City Council Meeting: September 11, 2012
Agenda Item: 4-A
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Downtown Parking In-Lieu Fee Program Study Session
Staff recommends that the City Council review and provide direction on issues relating to modifications to the Downtown Parking In-Lieu Fee Program, including direction on the policy issues and trade-offs identified in the report.
The existing Downtown Parking In-Lieu Fee (also called the “Parking Developer Fee Program”) was established in 1986 as an incentive to encourage property owners to rely upon public parking and support a longstanding “park once” approach within Downtown Santa Monica. Under the Parking Developer Fee Program, developers within the Bayside District (the area bounded by Second Court to the west, Fourth Court to the east, Broadway to the south, and Wilshire Boulevard to the north) may choose to pay a fee in lieu of providing required parking onsite. The annual fee, which expires on June 30, 2016, is $1.50 per square foot of building area added after 1986 for which parking is not provided. To date, the City collects approximately $600,000 annually from a total of 44 parcels. Through FY 2011-12, the fund had an accumulated balance of approximately $7.0 million which is being applied toward the reconstruction of Parking Structure No. 6. The formula, fee amount and applicable area of the Parking Developer Fee Program have remained unchanged since 1986.
The Walker Parking Study approved by Council on September 8, 2009, evaluated parking operations in Downtown and made a number of recommendations to help the City better manage its parking resources. In particular, the study emphasized that while the Parking Developer Fee has been important to furthering the City’s “park once” policy and generating funds to construct new parking, the fee of $1.50 per square foot is insufficient to finance the current costs of new parking spaces which has been estimated between $30,000 and $54,000 per space. The Walker Parking Study reported that if, on average, one parking space is required for each 333 square feet of building area, then the existing in-lieu fee provides from $5,000 to $6,000 of financing revenue toward the construction of a parking space.
On June 14, 2011, Council authorized an agreement with the consulting team of Nelson\Nygaard and AECOM to review Downtown Santa Monica’s existing Parking In-Lieu Fee Program and provide recommendations for its possible extension and expansion. The goals of the updated in-lieu fee program include creating a fund that would accumulate sufficient revenue to construct additional public parking, as well as update the program to address current and future parking and circulation dynamics in downtown Santa Monica.
A team comprised of City staff, Nelson\Nygaard and AECOM initiated the study by interviewing a variety of Downtown stakeholders, including developers, architects, and property owners with properties located in the Downtown district.
Based on the input received, analysis of comparable parking districts in other communities, a financial analysis, and a reasonable relationship analysis, the consultants prepared a draft report (Attachment A) with the following specific recommendations:
1. Voluntary Parking In-Lieu Fee - The proposed in-lieu fee would be a voluntary fee for those developments that choose not to provide code-required parking onsite.
2. Fee Structure Based on Parking Spaces - Instead of being based on the amount of square footage in the development for which parking is not provided, as is the current fee, the new parking in-lieu fee would be calculated on the number of code-required parking spaces that were not provided onsite. Santa Monica’s parking code calculates the required number of parking spaces based on use.
3. Fee Amount - Nelson\Nygaard and AECOM’s financial and economic analysis recommends that the initial fee level be set at $20,000 per space for all land uses or projects within the proposed district. The fee would adjust annually based on a construction cost index so that the fee would not decline in value over time.
4. Payment Options - Payment options could be a one-time upfront payment or a 4-year installment option.
5. Boundaries – The boundaries for the new proposed parking in-lieu fee program would be expanded in order to cover the LUCE Downtown District (approximately Ocean Avenue to Lincoln Boulevard, Wilshire Boulevard to the Santa Monica Freeway).
6. Change of Use – The proposed parking in-lieu fee could be applied to all projects within the proposed district that represent a change in use, including additions or renovations.
7. Percent of Required Parking – The stakeholders interviewed indicated that developers will consider market demand in determining how many of the required parking spaces should be provided on-site and that the number of required parking spaces that can be satisfied by payment of an in-lieu fee should be left to the developer. Staff and the consultant recommend that within the existing Downtown parking district where shared public parking resources already exist and where the program has operated for decades, development continue to have the option to pay up to 100 percent of required parking through in-lieu fees. For the remainder of the Downtown where there are few public parking resources, staff recommends that development be allowed to satisfy no more than 40 percent of required parking through the in-lieu fee, unless otherwise approved by discretionary review. New parking standards would be implemented as part of the Downtown Specific Plan, but until then, current parking standards would apply.
8. Relationship to Existing Parking Developer Fee – The existing Bayside District Parking In-Lieu Fee Program remains in effect until June 30, 2016 and any additional square footage added within the boundaries without the required parking would continue to pay the current $1.50 per square foot fee. The study recommends that new development within the existing district pay the existing fee through 2016 and receive a credit against the amount of the new fee upon adoption. Such a blended approach will ensure that the total amount paid is consistent within the entire Downtown District.
