Nexus Assessment Technical Report Imperial County Air Pollution Control District Imperial County, California

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1 Imperial County Air Pollution Control District Imperial County, California Prepared for: Imperial County Air Pollution Control District 150 South Ninth Street El Centro, CA Contact: Brad Poirez, Air Pollution Control Officer Prepared by: Michael Brandman Associates 2444 Main Street, Suite 150 Fresno, CA Contact/Author(s): Dave Mitchell, Project Manager Chryss Meier, Assistant Project Manager Report Date: November 30, 2010

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3 Introduction TABLE OF CONTENTS Section 1: Introduction...1 Section 2: Legislative Authority to Assess Regulatory Fees Proposition California Mitigation Fee Act Proposition Proposition California Subdivision Map Act Applicability of Amendment 5 (last clause) of the United States Constitution, The Takings Clause... 6 Section 3: Reasonable Relationship Test Assessment of Air Quality Impacts from Development Projects... 8 Growth in Imperial County... 8 Project-Level Contribution... 9 Mitigating New Trips vs. Existing Trips Changes to Growth Projections and Fee Reduction Fee Formula Fee Collection Use of Mitigation Fees Project Cost-Effectiveness and Funding Potential Areas for Improvement Commercial Development Declining Baseline Emissions Modeling Components Other Travel Parameters Section 4: Recommendations Michael Brandman Associates iii

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5 Introduction SECTION 1: INTRODUCTION This report analyzes Imperial County Air Pollution Control District s (ICAPCD) Rule 310 (Operational Development Fee), fee collection, and fee use for compliance with general nexus principles and California State regulations. Nexus generally means the connection between two items. The purpose of this Nexus Assessment is to: Identify the rule s relationship to state regulations that govern assessment of fees from development projects. Examine the reasonable relationship between air quality impacts from subject development projects and the fees assessed. Identify potential revisions to Rule 310 and additional analysis that would strengthen the nexus. One of the tasks required when pursuing indirect source regulation is to show a reasonable relationship between the development project and its impacts on air quality. In addition, it is necessary to show that fees assessed and collected from development projects reduce emissions in proportion to the project s impacts. This Nexus Assessment examines the rule s relationship with the following: California Mitigation Fee Act (Government Code Section ) California Proposition 13, People s Initiative to Limit Property Taxation California Proposition 218, The Right to Vote on Taxes Initiative California Subdivision Map Act (Government Code (GC) Section ) fee provisions Applicability of Amendment 5 (last clause) of the United States (US) Constitution, The Takings Clause This Nexus Assessment also relates the findings of the court cases on San Joaquin Valley Air Pollution Control District (SJVAPCD) Rule 9510 (Indirect Source Review) to ICAPCD Rule 310. Based on Michael Brandman Associates (MBA s) review of the rule and its supporting information, this Nexus Assessment finds that the rule is consistent with state law regarding fees and taxes; however, there are some facets of the rule that if revised would strengthen the reasonable relationship between development project impacts and the fees assessed by Rule 310. Michael Brandman Associates 1

6 Legislative Authority SECTION 2: LEGISLATIVE AUTHORITY TO ASSESS REGULATORY FEES The first step in the nexus demonstration is to show that the ICAPCD has authority to collect a regulatory fee under Rule 310. State law is clear that air districts are authorized to implement regulations to reduce impacts from indirect sources of air pollution. The Rule 310 Staff Report correctly identifies state law allowing air districts to adopt indirect source review rules as part of their strategy to attain state air quality standards. The pertinent sections of the California Health and Safety Code include the following: Section Regulations on emissions from indirect and areawide sources, and on vehicle trips a) In carrying out its responsibilities pursuant to this division with respect to the attainment of state ambient air quality standards, a district may adopt and implement regulations to accomplish both of the following: (1) Reduce or mitigate emissions from indirect and areawide sources of air pollution. (2) Encourage or require the use of measures which reduce the number or length of vehicle trips. b) Nothing in this section constitutes an infringement on the existing authority of counties and cities to plan or control land use, and nothing in this section provides or transfers new authority over such land use to a district. Section Requirements prior to adoption or amendment of rule or regulation relating to reduction of vehicle trips or miles a) Any district that proposes to adopt or amend a rule or regulation pursuant to Section or 40717, which imposes any requirement on an indirect source to reduce vehicle trips or vehicle miles traveled, including, but not limited to, any rule or regulation affecting ridesharing or alternative transportation mode strategies, shall, prior to the adoption or amendment of the rule or regulation, do all of the following: (1) Ensure, to the extent feasible, and based upon the best available information, assumptions, and methodologies that are reviewed and adopted at a public hearing, that the proposed rule or regulation would require an indirect source to reduce vehicular emissions only to the extent that the district determines that the source contributes to air pollution by generating vehicle trips that would not otherwise occur. In complying with this paragraph, a district shall make reasonable and feasible efforts to assign responsibility for existing and new vehicle trips in a manner that equitably distributes responsibility among indirect sources. Michael Brandman Associates 2

