The Sedona City Council directed staff to continue with the process of possibly increasing development impact fees on Tuesday, Nov. 12, after hearing a staff report explaining that Sedona’s DIF fees were higher than those compared across Arizona.
No members of the public addressed council on the subject.
Finance director Barbara Whitehorn said staff had compared Sedona’s proposed fees against those of Flagstaff, Gilbert, Fountain Hills, Apache Junction and Kingman, which she said are “very different from us.”
“Apples to oranges is really what we found,” Whitehorn said. “A lot of cities don’t have development fees at all,” such as Cottonwood and Camp Verde, which use grants and capital plans to fund their capital projects, while other jurisdictions employ dedicated taxes, investment revenue or other sources. Whitehorn noted that Flagstaff uses four different sales taxes to fund its transit program alone.
“That’s certainly an option for a community, but it does mean that you’re using revenue from other revenue streams,” Whitehorn said. “It’s a philosophical difference.”
She described Gilbert, a Phoenix suburb with a population of 267,918, as having development fees “much closer to the proposed fees for the city of Sedona.” Fountain Hills, another suburb of Phoenix, with a population of 23,820, has fees that Whitehorn said were “fairly lower.”
“Their fees are also quite low,” Whitehorn said of Kingman, population 32,689, which revoked its development impact fees in 2011. “They felt like the impact fees might be influencing the decision of developers not to develop in Kingman.”
“I do think there was some good logic to this,” Whitehorn said in regard to Sedona’s proposed increase, which would more than double existing fees, if passed.
Responding to Councilman Brian Fultz, Whitehorn said fees are intended to cover a portion of city spending on capital programs. She estimated that the fee-eligible portion of capital spending over the next 10 years will amount to $3.1 million for police projects, $4.7 million for parks projects and $12.3 million for streets projects, for a total of $20.1 million.
City Manager Anette Spickard previously said on Aug. 13 that the city collects about $615,000 per year in development impact fees, or 0.58% of the city’s $106.2 million current budget.
According to the city’s fiscal year 2025 budget, total spending on capital projects for the next 10 years will be $220,533,880, up from $51.4 million for a six-year capital plan in FY15. The largest components of this will be $79.9 million for street reconstruction projects and $64.3 million for a transit system.
“We have been paying for street improvements through the general fund,” Vice Mayor Holli Ploog said.
Whitehorn said that a fee increase would only cause “less of an impact to the general fund. I don’t know how significant that will be.”
“I’m not sure I would equate less funding with declining service,” Ploog said.
“You got more people using the same resources, it’s a declining level of service,” Councilman Pete Furman said.
Newly-elected Councilman Derek Pfaff suggested that the city “raise the fees to what we can get … and then, on a case-by-case basis, we’ll judge whether the city should be paying” to make sure the fees fall more heavily on less “desirable” projects. The city cannot waive development impact fees, but it can pay them on behalf of a property owner, if council determines a project offers a public benefit.
Furman said that he was leaning toward Pfaff’s proposal of “stroking a check on projects that we want … rather than mess with the math here.”
“That’s kind of the simplest way to get where we want to go,” Furman said.
“It frankly feels more punitive at the low end,” Fultz said. “We are discouraging multi-family.” He added that he was “not concerned” about the fees’ effect on hotels. “I’m not sure I even care that much about single-family.”
“We’re pushing people out,” Ploog said, and stated that she would prefer lower fees for smaller units and higher fees for larger ones.
Councilwoman Kathy Kinsella said that the proposed fee structure would give a disproportionate advantage to builders of large single-family homes.
“I don’t think we’re going to work our way out of our housing problem in single-family homes,” Furman said. “It’s really about multi-family … and we need to communicate with the development community.”
“We’re not going to solve it with more small single-unit houses,” Councilwoman Melissa Dunn said, and added she did not want smaller, more affordable units to benefit from lower fees because she was afraid they would be used as short-term rentals.
Mayor Scott Jablow said limiting single-family development would make it more difficult for more retirees to move to Sedona.
Whitehorn also provided what she said were representative cost estimates for recently-permitted homes within Sedona, ranging from $300,000 for a 1,000-square-foot home to $1 million for a 2,050-square-foot home, exclusive of land costs. Whitehorn said that the proposed development fees accounted for between 3.1% and 1.5% of the homes’ costs, up from 1.5% and 0.7% at current levels, respectively.
Arriving at these conclusions, Whitehorn said, took some filtering.
“I didn’t use the ones that said it was only like $120 per square foot, because I found that unreasonably low,” Whitehorn said. “Steve [Mertes] and Laura [Stewart] in community development told me that it more likely was closer to like $700 a square foot.” In the end, she chose projects priced at between $280 and $490 per square foot.
Fultz pointed out that the updated fee on an accessory dwelling unit of the maximum size allowed, which is 750 square feet, would be $9,400.
Spickard told council that she would try to draft alternate proposals for multi-family fees “that you can pick at the next meeting,” which is currently planned for Tuesday, Nov. 26. Adoption of the proposed increased fees is scheduled for Tuesday, Jan. 14.
