TO: LINDA REICH, CITY MANAGER
FROM: HYE JIN LEE, PE, DIRECTOR OF PUBLIC WORKS
SUBJECT
title
Adoption of Resolution 2025-030 - Annual Adjustment of Development Impact Fees, Park Development Fees & Administrative Fee for Fiscal Year 2025-26.
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RECOMMENDATION
recommendation
1) Conduct a duly noticed public hearing in accordance with Government Code Section 66016; 2) find that the City’s Development Impact Fee (DIF) program continues to represent the most expedient and equitable mechanism for financing the construction and improvement of public facilities necessitated by development; 3) adopt Resolution No. 2025-030 authorizing: (a) the annual adjustment of DIF based on the applicable Engineering News-Record (ENR) Construction Cost Index escalator, consistent with the City’s adopted passthrough methodology; (b) the reduction of the Capital Administration Fee from 12% to 3% to reflect actual costs incurred by the City for administering the DIF program; and (c) the update of Residential Park Development Fees pursuant to the provisions of Title 18 of the Chino Municipal Code; and 4) authorize staff to implement the adjusted fees effective 60 days after adoption of Resolution No. 2025-30, in accordance with Government Code Section 66017.
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FISCAL IMPACT
The proposed updates to the DIF and Residential Park Development Fees have no impact on the General Fund. These fees are restricted for infrastructure and park improvements.
However, following the recent User Fee Study, the City reallocated overhead costs to the appropriate development-related user fees. As a result, the existing 12% administrative fee on DIF collections is no longer justified. The DIF Administrative Fee will be reduced to 3%, reflecting only the direct costs of managing the DIF program.
This adjustment does not reduce overall cost recovery. It shifts overhead expenses away from DIF collections and into the user fees where those costs are incurred and assessed.
Because DIFs generate significantly higher revenue than user fees, the City expects a net decrease in General Fund revenue. The reduction, estimated at approximately $3 million, is reflected in the revised estimated General Fund revenue within the Fiscal Year 2025-26 Proposed Budget, scheduled for adoption on June 17, 2025.
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES
The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
• Financial Stability
• Responsible Long-Range Planning
BACKGROUND
A Development Impact Fee (DIF) is a charge imposed by a government agency on new development to offset the cost of public infrastructure necessitated by that development. The legal framework governing DIF is established in California Government Code §§ 66000-66025 (the “Mitigation Fee Act”), adopted in 1987. The Mitigation Fee Act requires that fees demonstrate a reasonable relationship or “nexus” between the purpose of the fee, the use of the fee, and the type of development project on which the fee is imposed.
The City’s first DIF program was established in 1989 by Revenue and Cost Specialists. A major update occurred in 2003 with the adoption of the Citywide DIF Nexus and Calculation Report and Master Facilities Plan (2003 Report) through Resolution No. 2003-10. In 2004, the program was expanded to cover The Preserve area with the adoption of Ordinance No. 2004-13 and the corresponding Preserve DIF Nexus and Calculation Report and Master Facilities Plan (2004 Report).
Following the 2010 adoption of the updated General Plan, incorporating The Preserve and College Park Specific Plans and introducing significant land use changes, the City continued applying annual adjustments using Engineering News-Record (ENR) indices. However, the need for a comprehensive update was identified. On February 6, 2018, the City Council adopted Resolution No. 2017-068, approving the updated DIF Nexus and Calculation Report and Master Facilities Plan (2017 Report) to reflect these changes.
In 2022, the City Council approved a significant update to the 2017 Report focused on The Preserve. The update revised cost estimates for remaining infrastructure projects, reconciled DIF credits with cash contributions made by developers, and updated the Land Use Database to reflect the current inventory of undeveloped land. These changes ensured that the remaining project costs would be equitably allocated across future development, and that sufficient revenue would be collected to fund all required improvements.
Today, most of the Citywide DIF Program is built out, with limited remaining infill development potential. The Preserve, by contrast, is approximately 60% built and continues to require significant infrastructure investment, particularly in circulation, water, sewer, and storm drain facilities. These needs have been intensified by recent construction cost escalation due to inflation.
To address these demands and maintain the integrity of the DIF program, the City is initiating a new DIF Nexus Study beginning in June 2025, with completion anticipated within 8 to 12 months. The study will evaluate several key factors affecting future development, including airport-related growth, the potential relinquishment of Euclid Avenue, and the City’s planned acquisition and redevelopment of the 130-acre Heman G. Stark Youth Correctional Facility located at 15180 Euclid Avenue. Redevelopment of this site is a cornerstone of the City’s long-term growth strategy and will be a central consideration in the new Nexus Study.
