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
Conduct a Public Hearing for Consideration of: (1) Ordinance No. 26-0002, an Ordinance Adopting a Development Impact Fee Program, Amending The Manhattan Beach Municipal Code, and Making Findings of Exemption Pursuant to CEQA; and (2) Resolution No. 26-0010, Approving a Development Impact Fee Nexus Study, Adopting a Capital Improvement Plan as part of the Nexus Study, Establishing the Fee Amounts for the City’s Development Impact Fees, and Making Findings of Exemption Pursuant to CEQA (Not Budgeted) (Finance Director Bretthauer).
(Estimated Time: 2 Hrs.)
A) CONDUCT PUBLIC HEARING
B) INTRODUCE ORDINANCE NO. 26-0002
C) ADOPT RESOLUTION NO. 26-0010
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RECOMMENDATION:
Staff recommends that after conducting the public hearing, the City Council introduce Ordinance No. 26-0002 and adopt Resolution No. 26-0010.
FISCAL IMPLICATIONS:
Due to the increase in proposed development, the City will incur increased capital needs and infrastructure costs to address demand caused by such development. Development impact fees (DIFs) are intended to provide the City with adequate revenues to address these critical funding needs.
Based on the City’s anticipated growth through 2040, roughly 2,199 new multi-family dwelling units and 127 new single family dwelling units would be added to the City’s housing supply. Based on these growth factors and the proposed impact fees, the revenue impact is summarized on slide 64 of the attached PowerPoint Presentation.
To implement the proposed impact fees, additional administrative expenses will be incurred as City staff collect fees, manage the use and application of fee revenues, and prepare annual required reporting related to impact fees. The proposed impact fees include an additional five percent (5%) administrative fee to cover these costs.
BACKGROUND:
Development Impact Fees (DIFs), which are governed by the Mitigation Fee Act (GC 66000), are one-time fees on new development to mitigate cost impacts to the City created by such new development. Simply put, it is important that new development projects pay their “fair share” of the cost of new and expanded infrastructure needed as a result of such proposed development. 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. 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 Manhattan Beach’s desire to facilitate and accommodate much needed housing, the type of development in Manhattan Beach has changed, and continues to change. Manhattan Beach was initially a “resort town” or beach community, developed with small lot sizes, narrow streets, walk streets, and very limited parking. The City was a vacation destination for visitors who stayed in small motels along California State Highway 1 (Sepulveda Boulevard), Highland Avenue and other streets, and frequented small grocery stores, local restaurants, and small retail stores. After World War II, the City became a bedroom community, primarily with modest single-family homes and duplexes. As such, all the existing infrastructure was designed to accommodate these types of small structures and will not be able to accommodate projected development.
Until recently, the City has not seen the type of large-scale proposed developments that require much greater infrastructure to accommodate projected residents. For instance, there are several proposed projects along Sepulveda Boulevard that propose dramatic changes in the scale and scope of development in the City. One is proposed to be a 55 unit, seven-story residential structure on a site currently occupied by a commercial smog check station. Among other pending commercial projects is a 162-room, 81,775 square-foot, four-story hotel and a separate new 16,268 square-foot two-story retail and office building, formerly occupied by a one-story restaurant. The City has recently received an application to develop a 273-unit residential building on a site formerly occupied by Fry's Electronics, which closed all of its stores in 2021. Another project proposed for Sepulveda is a 40 unit, 7-story, 35,246 sq. ft., multifamily residential project where the existing use is a single-story, 6,272 sq. ft. commercial building used as a nursery. Sepulveda Boulevard is not the only City street that will be affected. For examples, there are a number of projects proposed for Rosecrans Avenue, including an 8-story, 644,663 sq. ft., multifamily residential building with 550 residential units, and a 500 residential unit project on a site currently occupied by an office building. The collective increase in these and future 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 (Harris) - 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 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 and contemplated 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. Feedback received from the Finance Subcommittee Members included the following recommendations:
1) Proceed with the next steps to present the information to the public, including a study session hosted by the full City Council to provide the public another opportunity to comment on the fees.
