Development Impact and In-Lieu Nexus and Feasibility Study

The objectives of this study are:

• To establish a clear legal nexus between different types of development and the need for public facilities and infrastructure.

• To differentiate fee structures for residential and non-residential development in accordance with projected impacts and State law.

• To determine appropriate fee levels based on projected growth, facility needs, and capital improvement costs.

• To assess the economic feasibility and potential development impacts of proposed fee adjustments.

• To comply with California Government Code Section 66000 et seq., AB 602, and the constitutional standards established by the U.S. Supreme Court in Sheetz v. County of El Dorado (2024), which require that all development impact fees demonstrate an 'essential nexus' and 'rough proportionality' to the impacts of new development.

• To support future decision-making through policy and program recommendations based on local development conditions and best practices.

1. Introduction and Background

The City of Palo Alto is soliciting proposals from qualified consulting firms to conduct a Development Impact and In-Lieu Fee Nexus and Feasibility Study. This study is intended to review, update, and potentially expand the City’s current development impact and in-lieu fee program in accordance with California law, including the Mitigation Fee Act (Government Code Section 66000 et seq.) and Assembly Bill (AB) 602 (2021).

The City has established a comprehensive development impact and in-lieu fee structure, which includes fees for General Government Facilities, Public Safety Facilities, Community Centers, Libraries, Transportation, Parks, Parkland Dedication, Public Art, and Housing. The current FY 2025 fees vary by land use type, with residential and commercial developments subject to different fee schedules. The City seeks to ensure that these fees remain equitable, legally defensible, and economically feasible.