UPDATE, Friday, May 20:

At its May 19 meeting, the Eureka City Schools Board of Trustees voted unanimously to adopt the report justifying the developer fee and voted 4-1 to implement the fee. 

Eureka City Schools Superintendent Fred Van Vleck said the board also decided to review the impact fee six months down the road to evaluate the impact it’s having on the community and the district.

###

###

This evening, the Eureka City Schools Board of Trustees will consider whether or not to implement sizable new developer impact fees within the district’s boundaries. These charges, which would be assessed to local builders in the permitting process, would generate revenue while making the district eligible to pursue $5.6 million in state grant money for new preschool classroom facilities.

According to Eureka City Schools Superintendent Fred Van Vleck, the driving force behind this proposal is the state’s recent adoption of a universal transitional kindergarten (TK) program. Currently, only a subset of 4-year-olds — those who will turn 5 between Sept. 2 and Dec. 2 — are eligible to attend TK. But thanks to a $2.7 billion initiative supported by Gov. Gavin Newsom and others, California’s TK program will be gradually expanded until it includes all of the state’s 4-year-olds by the 2025-26 school year.

That expansion, Van Vleck says, will lead to an influx of new preschoolers, requiring the district to add more classrooms that meet the state’s Title 5 requirements. And in order to qualify for the $5.6 million state grant that could pay for those new facilities, the district needs to charge these fees, at least temporarily. (We’ll get to his explanation of why that’s the case below.)

Local builders, meanwhile, are voicing strong opposition to the proposal, saying the fees — which would be assessed at a rate of $4.79 per square foot for residential construction and $0.78 per square foot for commercial or industrial construction — would stifle much-needed efforts to build new housing by adding yet another construction-related cost to an ever-expanding list.

“We’re not going to be able to continue to apply for our permits and continue to build our buildings with these increased costs,” local contractor Will Zerlang said at a Eureka City Council meeting Tuesday night. “Not to mention small families that are trying to develop these additional dwelling units … . You’re gonna put those out of business also.”

Zerlang (who, disclosure, is a friend of mine) said permit fees have already increased exponentially. He told the council that in 2009 he paid $1,400 for a permit on a 3,400-square-foot development. He’s now working on a project of that same size, located in the county’s jurisdiction just outside Eureka city limits, and the permit will cost $13,000 this time around.

“If we add this fee, it’s gonna add about $16,000 to that permit cost,” he said. The total resulting permit fee of around $29,000 would represent a roughly 20-fold increase in just over a dozen years. 

“Implementing this fee on local builders is going to slow down all of [the] movement you’re trying to do with increasing housing,” Zerlang said. 

Neighboring elementary school districts, including those in nearby Cutten and Freshwater, are also looking to implement these fees, and local developer Kurt Kramer said that would “definitely” impact his recently approved, 320-unit North McKay Ranch subdivision project, potentially jeopardizing its financial viability.

Kramer said he’s fine with the district’s efforts to expand a preschool programs. “I don’t have any issues with them running their district and doing what they need to do,” he said in a phone interview on Tuesday. “They just can’t keep putting the burden on development.” He and other developers are have hired an attorney to fight the proposed new fee by challenging the document the district is using to justify it.

On the other side of the issue, Van Vleck says that while he understands the concerns of local builders, the State of California is effectively forcing the district’s hand. He explained the situation to the Eureka City Council on Tuesday.

In order to qualify for this state grant of $5.6 million, which would be specifically earmarked to build eight new preschool classrooms, the district must meet two criteria: First, it must have a relatively high level of poverty among the student body, and Eureka City Schools does, with about 70 percent of students qualifying for free or reduced-cost lunches, according to Van Vleck.

Second, the district must be experiencing financial hardship. That’s where the proposed fee comes in. In order to claim hardship, a district must have passed a bond measure fairly recently — which voters in Eureka City Schools district did, most recently, in 2020 — and it must be charging the maximum developer impact fees allowed by the state, which is where the figures of $4.79 and $0.78 come from. (There’s also a mini-storage category of construction, for which the district would collect a fee at a rate of $0.08 per square foot.)

School districts’ ability to assess these fees was ushered into law back in 1986 via Assembly Bill 2926. The State Allocation Board can (and usually does) adjust the fee amounts for inflation every two years.

At the council meeting, and again in a phone conversation Wednesday, Van Vleck lamented the lack of local control over these matters.

“It is really unfortunate that Sacramento is dictating local politics and [that] in order for our community to be eligible for this preschool building grant we basically have to [assess the fee],” he said.

The statewide expansion to universal pre-K will likely quadruple attendance at Eureka City Schools’ TK program, a figure based on “simple math,” Van Vleck said. But in order to justify the developer fee, the district needed to produce a report showing that there’s a nexus between anticipated development within district boundaries and the cost of providing adequate school facilities. 

Eureka City Schools commissioned such a report from Sacramento-based Jack Schreder & Associates, Inc., a consultancy that specializes in producing these studies for school districts in California, the majority of which already charge developer impact fees. The report, which cost $6,675, was completed in early April. (Click here to download a copy.) It concludes that new residential construction in the district will create a facilities cost of $10.02 per square foot, easily justifying a charge of $4.79 per square foot.

