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CC 05-03-2022 Item No. 23 Written CommunicationsCC 05-03-2022 Item No. 23 FY 2022-23 Fee Schedule Update Written Communications 17571.001 4894-2672-7454.3 Miles Imwalle D (415) 772-5786 mimwalle@coblentzlaw.com May 3, 2022 VIA ELECTRONIC MAIL ONLY Chris Jensen City Attorney City of Cupertino 10300 Torre Avenue Cupertino, CA 95014 Re: FY 2022-2023 Park In-Lieu Fee and Transportation Impact Fee Dear Chris: I am writing on behalf of Vallco Property Owner LLC (VPO) to object to the City’s proposed actions regarding its Park Land Dedication In-Lieu Fee (“Park In-Lieu Fee”) and Transportation Impact Fee for Fiscal Year (FY) 2022-23. I. Park In-Lieu Fee Earlier this month, the City proposed to increase its Park In-Lieu Fee rates for FY 2022-23 by 30% based on a March 2022 appraisal, which was the subject of my letter to you dated April 19, 2022. The City has now withdrawn that proposal and is instead proposing to keep the Park In- Lieu Fee at FY 2021-22 rates. The current proposal to keep the Park In-Lieu Fee at FY 2021- 22 rates is a challengeable action on the part of the City. Because the City is required to “update” the fair market value used in setting the Park In-Lieu Fee annually, the City will be taking action on the Park In-Lieu Fee even if it chooses not to change the fee rates. (See Cupertino Municipal Code 13.080.060(B), (C).) VPO objects to the City’s proposal to set the Park In-Lieu Fee at FY 2021-22 rates. The City used the same methodology to set the FY 2021-22 rates as it used to calculate the revised rates that it proposed earlier this month to adopt for FY 2022-23. The FY 2021-22 rates therefore suffer from the same fatal flaws identified in my April 19 letter and the City’s proposal is problematic for all of the legal and policy reasons set out in that letter, which is incorporated here by reference. It bears repeating that the City’s methodology is legally unsupportable. It is the City’s burden to show that it used a “valid method . . . for imposing the fee in question,” and a method is only valid if it “established a reasonable relationship between the fee charged and the burden posed by the development.” (Home Builders Ass’n of Tulare/Kings Counties, Inc. v. City of Lemoore (2010) 185 Cal.App.4th 554, 561). In estimating how much it would cost the City to acquire new parkland, the March 2021 appraisal on which the City relied to set FY 2021-22 fees, like the Chris Jensen May 3, 2022 Page 2 17571.001 4894-2672-7454.3 City’s March 2022 appraisal, assumed that (1) the City would purchase the most valuable parcels in the City—entitled residential and mixed-use sites—and (2) it would purchase and assemble existing single-family-house lots. In reality, the City has no intention of acquiring these very-high-value parcels and converting them to parks. To do so would be inconsistent with the City’s historical practice of converting lower value sites into parks, has no basis in either the General Plan and the Parks Master Plan, and would defy common sense. The City cannot lawfully set park fees based on the cost of buying some of the highest-value parcels, “untethered from whether the City actually plans to” acquire those parcels and convert them to parks. (See Boatworks, LLC v. City of Alameda (2019) 35 Cal.App.5th 290, 300 (fee “calculation that is based” on an assumption unsupported by City’s “actual[] plans . . . is not reasonably related to the burden posed by anticipated new development”).) “A fee based in significant part on costs the City will not incur . . . does not have a reasonable relationship to the cost of the public facility attributable to the development.” (Id.) The City’s approach artificially inflates the fee and is not valid. The City’s methodology is problematic for the additional reason that it is based exclusively on the purported costs of acquiring parkland, whereas the City will use all or most of the Park In- Lieu Fees to upgrade existing park facilities instead. The City’s park system already includes 3.7 acres of parks per 1,000 residents,1 well in excess of the General Plan’s goal of three acres per 1,000 residents, so there is not an immediate need to acquire additional parkland. The Parks Master Plan has many ideas for park upgrades and no suggestions for acquisitions, other than Lawrence Mitty, which the City recently acquired. That is, the City has no current plans to acquire any land for park purposes and therefore it is unlikely that the City will use the fees to acquire new parkland. Under Boatworks, if the City does not intend to acquire new parkland, it cannot base Park In-Lieu Fees on the cost of acquiring new parkland. Instead, the fee must be calculated based on the intended use of the funds: park improvements. Using the fees for improvements rather than acquisitions is also consistent with City policy and practice. Appendix G to the Parks Master Plan states that Park In-Lieu Fees are “used to acquire new parkland or fund capital improvements at existing recreation and park facilities which will serve the new units.” (Cupertino Parks and Recreation System Master Plan, Appendix G, at G-2.) Further, the City does, in fact, spend the fees on capital improvements. For example, the FY 2021-22 budget included $1 million from the Park In-Lieu Fees fund to repurpose drained ponds in Memorial Park. In the last decade, there has been very little park acquisition; Park In-Lieu Fees are instead spent on capital improvement projects. Under Boatworks, it is impermissible to justify a park fee based on the cost of acquisition when the intended use of the funds is capital improvements. 