7 Legislative Authority to Assess Regulatory Fees (2) Ensure that, to the extent feasible, the proposed rule or regulation does not require an indirect source to reduce vehicular trips that are required to be reduced by other rules or regulations adopted for the same purpose. (3) Take into account the feasibility of implementing the proposed rule or regulation. (4) Pursuant to Section 40922, consider the cost effectiveness of the proposed rule or regulation. (5) Determine that the proposed rule or regulation would not place any requirement on public agencies or on indirect sources that would duplicate any requirement placed upon those public agencies or indirect sources as a result of another rule or regulation adopted pursuant to Section or Section Plan of district with moderate air pollution a) Each district with moderate air pollution shall, to the extent necessary to meet the requirements of the plan developed pursuant to Section 40913, include the following measures in its attainment plan: (4) Provisions to develop areawide source and indirect source control programs. Section Fees g) A district may adopt, by regulation, a schedule of fees to be assessed on areawide or indirect sources of emissions which are regulated, but for which permits are not issued, by the district to recover the costs of district programs related to these sources. Health and Safety Code Sections and clearly allow the ICAPCD to adopt Rule 310. The rule does not infringe on land use authority, since it is not a condition of approval of development projects consistent with Health and Safety Code Section 40716(2)(b). Health and Safety Code Section (a)(1) requires the ICAPCD to make reasonable and feasible efforts to assign responsibility for existing and new vehicle trips in a manner that equitably distributes responsibility among indirect sources. A detailed discussion of existing and new vehicle trips is in Section 3.1, Assessment of Air Quality Impacts from Development Projects. The following section presents discussions of adopted and proposed federal and state regulations that have been identified as potentially applicable to the ICAPCD s adoption and enforcement of Rule Proposition 26 On November 2, 2010, the voters approved Proposition 26 that would expand the definition of a tax to include payments that are currently considered fees or charges. Prior to passage, a proposed increase in a state tax was required to be approved by two-thirds of each house of the legislature, and Michael Brandman Associates 3

8 Legislative Authority an increase in a local tax to be approved by local voters. However, regulatory fees, such as Rule 310, were not considered taxes and, therefore, were not subject to voter approval. Regulatory fees include those fees assessed to address adverse impacts on society or the environment caused by the feepayer s business. On the No 25, Yes26 website, Proposition 26 supporters claim that the proposition would not affect regulations that protect air quality; however, the proposition language does not support that interpretation. Section 1 of the Initiative, Findings and Declarations of Purpose, states: Fees couched as regulatory but which exceed the reasonable costs of actual regulation or are simply imposed to raise revenue for a new program and are not part of any licensing or permitting program are actually taxes and should be subject to the limitations applicable to the imposition of taxes. Rule 310 generates funding for a program that offsets the emissions generated by new development but applying a fee commensurate with the emissions generating potential of that development; however, Rule 310 does not create a permitting or licensing program. With the passage of Proposition 26, it appears that any increase in Rule 310 fees would be considered a tax increase subject the requirements for approval of the voters. According to the State Official Voter Information Guide, fees for environmental programs could be considered a tax under Proposition 26, because the fees pay for services that benefit the public broadly, rather than providing services directly to the fee payer. Because the Rule 310 is an existing fee, it would not need to be approved by local voters. However, it appears that under Proposition 26, future changes to Rule 310 that increase fees above what is currently assessed by the rule would require an approval by local voters. The ICAPCD implemented a temporary fee reduction by way of resolution. This temporary fee reduction reduced assessed fees by 50 percent. Section 3 of the Initiative provides an expansive definition of a tax, where it states: (e) As used in this article, tax means any levy, charge, or exactation of any kind imposed by a local government The Rule 310 fees were reduced by resolution in 2009, and the reduction has been extended twice. ICAPCD Resolution No extends the 50 percent fee reduction through December 31, According to the State Official Voter Information Guide, most fees or charges in existence at the time of the November 2, 2010 election would not be affected unless the local government increases or extends the fees or charges. It appears that the expiration of the temporary fee reduction would not be considered an increase or an extension under Proposition 26, since no action by the ICAPCD is required. Michael Brandman Associates 4