Van Vleck said the district made an effort to circulate the report far and wide, even reaching out to local developers including Kramer, Rob McBeth, Dan Johnson, Kevin McKenny and others to arrange a sit-down meeting.

“We’re not trying to do this behind the veil of darkness … ,” Van Vleck said. “Our whole approach was, ‘We’re not coming here to change your mind; we just want you to understand the why.’” 

The report concludes that the developer fees are indeed justified. “New students generated from future development will create a burden on existing school facilities,” it says, adding that capital improvements “are necessary to adequately house future enrollment growth at all school levels.”

According to the report, that enrollment growth won’t be limited to preschoolers. Citing population projections from the county and city planning departments, the study says a total of 1,526 units totaling 2,441,567 square feet “may be constructed” within the district’s boundary over the next 25 years. The population growth would add an average of 42 students per year to district enrollment, Van Vleck said. 

Kramer, for one, is skeptical about that analysis. 

“You’ve got to have growth to be able to charge the builders of new housing,” he said. “Because what [the district] is basically arguing is, ‘Your new housing is bringing new students into my district.’”

He doesn’t think that’s actually the case. Noting the closure of a couple schools in the past decade or so, Kramer said, “You’ve got Eureka City Schools cleaving campuses. They’re selling campuses off and shrinking. And then they’re saying, ‘Wait a minute, now we’re growing.’ Well, no you’re not. You’re not growing.”

The district’s total enrollment actually declined slightly from the 2016-17 school year to the 2020-21 school year, according to data collected by the California Department of Education.

Kramer alleged that the report’s conclusions were predetermined. “Basically what they did is they paid somebody to back into an argument that would get them to a point where they could implement developer impact fees,” he said.

On Monday, an attorney representing the Northern California Association of Home Builders sent a letter to the attorney representing Eureka City Schools, threatening legal action if the district’s board of trustees votes to implement the developer impact fee. (Click here to download a copy of the letter.)

The letter alleges that the district report justifying the fee “contains significant legal and methodological errors” and that revenues would not actually go toward construction and reconstruction of school facilities:

In short, the Study justifies the imposition of developer fees solely to fund deferred maintenance projects and modernization needs that currently exist throughout the District’s facilities and which would exist whether or not any new development occurs in the District. These costs cannot be reasonably attributed to the impact of future new development within the District, and it would be palpably unfair to force new families moving to Eureka to shoulder the cost of renovating the District’s aging school facilities on their own, when that renovation would clearly benefit all of Eureka’s families equally.

Van Vleck said there’s a mistaken impression out there that this whole effort to establish developer impact fees is because the district ran out of money to complete a new gym for Eureka High School. 

“Not accurate,” he said, adding that the district has all the necessary money already set aside to complete not only the gym but also a renovation of Albee Stadium and a modernization of the sciences building. The district is “fine” financing projects in the short term, he said, and if the fee gets implemented then revenues would be limited to capital recovery projects.

As for the potential impact on local builders, Van Vleck readily admits that he’s not a housing expert. 

“The best thing I can say is that I’m an education expert and we’re doing this for education reasons, to get the $5.6 million grant. That is our goal,” he said. “And we realize there’s a collateral impact that’s out there. I can’t speak with authority on what that will be, other than [pointing out] that pretty much all the rest of the state charges these fees.”

In Humboldt County, both McKinleyville Union School District and Fortuna Elementary School District assess developer fees, though they’re well below the state max.

At the trustees meeting  tonight, the board will have a couple of decisions to make, Van Vleck said. First, they must decide whether to adopt the developer fee study, and, second, whether to implement the fees. Based on input from staff and the public, the board could choose to revise the report or reject it altogether, in which case there’d be no action on implementing the fee. Or they could adopt the study and postpone a decision on fee implementation to the following regular meeting, on June 23.

In his informational report to the city council on Tuesday, Van Vleck also noted that the board could potentially make the fee temporary. As part of the grant application process, the state Office of Public School Construction will likely conduct an audit of the district’s books.

“They take a snapshot of your books at that point, and then once they take that snapshot it’s over,” he told the council. “So the board can choose, after that, if they wanted to, to not collect developer fees, to reduce the developer fees [or] have exceptions for low-income housing. There’s all kinds of things they can choose after that point, but during the snapshot it has to be that amount” of $4.79 per square foot for residential and $0.78 for commercial or industrial

Kramer said districts rarely decide to reduce or rescind these fees once they’re in place, but he also doesn’t expect the board to adopt the fee tonight. In fact, he believes the attorney representing the Northern California Association of Home Builders will convince the board that the fee is not legally defensible.

“I’d be surprised if the tents don’t fold up before it gets too much further,” he said before quickly adding, “but maybe we have to go further.”

Van Vleck said the district has received the attorney’s letter and he expects representatives of the local building community to attend tonight’s meeting and offer their feedback. “That’s exactly what this process was designed to do,” he said.

The board of trustees meeting is open to the public and schedule for 6:30 p.m. at Marshall Elementary, 2100 J Street in Eureka.