Public Hearing:  FY2024 Biennial Development Impact Fee Audits
 

1. Open the Public Hearing
2. Take Public Comment
3. Close the Public Hearing

Arizona Revised Statutes (A.R.S.) § 9-463.05 contains statutory guidance, restrictions, and requirements governing the assessment, collection, and reporting of development fees. The statute requires the City to either establish an infrastructure improvement advisory committee or complete a biennial audit of the City’s land use assumptions, infrastructure improvements plan, and development fees.  The City has chosen the option for a biennial audit which further requires the City to conduct a public hearing on the audit within sixty days of the release of the audit to the public.  The report was posted on the City's website on May 2, 2025.

Staff completed the audit requirement through a contact with Heinfeld, Meech & Company. The total cost of the audit was $11,000 and was budgeted in 001-09-402-1314-1-4206.

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The 2020 and 2022 Biennial Development Impact Fee Audit public hearing was held on December 3, 2024.

• Approve the FY2024 Biennial Development Fee Audits.
  • The purpose of the public hearing is to inform and provide the public an opportunity to respond to the completion of the biennial audit.  The City provides development fee plans, annual reports, and the biennial audit are available on the City website currently at http://www.flagstaff.az.gov/3717/Development-Fee-Reports-and-Documents for the public to review.

Arizona Revised Statute (A.R.S.) § 9-463.05 governs how development fees are calculated for municipalities in Arizona. During the state legislative session of 2011, Senate Bill 1525 (SB 1525) was introduced which significantly amended the development fee enabling legislation. The changes included:

• Amending existing development fee programs by January 1, 2012;
• Abandoning existing development fee programs by August 1, 2014;
• A new development fee program structure developed from a unified Land Use Assumptions document and Infrastructure Improvements Plan;
• New adoption procedures for the Land Use Assumptions, Infrastructure Improvements Plan, and development fees;
• New definitions, including “necessary public services” which defines what categories and types of infrastructure may be funded with development fees;
• Time limitations in development fee collections and expenditures; and
• New requirements for credits, “grandfathering” rules and refunds.

In FY 2009, the City of Flagstaff (City) began charging development fees. The City adopted plans for Fire and Police and are currently charging for these same areas.  Due to new legislative requirements, the City adopted an updated plan by Ordinance No. 2014-10 in May of 2014; this plan became effective August 1, 2014 and again in November 2020, the City adopted an updated plan by Ordinance No. 2020-25; this plan became effective January 17, 2021.  Per A.R.S. § 9-463.05(G), cities are allowed two options for review of development fees. One option is to appoint a five-member advisory committee and the other option is to provide a biennial certified audit.  The City chose the biennial option under subsection G.2 which reads:
 
In lieu of creating an advisory committee pursuant to paragraph 1 of this subsection, provide for a biennial certified audit of the municipality's land use assumptions, infrastructure improvements plan and development fees.  An audit pursuant to this paragraph shall be conducted by one or more qualified professionals who are not employees or officials of the municipality and who did not prepare the infrastructure improvements plan.  The audit shall review the progress of the infrastructure improvements plan, including the collection and expenditures of development fees for each project in the plan, and evaluate any inequities in implementing the plan or imposing the development fee.  The municipality shall post the findings of the audit on the municipality's website or the website of an association of cities and towns if the municipality does not have a website and shall conduct a public hearing on the audit within sixty days of the release of the audit to the public.
 
The Agreed Upon Procedures (AUP) are developed to determine whether the City complied with the specified requirements of state statures and will provide a summary of findings in the report and addresses any exceptions.  The FY2024 AUP report addressed two exceptions.  These exceptions do not show any significant or material weaknesses in the City’s collection of development fees.  Exception number one provided to present variances from the adopted plan’s assumptions in growth projections (listed on report).  Exception number two is two of 25 building permits tested, development fees was not assessed correctly. City staff did some additional testing to assess if additional errors had occurred and no additional errors were discovered and adjustments to the permit software to prevent this from occurring in the future. 

During the period associated with the biennial audit (FY2023 and FY2024), the City collected $1,070,788 for Fire development fees and $650,734 for Police development fees.   Development fees for both areas can be used for vehicles, facilities, communication equipment, and the IIP to provide necessary public services attributable to the new development and development fee study updates.  
 
Cities are required to review and/or update their Infrastructure Improvement Plan (IIP) every five years.  Since the current plan was effective January 17, 2021 we will be reviewing the IIP in fiscal year 2026.

High Performing Governance:

• Encourage public trust through transparency, accessibility, and use of the City’s public participation policy
• Maintain the organization’s fiscal stability through strong financial policies and best practices

Regional Plan:
Goal PF.3. Provide high-quality emergency response and public safety services including law enforcement, fire, medical, and ambulance transport service.

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