Uses of Fees or Alternatives to Fund Transit (2008)

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9 implementation efforts to date. The process has success- fully brought different levels of government and the private sector together to examine existing and future transportation needs and collectively plan to meet those needs. • The costs associated with the TDD planning proc- ess are high for counties and municipalities. There is no clearly defined source of funding to support TDD plan- ning efforts and the TDD Act does not permit the use of TDD funds to recoup costs incurred during the TDD planning and implementation process. This has been a disincentive to TDD implementation. • The TDD Act does not presently permit the as- sessment of fees on existing development/businesses within a TDD; however, it is likely that those develop- ments/businesses will receive special benefits from en- hanced mobility within a district when improvements to circulation are made. • The TDD Act requires that TDD planning include projections of future transportation needs; however, the zoning build out capacity of land within a municipality or municipalities is often overly optimistic and/or unre- alistic. This could result in a program of transportation improvements that is ultimately unacceptable to the participants and/or unattainable. • The TDD Act does not presently permit the expen- diture of TDD funds on transit operating expenses. This has limited the range of mobility solutions and trans- portation improvements contemplated as part of the TDD planning process. • Transportation decisionmaking with regard to new development proposals is fragmented at various levels of government. • Transportation planning is not a well-developed practice as part of the municipal planning process. In practice, circulation planning is often limited to an in- ventory and functional classification of existing and proposed roadways. Very few master plans and zoning codes have been adequately tested for their impact on transportation infrastructure. • State laws relating to county land use and trans- portation planning are very weak. The role of counties in the transportation planning process limits the oppor- tunities for counties to facilitate the intergovernmental cooperation needed to balance competing local, regional, and state interests with regard to transportation.37 The RITCSC recommended amendment of the TDD Act to eliminate barriers to implementation, including, among other things, 1) authorization to use TDD funds to pay for previously incurred planning costs as well as prospective administrative costs associated with im- plementing a TDD over time; and 2) amending the TDD Act to permit the use of TDD funds for operating ex- penses. The RITCSC also recommended broadening the scope of the TDD construct to accommodate the use of the TDD concept in a wider variety of land-use settings, including growth corridors, existing developed areas, 37 Id. and redevelopment areas. RITCSC recommended flexi- bility to add transportation enhancement districts to the existing TDD mechanism to permit both an assess- ment of fees on new development and an assessment of fees on existing development/businesses in the TDD that will be specially benefited by enhanced mobility within the district. Ultimately, the TDD Act was not amended, as New Jersey shifted its emphasis in 1999 to its Transit Vil- lage Initiative. The state’s Transit Village Initiative gives access to grants from the New Jersey DOT’s Transit Village funding and makes priority funding and technical assistance available from some state agencies to local communities that qualify as a “transit village.” NJ Transit and NJ DOT lead coordination efforts among state agencies. Since 1999, 19 municipalities have been designated as transit villages.38 III. METHODOLOGIES The first key finding needed to adopt an impact fee program is the determination of an objective “nexus” or critical connection between the need for transit services caused by development, the use of fee revenues to ad- dress those needs, and the amount of the fee to be paid by a development project. The parameters of a fee’s methodology are sometimes codified in statute. For ex- ample, in Hawaii, the method of impact fee calculation is clearly spelled out: • The governing body of a municipality must ap- prove a needs assessment study, prepared by an engi- neer, architect, or other qualified professional, that identifies service standard levels, projects public facility capital improvement needs, and differentiates between existing and future needs; • The data sources and methodology must be set out in the needs assessment study; • The prorated amount of each impact fee shall be based on the development and actual capital cost of public facility expansion, or a reasonable estimate thereof; • The impact fee shall not exceed a proportionate share of the costs incurred or to be incurred in accom- modating the development using seven factors in de- termining such proportionate share.39 38 The 19 designated Transit Villages include Pleasantville (1999), Morristown (1999), Rutherford (1999), South Amboy (1999), South Orange (1999), Riverside (2001), Rahway (2002), Metuchen (2003), Belmar (2003), Bloomfield (2003), Bound Brook (2003), Collingswood (2003), Cranford (2003) Matawan (2003), New Brunswick (2005), Journal Square/Jersey City (2005), Netcong (2005), Elizabeth/Midtown (2007), and Bur- lington City (2007). N.J. Dep’t of Transp., available at http://www.state.nj.us/transportation/community/village/faq.sh tm. 39 HAW. REV. STAT. § 46-143.

