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Bonus bucks: Key to job stimulus?
Move afoot to place fees in abeyance
The Building Industry of the Delta believes placing bonus bucks in abeyance may stimulate new home construction by making Manteca’s new homes more competitive in terms of price. - photo by HIME ROMERO

Bonus bucks – part of Manteca’s development lexicon since 1998 – saved Manteca from having to face tough decisions to cover annual general fund budget shortfalls from 2002 through 2006 to the tune of $5,709,500.

This current fiscal year bonus bucks bridged $6 million of a $14 million deficit that was triggered by a precarious dip in property and sales tax revenue and the foreclosure mess. The general fund infusion was enough to cover the payroll and benefit costs of 46 public safety workers or just over a fifth of the entire budget.

Bonus bucks have also paid for soccer field lighting at Woodward Park, covered part of the cost of the Union Road fire station, and paid for the skate park and traffic signals along the Tidewater Bikeway among other items.

Now the group of people who came up with the bonus bucks concept – the residential development community – is hoping elected leaders may agree to hold the fees in abeyance for several years in order to bring down the cost of new housing to stimulate sales and put the building trades back to work.

The Building Industry Association of the Delta is suggesting the move as part of an effort to hack away at Manteca’s record 15 percent unemployment rate. And as much as developers would like to get rid of the bonus bucks fee that they lobbied the city to implement, none are willing to suggest that given the fact reverting to Manteca’s first-come, first-served residential sewer allocation would create chaos among builders when housing demand picks up steam.

 A group of 13 builders a 13 years ago were up against a hot market and Manteca’s 3.9 percent annual growth cap on the issuance of residential sewer allocations.  The way the city’s growth cap works was to award available sewer allocations each year in January to the first-come, first-served who met certain criteria.

That posed major problems in terms of securing financing for projects if a builder couldn’t get enough allocations to build enough homes in a year to cover upfront construction costs. There were concerns that those who would get aced out in the process might sue and stop all building. So the builders did something that a lawyer at the time said was comparable to successfully herding 13 cats – they all agreed to give Manteca an unrestricted growth fee on each home in return for certainty for sewer allocations through development agreements.

That fee started at $2,200 in 1998. Today Manteca developers who want guaranteed sewer allocations are now paying between $7,350 and $13,340 extra per home as part of development agreements. The more homes they are guaranteed by the city that they can receive sewer allocations for in a given year, the higher the fee.

Manteca wasn’t charging enough for processing development plans

It is a contractual fee with absolutely no restrictions placed on it as to how the City Council can ultimately spend the money.

Officially known as development agreement fees, a number of builders have paid them in advance even though they have no immediate prospect of building homes. That is because when push comes to shove, sewer allocations under Manteca’s 3.9 percent growth cap is a precious commodity

Former City Manager  Bob Adams, who led the effort to ratchet up the development fees by as much as $11,000 per home, noted at the time that Manteca shouldn’t be tying up a valuable resource without getting what it is worth in return. Even when the market started down sliding and some builders asked that the development agreement fees be scaled back, Adams held fast. Developers grumbled but they paid the higher fees.

Current City Manager Steve Pinkerton noted that at the same time, though, the city had failed to readjust various fees for development services to reflect actual costs. They also weren’t collecting some fees for years that were supposed to be assessed and failed to update growth-related fees such as those to build government facilities and fire stations to reflect construction costs for facilities they were helping pay for.

Pinkerton also pointed out that during at least the past 12 years – if not longer – developers haven’t been paying high enough fees to cover the city’s actual cost of processing projects and building permits. That is expected to change when a nexus study is completed as part of a council direction to recover costs to help balance the budget. But even the council when they made the directive to staff to recover costs said it may not be wise to go immediately to 100 percent cost recovery for such fees but instead put them in place in phases.

That would mean if the council did not want to penalize the rest of the general fund budget that they’d have to use existing bonus bucks in the bank to cover the shortfall or they’d be increasing the potential for a deficit.

It is projected that there will be $877,135 in bonus bucks left on June 30.

The development community had indicated they are not suggesting the city refund bonus bucks paid nor do they want the fees deferred or dropped altogether. Instead, they are asking for a window of time where projects could go forward without the bonus bucks being paid.

