CALEXICO — Building homes in California is a costly proposition, affected by a great many factors, including median incomes of an area, market rates, property values, materials and labor costs, and development fees — especially development fees, and particularly school development fees.
The median home value in California in 2019 reached $550,000, with the cost of building new, “affordable,” or entry-level housing in the state at $600,000 or more per single-family unit. This is according to the Terner Center for Housing Innovation at University of California, Berkeley, which released the comprehensive report “Residential Impact Fees in California” in August 2019.
Residential development fees, or “impact” fees, are imposed separately by local governments and school districts. The fees go into funding construction of everything from parks and recreation facilities, to underground and above-ground infrastructure for undeveloped properties for critical needs. This includes streets, curbs and gutters, lighting and other electrical- and communications-based hook-ups, and essential services for water and sewer works that include distribution lines and treatment plants.
They also fund the construction of new schools in districts with current and projected enrollment increases due to families drawn to new housing developments.
Recently, the issue of school development fees and how they can affect the development of new homes, came into focus locally. Recently, there were ongoing talks between the Calexico Unified School District, the city of Calexico and a developer of entry-level single-family homes and apartments that wants to build hundreds of units in the northeast part of town.
The developer, Imperial Valley Builders Construction Co., wants to build about 870 dwellings on undeveloped land along East Cole Boulevard in a development known as the El Portal subdivision.
At the heart of the issue is school developer fees, which the Calexico Unified district board raised substantially in October to a level that caused the builder, a representative of the company said, to pull out of talks the next day and put the brakes on the project.
Although all sides agreed to meet again in February, the builder said the fee increase approved by the board is such that unchanged it will raise the price on the proposed single-family units by $15,000 each. That would make the project no longer affordable for entry-level buyers.
What is ‘Affordable?’
What is considered affordable in California is highly subjective, though, as the Terner Center study points out. Among the 10 localities studied was Imperial County whose fees and figures, when put side by side with some other locations in the study, was worlds apart.
For instance, impact fees per single-family unit in California during the study cycle (2018-19) ranged from $5,700 in Imperial County to $35,300 in Fremont in the Bay Area that the study identified with the top fees overall. In the Terner Center study, “impact” fees are the total of school district, city and county development fees.
The median home price for new single-family construction in Fremont, which is in Alameda County, is around $1.02 million a home as of January. With no real estate trade publications or websites currently tracking prices in Imperial County in real time due to the low number of construction starts, it’s difficult to get a comparable answer.
However, new homes in the cities of Imperial, El Centro and Brawley are listed between $255,000 and $340,000 for three to four bedrooms, according to Realtor.com; no new homes are listed for Calexico.
The median household income in Imperial County was $44,779 in 2017 ($38,015 in Calexico), compared to $75,277 in California for that same time period. In Fremont, the median income was $122,191 (2017) and $102,125 for Alameda County in general.
Costs to Build Schools
The average cost to build schools in California is fairly evened out, yet still runs in the tens of millions. Except for property values and the cost of acquiring land fluctuating between regions, generally it costs around $30-$50 million to build an elementary school, $50-$70 million to build a junior high school and $100-$250 million to build a high school, depending on location and information source.
Imperial County’s newest school, Cross Elementary in the Imperial Unified School District, which opened in August 2019, cost about $34 million to build, district Superintendent Bryan Thomason said during a recent interview.
Cross was built in the Paseo Del Sol subdivision at 2462 Cross Road, north of Aten Road near the U.S. Border Patrol El Centro Sector headquarters. With a current enrollment of 510 students, the school can comfortably accommodate 900 students, Thomason said.
Even that price tag has some caveats. The campus is only designed for kindergarten through fifth grade and does not have some of the amenities, such as a gymnasium.
Although Imperial Unified had higher residential developer fees in place than many of the districts in the Valley at $4.93 a square foot, Thomason said it didn’t come near to being enough to fund new school construction. Most of the school was funded through a general obligation bond, he explained, being paid back through school district residents’ property tax assessments at a rate of $60 a year for every $100,000 of assessed valuation on the home.
