TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Finance Director
Emy-Rose Hanna, Financial Services Manager
SUBJECT:Title
Study Session Regarding Potential Development Impact Fees (Not Budgeted) (Finance Director Bretthauer).
(Estimated Time: 2 Hrs.)
DISCUSS AND PROVIDE DIRECTION
Body
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RECOMMENDATION:
Staff recommends that the City Council invite public comment and provide feedback to staff regarding potential development impact fees.
FISCAL IMPLICATIONS:
The City Council will not take any action with fiscal implications during this study session, which is intended for public input.
BACKGROUND:
Development Impact Fees (DIFs), which are governed by the Mitigation Fee Act (GC 66000), are one-time fees on new development and significant renovation projects. The purpose of impact fees is to mitigate cost impacts to the City while allowing development projects to pay for their fair share of new infrastructure. DIFs can only fund capital costs and cannot fund existing deficiencies, ongoing maintenance or salaries. As development occurs in the City, new infrastructure and capital facilities are required to mitigate the increased demand on City amenities created by new residents and workers. With or without development impact fees (DIFs) in place, the City will incur increased capital needs and infrastructure costs to address demand caused by new developments. DIFs are intended to provide the City with adequate revenues to address these critical funding needs.
Due to changing patterns of development over recent years and State housing statutes, the type of development in Manhattan Beach has changed, and continues to change. Manhattan Beach was initially a “resort town” or beach community, with smaller lot sizes, narrow streets, walk streets, very limited parking, and summer vacationers, many taking the trolley to the City. After World War II, the City became a bedroom community, primarily with single family homes and duplexes. Until recently, the City has not seen the type of large-scale developments that require much greater infrastructure to accommodate projected residents. The collective increase in such development projects will significantly impact City infrastructure, capital needs and demand on City systems.
Based on anticipated growth factors through 2040, it is estimated that over 2,300 residential dwelling units could potentially be added to the City’s housing supply within the next 15 years. Considering these significant changes in the development landscape, the City commissioned an independent consultant - Harris & Associates - to study the increase in demand and the correlating rise in the need for public infrastructure and services to support the increased demand on the City due to such growth.
In February 2025, Harris began assisting the City in re-evaluating existing impact fees and proposing a new impact fee structure to reflect increased growth and future capital and infrastructure costs created by new development. The process involved extensive participation from the City’s Finance, Community Development, Public Works, Police, Fire, and Parks and Recreation Departments. After receiving that input, Harris began drafting a Development impact Fee Nexus Study for City review.
On December 4, 2025, the City hosted a Virtual Community Meeting to present the preliminary results of the draft Nexus Study, reasonable impact fees and offer an opportunity for the construction and real estate community to engage in a Q&A session on the proposed impact fees.
On December 18, 2025, the City held a Finance Subcommittee Meeting during which staff presented the potential impact fees and various considerations including fee options, public outreach and more. Feedback received from the Finance Subcommittee Members included the following recommendations:
1) Proceed with the next steps to present the information to City Council at the January 13, 2026, Study Session. Based upon the public input received at the Study Session, the goal is to schedule a public hearing at the February 3, 2026, Regular City Council Meeting to provide the public another opportunity to comment on the fees prior to the Council considering adoption.
2) Provide additional outreach/noticing to the community and outline all the communications coordinated for this topic (see Public Outreach section of this staff report for more detail).
3) Develop an FAQ (Frequently Asked Questions) related to Development Impact Fees which will be presented to the public in advance of the public hearing.
DISCUSSION:
As mentioned on the Background, Harris has been in the process of drafting a Nexus Study. The Nexus Study will be the first comprehensive Citywide Development Impact Fee Nexus Study performed for Manhattan Beach. The Study is designed to satisfy AB 1600 Nexus requirements, AB 602 guidance, and provide the necessary technical analysis to support the adoption of the proposed fees.
Methodology of the Study
Harris & Associates used a variety of factors and assumptions to perform its study, including evaluating, among other factors:
• Existing City Facility, Property and Equipment Valuations
• Existing Funded CIP Plan covering FY 2026 - FY 2030
• Unfunded CIP Needs List, including infrastructure, equipment and capital purchases required in the future to meet the needs of increased development and population
• Multiple Master Plans related to Water, Sewer and Storm Drain
• Growth Factors based on development trends and the 6th Cycle Housing Element
• Utilizing industry standard methods for calculating impact fees including:
o Existing Inventory Method
o Planned Facilities Method
o System Plan Method
Summary of Proposed Impact Fees
Based upon Harris’ recommendation, staff is proposing the following impact fee categories:
1. General Government Facilities Fee
2. Police Protection Fee
3. Fire Protection Fee
4. Transportation Fee
5. Sewer (Wastewater) Fee
6. Storm Drainage Fee
7. Water Fee
8. Administrative Fee (5% of Fees)
A summary of proposed Impact Fee amounts are included in Tables 2 and 3 found within the attached Summary Tables for Draft Development Impact Fees.
