Staff Report.TIP Research Update
PREPARED BY: Nicolle Burnham
Director, Parks and Public Works
Reviewed by: Town Manager, Town Attorney, Community Development Director, and Finance Director
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 05/02/2023 ITEM NO: 13
DATE: April 27, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive the Report and Provide Direction on Potential Changes to the Town’s
Transportation Impact Fee
RECOMMENDATION:
Receive the report and provide direction on potential changes to the Town’s Transportation
Impact Fee.
BACKGROUND:
The Town of Los Gatos adopted its first Traffic Impact Policy and Traffic Impact Mitigation Fees
in 1991 in accordance with California Mitigation Fee Act (AB 1600). The Town’s current Traffic
Impact Policy is defined in Council Policy 1-08 (see Attachment 1). At present, the Town
charges new development a traffic impact fee at a rate of $1,015 per new Average Daily Trip.
The Average Daily Trip of every new development is estimated based on engineering analysis
provided as part of the development application. A single-family residence generates an
average of 9.44 trips per day, and new homes in Los Gatos currently pay an impact fee of
$9,581.60. Commercial and multi-family developments pay multiples of the $1,015 depending
on the number of vehicle trips expected to be generated, but also receive credits based on
existing uses and pass-by trips.
Council Policy 1-08 was last updated in December 2021 to reflect the use of Vehicle Miles
Traveled (VMT) as a means of evaluating traffic impacts in addition to the standard level of
service/traffic generation model that previously existed. Traffic impact fees were not updated
at that time, the Council action from that date authorized staff to update the Traffic Impact Fee.
In 2021 in Assembly Bill 602 the State of California implemented certain changes to AB 1600.
Specifically, jurisdictions that charge impact fees must: 1) complete an impact fee nexus study;
PAGE 2 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
BACKGROUND (continued):
2) calculate the fees based on square footage of the proposed units (or justify why square
footage cannot be used); and 3) update the nexus study every eight years.
Since early 2022, staff has been working with DKS Associates to complete a transportation
nexus study, update the traffic impact fee, and consider a VMT Impact fee. Allowable charges
developed through this study must show:
1. A reasonable relationship between new development and the need for public facilities,
in this case transportation related infrastructure;
2. A reasonable relationship between new development and the use of fee revenue for
public facilities to accommodate that development; and
3. A reasonable relationship between the amount of the fee and the portion of public
facilities cost associated with new development.
DISCUSSION:
In their most basic form, transportation related impact fees are calculated by determining the
dollar value for the design and construction of improvements deemed necessary to support
future development without worsening traffic and dividing the cost of those improvements by
the amount of new development projected to occur. Work completed to date and described in
this report includes:
1. Identification of projects that would be funded through the impact fee program and
their associated design and construction costs;
2. Determination of the amount of development (e.g., number of housing units, amount of
retail and commercial, etc.) that would pay into the fee program; and
3. Identification of the resulting maximum fee for each land use type.
In considering this item, Town Council should specifically provide direction regarding: the
maximum fee or some lower fee amount; the amount and type of public outreach that should
be provided prior to returning to Town Council for fee adoption; and Town Council interest in
credit programs to incentivize certain types of development.
Note that in this memo, and in future memos on this topic staff is changing the nomenclature
regarding this program. In the past the term Traffic Impact Fee has been used to describe the
program and its associated fee. In this memo and in future writings on this topic, the term
Traffic Impact Program (TIP) is used to describe the overall fee program. The TIP is comprised
of two different fee components:
• Transportation Improvement Fee (TIF): The Transportation Improvement Fee collects funds
to expand transportation infrastructure and accommodate increased travel demand from
new development. Sample projects include expanding and improving traffic signals, roads,
bridges, and safety projects. The current TIF only addresses this component of the fee.
PAGE 3 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
DISCUSSION (continued):
• Vehicles Miles Traveled (VMT) Reduction Fee: The VMT Reduction Fee collects funds to
decrease demand for driving and focuses on mitigating car travel from new development by
supporting other travel modes such as transit, bicycling/walking, and charging for parking.
Sample projects include new bike lanes and sidewalks. This would be a new fee that the
Town does not currently have.
PROJECT LIST AND COSTS
As noted above, the proposed TIP is underpinned by a list of projects that the Town would like
to see completed to continue to improve traffic and transportation infrastructure and mitigate
the impact of future development. The project list was developed from previously adopted
planning documents including the Bicycle and Pedestrian Master Plan, the General Plan (2020
and 2040), Local Road Safety Plan, and prior capital improvement project lists. The list was
segregated between traffic impact related projects and VMT related projects.
Attachment 2 lists the specific projects included in the fee calculation, their total cost, the
amount of funding anticipated from grants or outside sources, and the cost the Town is
expected to pay. Table 1 is a summary of the costs developed and included in the fee
calculation.