9 Legislative Authority to Assess Regulatory Fees California Mitigation Fee Act California s Mitigation Fee Act (Government Code Section 66000, et seq.) establishes authority and limitations on fees or taxes charged by a local agency to the applicant in connection with approval of a development project. Government Code Section (a) states, In any action establishing, increasing, or imposing a fee as a condition of approval of a development project by a local agency on or after January 1, 1989, the local agency shall do all of the following, and Section (b) states,... in any action imposing a fee as condition of approval of a development project. The ICAPCD is not imposing its authority on any local land-use agency and will not be approving or disapproving development projects. As such, the ICAPCD cannot place conditions of approval on a development project. Therefore, the Mitigation Fee Act does not apply to Rule Proposition 13 Proposition 13 (officially titled the People s Initiative to Limit Property Taxation) was an amendment of the Constitution of California enacted in It was approved by California voters on June 6, Section 4 of Proposition 13 states: Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district. The California Supreme Court in Knox v. City of Orland (1992) 4 Cal.App.4th 132, explained that a special assessment is a compulsory charge to recoup the cost of a public improvement made for the special benefit of a particular property. A special tax, meanwhile, is levied without reference to peculiar benefits to particular individuals or property. The court, in Evans v. City of San Jose (1992), 3 Cal.App.4th 728, ruled that a levy imposed on business owners under the 1989 Parking and Business Improvement Area Law was not a special tax and was not subject to Proposition 13 because it benefited a discreet group. Rule 310 does not fund a public improvement or provide a special benefit of a particular property. In California Building Industry Association v. San Joaquin Valley Air Pollution Control District, the Appellate Court found that Rule 9510 was a regulatory fee and not a special tax. It stated that when a fee is charged for the associated costs of regulatory activities and does not exceed the reasonable cost of carrying out the purposes and provisions of the regulation, it falls within the category of a regulatory fee (California Assn. of Prof. Scientists v. Department of Fish & Game (2000), 79 Cal.App.4th 935, 945 [94 Cal. Rptr. 2d 535]). Regulatory fees are not dependent on governmentconferred benefits or privileges and are imposed under the police power (Sinclair Paint, supra, 15 Cal.4th at p. 875). Michael Brandman Associates 5

10 Legislative Authority Rule 310 relies on the same regulatory authority as Rule Both rules are imposed under the police power and are considered regulatory impact fees. Therefore, Rule 310 is not a special tax subject to Proposition Proposition 218 California Proposition 218, The Right to Vote on Taxes Initiative, was approved by the voters in Specifically, the measure states that all local property-related fees must comply by July 1, 1997 with the following restrictions: No property owner s fee may be more than the cost to provide service to that property owner s land. No fee may be charged for fire, police, ambulance, library service, or any other service widely available to the public. No fee revenue may be used for any purpose other than providing the property-related service. Fees may only be charged for services immediately available to property owners. Rule 310 fees are regulatory mitigation fees to reduce project air impacts and are not intended to provide services to the property owner s land or to the community. Therefore, Proposition 218 does not apply to Rule California Subdivision Map Act The California Subdivision Map Act pertains to the regulation and control of the design and improvement of subdivisions (Government Code 66311). The fee provisions of the California Subdivision Map Act (Government Code Section ) place limits on fees charged on subdivisions. Rule 310 is related not to the creation of a subdivision but to the air quality impacts of development projects occurring within the ICAPCD. Therefore, the fee provisions of the Subdivision Map Act do not apply Applicability of Amendment 5 (last clause) of the United States Constitution, The Takings Clause Rule 310 is subject to the reasonable relationship test of Amendment 5 s last clause of the United States Constitution, popularly referred to as The Takings Clause. The reasonable relationship test was established by San Remo Hotel LP v. City and County of San Francisco. In California Building Industry Association v. San Joaquin Valley Air Pollution Control District, the court stated: [T]o show a fee is a regulatory fee and not a special tax, the government should prove (1) the estimated costs of the service or regulatory activity, and (2) the basis for determining the manner in which the costs are apportioned, so that charges allocated to a payor bear a fair or reasonable relationship to the payor s burdens on or benefits from the regulatory activity. (Sinclair Paint, supra, 15 Cal.4th at p. 878.) In other Michael Brandman Associates 6

11 Legislative Authority to Assess Regulatory Fees words, there must be a nexus between the amount of the fee and the cost of the service for which the fee is charged. The court further described what would constitute a valid regulatory fee: A valid fee calculation method is one that establishes a reasonable relationship between the fee charged and the burden posed by the development. (Shapell Industries, Inc. v. Governing Board (1991) 1 Cal.App.4th 218, 235 [1 Cal. Rptr. 2d 818].) However, proportionality of the fees, i.e., whether the fees collected exceed the cost of the regulatory program they are collected to support, need not be proved on an individual basis. Rather, the agency is allowed to employ a flexible assessment of proportionality within a broad range of reasonableness in setting fees (California Assn. of Prof. Scientists, supra, 79 Cal.App.4th at pp ). Michael Brandman Associates 7

