Morgan Hill hikes planning, building fees – with some doubling – in face of budget deficit

In a continued effort to stave off a looming budget deficit, the Morgan Hill City Council has approved a steep hike in fees for developers, asserting the move was necessary to help keep the city afloat.

With some fees doubling, developers have expressed the costs would be an undue burden — a sentiment councilmembers acknowledged while noting the fees will only cover the cost of processing their applications.

“I don’t want to do it, but … We’ve become more and more limited (in what we can collect) over the last years, so I see this really as one of the fleeting opportunities that we have to recover our costs,” said Councilmember Yvonne Martínez Beltrán.

Currently, fees for land development permits are based on the amount of time for processing, the cost of labor, and how much the city decides to subsidize a process. When the city last looked at land development and permitting fees, they decided on fees that paid for 10% to 30% of costs of processing the permits, leaving the city to foot the rest of the bill. Last year, this came to over half a million dollars in subsidies by the city.

To save the cost to Morgan Hill, city staff proposed a model that would recover most of the costs for the permits.

Currently the city faces a looming budget deficit, with a $700,000 shortfall last fiscal year and expects a $400,000 deficit for this year, according to city finance director Dat Nguyen. With the new model, Nguyen expects the city will save upwards of $300,000 every year.

“I don’t see any way that we can not go forward with this,” said Councilmember Gino Borgioli. “If we keep on dipping into our general fund it will take away from other areas that are very important.”

However, the new fees would transfer that cost to developers seeking permits for planning, building, and land development. On average, planning fees would jump by 131% according to city staff. Nearly all other related development permits would also cost more, with expected hikes from 9% to 92%.

The vaulting prices led to concerns from many looking to build and develop in Morgan Hill, who argued against the fee hikes.

Ben Carrigan with the Building Industry Association argued that the permitting process was a basic city service. “Property owners already pay for these services through their property taxes, and yet property owners are being charged additional fees,” he said.

Kerri Watt with developer DeNova Homes said that company recently paid $547,000 dollars in planning fees for a residential subdivision in Morgan Hill. “With the increase …it would be very difficult for the typical builder to afford that sort of planning application fee.”

Despite the opposition, the council agreed that the uptick was a regrettable necessity for the city’s finances. Though Councilmember Marylin Librers proposed a gradual increase over coming years, the rest of the council agreed that the need was too urgent to put off.

“As a council elected person I am charged with the financial responsibility for the city,” Librers said. “However, I think this amount of increase all at once is extraordinarily high.”

The council voted 3-1 for the hike, with Librers in opposition, and Councilmember Rene Spring absent. The fee hike will go into effect in 60 days.

The move also comes after the city took the next step towards a plan to add a fee for developers to fund public art installations – proposed at 1% of the cost of the project for most developers and 0.5% for those developing affordable housing. That plan will be finalized at a later meeting.