Table 1. Summary of Project Types and Costs
Transportation
Improvement
Fee Project Costs
(2022$)
VMT Reducing
Projects (2022$) Total (2022$)
Total Project Costs $151,132,533 $40,523,441 $191,655,974
Estimated Funding from Other
Source (e.g., grants)
$124,228,307
$24,721,584
$148,949,891
Unfunded Cost Allocated to TIP $26,904,227 $15,801,857 $42,706,083
This value of this list is reflective of the ambitious transportation related programs the Town
has adopted. Staff worked to reduce the list to the extent feasible, and earlier iterations had
unfunded costs allocated to the Town in excess of $90 million. As noted earlier, the dollar value
in this list directly effects the value of the calculated impact fee so reducing the number of
projects on the list directly reduces the fee.
PAGE 4 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
DISCUSSION (continued):
PROJECTED DEVELOPMENT
Projected development amounts are the second critical component to the fee calculation. The
Town’s General Plan 2040 Land Use Element and Draft Housing Element were used as the basis
for determining the projected amount of single-family, multi-family, retail, office, and industrial
development. To calculate an impact fee, the multi-family, retail, office, and industrial
development levels are normalized to “dwelling unit equivalents” (DUEs), where a single-family
home is one DUE. This converts residential and non-residential land uses to a common unit in
terms trip generation characteristics. In other words, the DUE is equivalent to the travel
demand produced by a typical single-family dwelling unit using industry standard trip
generation rates. Accounting for all land use types and excluding Accessory Dwelling Units
(ADUs), which are currently exempt from paying traffic related fees, the net DUEs projected for
Los Gatos is 2,021. This number factors directly into the fee calculations.
Table 2 provides the DUE for each land use type. This factors into how much impact fee a
development will pay under the updated fee program.
Table 2. Dwelling Unit Equivalent (DUES) per Land Use Type
Land Use
Dwelling Unit
Equivalent
(DUE)
Single-Family (per dwelling unit) 1.00
Multi-Family (per dwelling unit) 0.71
Retail (per 1,000 square feet) 1.40
Office (per 1,000 square feet) 1.23
Industrial (per 1,000 square feet) 0.58
FEE CALCULATIONS
The TIF and the VMT Fee are calculated separately using the project costs show in Table 1 and
the net DUE of 2,021. In calculating the proposed fees, the current balance of the Traffic
Mitigation Fund (which is the account into which all current impact fees are paid) is subtracted
from the unfunded cost allocated to the TIP. Table 3 shows the Transportation Improvement
and VMT Fee calculations.
PAGE 5 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
DISCUSSION (continued):
Table 3. Traffic Impact Program Fee Calculation Summary
Transportation
Improvements Fee
VMT Fee
Unfunded Cost Allocated to TIP $26,904,227 $15,801,857
Less Existing Mitigation Fee Fund
Balance
($1,319,656)
($775,084)
Total Unfunded Cost Used in
Calculations
$25,584,570
$15,026,773
Net DUE’s 2,021 2,021
Cost per DUE $ 12,661 $7,437
In its simplest terms, this means that a new single-family home would pay $20,098 into the TIP,
although converting the fee to square footage of the proposed construction (as required per
AB602) means the actual fee will vary based on the size of the home. Multi-family, retail,
office, and industrial uses would pay multiples of that based on the DUE in Table 2. Table 4
shows the maximum proposed fee per type of development. Attachment 3 compares these
fees with the current impact fees for nearby jurisdictions.
Table 4. Maximum Fee per Land Use Type
Land Use / Unit Basis
of Fee
DUE VMT Fee Transportation
Improvement
Fee
Total Fee
Single-Family / per
Dwelling Unit 1.00 $7,437 $12,661 $20,098
Multi-Family / per
Dwelling Unit 0.71 $5,315 $9,050 $14,365
Retail / per 1,000
square feet 1.40 $10,374 $17,663 $28,037
Office / per 1,000
square feet 1.23 $9,141 $15,564 $24,706
Industrial / per 1,000
square feet 0.58 $4,288 $7,300 $11,588
As noted earlier, per AB 602, impact fees for residential must be converted to a per square foot
basis. The conversion to square footage is based on the average square footage of the housing
type. Table 5 shows this conversion.
PAGE 6 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
DISCUSSION (continued):
Table 5. Conversion to Square Foot Fee for Residential
VMT
Reduction
Fee
TIF Average
Unit Size
VMT Fee
Per Square
Foot
TIF Per
Square
Foot
TIP Fees
Per Square
Foot
Single-Family $ 7,437 $ 12,661 1,671 $ 4.45 $ 7.58 $ 12.03
Multi-Family $ 5,315 $ 9,050 884 $ 6.01 $ 10.23 $ 16.24
Development projects will be required to mitigate their VMT impacts as well as support
continued expansion of the transportation network. The VMT mitigation fee will not fully
mitigate the impacts of an individual development project and additional mitigation strategies
may be required for environmental clearance.
Table 6 shows a comparison of the existing fee to the proposed new fee for various
developments. As Table 6 demonstrates the conversion of residential fees the per square foot
of unit type has a significant impact on the fees paid by residential developments. However,
the potential future fee leaves commercial, retail and office paying less than under the existing
program.