9. Program Utilization – The report includes a development forecast and projects a participation rate based upon the history of new development that has occurred since 1999 within the expanded Downtown Santa Monica boundaries, and the participation rate for the existing parking in-lieu fee program during the same timeframe. The analysis in the report includes a projection that a $20,000 per parking space in-lieu fee would result in the program being utilized by 65 percent of eligible development projects during the next 30 years. It is projected that these projects will utilize the parking in-lieu fee to satisfy a portion of the on-site parking requirement.
10. Allocation of the Proposed Parking In-Lieu Fee Program Revenue – Nelson\Nygaard and AECOM analyzed the reasonable relationship between the proposed parking in-lieu fee and recommended uses of the fee. The study recommended that the fees be allocated clearly for uses that increase the supply or reduce the demand for public parking.
Policy and Issue Considerations
The following are considerations the Council may wish to consider as part of this discussion.
Downtown Specific Plan Update and Implementation Timing - Should a new Downtown Parking In Lieu Fee be adopted in advance of completion of the Downtown Specific Plan and the Zoning Ordinance Update?
The Planning and Community Development Department is working on the Downtown Specific Plan (DSP) and the Zoning Ordinance Update. The DSP will establish and translate the City’s integrated land use and transportation policy into detailed standards and guidelines to give shape to urban design, transportation, open space, infrastructure and economic policy. One of the goals of the DSP is to analyze parking and circulation to ensure an adequate amount of parking in the expanded LUCE boundaries, particularly in the area located between 5th Street, Lincoln Boulevard, Wilshire Boulevard, and the Santa Monica Freeway. In particular, the DSP will help to address some of the parking goals and policies identified in the LUCE including Goal T26 (p. 4.0-72) “Use parking policies to achieve housing affordability, congestion management and air quality goals.” In addition to encouraging the construction of public parking as a community benefit, the proposed policies include the potential to allow developers to meet their minimum parking requirements via shared parking between uses, payment of an in-lieu fee, or off-site parking within reasonable walking distance. The revised parking parameters are in the process of being defined. Currently developers must comply with the existing Municipal Code and City of Santa Monica Zoning Ordinance. The DSP and the Zoning Ordinance Update are expected to be completed in 2013.
While Council could wait to adopt the proposed parking in-lieu fee program until after the DSP is adopted in 2013, approving a new parking in-lieu fee, at this time, in advance of approval of the DSP, would not interfere with Council’s decision about what parking standards to adopt. In fact, Council approval of a new parking in-lieu fee at this time would help support the DSP and would provide clear information to the development community about potential development options. It would also ensure that the increased in-lieu fees will be collected while the DSP is being completed.
Fee Amount - Is the $20,000 Parking In-Lieu Fee Amount Appropriate?
The City’s reconstruction costs for Parking Structure No. 6 (PS 6) for subterranean parking is $53,775 per space. The City’s cost to develop an above-grade space is $31,603. This is consistent with the findings of an independent study commissioned by Downtown Santa Monica Inc. (DTSM). That report, presented to DTSM on June 28, 2012, identified the cost to construct a subterranean parking space at approximately $50,000 and an above-grade structured space to be $35,000, not including land costs.
The report recommends that the parking in-lieu fee be set at $20,000 per parking space, and adjusted annually in accordance with a construction index. The fee of $20,000 is recommended because it was determined to be an amount that is less than a private developer’s cost to construct either above- or below-grade parking, and thus would be an inducement for a developer to participate. Downtown stakeholders indicated that anything above $20,000 to $30,000 per parking space would be excessive and would deter participation in the program. However, the $20,000 is far less than the City’s cost to construct new parking, and if the fee is set too low, there is a concern that developers will rely on it exclusively and the City will be obligated to produce parking without having a sufficient revenue source.
The concern that the fee may be too low is mitigated by the fact that public parking spaces in a “park once” setting are very flexible shared-parking resources and typically have greater parking utilitization than private parking spaces. A public parking space can serve many users from multiple destinations over the course of the day, whereas private parking spaces typically serve one or two groups of users. Well managed shared parking provides an opportunity for greater optimization of spaces and revenues.
Method of Payment - Should the City give developers the ability to pay the fee over four years?
The report recommends that developers be allowed to pay the parking in-lieu fee either up-front, with other development fees, or over a four-year time period. Allowing developers to pay the fee over four years would ease the up-front financial burden on developers and provide more cash flow to the project. If the City were to allow projects to pay the in-lieu fee over a four-year time frame, then the first payment could be due prior to the Certificate of Occupancy being issued and the City could secure the subsequent payments via bonds, deposits, a form of credit, or a deed of trust. Future payments could be adjusted for inflation. While this option provides additional flexibility to developers, it would likely increase the City’s administrative costs for managing the program. An administrative fee could be added to the installment payment plan to ensure that the City fully recovers its costs.