12 Reasonable Relationship Test SECTION 3: REASONABLE RELATIONSHIP TEST The following is an assessment of the reasonable relationship between the emissions generated by the project, the fees collected, and the emission reductions achieved with the fees. In addition, this section offers suggestions for strengthening the nexus for Rule 310 fee assessment to enable it to better withstand potential legal challenge. The primary concern with mitigation fees is that they must be reasonably related to the impact for which they are assessed. Mitigation fees must be designed so that they address only the fair share of a project s impact. Rule 310 uses a widely accepted emission model to estimate project emissions (URBEMIS 2007) and funds emission reduction projects that have widely accepted quantification procedures used by the State of California and other Air Districts. The ICAPCD s nexus assessment for Rule 310 included two emission modeling exercises. The first assessment identified the emissions that would be subject to the rule and demonstrated the emission reductions that could be achieved through implementation of the rule. The second assessment estimated the impact of individual projects for the purposes of determining an appropriate mitigation fee that would reduce the impacts of growth, but not exceed a project s fair share. At this time, the ICAPCD does not anticipate submitting Rule 310 for State Implementation Plan (SIP) approval. However, inclusion of the rule in an SIP is not required to authorize or implement an indirect source rule Assessment of Air Quality Impacts from Development Projects Growth in Imperial County The ICAPCD used vehicle miles traveled (VMT) and emission forecasts from the California Air Resources Board (ARB) model EMission FACtors (EMFAC) 2007 to estimate the overall emissions related to growth. This was supplemented with growth projections based on an analysis of development applications that had been received by Imperial County jurisdictions. The existing, approved development projects that were reviewed by ICAPCD indicated a potential for very rapid growth compared with the projections used by ARB. The analysis indicated that population would nearly double in Imperial County in only 10 years if projections that were based on development projects in hand were realized. The ARB projections assume that the County s VMT would grow by a substantial 25 percent. The rate of growth is significant, because the faster growth occurs, the more difficult it is to attain air quality standards. Emissions from motor vehicle exhaust are declining as owners take old vehicles out of service and replace them with newer, cleaner vehicles. If growth occurs too rapidly, increases in vehicles and vehicle miles traveled will outpace the decreases from cleaner vehicles and emissions will increase. If this occurs, emission budgets adopted to attain air quality standards may be exceeded and the air basin will not be able to demonstrate Transportation Conformity with the potential result of losing transportation funding. Michael Brandman Associates 8

13 Reasonable Relationship Test Use of the high growth projections based on development projects appears to overstate the potential impacts from growth and emission reductions from Rule 310. However, for nexus purposes, the rate of growth does not impact the reasonable relationship test, since the test is based on individual project impacts that are not dependent on the growth rate. Project-Level Contribution The ICAPCD used the URBEMIS 2007 land use model to estimate average project-level emissions for development projects. The rule provides fee amounts based on the emissions from two residential categories (single-family and multi-family) and a composite commercial category that is based on the average emissions per square foot of several commercial development types. The two residential land use categories address the vast majority of projects covered by the rule. Exceptions to the Rule 310 residential categories include mobile home parks, retirement community, and assisted living facilities that have lower trip generation rates than single-family and multi-family projects. For example, condominiums and low-rise apartments have a trip generation rate of 6.90 trips per dwelling unit, but mobile home parks have a rate of 4.99 trips per dwelling unit. Other residential land uses to consider are retirement communities that have a rate of 3.71 trips per dwelling unit, and assisted living projects that have a rate of 2.02 trips per dwelling unit. However, the benefits of adding land uses must be balanced with increasing the complexity of the rule and Technical Advisory Committee guidance regarding rule simplicity. The overall variation in trip generation between residential land uses is far less disparate than the variation in trip generation among commercial land uses, so adding more residential land use categories is not critical. Using an average for commercial development is more problematic. A wide range of commercial development types is constructed in Imperial County, and the range of trip generation by type of commercial development can vary by an order of magnitude. Potential solutions to this issue are described in Section 3.7, and in the Rule 310 Assessment Report. Mitigating New Trips vs. Existing Trips URBEMIS uses trip generation rates that were primarily obtained from the Institute of Transportation Engineers (ITE) Trip Generation Manual. The ITE Trip Generation Manual provides estimates of two-way trips (trips coming to and going from a project site). The trips originating from the site are definitely tied to the project, but the trips ending at the site may or may not be related to the project. For a commercial project, the trips going to the site could be a new trip or a trip that was redirected from another existing commercial project. When examined regionally, if every subdivision and commercial development were assigned a trip generation rate from the ITE manual, the result would be to exactly double-count the trips. The reason that two-way trips are used is to account for local impacts to the road system. For traffic analysis, impacts to roads serving the project site are caused by trips in both directions. To ensure that emissions estimates using ITE trip rates are attributed to the party responsible for those emissions, a maximum of 50 percent of the amount should be allocated to the project. This is the reason that the SJVAPCD Rule 9510 fee formula divides the emissions by two. However, since the Rule 310 fee formula divides the emissions by 10, there is no possibility of Michael Brandman Associates 9