At present the Council Policy 1-08 exempts all ADUs from transportation impact analysis and
traffic impact fees. However, since larger ADUs could support more residents which would
create more demand on roads, the Town could consider requiring ADUs larger than 750 square
feet to pay a fee proportional to the primary dwelling unit while ADUs smaller than 750 square
feet must remain exempt from paying impact fees.
Council may adopt fees at any level up to the fees shown or may adopt different fee levels for
each land use (e.g., 100% of proposed fees for commercial and 75% of proposed fees for
residential). However, reducing the fees would necessitate additional alternative funding
sources to deliver projects on the list and reducing the VMT Fee reduces mitigation
effectiveness.
PAGE 7 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
DISCUSSION (continued):
Table 6. Existing Fees vs Proposed Fees
Project
Fees Paid or Anticipated to
be Paid Under Existing Fee
Program
Proposed Fee
Accessory Dwelling Unit $0 $0 (per Town Policy)
New Single-Family Residence
(hypothetical) (3,000 SF) $9,581.60 $36,090
Multi-family Residential Project
(16940 Roberts Rd, 3 condominiums –
1,820, 1,797, and 1,806 SF)
$23,394.36 $88,069.52
Redevelopment (16212 Los Gatos
Blvd), existing commercial building,
2,312 SF) with proposed retail/office
at 6,185 SF1
$251,720 $91,315
Retail (15600-15650 Los Gatos Blvd,
Whole Foods) 40,190 SF Retail1 $2,129,936.19 $1,126,807.03
Notes:
1. Fees shown are net. The project receives credit for the existing use and is charged for the
expanded/increased use.
COUNCIL DIRECTION
Staff is seeking direction on the following items: 1) total fee that might be proposed; 2)
consideration of credit programs and for what type of projects; and 3) outreach strategy.
Total Fee
Option 1: Move forward with both fee components at proposed fee levels
While this option maximizes funding for Town capital projects, it will result in higher fees than
many other jurisdictions.
Option 2: Reduce or eliminate the VMT fee component
The fees presented represent the maximum fee the Town could charge. However, Town
Council can establish the fee at any rate lower than what is currently presented. While setting
a lower rate or eliminating the VMT fee reduces the fee burden on development, it will result in
reduced mitigation effectiveness and lower fee revenue. Per Council Policy 1-08, the Town is
taking a Town-wide approach for VMT impact mitigation, and the updated fee program is
PAGE 8 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
DISCUSSION (continued):
intended to function as an impact mitigation strategy to support environmental clearance of
development projects. Reducing the VMT fee is counter-productive to the original intention of
using the fee program as one tool in the environmental clearance process for new
development.
Option 3: Reduce the Transportation Improvement Fee component
While this option also reduces the fee burden on development, it will result in lower fee
revenue and the Town will need additional alternative funding sources to deliver the project
list, which may be challenging considering that the estimated cost of the project list already
assumes 78% of the funding will be from grants.
Considerations of a Credit Program
Council Policy 1-08 exempts Accessory Dwelling Units (ADUs) of all sizes from payment of the
fee. In addition, fees are prorated to reflect existing land uses. For example, a 3,000-square
foot retail development proposed at a site that currently has a 1,500-square foot retail
development would only be charged impact fees on the new 1,500 square feet.
In considering the new fee, Town Council may want to provide direction for staff to evaluate
other potential credits. Credit programs can serve to incentivize the types and location of
development that support the Town’s goals and policies. For example, credits may include
deed restricted affordable housing units for various income levels. Credits may be for 100% of
the fees (which would not be recommended) or some lower percentage like 50% of 75%.
Council may also want to consider if the existing ADU exemption should be continued or
modified.
If credit programs are of interest to Town Council staff will research credit programs and return
with a proposed credit program.
Outreach Strategy
This Council item provides the first opportunity for Town Council and the public to see the fee
calculations. Staff recommends that additional outreach be conducted before the fee study is
finalized and brought forward for adoption and is seeking input from Council on potential
groups that should be included in the outreach.
PAGE 9 OF 9 SUBJECT: Provide Direction on Potential Changes to the Transportation Impact Fee DATE: April 27, 2023
CONCLUSION:
As a result of Council direction when adopting the Town’s VMT policy in December 2021 and
recent changes in state law, staff is completing the necessary technical work to update the
Town’s TIP. The maximum fee has been calculated and would significantly increase impact fees
for residential development, while reducing fees for non-residential land uses. Staff is seeking
direction from Town Council on the proposed rate, credit programs, and future outreach.
COORDINATION:
This agenda item was coordinated with the Town Manager, Town Attorney, and Finance
Director. The Community Development Department has been involved with reviewing the fee
options and other technical materials.
FISCAL IMPACT:
There is no fiscal impact associated with Town Council providing direction.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Council Policy 1-08 - Traffic Impact Policy
2. Project List for TIF and VMT Calculations
3. Analysis of Fees for Comparable Jurisdictions