Use of In-Lieu Fees – Should the in-lieu fees be used only to build parking or should the fees be used for a broader array of strategies to increase supply or reduce demand?
The report recommends that in-lieu fees be used to support a variety of tools to increase parking supply and reduce parking demand. Such tools could include building new public parking facilities, providing funding for public parking to be built as part of private development, leasing underutilized private parking spaces (including any necessary up-front improvements, insurance and liability), providing incentives for employees to park in peripheral lots, implementing wayfinding and access enhancements that improve utilization of public parking, and employing a package of transportation demand management strategies (e.g. pedestrian, bicycle and pedestrian system improvements, and contributing to carpooling and public transportation passes) that reduce the demand for parking resources. Given the high cost of building public parking, such strategies could provide more cost-efficient and effective means to address parking demand and thereby extend the parking benefits provided by the funds.
Expansion of Boundaries - Should the new boundaries of the parking in-lieu fee program be expanded to cover the entire Downtown District defined in the LUCE?
The existing Parking District is bounded by Broadway, Second Court, Wilshire Boulevard, and Fourth Court. The District is a model “park once” district that many other downtowns have replicated. However, Downtown Santa Monica has grown beyond the core areas of Second, Third and Fourth Streets. Development that has occurred and continues to occur outside the original district impacts parking supply and demand in the area. Expanding the parking district would enable the City to expand its use of strategies through the Downtown District in order to increase public parking supply where appropriate and manage it most effectively. It allows the success of the “park once” district to be expanded throughout Downtown Santa Monica.
Percent of Required Parking - Should the Parking In-Lieu Fee allow developers to satisfy the on-site parking requirement through payment of Parking In-Lieu Fees up to 100 percent?
The report recommends that developers be given the flexibility to use the new parking in-lieu fee to satisfy up to 100 percent of a development’s parking requirement. The study reasons that for most developments, the developer will consider market demand and most likely provide parking on-site in sufficient number to satisfy user demands. In addition, allowing up to 100 percent of the parking requirement to be satisfied through payment of the in-lieu fee would benefit smaller parcels for which it can be difficult to provide onsite underground parking.
Given that there are few public parking resources outside of the Downtown core, as well as that new parking standards have not yet been implemented as part of the DSP, staff and consultants recommend that the percentage of required parking that can be satisfied by the payment of an in-lieu fee be allocated by area. Within the existing Downtown parking district where shared public parking resources already exist and where the program has operated for decades, staff recommends that development continue to have the option to pay up to 100 percent of required parking through in-lieu fees. For the remainder of the Downtown where there are few public parking resources, staff recommends that development be allowed to satisfy no more than 40 percent of required parking through the in-lieu fee, unless otherwise approved by discretionary review. This is consistent with other cities studied, where 35 percent to 50 percent of the parking requirement can be satisfied by an in-lieu fee. When the Downtown Specific Plan is adopted in 2013, it will recommend updated parking standards, and the maximum in-lieu amount could be adjusted at that time.
A key component of the parking in-lieu fee study was a series of stakeholder interviews designed to gather input on key parking issues in Downtown, including the potential revision of the parking in-lieu fee program. The stakeholders that were interviewed included developers, architects, and property owners with properties located in the Bayside and Downtown Districts. Public presentations of the study recommendations were also provided at a DTSM, Inc. District Issues subcommittee meeting, a DTSM board meeting and a Planning Commission meeting. On August 23, 2012, the DTSM Inc. board recommended that the City delay implementation of the new fee until the DSP has been adopted, and use of the funds has been more clearly defined. Board members also expressed concern regarding the efficacy of the use of funds for purposes other than building new public parking resources. On August 29, 2012, the Planning Commission held a study session on the proposed Downtown Parking In-Lieu Fee Program. The Commission was supportive of the report’s recommendations, with differences of opinion regarding the amount of the in-lieu fee. Some commissioners felt that the fee could be increased above $20,000 to ensure that the City receives sufficient funds from the program, others felt that the amount could be lowered in order to incentivize maximum participation in the “Park Once” program, and some felt that the $20,000 fee struck an appropriate balance among competing concerns. Commissioners also recommended that the City develop a transparent program for expenditure of the funds so that the public, as well as those who pay into the fund, clearly understand how funds will be used. The Commissioners also supported the consultant’s recommendation to adopt the fee in advance of the completed Downtown Specific Plan, with the understanding that the DSP would better define a complete district parking strategy with this component in place.
There is no immediate financial impact associated with the recommendation presented in this report, as Council is asked to review and provide direction on policy issues related to the Downtown Parking In-Lieu Fee Program. If Council ultimately approves the program updates, it would result in higher in-lieu receipts whenever the program is used.