In Calexico, the fees that caused such sticker shock to El Portal developers went from $4.79 per square foot to $7.41. The school district board took the action unanimously on Oct. 24 after approving a comprehensive School Fee Needs Analysis that included three new levels of fee increases.
In raising its fees, Calexico officials cited the high cost of building schools to meet its needs, student enrollment projections for the next five years and other local cost factors. The estimated cost for constructing a new school was placed at $40 million for an elementary school, $65 million for a middle school and $150 million for a high school, according to Cesar L. Vega, district assistant superintendent of business services.
Calexico seemingly needs new schools at all levels, according to the district’s projections.
“Based on information from the planning departments of the city of Calexico and the county of Imperial, new residential housing units projected to be built within the district’s boundaries over the next five years is 621 single-family and 504 multi-family units,” Vega reported in a written statement from Jan. 31.
“By using student generation rates calculated from past developer fee payments and the district’s student enrollment data, the future development units are projected to yield 406 K-6 students, 167 7-8 grade students, and 261 high school students to enroll into the district’s schools,” Vega continued.
“This means 156 K-6 students, 167 7-8 grade students and 261 high school students (total of 584 students) will be unhoused (in schools) from the proposed future development. The district has no local funds available to dedicate to rehabilitate or construct school facilities impacted by future residential development,” Vega added.
Calexico Unified’s enrollment is such (9,246 in 2018-19) among its 11 schools that it only takes grades 10 through 12 at its high schools and has grades 7 through 9 at its two junior high schools. All other high schools in the Imperial County are ninth through 12th and middle schools and junior highs are commonly grades 6, 7 and 8.
Makeup of School Fees
Setting residential developer fees is a touchy subject and also depends on myriad factors. There are “statutory” Level 1 fees set by the state Office of Public School Construction’s State Allocation Board and more recent Level 2 and 3 “alternative” fees, also tied to the state board, said Tom Duffy. He is a former school superintendent and current lobbyist and legislative director for Coalition for Adequate School Housing.
In 1987, Assembly Bill 2926 authorized Level 1 fees, the “basic mitigation fee” for school construction, through the State Allocation Board. Individual school boards can change the fees every two years based on inflation, Duffy said, but they can only be set (even after inflation adjustments) at the school board level after a justification study has been completed.
That basic mitigation fee applies for both residential and commercial development, which was just raised by the state board on Jan. 22, to $4.08 per square foot and $0.66 per square foot, respectively.
(It’s important to note that no school district in the state has had a chance to raise the fees to this new level considering it must be done by a board action and a justification study. The current basic fee, or Level 1 fee, maximum being assessed is $3.79 a square foot and $0.61 a square foot, based on January 2018 numbers.)
In 1998, through Senate Bill 50, Levels 2 and 3 “alternative” fees were authorized but only for residential developer fees; commercial rates only have the one basic level. Level 1 fees are fixed and set, while Levels 2 and 3 are not set costs.
Although Levels 2 and 3 have fixed elements that factor into how they are set (their formula), they often vary greatly from district to district based on local factors and the difficulty in qualifying to assess them and maintain them.
Levels 2 and 3 are tied to a district’s approved State Allocation Board Level 1 residential amount plus a formula that includes what is called the “Per Pupil Grant” amount and other local factors. The Per Pupil amount is a fixed cost tied to what is known as the state Construction Cost Index. When the Index changes, the Per Pupil changes.
What makes the Level 2 and 3 fees vary so greatly, Duffy said, can be the “local” factors that are based on land price, costs to prepare that land for building (grading, surveying, etc.), property taxes, even the cost to bring infrastructure (electric, water and sewer) to a prospective school site.
For Calexico, “‘local’ factors considered and applied toward the calculations include projected development, average housing square footage, the school district’s current facilities capacity and projected enrollment; and availability of local funds,” Vega explained.
In maintaining and assessing the alternative fees, SB-50 states a school district has to meet two of four levels of criteria in its needs analysis to set the fees. These include whether a school district is year-round, its level of debt and bonding capacity, its number of students in portable classrooms, and whether it had a successful bond election within the last four years.