14 Reasonable Relationship Test double-counting or overcharging for existing trips. Therefore, the fee assessment does not doublecount or over-mitigate emissions from development projects. One argument that indirect source program opponents have made is that people moving to new homes are not making new trips because they moved from an existing home where they previously made trips. The flaw in that argument is that the existing home does not remain vacant, but it is reoccupied by new residents. Hence, the existing home continues to generate trips and the new home begins generating trips. The exception is redevelopment that involves physically removing the old use and replacing it with new uses. Therefore, the exemption in the rule for reconstruction is valid. The same concept applies to commercial development when one store closes and a new one opens in a different part of town. The building being vacated is expected to be reoccupied by a new tenant, which will attract vehicle trips Changes to Growth Projections and Fee Reduction The collapse of the housing market and the economic recession have greatly reduced the growth rate in Imperial County. The period of slow growth has also reduced growth in vehicle miles traveled and emissions compared to projections used in the rule. Although emissions are lower than forecast, this does not affect the nexus assessment since fees are only collected from development that actually takes place. In this case, the impact of an individual project has not changed. The project will still be responsible for emitting pollutants in a non-attainment area; there are just fewer projects to mitigate. In response to the economic downturn that began in 2008, the ICAPCD has reduced the fee rate by 50 percent during the last 2 years. A lower fee rate does not impact the reasonable relationship test since it just mitigates a smaller fraction of project emissions. In other words, only a fee that generates emission reductions in excess of project emissions or that is not used to reduce emissions would fail the reasonable relationship test Fee Formula Rule 310 includes a fee formula to determine fees that will be applied to projects subject to the rule. The rule requires projects to mitigate their emissions for 10 years. The formula accounts for NO x emission reductions that will result from state motor vehicle regulations. The staff report, based on ARB estimates, indicates that NO x emissions were anticipated to decline approximately 25 percent in 10 years, so the rule targets the remaining 75 percent of the emissions that occur during that timeframe. Mobile source PM 10 emissions (entrained road dust and brake and tire wear) are not projected to decline because of motor vehicle regulations, so the modeled emissions over 10 years remain relatively unchanged. Therefore, no adjustment factor was included in the fee formula for PM 10. ICAPCD s existing Regulation VIII reduces fugitive dust emissions including entrained road dust. There are currently no revisions planned for Regulation VIII that would result in lower PM 10 emissions at a future date; therefore, the reductions from Regulation VIII also remain constant over Michael Brandman Associates 10

15 Reasonable Relationship Test time. Application of Regulation VIII may reduce the initial baseline assessed for Rule 310, but the future year emissions would also be reduced by the same amount. The reductions in entrained road dust PM 10 attributable to Regulation VIII could be applied to the baseline emissions to increase the accuracy of the fee calculations. This would require identifying a percentage reduction for each provision of Regulation VIII that reduces entrained road dust. The fee formula discussion in the Staff Report states that, the per unit fee is based on a one time at front payment which mitigates 10-years of project emissions. This is based on the assumption that projects funded with the fee will have an average 10- year life. However, the cost of reductions is based on the Carl Moyer average cost of reductions in Imperial County of $12,336 per ton of NO x. There is no years unit in the cost number. The Moyer cost numbers are arrived at by dividing the annualized cost by the annual emission reduction, canceling the years unit. This is done to account for the fact that projects funded by the Moyer program have different project lives. A project with a short life but large average annual reductions will achieve the same cost-effectiveness as a project with a long life but small average annual reductions. For example, Project A achieves 10 tons of reductions over a 10-year project life at a cost of $100,000. The annual cost is $100,000 divided by 10 years, resulting in $10,000 per year. The annual reduction is 10 tons divided by 10 years, resulting in 1 ton per year. Cost-effectiveness is determined with the formula $10,000 per year divided by 1 ton per year or $10,000 per ton. To simplify this example, a capital recovery factor is not included. Therefore, if mitigation fee is based on a cost-effectiveness of $10,000 per ton and the project s first year emissions are 1 ton per year, then the fee for that project would be $10,000 under the current rule. However, to obtain an emission reduction of 1 ton per year for 10 years, it would actually cost $100,000 (10 years multiplied by $10,000 per year). Based on this information, the fee formula as written would mitigate 10 percent of project emissions since it divides the emissions by 10. A lower percent reduction does not impact the reasonable relationship between the impact of the project and the fee, since the fee reduces emissions by less than 100 percent of the project emissions Fee Collection Rule 310 allows projects subject to the rule to pay mitigation fees at the time building permits are issued or to defer payment until building occupancy. This reduces the burden on developers compared to paying the fee upfront. The ICAPCD accumulates mitigation fees as development occurs and places the funds in a special account so as not to commingle funds with other revenue. Michael Brandman Associates 11

