HomeMy WebLinkAboutTrans 2008-11-12 Item 3C - Report - State Auditor Performance Audit Report on Impact Fees
INFOR1VlATION MEMORA1~UM
To: Mayor Haggerton
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From: .k.tf>ubliC Works Director~
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Date: November 4, 2008
Subject: State Auditor Performance Audit Report
"Use of Impact Fees in Federal Way. Olympia, Maple Valley, Redmond and
Vancouver"
ISSUE
Results from the State Auditor's Impact Fees Performance Audit from five select cities.
DISCUSSION
The State Auditor selected the cities of Federal Way, Olympia, Maple Valley, Redmond
and Vancouver for a performance audit because they had the highest impact fee revenue
from 2004 to 2006. In the attached summary of audit results, nine audit issue areas are
discussed for school, parks, fire and transportation impact fees.
In comparing Tukwila's traffic impact fee system with the fmdings from the State
Auditor, we find that Tukwila updates the traffic model and project costs annually;
includes long term projects in the impact fee model; and creates a schedule that allows
developers to easily determine the impact fees to be paid upon building permit issuance.
The only audit recommendation that has not been incorporated is a tracking system
which automatically interfaces to Finance's accounting system.
Tukwila not only manages its transportation impact fee program effectively, but our
system has already implemented four of the five recommended "leading practices". We
will investigate our tracking procedures with Finance to determine the feasibility of
integrating traffic impact fees.
RECOMMENDATION
For information only.
Attachment: Performance Audit Report
P:\Cyndy\Conaurency & Impact Fees\Infu Memo - Impact Fee Profurmance Audit 10-08.doc
Performance Audit Report
Use of Impact Fees in
Federal Way, Olympia, Maple Valley,
Redmond and Vancouver
Report No. 1000014
October 14/ 2008
Washington State Auditor Brian Sonntag, CGFM
www.sao.wa.gov
he Puget Sound Region experienced an
unprecedented building boom during this decade.
Impact fees' purpose is to help offset the costs of
services associated with new development, such as
roads, schools, fire facilities and parks.
We chose this audit to examine whether cities are
effectively and efficiently using of this revenue source.
We selected the five cities with the state's highest
impact fee revenue from fiscal years 2004 to 2006 to
Brian Sonntag, CGFM find out if:
Washington State Auditor. Cities are collecting and administering impact fees
appropriately and in accordance with state law.
· The public is getting what it is paying for.
Performance audits are conducted under the
provisions of citizens Initiative 900. This audit
was conducted on our behalf by Ernst & Young in
accordance with Generally Accepted Government
Auditing Standards.
Cities have an opportunity to improve transparency
and access to public information by posting their
annual impact fee reports on their Web sites.
While cities are required by state law to report the
information annually, not all cities are posting the
information on their Web sites. It is good policy to
make that information readily available to citizens.
We hope all cities and counties that impose imact fees
will take advantage of the best practices identified in
this audit.
If you are interested in following up on the audit
resolution or public hearings, please check
our Web site at: http://www.sao.wa.gov/
PerformanceAuditjaudiCreports.htm.
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Mission Statement
The State Auditors Office independently serves the citizens of Washington
by promoting accountabilitx fiscal integrity and openness in state and local
government. Working with these governments and with citizens, we strive to
ensure the efficient and effective use of public resources.
Objectives
The audit was designed to determine:
1. The method each city uses to calculate impact fees based on the direction in
state law mcw 82.20.050);
2. How each city demonstrates that these fees are appropriate; and
3. How effectively each city uses impact fees to pay for public facilities that:
· Correspond to the demand for public facilities from new development.
· Benefit new development proportionate to its share of the financing of new
or expanded facilities; and are consistent with a comprehensive plan or a
capital element of a comprehensive land use plan that has been adopted in
accordance with state law.
If the city does not meet these objectives, what are the resulting costs to all residents
and what can be done to reduce those costs?
Additionally, the audit addressed the nine elements contained in Initiative 900,
outlined on page 5 of this summary.
The audit cost $726,466.
The complete text of
Initiative 900 is available
, at www.sao.wa.gov/
I PerformanceAudit/
I PDFDocuments/i900.
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Legislature
Several of the issues identified during the audit are caused by a lack of clarity in
laws governing impact fees, particularly regarding the items cities may purchase
with impact fee money. For instance, Olympia interpreted the law regarding road
impact fees to allow it to spend the money on bike trails. Redmond interpreted the
law regarding fire impact fees to allow the City to purchase fire trucks. The law states
the fees can only be spent on fire "facilities;" however the law does not define a
fire facility. The Legislature has an opportunity to empower cities to improve their
performance and definitively comply with state law.
Issues
The audit identified three main conclusions regarding the five cities' collection and use
of impact fees.
· Lack of clarity in state law may be causing some cities to calculate and spend
impact fees in a manner that could be inappropriate.
· One city is charging builders higher impact fees than they should and their fees
are not supported by a capital facilities plan as prescribed by law. We recommend
that city discontinue charging the fees until they are supported.