In Calexico’s case, as with the Fremont district, it meets two of the four — bonding capacity/debt and students in portable classrooms.
Vega said according to the district’s needs analysis, “it has issued debt for capital outlay in excess of 30 percent of bonding capacity” and “at least 20 percent of the district’s classrooms are relocatable,” that is, trailers.
Additionally, to continue assessing Levels 2 and 3, the needs analysis must be updated every 12 months. Also of note, while Levels 2 and 3 can be on the books, the State Board of Allocation only allows Level 2 to be levied against a developer unless the state board certifies and declares that no school building fees are available from the state. The state has done that just once, in 2016.
Maintaining eligibility can be difficult. Imperial Unified’s Thomason said recently that Imperial will return to only assessing Level 1 fees next year when its eligibility runs out. He did not elaborate any further.
Residential developer fees can be erratic. Fremont Unified has been charging Level 2 fees of $4.91 a square foot since April 2019.
According to news reports in the East Bay Times, Fremont Unified has seen its fees yo-yo in recent years. In 2016 and 2017, the district had rates of $5.70 and $8.19 for level 2 fees and $16.38 and $26.11 for Level 3 fees, respectively. In 2016, the State Allocation Board declared there was no money left for building new schools available to Fremont Unified.
During that time, the Fremont school board was under constant scrutiny, too, with the East Bay Times reporting online petitions and legal challenges.
It’s difficult to immediately find current fees that are comparable to what Calexico has set. There is no database or storage house online that collects that information, not through the state Department of Education nor locally through the Imperial County Office of Education.
Even UC Berkeley’s Terner Center had difficulty tracking the fees because of what the think tank described as a lack of transparency and unpredictability.
“In many cases, that was very difficult information to obtain,” said David Garcia, the center’s policy director, in an Aug. 12, report on Capital Public Radio’s website.
In Imperial County, with its 16 separate school districts, any other school district assessing Level 2 fees besides Calexico Unified and Imperial Unified could not be located.
A Magnolia Union School District official initially stated the district was using the new rates set by the State Allocation Board as of Jan. 22. Upon further questioning, the person who answered the call misunderstood that those new rates must be set by a study and board action.
In almost all cases, local school districts are assessing the Level 1 maximum for residential based on the 2018 numbers. Some even have those rates below the allowable state maximum because they have not done new justification studies, including Holtville Unified School District and Calipatria Unified School District (both are using $2.97 residential/$0.47 commercial).
“We’re about 13, 14 years behind,” said John-Paul Wells, Holtville Unified’s assistant superintendent/chief business officer. “Each school district does a School Facilities Needs Analysis. I’m working on ours now with a consultant. … We’re overdo.”
Wells said he hopes to have a new fee schedule in place in March.
Most other local school districts are charging the allowable Level 1 maximum, although the elementary districts must divide their rates with the high school districts.
For example, El Centro Elementary School District and McCabe Union School District both are capped at $2.62/$2.63 a square foot for residential and $0.42 a square foot for commercial because they are K-8 districts. Central Union High School District, on the other hand, is charging $1.17/$0.19 because it is a 9-12 district. It’s the same for Brawley’s districts.
City officials in Calexico, both administration and elected officials, believe the Calexico school board’s fees could stifle future housing development in the city, just like it has threatened the El Portal development. City management and Calexico City Council members spoke out against the increases during public comments at an August school board meeting several weeks before the board passed its revised fee schedule.
Vega was asked whether the criticisms are off base considering the severity of the district’s needs for new facilities. Similar questions have been asked of several school board members and school Superintendent Carlos Gonzales, but all have deferred to Vega and all answers have been in the form of written statements.
“The district’s board is simply trying to plan for future impact that will occur upon the district’s resources from new construction by following the statutory requirements that are in place to mitigate student growth from new development. The district does not care to speculate what motivations other parties might have with regard to criticizing the district’s actions in this regard,” Vega responded Jan. 31.
This story is featured in the Mar 19, 2020 e-Edition.