Concurrently, the City is updating its Sewer, Water, and Drainage Master Plans to better reflect current and future infrastructure needs. These updated plans will be incorporated into the upcoming Nexus Study, with a focus on correcting past water demand assumptions and ensuring fair and accurate cost allocation.
In the interim, it is important to note that DIF rates have not increased since July 2022. To preserve the program’s cost recovery function, the City is proposing an interim adjustment based on the applicable ENR cost escalation indices outlined in the 2017 Report and codified in Chapters 3.40 and 3.45 of the Chino Municipal Code. This pass-through adjustment aligns current fees with actual infrastructure costs as the broader Nexus Study and master planning efforts progress.
ISSUES/ANALYSIS
In compliance with Government Code § 66016 and § 66018, the City provided written notice of proposed fee updates to all parties who previously requested notification. Notices were delivered via email, mail, or both to the Building Industry Association (BIA), Lewis Management Corporation (Master Developer), Southern California Edison, and the Gas Company on or before the required 14-day noticing deadline for the June 17, 2025, public hearing. In addition, the City noticed the public hearing by publication in the Chino Champion newspaper on June 7, 2025, and June 14, 2025.
City staff met with the BIA to address concerns regarding the proposed fee adjustments. The BIA expressed specific concerns about the 12% Administrative Fee and the substantial increase in Park Development Fees within The Preserve. Following these discussions, staff provided documentation substantiating a reduction to the administrative fee and clarified that the Park Fee increase is a direct pass-through based on the standardized calculation method set forth in Title 18 of the Chino Municipal Code, as outlined below.
ANNUAL DIF ADJUSTMENT CITYWIDE & PRESERVE DIF
The 2017 Report recognizes three primary cost indices, each reflecting different categories of construction and acquisition of goods. Since the last DIF adjustment occurred in July 2022, the City is proposing to increase both the Citywide and The Preserve DIF based on the percentage increases shown in the table below. These adjustments are consistent with the methodology outlined in the 2017 Report and codified in Chapters 3.40 and 3.45 of the Chino Municipal Code. For reference, see Resolution No. 2025-030, included as Exhibit 1, which formally adopts the updated DIF and related development fees.
|
Index |
Increase |
Applicable DIF Category |
|
Consumer Price Index (CPI) as of February 2025 |
3.1% |
Law Enforcement |
|
Construction Cost Index (CCI) as of April 2025 |
4.8% |
Circulation, Congestion Management Program, Water, Sewer, Storm Drain, & Miscellaneous Residential Amenities |
|
Building Cost Index (BCI) as of April 2025 |
11.8% |
Fire Facilities, General Facilities, & Public Use Facilities |
In accordance with Government Code § 66000 et seq. (Mitigation Fee Act), DIFs may only be used to fund infrastructure required by new development and may not be used to address existing deficiencies. Improvements related to system maintenance, rehabilitation, or replacement will be funded through other sources such as the General Fund and Enterprise Funds.
OTHER RELATED DEVELOPMENT FEES
Residential Park Development Fees and Parkland Valuation
Park Development Fees for Fiscal Year 2025-26 have been updated pursuant to Title 18 of the Chino Municipal Code, which establishes the methodology for calculating parkland acquisition and construction costs associated with new residential development.
The fees are based on the following standardized formulas:
a) Acquisition Formula:
DU × DF × 3 acres × FMV ÷ 1,000 = Acquisition Cost
b) Construction Formula:
DU × DF × 3 acres × (1.12 × FMV) ÷ 1,000 = Construction Cost
(Where DU = Dwelling Units; DF = Density Factor; FMV = Fair Market Value)
To support the FY 2025-26 update, Epic Appraisals LLC completed a series of land valuation studies during Fiscal Year 2024-25. Based on the appraisals, the following Fair Market Values are being applied:
• $880,000 per acre for development outside The Preserve (General City Area)
• $1,140,000 per acre for development within The Preserve
Staff reviewed the appraisal data and confirmed that these land values are appropriate for use in the FY 2025-26 Park Development Fee calculations. It is important to note that these fees are not governed by the City’s 2017 Development Impact Fee Nexus Study but are updated independently pursuant to Title 18.
During the 14-day public comment period, the City received formal comments from the BIA) in response to the proposed 90% increase to the Park Development Fees in The Preserve. The BIA raised concerns that such a steep increase could discourage new housing construction, especially given current economic conditions, such as high interest rates, rising home insurance costs, and broader market uncertainty.