10 The two methodologies most often used to establish this connection are the “consumption driven” and “im- provement driven” methodologies. A. Consumption Driven The general approach to impact fees across the coun- try is the so-called consumption-based or consumption- driven approach. A peer review of an impact fee study relating to the Sarasota County, Florida, impact fee ordinance describes the consumption-based methodol- ogy as follows: This method, widely used in traditional transportation impact fee analysis calculates impact fees based on the value of public infrastructure consumed per unit of land use, such as a dwelling unit. The value of the public in- frastructure is developed by calculating a unit cost of pub- lic capital infrastructure, such as cost per lane mile of road or acre of park. Levels of service are used to trans- late these unit costs into cost per unit of development.40 The Sarasota County Road Impact Fee Ordinance,41 which authorizes the use of impact fees primarily for road facility projects, also permits such fees to be used for sidewalks, bicycle paths, transportation capacity planning, and mass transit projects to the extent such projects “are demonstrated to add capacity to or reduce capacity demand on the road system based on an ac- cepted methodology of transportation planning or engi- neering.”42 The general formula for the road impact fee is relatively straightforward: the quantity of travel at- tributable to a unit of development, measured in ve- hicular miles of travel per day, is multiplied by the net cost of roadway construction per vehicular mile of travel. The Sarasota Ordinance requires the calculation of the impact fee due by: • Verifying the number of square feet of commercial and industrial use, by type, and/or the number and type of dwelling units that are proposed to be constructed as shown on the Certificate of Occupancy application for the principal use; • Determining the trip generation unit43 to be ap- plied to the principal use; • Determining the fee per trip generation unit that shall be applied to the principal use; and • Multiplying the number of trip generation units by the applicable fee per trip generation unit.44 40 James C. Nicholas, Sarasota County Impact Fees: A Peer Review of the Public Review Draft, Aug. 2006, available at http://scgov.net/PlanningandDevelopment/PlanningServices/do cuments/Peer_2.pdf. 41 Ord. No. 89-097, § 9-21-1989; Ord. No. 98-056, § 2(1), 6- 30-1998. 42 Id. § 70-95. 43 “Trip generation unit” is defined as the unit of measure- ment to which impact fees for different land use types are as- signed for purposes of calculating the applicable impact fee. Sarasota County Road Impact Fee Ordinance, § 70-95. 44 Id. § 70-99. Revenues from the Sarasota County Road Impact Fees are directed to road facility projects identified in the county’s 5-year schedule of capital improvements, which is adopted by the county annually as part of the county budget process and the county’s Comprehensive Plan. The fees collected are placed in trust accounts established for each road facility service district for road facility projects within the road facility service district from which they were collected.45 In Broward County, which has adopted a consump- tion-driven model, concurrency assessments are calcu- lated by a formula that shows how many transit trips would be required to mitigate the effects of develop- ment. To calculate the Transit Oriented Concurrency Fee, a proposed use is multiplied by the peak-hour trips generation rate using the TRIPS (TRansport Improve- ment Planning System) model.46 Once the number of trips is calculated, the number is multiplied by a desig- nated trip length factor and multiplied by the assigned cost per trip by district. For example, to calculate the Transit Concurrency Fee for a 50 single-family unit project: • 50 single-family units multiplied by trip generation rate for single family (1.01 T/PH) = 50.5 trips/peak hour; • 50.5 trips/peak hour multiplied by 0.88 (trip length factor) = 44.44 trips/peak hour; • 44.44 trips/peak hour multiplied by the cost per trip per district (North East District) of $902 = $40,085.47 Revenues from the Broward County Transit Concur- rency Assessments are directed to transit enhance- ments identified in the 5-year County Transit Program that corresponds to the Transit Oriented Concurrency District where the proposed development occurred.48 The consumption-driven methodology is the most commonly used method of establishing impact fees in Florida, especially by counties, and has received judicial acceptance.49 The road impact fee reviewed in Home 45 Id. § 70-100. 46 TRIPS (TRansport Improvement Planning System) is a transportation planning package that enables strategic as well as detailed analyses of multimodal transportation networks. TRIPS provides a framework for implementing a wide range of travel demand forecasting models. (From http://www.citilabs.com/index.html). The TRIPS formula is applied to each Broward County project seeking a building permit, using the formulas tied to the type of land use and therefore transit trip generation expected to occur. 47 Jonathan Roberson, Senior Planner, Broward County Transit. 48 Id. 49 Nicholas, supra note 40, at 6; see also § 150 of the Pinellas County Land Development Code, which authorizes the use of transportation impact fees for “transit facilities such as shel- ters and pullout bays,” and ch. 56 of the Code of the City of Orlando, which authorizes the use of transportation impact

