Developers paid $1.8B to San Diego communities, but few reap benefits

Karla Dagdag and her daughter walk along a dirt and rock trail toward the Paradise Hills skate park, the path kicking up on their shoes. The nearby playground is sandy with rusty swings and climbing bars and paint-peeled picnic tables, including one with graffiti on it.

Their local park, which has had few upgrades in recent years, has room for improvement, Dagdag says: more trees for shade, seating and benches, and a less rocky path that doesn’t leave her shoes and clothes so dirty. 

“I do walk around here sometimes, and I feel like it’s really hot because there’s not enough shade,” she said, adding she sometimes goes to a different park so she can walk on pavement instead. 

About 30 miles north, a newer park in Pacific Highlands Ranch, built three years ago as part of a $40 million investment by the city, hosts updated playground equipment,  more accessible turf padding, a soccer field, two dog parks, a skate plaza and a cycling track.

Cristina Rotenburg enjoys the park and would hardly change anything about it: it’s clean, safe and even offers musical elements in the playground for her three kids.

“I feel like the only thing that could be different is just more shade, but I feel even silly complaining because I feel very fortunate.” 

At a glance, the parks could not be much more different, but they do share something important in common: 

Both parks were paid for in part with the same fees the city charges for new developments to offset any negative impacts of building. However, over the years, one community has collected vastly more money through those same impact fees than the other. 

For example, roughly $30 million in development fees helped pay for just the park and recreation center in Pacific Highlands Ranch, which has raised $199 million through the fees, collected since 1998. Meanwhile, the whole community that includes the Paradise Hills park has collected just $1.8 million from the same fees since its fund started in 1988. 

An inewsource analysis also found that the money raised through the fees is concentrated in wealthier neighborhoods, forging disparities along income and class lines, too. 

Driving that disparity is a decades-old requirement that money raised through developer fees be spent on public projects in each of 44 planning communities collecting them. Some communities with more development have raised more money while others have missed out. 

And because that money could only be used to pay for projects already approved in those communities, many have had to wait to collect more fees before being able to spend the money and complete projects. As a result, $222 million is currently sitting in the 44 communities’ accounts. 

Critics have said the system is broken and unfair. 

They include the mayor and members of the San Diego City Council, which voted in August to change the policy starting next summer to allow money collected through impact fees to be spent anywhere in the city regardless of where it’s collected. Known as Build Better SD, this new policy also changed the rules to limit the spending to four types of infrastructure: parks, mobility issues such as improving sidewalks, fire stations and libraries. 

Patrice Baker, community outreach director for Groundwork San Diego-Chollas Creek, a nonprofit tasked by the city to restore the creek’s watershed, said that the old framework has prevented improvements in historically underserved areas, often referred to as “communities of concern,” from receiving much-needed funding.

“It was like the one who had the most new construction then got the benefits from it, from the developers, for the fees, which makes sense,” Baker said, adding that the millions of dollars in impact fees sitting in accounts isn’t benefiting any communities. “They’re already built out and the monies are just sitting there, but the need is someplace else.”

Under the new framework, “rather than getting nothing, communities of concern would get something,” Baker said. 

And Albert Velasquez, chair of the Otay Mesa-Nestor community planning group, said his community, a traditionally single-family neighborhood, is seeing more multi-unit homes built. He hopes that the city’s new fee framework will accommodate neighborhoods with things like more parks or traffic reduction as the need for housing increases.

“I think the old formula probably wasn’t responding well to these new realities of development,” Velasquez said.

But the new policy also has its own critics who say it’s unfair to take money raised in one community and give it to another. Communities seeing a lot of development need the money to help provide infrastructure to serve new residents and businesses, they say. 

Some critics of the new policy, including City Councilmember Chris Cate, see fairness as an issue not just for underserved communities. Cate was the sole vote on council against the Build Better SD plan. 

Right now, he said he has no assurance that areas that are growing rapidly, especially those adding new housing,  will benefit from the impact fees. That’s because the city hasn’t updated its policies on how it will prioritize who gets impact fee revenue.

Cate’s District 6 includes Kearny Mesa, whose community plan calls for more than 20,000 homes to be built in the historically industrial area. Once those housing developments are built, Cate wonders whether the community will get money from the impact fees raised from that new development to support all the additional people living there. 

“I have no idea, and that speaks to my opposition,” Cate said.

A $239 million funding gap

The city has raised about $1.8 billion total through forcing developers to pay impact fees, just one of many ways the city pays for improvements in neighborhoods.  

In a nutshell, the city charges a developer a fee to build, say, an apartment complex or shopping center, in a neighborhood. Later, the fees can be used for infrastructure upgrades, such as paved sidewalks or more parks, as a way to offset negative impacts on the people living near the new development and provide needed services, such as fire stations and libraries, as communities grow.

For years, the money has benefited just the communities where it has been raised, limited by city policy on how and where it could be spent. 