The city’s attorney office has indicated the council could consider that since it was a negotiated contractual fee and not mandated by the state or as a condition of mitigating development impacts.

Placing bonus bucks in abeyance would make new homes more competitive

Placing bonus bucks in “abeyance” could help developers in two ways. First there are 957 finished residential ready for homes to be built tin Manteca.

Temporarily lifting the bonus bucks requirement may not impact all builders the same as some developers have already paid the fees. But all builders have money stranded in the ground in terms of infrastructure improvements alone – typically $6 million plus for every 250 finished lots.

The median price of existing homes that are sold in Manteca during 2009 was $178,000 based on 1,211 homes exchanging hands. So far this year with 42 closed escrows the median selling price of an existing home is $207,500. New homes, in comparison, have a median selling price in Manteca currently of $275,000.

Most new homes – especially those $275,000 and under – are no thrills versions of homes built four years ago. Buyers are also demanding they be more energy efficient which is reflected to a degree in the loss of two-story living areas and entries.

The temporary dropping of bonus bucks would make home builders more competitive against the resale market.
As for new projects breaking ground, it could encourage some builders to do so in Manteca quicker than elsewhere.

Toni Raymus, for example, noted a $10,000 temporary reduction in development costs could mean that they would be able to “break ground sooner on Oleander Estates”. For example, if the development plus home building costs are at a breakeven point with the ability to make a profit when median new home prices in Manteca hit $325,000, the elimination of $10,00 in costs on a temporary basis means they could go forward when the median price actual hits $315,000.

Oleander Estates consists of 544 lots northwest of Union Road and Atherton Drive. It is one of 10 entitled subdivisions that are ready to break ground that represent 3,252 lots.

Building industry economists doubt anyone will be able to start turning dirt on new subdivisions in much of California for several years. Placing bonus bucks in abeyance could, though, give Manteca an edge.

That is something that isn’t lost on Manteca leaders.

Is Manteca weaned off using bonus bucks to balance the budget?

Manteca last fiscal year fared much better than other cities in the Northern San Joaquin Valley where new home construction ground to a stop. In the fiscal year ending June 30, Manteca had almost 60 percent of all new housing starts throughout San Joaquin County with 237 of the 414 new homes that started construction. The next closest was Stockton with 120 followed by San Joaquin County with 30, Lathrop with 25, and Lodi as well as Escalon with apiece. Tracy and Ripon did not issue a single family building permit during the 2008-09 fiscal year.

If they can make it possible for 300 plus homes to be built annually in Manteca in the next several years, that would pick up the building trades employment plus generate offshoot jobs with new consumers in town for everything from services and retail to health care.

New home building – and the consumers they bring to the community – is the largest private sector source of employment in Manteca

By getting a new development to move forward, Manteca would still be positioned to move forward sooner when demand become even stronger.

To seriously consider placing bonus bucks in abeyance for a time period, the City Council would have to be sure that they have effectively controlled expenses to a point that they won’t have to rely on bonus bucks in 2009-10 – except for perhaps the $877,135 they have on hand – to help balance the budget.

Since 2002, city leaders have used $12.2 million in bonus bucks to cover gaps in the general reserve.

It  started in 2002 as a $512,000 infusion to help ease the pain of dropping the $2.35 monthly household tax on garbage, water, and sewer service that generated $690,000 annually to help cover part of the tab of operating Manteca’ s municipal storm drain system.

Another $429,500 in bonus bucks was used to cover a revenue shortage in 2003. The city used $780,000 in bonus bucks in 2004 to assist with storm system expenses. Then in 2005 they used $2.4 million in development agreement fees for general fund operations and personnel. The city used $2.1 million in 2006 to also cover a general fund short fall.

This fiscal year, the City Council tapped $6 million in bonus bucks to balance the budget.

The new construction last fiscal year may be enough to prevent further slippage in property tax from foreclosures. Also, Manteca is showing positive single digit gains in sales tax revenue while other cities nearby are in double digit retreat.

Manteca would also have to have cost recovery in place with the biggest segment being fees covering the building community. The other wild card in Manteca’s budget outlook is the same as for other cities and counties – what will the State of California do in terms of stealing local revenue to balance the state budget next fiscal year that already is projected to run a $22 billion deficit.