16 Reasonable Relationship Test The ICAPCD allocates up to 10 percent of the fees collected to administer the rule and distribute the funds to emission reduction projects. There are inherent delays in distributing funds received from all mitigation fee programs and Rule 310 is no exception. The ICAPCD must accumulate sufficient funds for projects and go through a request for proposal (RFP) process. Then, the applicant-awarded funds must implement the emission reduction project, which may require materials to be ordered and construction/installation contracts to be awarded. The emission reductions are needed to address long-term impacts, so some delay in implementation would not significantly impact the ability of the rule to mitigate the impacts of growth. However, the ICAPCD must ensure that funds are used for their intended purpose as quickly as possible Use of Mitigation Fees Another question arising with other indirect source rules is whether emission reduction projects must be tied to individual development projects. Since the rule allows payment of fees at the building permit issuance, funds are collected gradually as development occurs. Funds are aggregated as they are collected from multiple projects and are ultimately disbursed to emission reduction projects that have applied to the ICAPCD. This allows the ICAPCD to pool money for projects that are most costeffective and produce the greatest emission reduction per dollar expended. As long as the fees collected are used for emission reduction projects and the emission reductions achieved do not exceed the average impact of all development projects providing funding, the reasonable relationship is maintained. In other words, the nexus is maintained as long as the cumulative emissions of the projects paying fees have been mitigated by the cumulative reductions of all projects funded with the fees. The rule allows the ICAPCD to use up to 10 percent of the funds for administering the program. The emission reductions cannot be achieved without the efforts of ICAPCD staff to verify emissions, process applications, and manage funds received. Therefore, the funds set aside for this purpose are a valid cost in obtaining emission reductions needed to achieve the objectives of the rule Project Cost-Effectiveness and Funding The next step is to demonstrate fees collected are reducing emissions reasonably proportional to the impacts of the project. If the funds are used for purposes unrelated to reducing air pollutant emissions, such as funding police officers, the reasonable relationship test would not be met. If the ICAPCD consistently achieves average annual emission reductions in excess of the impacts of development, the reasonable relationship test would not be met. On the other hand, if emission reductions are much lower on average than anticipated, it could be argued that the fee is too low or that the rule is ineffective at achieving reductions, but would still likely pass the reasonable relationship test. Michael Brandman Associates 12

17 Reasonable Relationship Test The 2009 Annual Accountability Report for and projects indicated that the ICAPCD funded one PM 10 project, but no NO x projects during that period. The ICAPCD received four PM 10 projects and one NO x project for consideration during its RFP process. The NO x project did not meet the selection criteria. The PM 10 project achieved a cost-effectiveness of $67,884 per ton, which does not meet the target level of $12,336 per ton but is consistent with Section E.6.g of the rule, which states potential mitigation projects that do not meet designated criteria may be considered on a case by case basis if evidence supplied to the APCD demonstrates potential surplus, real, quantifiable, and enforceable emission reduction benefits. The 2010 Annual Accountability Report for Fiscal Year reported that the Air District funded 10 ozone emission-reduction projects. Nine of the projects are diesel engines for agricultural water pumps. The other project being partially funded is a sewer jet cleaning system. Collectively, the projects funded achieved a total emission reduction of 18,980 lbs. of ozone precursor emissions or 9.49 tons of emission reductions. Average overall cost-effectiveness is calculated on total tons of NO x plus PM 10 emissions reduced, divided by total funds spent. During FY 2009/2010, the Air District is estimated to have achieved emission reductions totaling 9.49 tons and has expended funds totaling $196,680. The average cost-effectiveness is calculated to be $20,725 per ton of ozone emission precursors. Although this was somewhat higher than the target level, the projects were consistent with Rule 310, Section E.6.g, as described earlier. The ICAPCD will continue to solicit additional projects through an RFP process as funds accumulate. The ICAPCD considered using a first-come/first-served funding process for projects but concluded that the current RFP process was consistent with the approach approved by the Technical Advisory Committee and is receiving sufficient qualified projects for funding Potential Areas for Improvement Commercial Development The modeling for Rule 310 commercial uses was based on three large commercial projects. Two of the projects used the Regional Shopping Center Rate of trips/1,000 square feet. The third project used the Strip Mall rate, which is also trips per 1,000 square feet. Trip generation rates vary widely among the various commercial land use types. For example, a commercial office park development would generate trips per 1,000 square feet, while a convenience store would generate trips per 1,000 square feet. Therefore, a 5,000-square-foot office would generate 57 trips per day while the same size convenience store would generate 3,690 trips per day. The mobile source emissions are roughly proportional to the trip rate, so the mobile emissions generated by a 5,000-square-foot convenience store are about 65 times greater than the office project. Using an average from several commercial uses results in land use categories with low trip generation rates paying fees higher than their actual impact and uses with high trip generation rates paying fees Michael Brandman Associates 13