2) Provide additional outreach/noticing to the community (see Public Outreach section of this staff report for more detail).
3) Develop an FAQ (Frequently Asked Questions) for the proposed Development Impact Fees.
Accordingly, the City Council held a publicly noticed Study Session at which staff and consultants from Harris & Associates presented a comprehensive overview of the Nexus Study, including: 1) background; 2) data and methodology used for the study; 3) anticipated growth factors; 4) breakdown of proposed impact fees; 5) fee scenarios based on different project types; 6) fiscal impact, and 7) public outreach/next steps.
Toward the conclusion of the Study Session, the Council requested answers to questions posed by the public and Councilmembers. The answers to those questions can be found below in Discussion. The Council also asked for more potential development scenarios, which have been added to the Power Point.
DISCUSSION:
The attached Nexus Study is the first comprehensive Citywide Development Impact Fee Nexus Study performed for Manhattan Beach. The Study has been developed 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. Wastewater (Sewer) Fee
6. Storm Drainage Fee
7. Water Fee
8. Administrative Fee (5% of Fees)
A summary of the proposed impact fee amounts are included in on slides 12-14 of the attached PowerPoint Presentation.
Appropriate Method Used to Calculate Each Impact Fee
Harris has identified the applicable method used to determine each proposed impact fee. As identified on slides 10-11 of the attached PowerPoint Presentation, 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
Examples of different development scenarios are illustrated in the Power Point.
It is important to note that the examples provided in the Power Point are just a sampling of some potential scenarios. Impact fees will vary depending on a variety of factors affecting a specific project (building size, impervious land coverage, required water meter size, etc.).
One of the questions posed at the Study Session was: if the City does not impose impact fees on new developments to pay their fair share, how would the City pay the costs created by the new development? The City would have to look at other funding sources [e.g., the General Fund and enterprise funds (i.e. Storm Drain, Water and Sewer Funds)] to pay the infrastructure costs created by new development. It is unlikely that the City would have the funding to support the infrastructure needed for future growth as projected by the City, General Plan and Housing Element.
Another question posed is whether residential projects with affordable units will receive any credits. Under recent legislation, certain qualified residential projects located near transit stations are entitled to reduced transportation fees.
Ordinance and Resolution
If adopted, the attached Ordinance No. 26-0002 would adopt a new Development Impact Fee Program, amend the Manhattan Beach Municipal Code by adding Chapter 8.40 and make findings pursuant to CEQA. The Ordinance outlines a section for each of the proposed impact fees including the General Government Facilities Fee, Police Protection Fee, Fire Protection Fee, Transportation Fee, Wastewater (Sewer) Fee, Storm Drainage Fee, Water Fee and Administration Fee. The ordinance also sets forth the procedure and method for fee exemptions, reductions credits, appeals and the use of funds.
A separate resolution establishing an appeal fee will be presented to the City Council for its consideration at a future Council meeting.
If adopted, the attached Resolution No. 26-0010 would approve the Development Impact Fee Nexus Study, the Capital Improvement Plan, Schedule of Impact Fees and automatic annual adjustment to the impact fees. This would allow the impact fees to keep up with inflationary cost increases by adjusting the fees every July 1st of each year using the Engineering News Record (ENR) Construction Cost Index (CCI) for Los Angeles (or any successor index) for the month of April.
CONCLUSION:
Staff recommends that after closing the public hearing, the City Council introduce Ordinance No. 26-0002 and adopt Resolution No. 26-0010.
PUBLIC OUTREACH:
In advance of this City Council Public Hearing, 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.
To encourage public participation, 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 - 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.
7. January 20, 2026 - 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 - 1st Notice Published in The Beach Reporter Regarding Public Hearing (10 Day Notice).
9. January 29, 2026 - 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 April 18, 2026, effective date.
ENVIRONMENTAL REVIEW:
Please refer to findings in Resolution No. 26-0010 and Ordinance No. 26-0002.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Draft Resolution No. 26-0010
2. Draft Ordinance No. 26-0002
3. Frequently Asked Questions (FAQs) on Development Impact Fees
4. Glossary of Terms
5. PowerPoint Presentation