Public Hearing: 2018 Biennial Development Impact Fee Audit

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 January 22, 2019.

Staff completed the audit requirement through a contact with Heinfeld, Meech & Company. The contract was for an amount not to exceed $8,500 and was budgeted in 001-09-402-1314-1-4206.

None.

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

None

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 (IIP);
• 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 the 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.  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 City requested quotes to complete the biennial audit requirements and chose Heinfeld, Meech & Company to perform the agreed-upon procedures (AUP) based on the biennial audit requirements.
 
The AUP provides a summary of findings in the report and addresses three exceptions.  These exceptions do not show any significant or material weaknesses in the City’s collection of development fees.  Exception number one is provided to present variances from the adopted plan’s assumptions in growth projections (listed on report).  Exception number two explains that there was one fee calculation that did not match the adopted plan.  The over-charge of the fee was refunded to the customer.  Exception number three only states that we have not budgeted or expended any of the fees that have been collected on the current plan.

During the period associated with the biennial audit (FY 2017 and FY 2018), the City collected $303,159.70 for Fire development fees and $611,962.45 for Police development fees.   Development fees for both areas can be used for vehicles, communication equipment, and the IIP and development fee study updates.  In addition. Police development fees can be used for facilities. 
 
Cities are required to review and/or update their Infrastructure Improvement Plan (IIP) every five years.  Since this current plan was effective August 1, 2014, we will be reviewing the IIP in fiscal year 2019.

By holding a public hearing related to the biennial audit, the City will be in full compliance with A.R.S. § 9-463.05.

Inform:  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.