· New developments in some cities are receiving questionable benefits for the
impact fees paid.
Best Practices Identified for All Municipalities
The audit identifies a number of best practices that streamline or improve the
collection, assessment and use of impact fees in order to minimize the costs and
maximize the benefits associated with them.
I Visit www.
sao.wa.gov/
I PerformanceAudit/
j audicreports.htm
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! Full report
!. Cities' responses,
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. . Public hearings
I. Cities' annual
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Audit Issues Audit Recommendations Financial Impacts
l. Capital Facilities The Washington Legislature should amend $876,709
State law defines capital facilities for RCW 82.02.090 to better define capital
fire, transportation, park and school facilities and the following terms:
impact fees. However, the definitions are l. "Fire protection facilities"
ambiguous, resulting in cities applying 2. "Public streets and roads"
varying interpretations of the term. 3. "School facilities"
4. Address whether transportation impact
fees can be spent on multimodal
transportation (i.e., biking, walking, etc.).
2. Fire Districts Washington cities should be aware of the A more accurate
The City of Redmond Fire Department City of Redmond's leading practice in its allocation of costs
has developed a leading practice in its relationship with Fire District 34 and attempt between a city and
relationship with Fire District 34. The fire to institute a similar contract if that city has a related fire districts.
department's method of allocating costs relationship with a neighboring fire district.
of new capital facilities between the city
and Fire District 34 should be evaluated
for use by other cities and districts. .
3. Park Zoning . Olympia should consider removing $36,974
Olympia may not be spending park impact the "one-half to one mile" and "10- to
fees as effectively as it could, based on 20-minute walk" from its definition of a
the results of a citizen survey and based "Neighborhood Park."
on other cities' use of multiple park . Olympia should consider dividing the City
zones. into two park zones to demonstrate a clear
relationship between where impact fees are
collected and spent. Two zones for park
impact fees would appear to be reasonable,
as the City is approximately six miles across.
4. Interest-Bearing Accounts . Cities should consider using technology . Using an
. Each city uses a different method to similar to Vancouver's system that automated system
allocate interest payments to impact allows for daily allocation of interest and will reduce staff
fee general ledger accounts. minimizes manual data entry. time currently
. The City of Vancouver's method . Cities should not allocate interest based used in manual
of allocating interest is a leading on a rate that is not equal to actual processes.
practice among the Cities. interest earned. . Accurately
. The Legislature should consider modifying tracking interest
RCW 82.02.070 to better define "separate income reduces
interest-bearing accounts." the risk of errors
or fraud.
. Clarifying an
ambiguous law will
help cities.
5. School Impact Fee Interest Cities should allocate actual interest earnings $9,469
Olympia and Federal Way do not remit any on school impact fees collected and remit
interest they earn on school impact those interest earnings to the appropriate
fees to the school districts; therefore, school district(s) so the interest earned on
the interest income is not spent on the impact fees can be spent in accordance with
purpose for which the impact fee was state law.
imposed, as required by state law.
Audit Issues Audit Recommendations Financial Impacts
6. Fire Impact Fee Schedule/ . Cities should be aware of Redmond's $185,565 -
Calculation leading practice for the fire impact fees $345,313
. Olympia's fire impact fee schedule/ schedule/calculation.
calculation does not effectively . The City of Olympia should revisit its fire
demonstrate the connection between impact fee schedule and consider if it
growth and system improvements. is suitable to continue charging the fire
Olympia does not take into impact fee. Specifically, Olympia should
account the cost of public facilities more effectively address RCW 82.02.050
necessitated by new development or and 82.02.060 in its calculation and
the availability of other financing. demonstrate the fire impact fee it charges
. Redmond has developed a leading reasonably relates to system improvements
practice in its fire impact fee that are reasonably attributable to growth.
schedule/calculation, specifically the . Additionally, the City of Olympia should
method it uses to take into account consider implementing a periodic review
the impacts of fire and aid calls by of its fire impact fee calculation and
land use type, projected growth by schedule to determine if the fee is still
land use type and the fire Capital adequate, given the city's capital facility
Facilities Plan. needs and anticipated growth.
7. School Impact Fee Schedule/ Cities should revisit their review process Cities benefit
Calculation of the school impact fee calculation/schedule by having more
Some cities that collect school impact fees and capital facilities plan, knowing they confidence that the
are not consistently reviewing impact fee may be involved if litigation results from the school impact fee they
calculations prepared by school districts. school impact fee assessed. charge is appropriate.
8. Transportation Impact Fee . Cities should consider a construction cost . Impact fees will
Schedule/Calculation adjustment to align transportation impact more closely
Redmond uses several leading practices fees with the cost of projects they fund. match the costs
in calculating, charging and maintaining . Cities that calculate impact fees based on they support.
its transportation impact fee. a short-term project list should consider . Cities may charge
expanding that list to include projects a fee that better
farther in the future that will be needed to represents the cost
accommodate growth. of growth.