11 Builders and Contractors Association v. Palm Beach County 50 employed the consumption-driven methodol- ogy: “The ordinance has a formula which takes into consideration the costs of road construction and the number of motor vehicle trips generated by different types of land use.”51 After reviewing the fees, the court observed that the Palm Beach County ordinance was mindful of the lessons of the case Contractors & Build- ers Assn. of Pinellas County v. City of Dunedin52 in that it recognized that the rate of development would re- quire a substantial increase in the capacity of the road system; the evidence demonstrated that the cost of roads improvements would far exceed the fair share of fees imposed by the ordinance; the formula for calculat- ing the fee is flexible in that it allows a developer to submit an independent traffic study and economic data to demonstrate the appropriate proportionate share; and the expenditure of funds is localized.53 The court held that the Palm Beach County ordinance had met the tests laid down in Contractors & Builders Assn. and imposed a regulatory fee and not a prohibited tax.54 A similar consumption-driven approach has been used in California. The Transit Impact Development Fee (TIDF) analysis conducted in connection with the update of San Francisco’s TIDF ordinance established a process for fee calculation as follows: • Identify a single trip generation rate for each broad land use category that approximates the average trip generation rate across all detailed land uses in- cluded in the category. • Identify a service standard, or ratio of revenue ser- vice hours to total trips generated by non-residential land uses. Data should be the most recent available and trip rates should include vehicle and transit trips and exclude walk and bicycle trips. • Determine the net costs to accommodate develop- ment based on the cost of additional revenue hours of service per trip generated by development over the es- timated useful life of the building. • Convert the fee for each land use category (the net revenue cost per trip multiplied by the trip generation rate applicable to that category) to a square footage standard.55 The San Francisco TIDF ordinance56 defines the “Base Standard Fee Rate” as the transit impact devel- opment fee that would allow the city to recover the es- fees for transit bus pullouts, both of which codify a consump- tion-driven methodology. 50 446 So. 2d 140 (Fla. 4th Dist. Ct. App. 1983). 51 Id. at 142. 52 329 So. 2d 314 (Fla. 1976). 53 Home Builders, 446 So. 2d 140 at 145. 54 Id. 55 Nelson/Nygaard Consulting Associates, The Duffey Co. and MuniFinancial, Transit Impact Development Fee Analysis: Technical Memorandum #5 – Nexus Analysis, Feb. 2001. 56 Ordinance No. 199-04. timated costs incurred by the Municipal Railway (Muni) to meet the demand for public transit resulting from new development in the economic activity categories for which the fee is charged, after deducting government grants, fare revenue, and costs for nonvehicle mainte- nance and general administration.57 The findings of the San Francisco Board of Supervisors detail calculation of the base standard fee rate by the TIDF study for each of six economic activity categories (cultural/institution/ education; management, information, and professional services; medical and health services; produc- tion/distribution/repair; retail/entertainment; and visi- tor services) as follows: • Calculate the Muni’s total annual costs by combin- ing the fiscal year 2000 operating costs with an average annual capital budget and averaging the 5 prior years of Muni’s capital expenditures. • Calculate net annual costs for fiscal year 2000 by subtracting fare box revenue and federal and state grants from Muni’s total costs. • Determine Muni’s net annual cost per revenue service hour by dividing Muni’s net annual costs by Muni’s average daily revenue service hours, as reported to the National Transit Database. • Estimate the number of daily auto and transit trips within the city by using trip generation rates and 2000 employment data. By dividing Muni’s average daily revenue service hours by the estimated daily auto and transit trips within the city, the TIDF study deter- mined that Muni provided approximately 0.9336 service hours for every 1,000 transit and auto trips. The TIDF study multiplied the net annual cost per revenue ser- vice hour by 0.9336 to determine a net annual cost per trip. • The TIDF study multiplied the net annual cost per trip by an adjusted daily trip rate per economic activity category to calculate a net annual cost per gross square foot of new development for each economic activity category and adjusted the daily trip rate to exclude bi- cycle and pedestrian trips. • Finally, the TIDF study multiplied the net annual cost per gross square foot of development for each eco- nomic activity category by a net present value factor of 20.69 (based on a U.S. transportation industry index inflation rate of 2.05 percent, earning an invested funds rate of 6.14 percent, and a building life span of 45 years) to establish the Base Service Standard Rates for each economic activity category that would be necessary to pay for increased transit services for the 45-year use- ful life of a new development.58 The TIDF study calculated a net annual cost per trip of $45.37 for purposes of setting the base service stan- dard rates. Muni made several conservative adjust- ments to the formula and came up with a net annual cost per trip of $36.32. In addition, in setting the base 57 Id. 58 Id. § 38.2(M).