18 Reasonable Relationship Test lower than their impact would warrant. The rule includes provisions for an Alternative Emission Reduction Plan (AERP) that allows projects to estimate their emissions on an individual basis. Projects that have low trip generation rates would pay much lower fees by using an AERP rather than accepting the rule fee rate. However, this approach is not fully consistent with Health and Safety Code (a)(1) which requires the ICAPCD to make reasonable and feasible efforts to assign responsibility for existing and new vehicle trips in a manner that equitably distributes responsibility among indirect sources. Rule 310 was designed for ease of compliance and simplicity. Providing a single commercial fee rate enhances the rule s simplicity, but adds an element of unfairness. The AERP option offers those applicants who would be unfairly affected by the single fee rate a way to determine their actual emissions and fees. The project applicant is responsible for preparing the AERP, but would require the assistance of an air quality consultant with expertise in the URBEMIS model to prepare the AERP. In order to maintain simplicity and ensure fairness, the rule could add pre-calculated fee amounts for more commercial categories. The number of categories would still need to remain relatively small to maintain simplicity. Perhaps six or more of the most common commercial categories would address most projects in Imperial County. One way to address project types not having a pre-calculated fee for every possible land use is to provide a pre-calculated per-trip fee similar to those sometimes used for traffic impact fees. Projects for which a traffic study was prepared could use the average daily trip rate contained in a traffic study, or the trip rate could be obtained from the widely used Institute of Transportation Engineers (ITE) Trip Generation Manual or URBEMIS. Areawide sources could be addressed in each of these new categories by using an average amount of emissions and fees per square foot since emissions from these sources vary less than mobile sources. Determining a per-trip fee rate could be accomplished by dividing the fee by the number of trips generated by the commercial land uses. For example, a 1,000-square-foot commercial project would pay a fee of $1,600 at the full fee rate under the current fee structure. A 1,000-square-foot commercial project generates trips per 1,000 square feet (sf) per day. Therefore, dividing the fee of $1,600 per 1,000 square feet by the trip rate of trips per 1,000 square feet results in a pertrip fee of $37.26, as shown below: $1,600Fee 1,000sf 1,000sf $37.26 perdailytrip 42.94DailyTrips An applicant with a 50,000-square-foot office project would calculate the fee as follows: 50,000 square feet x trips/1,000 square feet = 571 trips/day. 571 trips/day x $37.26/trip = $21,276 fee amount. Michael Brandman Associates 14

19 Reasonable Relationship Test This compares with the current situation of $1.60/square foot x 50,000 = $80,000. The trip generation rate of trips per 1,000 square feet used in this example is based the ITE Trip Generation Manual, which is readily available. In addition, the URBEMIS model discussed above contains the ITE trip generation rates in an easily accessible and publicly available format. Scenario under Current Rule 310 Structure $1.60 sf 50,000sf $80,000 Scenario under Per-Trip Fee 11.42trips 50,000sf 571 trips 1,000sf day 571trips day Then $37.26 $21,276 trip With the fee rates set at one-half the adopted fee, the fees for the 50,000-square-foot office project would be $10,638 under the per-trip fee, and be $40,000 under the existing per-square-foot fee. The per-trip fee approach may require a small amount of additional review by the ICAPCD to verify that an applicant used a valid trip rate, but would not require emissions modeling for each project. Residential Development Rule 310 includes per dwelling unit fee rates for single-family and multi-family projects. These rates cover the vast majority of projects that will be constructed in Imperial County, but there are exceptions that may benefit by either having their own land use category or by having a rate based on project trip generation per dwelling unit. For example, mobile home parks, retirement communities, and assisted living facilities have lower trip generation than the two existing land use categories. There are other residential project types with their own trip generation, but they are less common in Imperial County (mid-rise and high-rise apartments and condominiums). The ICAPCD could add additional residential land uses to the rule, and it could also use the same per-trip fee described above for commercial development to cover uses not specifically listed in the rule. The number of uses added, if any, needs to be balanced with the ICAPCD s goal of maintaining simplicity, as well the probability and relative volume of those uses being encountered. Michael Brandman Associates 15

