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Page 2 of 6 BACKGROUND Development Impact Fees The City’s existing development impact fees were established pursuant to AB 1600 (California Government Code Section 66000 et. seq.). AB 1600 requires cities to justify and account for development fees that they enact as a condition of approval on new development. The justification, or nexus requirement, requires cities to: 1. Identify the purpose of the fee; 2. Identify the use or specific project to which the fee will be applied; 3. Determine how there is a reasonable relationship between the fee’s use and the type of development project on which the fee is imposed; and 4. Determine how there is a reasonable relationship between the need for public improvement and the type of development project on which the fee is imposed. The nexus is based on the premise that new development should pay its pro-rata share of public improvement costs. Because residents, businesses, and their employees create the need for and benefit from the availability of public services and infrastructure improvements, new development should pay its share of public facilities/improvements necessitated and/or impacted by development. Pursuant to AB 1600, fees cannot be imposed on new development to correct existing deficiencies or pre-existing needs. The City most recently conducted studies and adopted Capital Facilities and Transportation Impact Fees, and Affordable Housing Fees in 2018; the studies updated and replaced fees previously adopted in 1998. Inclusionary Zoning Ordinance (IZO) The City’s Inclusionary Zoning Ordinance (IZO) was initially adopted in 2000 and has not been updated since then. The IZO addresses requirements for inclusion of affordable housing units in projects over 15 units in size, including establishing a rate of 15% inclusionary units in multi- family projects, and 20% inclusionary units in single-family projects. The 6th Cycle Housing Element includes Program 2.1 to evaluate a potential increase in the multi-family inclusionary rate. In addition, the update seeks to improve the overall quality, clarity, and enforceability of the IZO Ordinance to reflect City priorities. In particular, recent changes in state law have made it more challenging for the City to enforce the existing IZO, which allows for significant flexibility and negotiation between the developer and the City in formulating affordable housing proposals, and in aspects such as determining the mix of affordability in terms of target income levels. While this has been beneficial over the years in allowing for some creative solutions and alternative proposals to be considered, in the current regulatory environment the City is seeking opportunities to increase the enforceability of the IZO where appropriate to do so, while still allowing for a degree of flexibility and alternative compliance methods where required by State Law (i.e. AB 1505). It is noted that the Objective Design Standards adopted by Resolution No. 23-1386 for the 6th Cycle Housing Element sites, which are also reflected in the pending municipal code amendments associated with Housing Element sites rezonings, have specific affordability requirements for inclusionary rental and for-sale units, and more strict criteria than the IZO with respect to aspects such as bedroom mix and unit size. Thus, even pending the IZO update, the City has the ability to enforce somewhat stricter requirements for the various Housing Element sites. Page 119 of 371 DocuSign Envelope ID: CB7E68CB-B5FA-40EC-AA35-142CA6B57242