1 Parks and Recreation System Master Plan, February 2020 (“Parks Master Plan”), at 51. Chris Jensen May 3, 2022 Page 3 17571.001 4894-2672-7454.3 II. Transportation Impact Fee The Cupertino Transportation Impact Fee Nexus Study (“TIF Nexus Study”) underlying the City’s Transportation Impact Fee, which the City is proposing to amend and readopt, is also flawed. The TIF Nexus Study states that the TIF “revenue will be used to fund additional transportation capacity necessary to accommodate growth.” That is, the purported nexus is that the new infrastructure will create roadway capacity for new development. However, this connection is not established. Of the $59,780,125 in costs allocated to the TIF program in the TIF Nexus Study (2017 dollars), $49,721,096, or 83%, was for bicycle and pedestrian improvements. This allocation was flawed for two reasons: (1) the bike/ped improvements are not intended to create capacity to accommodate new development, so there is not a nexus, and (2) even if they were allowed, the City has attributed an excessive share of the costs to new development. The need for these bike/ped improvements is not to create capacity for new growth, but rather the need is to address existing safety issues (unrelated to new development) and to implement City policy to promote bicycling and walking as alternative modes of transit. The City has many General Plan policies that seek to encourage bike and pedestrian connectivity, but those policies are unconnected to growth; they are simply policy goals to be more bike and ped friendly. Many of the bike/ped improvements identified in the 2017 Nexus Study were derived from the 2016 Bicycle Transportation Plan. That Plan established a broad citywide vision for “an exceptional bicycling environment that supports active living and healthy transportation choices, provides for safer bicycling, and enables people of all ages and abilities to access jobs, school, recreation, shopping, and transit on a bicycle as a part of daily life.” (Bicycle Transportation Plan, p. 2-19.) To accomplish these goals, the Bicycle Transportation Plan included a prioritized list of projects, which was based on a detailed "Needs Analysis.” At no point does that analysis suggest that the new improvements are needed to accommodate new development, but rather the analysis identified dangerous intersections or areas where connectivity could be enhanced. That is, the improvements address these existing substandard conditions. Therefore, the purpose of the improvements funded by the TIF is not to create capacity for new growth, as the TIF Nexus Study purports, but rather to improve existing conditions. For these reasons, the City has failed to establish a “reasonable relationship between the fee charged and the burden posed by the development.” (See Home Builders Ass’n of Tulare/Kings Counties, Inc. v. City of Lemoore (2010) 185 Cal.App.4th 554, 561.) This is further shown by the fact that the TIF funded improvements are distributed throughout the City, rather than focused in areas with new growth, which further shows that they are unrelated to growth. The General Plan divides the City into two categories – Special Areas and Neighborhoods – with virtually all future growth occurring in Special Areas. While no growth is planned in the Neighborhoods, they contain many proposed bike improvements that would be paid for by the TIF. For example, virtually all of the City south of McLellan Road consists of Neighborhoods, but there are numerous bike/ped improvements proposed in this area. There is Chris Jensen May 3, 2022 Page 4 17571.001 4894-2672-7454.3 no relationship between the growth that will occur in Special Areas and the bike/ped improvements proposed in the Neighborhoods, so it is improper to include those in the TIF. Even if these improvements could properly form the basis of the TIF, the TIF Nexus Study attributes an outsized allocation to new development. In particular, the study “allocate[s]” a 50.2% share of the cost of these improvements “to New Development,” but the only justification for doing so is that 49.8% of the trips both start and end outside of Cupertino. However, since fees must be based on the impact of new development, not existing impacts, the only way the City could allocate 50.2% of the costs to new development would be if all 50.2% of the trips that start or end (or both) within Cupertino are related to new development, which is obviously not the case. In fact, the study contains no analysis of what proportion, if any, of the need for the improvements is caused by new development. (Shapell Indus., Inc. v. Governing Board (1991) 1 Cal.App.4th 218, 236 (City must “determine which portion,” if any, of the need for the impact fee “is attributable to new development and . . . therefore which portion of the total cost of new facilities should be allocated to the developer”).) * * * * For these reasons, we object to the proposals (1) to adopt the FY 2021-22 rates for the Park In- Lieu Fee and (2) to adopt the increased Transportation Impact Fee. Sincerely, Miles Imwalle CC: Jim Throop, City Manager Reed Moulds, Sand Hill Property Company, Managing Director