The BIA also noted that slowing down new residential development could make it more difficult for the City to meet its state-mandated housing goals. At the halfway point of the current housing cycle, only 13% of the City’s total Regional Housing Needs Allocation (RHNA) has been permitted, which highlights the importance of maintaining policies that support ongoing housing development.
Although the City’s Title 18 formula for park fees is based on the cost of a fully built and amenitized park, this standard may not match the more conventional park types typically assumed when setting fees under state law, specifically the Mitigation Fee Act. To better understand how Chino’s current fees compare, staff reviewed similar park fees in the Cities of Ontario, Rancho Cucamonga, and Fontana. The findings showed that Chino’s current fees are generally in line with Ontario’s, while Rancho Cucamonga and Fontana have lower fees overall.
In response to concerns raised during the public comment period, the City worked with the BIA to develop a more phased approach. As a result, the City is proposing a reduced interim increase of 11%, as shown in the table below. In parallel, the City will be updating the park fee structure through the upcoming Development Impact Fee Nexus and Calculation Report. This comprehensive update will incorporate revised land and construction cost estimates, regional comparisons, and current development trends to establish a new fee schedule. This approach allows the City to address immediate funding needs while ensuring long-term alignment with market conditions and statutory requirements. A summary of the proposed Park Development Fees is provided in Exhibit 1 of Resolution No. 2025-030, which authorizes the adoption of these fees for the upcoming fiscal year.
|
New Fees FY 2026 |
Current Fee |
Fee per Title 18 |
% + / - |
Proposed |
|
Preserve Single Family |
$ 13,928 |
$ 26,464 |
90% |
$ 15,442 |
|
Preserve Multi-Family |
$ 10,799 |
$ 20,519 |
90% |
$ 11,973 |
|
Citywide Single Family |
$ 22,494 |
$ 20,428 |
-9% |
$ 20,428 |
|
Citywide Multi-Family |
$ 17,441 |
$ 15,839 |
-9% |
$ 15,839 |
|
Citywide Mobile Home |
$ 15,037 |
$ 13,656 |
-9% |
$ 13,656 |
Fees vary based on housing type (Single Family, Multi-Family, Mobile Home) and location (The Preserve vs. General City), reflecting differences in land values.
Administrative Fee
As part of the recently completed User Fee Study, the City captured both direct and indirect administrative overhead costs associated with general development-related activities. Direct costs include staff time, materials, consultant services, and other resources directly tied to processing development applications, permits, and inspections. Indirect costs reflect broader support services such as departmental management, IT, Finance, and facility overhead that enable these functions to operate effectively.
Given this shift, the 12% administrative surcharge currently applied to DIF collections is no longer fully warranted. Accordingly, the City proposes to reduce the DIF administrative fee from 12% to 3%. This revised rate reflects only the staff and consultant time directly attributable to DIF-related analysis, program implementation, and administration.
The reduction to the DIF Administrative Fee does not represent a loss in cost recovery; rather, it reflects a reallocation of overhead expenses to the appropriate user fees where those costs are now fully captured. In effect, this shifts the cost burden away from DIF collections and into the individual development-related services where the overhead actually occurs. The revised 3% DIF Administrative Fee will take effect 60 days after City Council approval, to coincide with the implementation of the updated User Fees, pending City Council approval on June 17, 2025.
This recommendation is made in response to developer feedback received in 2022 and during the recent User Fee meeting and represents a good-faith effort to align fees more accurately with actual costs. While this interim reduction addresses current concerns, a more comprehensive evaluation will be conducted during the upcoming Nexus Fee Study. That process will allow the City to refine the fee based on detailed data and ensure long-term fiscal responsibility and transparency.
Although administrative costs will now be recovered through user fees, the change is expected to result in a net decrease in General Fund revenue, given the higher revenue typically generated by DIF collections. For Fiscal Year 2025-26, the estimated reduction is approximately $3 million.
CONCLUSION
The proposed adjustments to the DIF, Park Development Fees, and Administrative Fee for Fiscal Year 2025-26 is necessary to maintain the fiscal integrity and legal compliance of the City’s development financing programs. These adjustments ensure that fees remain aligned with current infrastructure costs, land valuations, and actual administrative expenditures. By implementing an interim inflation-based update in accordance with the 2017 Nexus Study and reducing the Administrative Fee to reflect true program costs, the City demonstrates a continued commitment to transparency, equity, and responsible long-range planning. Adoption of Resolution No. 2025-030 will allow the City to sustain critical infrastructure investment as the comprehensive Nexus Study and related master plan updates move forward.
Attachments: Exhibit 1 - Resolution 2025-030