An inewsource analysis of the money raised and spent in each community also shows how the city’s policy has led to vast funding gaps between communities that split along class lines.

Of the $1.8 billion the city has raised, most of the money has been collected by the city’s northern and coastal communities, which also tend to be among the wealthiest neighborhoods in San Diego.

Just seven communities have collected more than $100 million each: University City, Carmel Valley, Pacific Highlands Ranch, Black Mountain Ranch, Mira Mesa, Otay Mesa and Torrey Highlands.

Together those communities account for 72% of the $1.8 billion collected citywide.

Also consider: 

• University City has collected $239 million, more than any other planning community and many times more than the $88,000 collected by San Pasqual Valley, which has collected the least. 
• Eight of the top 10 communities that have collected the most in impact fees have also raised the most per capita. Pacific Highlands Ranch, for example, ranks third for total collected and second per capita, having collected $16,000 per person. Carmel Valley, which ranks second with $227 million total, ranks sixth for impact fee revenue per capita, having collected $6,100 per person.
• Per capita revenues also vary widely. At the high end is Del Mar Mesa, which has raised $26,000 per person. At the low end is Skyline/Paradise Hills, which has collected only $30 per person.

Disparities also play out along household income lines. 

• Six of the 10 communities with the highest percentage of households earning $200,000 or more also are among the top 10 for collecting the most in impact fees per capita. Del Mar Mesa, for example, ranks first in both categories, having collected impact fees equivalent to $25,700 per person. About 36% of households in Del Mar Mesa report incomes of $200,000 or more.  
• The 10 communities with the highest percentage of households with incomes of $200,000 or more collectively raised $805 million in impact fees – or 45% of the $1.8 billion collected citywide. 

Questions about fairness drive debate

Though questions of fairness for underserved communities drove the city to change its policy, not everyone is fully on board with the new framework, saying the new policy could leave communities developing rapidly in the lurch.

“They’re basically taking money from certain neighborhoods and giving it to other neighborhoods just because the city wants to choose where to distribute the funds,” said Brian Reschke, the chair of the Rancho Peñasquitos planning group which also represents the Black Mountain Ranch community.

The two planning communities, located in more affluent North County areas, have collected $248 million from impact fees combined. 

Reschke said that while he understands city leaders’ desire to distribute impact fees more broadly, a better solution would be to stop reducing impact fees for some projects and encourage development in underserved areas by addressing issues that make those communities less attractive to developers, such as crime.

Farther south in Linda Vista, Howard Wayne says he sees the city’s new impact fee policy likely won’t result in communities getting what they need. Under the previous system, developers didn’t pay enough, said Wayne, who chairs his neighborhood’s community planning group, which has collected $4.6 million in impact fees since 1988. 

“We’re very concerned about the loss of fees to offset the impact that big development’s going to have in Linda Vista,” he said. 

Councilmember Cate said he’s generally supportive of the desire to create more equity, but the city should make sure some of the money generated through development in a community should stay there to help provide services for new residents.

“I think there has to be some level certainly that some of those funds will stay in that community to support that community,” Cate said.

The city is working on updating the way it decides which projects get prioritized to align with the Build Better SD initiative. A vote will come later, but a date hasn’t been set yet. Some hope to see more opportunity for community input in deciding which projects get funding, a wish city officials say they are considering.

Residents won’t see how the new impact fee policy plays out for a while because the new fees don’t go into effect until July, and the city won’t have a clear picture of the money raised until summer 2024, said Heidi Vonblum, the city’s planning director.

There’s good news for communities with impact fee money sitting in the bank. 

That money, $222 million across various communities, still must be spent in those specific communities. However, the city’s intent is to use the fees raised citywide to “top off” the community funds so projects can move forward, Vonblum said.

Before the passing of Build Better SD, impact fees charged on developers varied greatly depending on the location. Under the new policy,  every community will have the same  fees for the same types of projects.  As a result of that change, some communities’ fees are going up while others are going down. 

For example, developers building 1,500-square-foot homes in Barrio Logan and North University City will pay the same in impact fees – $26,679 – starting next summer. That’s a 24% increase in Barrio Logan, up from $20,297, and an 82% decrease in North University City, down from $48,679 for building the same type of house. 

Mayor Todd Gloria said this policy, which he proposed earlier this year, could incentivize construction of new homes.

“Through its overhauled fee structure, BBSD will help us level the playing field for housing citywide so that every community sees its share of economic development, affordable housing and neighborhood infrastructure,” Gloria said in an email to inewsource.

Vonblum said there’s still more the city needs to do to make this happen.

“If we simply plan for more homes, but we don’t provide for the infrastructure needed to serve those new homes, that is not good housing policy,” she said. “The infrastructure piece of it is certainly critical. It is a piece of the puzzle to bringing more homes online for San Diego.”

Jill Castellano contributed to this reporting.

Note about the data: University City includes two planning areas, North University City and University City South.