12 service standard rates, the city took into consideration the input of a variety of stakeholders, including busi- ness groups, developers, and civic organizations. The city found that, “Based on projected new development over the next 20 years, the TIDF will provide revenue to Muni that is significantly below the costs that Muni will incur to mitigate the transit impacts resulting from new development.”59 Pursuant to the 2004 San Francisco TIDF Ordi- nance, TIDF funds may be used: [T]o increase revenue service hours reasonably necessary to mitigate the impacts of new non-residential develop- ment on public transit and maintain the applicable base service standard, including, but not limited to: capital costs associated with establishing new transit routes, ex- panding transit routes, and increasing service on existing transit routes, including, but not limited to, procurement of related items such as rolling stock, and design and con- struction of bus shelters, stations, tracks, and overhead wires; operation and maintenance of rolling stock associ- ated with new or expanded transit routes; capital or op- erating costs required to add revenue service hours to ex- isting routes; and related overhead costs. Proceeds from the TIDF may also be used for all costs required to ad- minister, enforce or defend this ordinance.60 The methodology of the original San Francisco TIDF ordinance adopted in 1981 was challenged on two grounds: first, that the calculation based on the 45-year useful life of a building violated the developers’ sub- stantive due process rights and, second, that the meth- odology used and the assumptions relied upon by the city’s consultants were unsupported by the evidence.61 The court rejected both arguments. First, in light of the evidence presented that an office building has a useful life of 45 years, it found that the imposition of a lump sum fee representing increased transit costs over a 45- year period was not arbitrary or unreasonable and did not constitute an unconstitutional taking. Second, the court found that substantial evidence supported the trial court’s findings that the approach taken by the city’s consultants was economically justifiable and fi- nancially and scientifically sound.62 B. Improvement Driven A second impact fee methodology is the “improve- ments driven” or “facilities driven” methodology. This calculation methodology, used in Seattle, Washington, and Portland, Oregon, uses as its basis the list of im- provements needed to reduce or eliminate the impacts of growth. An improvements-driven methodology is re- quired under Oregon law as follows: 59 Id. § 38.2(P). 60 Id. § 38.8. 61 Russ Bld. P’ship v. City and County of San Francisco, 199 Cal. App. 3d 1496, 1508–1509, 1511–1516; differences between the 1981 TIDF Ordinance and the 2004 Ordinance are detailed in Case Studies—San Francisco Transit Impact Development Fee (1981) and San Francisco Transit Impact Development Fee (2004), Sections VI.B and C herein. 62 Id. Improvement fees must: (a) Be established or modified by ordinance or resolution setting forth a methodology that is available for public in- spection and demonstrates consideration of: (A) The pro- jected cost of the capital improvements identified in the plan and list adopted pursuant to ORS 223.309 that are needed to increase the capacity of the systems to which the fee is related and; (B) The need for increased capacity in the system to which the fee is related that will be re- quired to serve the demands placed on the system by fu- ture users. (b) Be calculated to obtain the cost of capital improve- ments for the projected need for available system capacity for all future users.63 For purposes of the improvements-driven methodol- ogy, the list of projects must first be developed as part of a comprehensive, multiyear planning process and then screened for noneligible costs such as those attrib- utable to existing deficiencies, maintenance, and safety. To calculate the payment, the portion of improvements that serve new growth is divided by the number of trips generated by the new development. If impact fees are to be collected in a limited development area, the number of trips (car trips/person trips) must be screened to identify those trips related to the new project. For pur- poses of a nexus analysis, it is important to identify those trips that (i) begin and end inside the develop- ment area; (ii) begin inside the development area and end outside the development area; (iii) begin outside the development area and end inside the development area; and (iv) begin outside the development area and pass through the development area. Trips that begin outside the development area and pass through the develop- ment area are excluded from the nexus analysis.64 Seat- tle, Washington, uses a travel demand model and se- lected link assignment runs are applied to determine the extent of through trips that would use planned im- provements. With respect to Seattle’s Northgate revi- talization area, it was estimated that 43 percent of the trips using the improvements would be through trips, which required 43 percent of the improvement costs to be paid by sources other than development mitigation payments. 65 63 OR. REV. STAT. § 223.304(2). 64 Both Noguchi and Young stressed the need for good, re- cent, reliable data to establish the number of growth trip ends. Noguchi advised, with respect to the Seattle, Washington, mitigation fee program, that approximately one-quarter of the cost was directly attributable to growth in a specific develop- ment area. 65 Tom Noguchi, Multi-Modal Approaches to Development Impact Mitigation: Managing Congestion Can We Do Better, Institute of Transportation Engineers 2007 Technical Confer- ence and Exhibit (2007).