. Cities should adopt a transportation . Developers will be
impact fee schedule that allows able to calculate
developers to easily determine the impact and understand
fee to be paid upon building permit their transportation
issuance. The transportation fee schedule impact fee
should be based on typical land uses and without outside
trips per land use. assistance.
9. Permit System . Redmond should eliminate database $76,280
. Redmond inputs collection, interest tracking of individual impact fee collection,
earnings, and expenditure of each expenditures, and interest allocation to
impact fee in a database and in the save staff time.
City's cash receipt system. The City is . All cities should maintain a permit system
duplicating work by entering the same that automatically interfaces with its
information twice. accounting system. Leading practices are
. Vancouver and Olympia integrated their in place in Vancouver and Olympia.
permitting systems with their accounting
systems. This is a leading practice that
results in more effective internal controls
and limits manual data entry.
Total financial impacts: $1.18 million to $1.34 million
Initiative 900 requires the State Auditor's Office to identify best practices
~ during each performance audit. The following best practices were in place at
the cities during the audit:
Redmond
· The City of Redmond Fire Department's method of allocating costs of new
capital facilities between the City and Fire District 34 should be evaluated for
implementation in other cities and districts.
· The City of Redmond's fire impact fee calculation and schedule met all
aspects of the related state laws and demonstrates a leading practice by
taking the following items into consideration:
· System improvements that are reasonably related to growth
· The proportionate share of the costs of system improvements related to
new development
· Redmond employs several leading practices with respect to calculating,
charging, and maintaining its transportation impact fee.
These leading practices include:
· Inflation indexing
· Costs based on a long-range plan
· Adopted fee schedules by land use
Vancouver
· The City of Vancouver uses the Emphasys SymPro system to assist in
managing the city treasury function, including interest allocation. The system
tracks investment earnings and interfaces with the city's general ledger
to retrieve the daily balances for all accounts to which to allocate interest.
Investment earnings are then allocated across the general ledger accounts
based on their average daily balances.
· The City of Vancouver's school impact fee review process is a leading
practice, as the City demonstrates the most in-depth and comprehensive
review of the school impact fee calculation and schedule.
Vancouver and Olympia
· The cities of Vancouver and Olympia integrated their permitting systems with
their accounting systems. This was identified as a leading practice among
the Cities due to the tighter internal controls and minimal manual entry.
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We made the following recommendations to the Washington Legislature:
· Amend RCW 82.02.090 to better define capital facilities and alleviate ambiguity.
· Consider modifying RCW 82.02.070 to better define "separate interest-bearing
accounts."
initiative 900 requires the legislative bodies for the governments in this report
Ii! to hold at least one public hearing to consider the audit results and receive
comments from the public within 30 days of this report's issue.
The corresponding legislative body must consider this report in connection with
its spending practices. A report must be submitted by the legislative body by
July 1 each year detailing the status of the legislative implementation of the State
Auditor's recommendations. Justification must be provided for recommendations
not implemented. Details of other corrective action must be provided as well.
The state Legislature's Joint Legislative Audit and Review Committee (JLARC) will"
summarize any statewide issues that require action from the Legislature and will
notify the appropriate fiscal and policy committees of public hearing agendas.
Follow-up performance audits of any state or local government entity or program
may be conducted when determined necessary by the State Auditor.
Initiative 900 provides no penalties for state agencies or local governments that do
not follow recommendations made in performance audit reports.
,
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I. lLARC posts its 1-900
public hearings and
r agendas at: http://
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I www.leg.wa.gov/
! JLARC/i-900.htm
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To receive electronic notification
of audit reports, sign up at:
https:/Iwww.sao.wa.gov/applications/
subscriptionservicesl
Washington State Auditor
Brian Sonntag, CGFM
Director of Performance Audit
Linda Long, CPA, CGFM, CGAP
sonntagb@sao.wa.gov
(360) 902-0360
longl@sao.wa.gov
(360) 902-0367
Communications Director
Mindy Chambers
cha m berm@sao.wa.gov
(360) 902-0091
To request a public record from the State Auditor's Office:
Mary Leider, Public Records Officer leiderm@sao.wa.gov
For general information from the State Auditor's Office:
Main phone number
Web site
(360) 725-5617
(360) 902-0370
http://www.sao.wa.gov
Toll-free hotline for reporting government waste and abuse
(866) 902-3900
To find your legislator http://apps.leg.wa.gov/districtfinder
To contact the City of Federal Way:
Mayor Jack Dovey jack.dovey@cityoffederalway.com (253) 835-2401
To contact the City of Olympia:
Mayor Doug Mah dmah@cLolympia.wa.us
(360) 753-8447
To contact the City of Maple Valley:
Mayor Laure Iddings council@cLmaple-valley.wa.us
(425) 413-8800
To contact the City of Redmond:
Mayor John Marchione mayor@redmond.gov
(425) 556-2101
To contact the City of Vancouver:
Mayor Royce Pollard mayor@cLvancouver.wa.us
(360) 696-8211
Americans with Disabilities
In accordance with the Americans with Disabilities Act, this document will be made available in alternate formats.
Please call (360) 902-0370 for more information.