Appropriate Method Used to Calculate Each Impact Fee
Harris has identified the applicable method used to determine each proposed impact fee. As identified in Table 4 in attached Summary Tables for Draft Development Impact Fees, three (3) impact fees utilize the Existing Inventory Method, none of the proposed impact fees use the Planned Facilities Method, and four (4) impact fees use the System Plan Method.
Examples of Cumulative Impact Fees on Different Development Projects
As illustrated in Table 5 within the attached Summary Tables, the impact fees would be assessed in proportion to the scale of the development project. For instance, Scenario 1 includes a Single Family Residential (SFR) expansion that doubles in size from 2,000 square feet to 4,000 square feet, which would cost an estimated $12,240.00 in impact fees. Scenario 2 converts one SFR home and parcel into two homes on separate parcels, which would cost an estimated $72,851.90 in impact fees. The last Scenario #3 is the most substantial considering it converts commercial property into a 200-unit Multi-Family Residential (MFR) property, which would cost an estimated $4,360,331.94 in impact fees. It is important to note that the examples provided are not reflective of a typical project and individual results of impact fees will vary depending on a variety of factors affecting a specific project (lot size, building size, impervious land coverage, required water meter size, etc.).
Fiscal Impacts Based on Adoption of Impact Fees at Various Funding Levels
Table 7 within the attached Summary Tables illustrates the effects of adopting the impact fees at various funding levels, which results in $61,621,008.24 in revenues at full build out if approved at 100% of the impact fees, $46,215,756.18 in revenues at full build out if approved at 75% of the impact fees and $30,810,504.12 in revenues at full build out if approved at 50% of the impact fees. It is important to note that any reduction to the impact fees would require subsidization from the General Fund and other applicable City Funds to pay for future capital and infrastructure needs created by new developments.
Timeline
Depending on public input at the Study Session, staff anticipates scheduling a public hearing before the City Council on February 3, 2026 to receive additional public input. After the close of the public hearing, the Council may consider the fees. Both an ordinance and a resolution are required. After the public hearing, staff will be in a better position to inform the public as to subsequent steps, and the effective date of any new fees adopted by the Council.
Other Cities’ Impact Fee
While not a factor in determining reasonable, impact-based fees for Manhattan Beach, the Power Point Presentation includes a survey of several other cities that impose DIFs, simply for informational purposes. The cities included in the survey include Santa Monica, El Segundo, Newport Beach, Huntington Beach and Torrance. Hermosa Beach and Redondo Beach are not included in the survey because neither currently has impact fees. Table 6 within the attached Summary Tables illustrates the various types of impact fees assessed by the comparison cities.
PUBLIC OUTREACH:
In advance of this City Council Study Session, City Staff and consultants from Harris & Associates coordinated a virtual Community Meeting to outline the proposed impact fees and offer an opportunity to engage in a Q&A session. This Community Meeting was advertised on social media, the City’s website and calendar, and shared through a mass email blast to over 3,600 contractors, subcontractors, real estate agents/brokers and architects. Through this outreach, a total of twelve members of the public attended the Community Meeting. The only feedback received was regarding when the impact fees would go into effect, to which Staff explained the 60-day effective date following the adoption of fees approved by City Council.
Additionally, the Mitigation Fee Act requires multiple steps of outreach and noticing related to any proposed impact fees.
To get the word out to the community, encourage public participation and satisfy the noticing requirements required by law, the City coordinated various outreach efforts including:
1. December 4, 2025 - Hosted a Virtual Community Meeting
2. December 12, 2025 - Sent a Courtesy Notice to Interested Parties and Email Notice to Construction and Real Estate Community
3. December 18, 2025 - Finance Subcommittee Meeting Presentation
4. December 25, 2025 - Coordinated an ad in The Beach Reporter regarding the January 13, 2026, Study Session
5. January 2, 2026 - (Legally Required Notice) Sent a notice to Interested Parties at least 30 days prior to a Public Hearing, including the Building Industry Association (BIA), Southern California Edison (SCE) and Southern California Gas and publish Notice on City website.
6. January 8, 2026 - Courtesy Notice Emailed to Construction and Real Estate Community regarding the January 13, 2026, Study Session.
FUTURE ANTICIPATED DATES, PRESUMING FEBRUARY 3, 2026, PUBLIC HEARING:
7. January 20, 2026 - (Legally Required Notice) Send a notice to Interested Parties at least 14 days prior to a Public Hearing and make final draft Nexus Study available to the public
8. January 22, 2026 - (Legally Required Notice) 1st Notice Published in The Beach Reporter Regarding Public Hearing (10 Day Notice)
9. January 29, 2026 - (Legally Required Notice) 2nd Notice Published in The Beach Reporter Regarding Public Hearing (10 Day Notice)
10. January 29, 2026 - Planned Courtesy Email Notice to Construction and Real Estate Community regarding the February 3, 2026, Public Hearing
11. February 3, 2026 - Public Hearing with Introduction and 1st Reading of new Ordinance on Impact Fees
12. February 4, 2026 - Planned Courtesy Email Notice to Construction and Real Estate Community regarding the outcome of the impact fees and communicate the March 19, 2026, effective date.
ATTACHMENTS:
1. Summary Tables for Draft Development Impact Fees
2. PowerPoint Presentation (To be provided under separate cover.)