20 Reasonable Relationship Test Declining Baseline Emissions The use of a single per-unit fee amount has another minor drawback. Based on our review of the most recent ARB on-road mobile source inventory, the NO x emissions generated by development decline by about 5 percent per year, due to the State s mobile source control regulations. At this rate, in 4 years, NO x emissions will be 20 percent lower than current emissions. Since the fee is currently fixed on 2006 emission rates, the fee becomes increasingly out of sync with actual emissions as time passes. The rule allows the fee to be adjusted annually to account for inflation. The fees could also be adjusted to account for NO x reductions at the same time as the inflation adjustment, which may offset each other. However, with the passage of Proposition 26, it is possible that an inflation adjustment could be seen as a tax increase that requires voter approval. In keeping with the objective of maintaining simplicity and minimizing staff time required to administer the program and the tendency of increased costs of reductions to offset reductions in NO x, no change to require annual baseline adjustments is recommended. However, if the ICAPCD performs a rule update to add land uses, new modeling would be accomplished for each land use for a current base year that would reflect changes in NO x emissions to date. Since the NO x baseline adjustment would result in a lower fee rate, it would not trigger potential issues with the Proposition 26. Modeling Components The modeling to determine project emissions and fees used default assumptions for several critical variables. Using default values for trip length and vehicle fleet mix in the URBEMIS modeling may overstate project emissions for certain commercial developments. The trip lengths are based on regional averages for all home-to-shopping trips, regardless of the type of use and actual location of the shopping center in relation to the customer base. Neighborhood commercial uses are intended to attract customers in the neighborhood so trip lengths are often 2 to 3 miles instead of the default, which is over 7 miles. Commercial uses with regional attraction may have average trips that meet or exceed the average, especially in rural locations. Land use specific trip lengths can reduce emissions and fees by over 60 percent for some projects. This can be accommodated in the current fee table structure by pre-calculating emissions for neighborhood commercial uses with shorter trip lengths and regional commercial uses with the default trip length. The vehicle fleet mix in URBEMIS is based on vehicle percentages included in EMFAC to develop the regional emissions inventory. The percentages include through trucks that skew the percentage high in areas with interstate or international truck traffic. Uses such as distribution centers have higher than average truck percentages, so truck trips may be understated for those projects. Residential development has relatively few truck trips from buses, garbage trucks, moving vans, delivery trucks, etc. and so the percentage of trucks is overstated if you use the average for those projects. MBA frequently recommends that project-specific vehicle fleet percentages be used for Indirect Source and California Environmental Quality Act (CEQA) analyses whenever information is available to support one. Commercial projects can also benefit by using project-specific truck trip percentages, which tend to be overstated if defaults are used. Vehicle fleet information could be Michael Brandman Associates 16

21 Reasonable Relationship Test integrated into the current fee table approach by using vehicle fleet percentages in the emission estimates for each land use type. The Staff Report indicates that the estimated baseline emissions account for emission reductions achieved onsite by implementing measures in the Imperial County CEQA Handbook. Review of the URBEMIS modeling output does not reflect mitigation credit for any measures. It would be more correct to state that the mitigation measures required by the CEQA Handbook provide reductions in addition to those required by Rule 310. It is not practical to include the benefits of mitigation measures in the fee table because the effectiveness of the measures as calculated by URBEMIS 2007 varies according to the conditions at each project site. The AERP provides an opportunity for an applicant to take advantage of project specific fleet mixes and trip lengths if an applicant wishes to seek credit for these factors. This and the other changes described above that would build in category-specific defaults for all residential projects or neighborhood commercial projects would help to strengthen the relationship and would maintain the basic structure of the rule. Other Travel Parameters Another argument put forth is that new commercial uses may be closer to their customers and would provide shorter trip lengths and fewer emissions. This may be true at a single point in time, but it fails to hold when examined in the context of a growing community. As a community increases in population, it gains the ability to support a wider variety of retail and service uses. Supermarkets are good examples. Assume that a supermarket requires a population of 10,000 people in its market area to be successful. When the community s population increases by 10,000, a supermarket operator is likely to open a new store. Prior to opening of the new store, residents of the new growth area were underserved and had to travel longer distances to obtain groceries. However, keep in mind that as the population grows, the average trip length for the old existing supermarket grows, since those people in the new growth area on the fringe of the community traveled to their store. Once the new supermarket is open, the customer base of the existing supermarket is reduced and its average trip length is reduced. The market area could be said to be in equilibrium. However, in a growing community, more people are continuously moving into new growth areas, which in turn increases the average trip length of the new supermarket. Therefore, the trip length is cyclical. The trip length decreases temporarily when a new store is opened and increases as the new growth areas are developed until the next competing store is constructed. Imperial County is a high-growth area that provides a good example of this cycle. Another factor to consider is induced travel. When retail and services are nearby, residents make more trips because of the increased convenience. Therefore, instead of shopping once a week when the trip was long, they may shop several times a week at the new nearby shopping center. Therefore, Michael Brandman Associates 17

22 Reasonable Relationship Test the trips may be shorter when a new shopping center is constructed but there are more of them, so the benefit on overall travel is limited. Michael Brandman Associates 18

23 Table of Contents SECTION 4: 3BRECOMMENDATIONS The following are recommendations for rule improvements that would strengthen the nexus: 1. Add more land use types to cover the major types of commercial projects in Imperial County. 2. Add a per-trip fee rate to cover other land uses not specifically addressed in the rule. 3. Use land use specific information instead of defaults for trip length and fleet mix where feasible when estimating emissions for generating fee amounts for the fee table. 4. Clarify the fee formula discussion in future updates to the staff report regarding the amount of emission reductions required by the rule. Michael Brandman Associates 19