate that this $161 is just for the park fee. Other fees that are already charged to new construction are probably adding at least that amount yet again to the rent in new apartments.
The true monthly cost to San Diego’s apartment residents: an additional $161 in rent for every apartment unit which will be built under this fee structure!
One city employee was quoted in The San Diego Union-Tribune referring to the facilities that could be built with these fees, saying, “I couldn’t imagine a cooler way to have your community bond.”
Many people working in San Diego were unavailable for comment that evening, as they were preoccupied commuting back to Tijuana, the Imperial Valley, or southern Riverside County, where they can afford the housing. Hopefully, their parks are well lit late into the night, so they can spend some cool bonding time out playing with their children.
Perhaps the city should close the Parks and Recreation Department and outsource this work to Frogs or LA Fitness. Their facilities are pretty cool too, and their fees are lower.
Robert Vallera CCIM is a Principal of GVA IPC Commercial Real Estate specializing in apartment brokerage. He was their company-wide top producing broker in 2004, and has been representing San Diego County apartment investors since 1981. Robert welcomes your comments and questions at (858) 228.1830 or