How does San Diego plan to spend infrastructure money where it's needed most? Grand jury wants more specifics

New report calls for a five-year plan spelling out how the city intends to spend the $511 million in developer impact fees currently in neighborhood-specific accounts.

June 4, 2023 7:45 AM PT

San Diego’s controversial plan to use developer money from wealthy neighborhoods to build infrastructure in low-income areas is facing new criticism for lacking specifics about how city officials would move the money around.

A San Diego County grand jury says the city hasn’t spelled out how it will combine more than $500 million in 44 neighborhood-specific infrastructure accounts with separate money flowing into a new citywide infrastructure fund the new policy creates.

A 27-page report the grand jury released May 30 doesn’t evaluate the fairness of shifting infrastructure money from wealthy areas to poor neighborhoods. It only says the city’s plan lacks crucial details that are of vital public importance.

The grand jury’s foreman, Ed Lopatin, said the question of whether the policy is smart or fair is a decision for San Diego’s elected officials, not a grand jury. It focused only on how the city plans to implement the policy.

City officials declined immediate comment. Rules regarding responses to grand jury reports require the mayor and City Council to provide a comprehensive response by Aug. 28.

Developer impact fees typically are spent on roads to mitigate traffic congestion added by new construction. They also are spent on parks, libraries, fire stations and underground piping to support new residential, commercial and industrial projects.

The new policy ends the city’s decades-long practice of keeping developer impact fees in 44 separate pots of money to be spent in the specific neighborhoods where it was collected.

In contrast, it requires the city to pool the money into one pile and spend it in neighborhoods that are deemed most in need. In addition, money from the citywide fund can be apportioned to individual neighborhoods whose own pots are just short of having enough for a specific project.

That part of the plan — doling out the new citywide money to individual neighborhoods — is the focus of the grand jury’s criticism.

The new policy, which the City Council approved last fall, prompted a group of residents called Livable San Diego to sue, arguing the shifting of developer money from wealthy to poor areas is unconstitutional and violates state law.

The lawsuit doesn’t criticize the city’s desire to boost low-income areas but says the city can’t legally shift developer money away from neighborhoods where the development occurred because that’s where the mitigation is needed.

City officials have hailed the policy, called “Build Better San Diego,” saying it will allow infrastructure projects to be built more quickly and equitably.

The grand jury report says the city needs a five-year plan to spend the $511 million currently in neighborhood-specific accounts, including specifics on how money from the new citywide fund would be used to accelerate spending the neighborhood-specific money.

“The grand jury believes the city needs to develop an objective and demonstrable plan for systematically liquidating the legacy developer impact fee fund balances,” the report states. “In the absence of a tactical, executable plan, the money sitting idle in the community lock boxes may remain until additional funding sources are identified.”

The volunteer panel also wants to know the sources of all the money that will be included in the five-year plan.

“The plan should detail the sources and timing of all additional discretionary funds, including the use of new developer impact fee funds collected under Build Better SD, that will facilitate build-out of the infrastructure projects originally identified and promised under the old structure,” the report states.

The grand jury also says the city should consider refunding to developers neighborhood-specific money it has no specific plans to spend, noting that the state Mitigation Fee Act requires detailed plans for how developer fees kept for more than five years will eventually be spent.

Returning money to developers in such cases would be a major shift in policy for the city.

The fourth recommendation in the report calls for routine audits of all city developer impact fee accounts. The grand jury notes that the city charges the individual neighborhood funds annual administration fees as high as 8 percent for overseeing the accounts, which leaves less money available for projects.

The grand jury report notes that city officials said there was $222 million in neighborhood-specific accounts when the new policy was approved last fall — much less than the $511 million in the accounts.

The source of the discrepancy is $289 million that has been appropriated for specific projects but not yet spent.

San Diego typically collects about $60 million per year in developer fees across the city. The fees can only be used for new projects, not for maintenance of existing facilities or infrastructure.

A 2019 analysis by a city-hired consultant found that Los Angeles, San Francisco and San Jose collect most of their developer fees for infrastructure on a citywide basis, not by specific neighborhood.

While the city’s emphasis on spending citywide infrastructure funds in low-income areas has gotten the most attention, the new policy includes additional criteria beyond income and a history of being underserved.

Areas of the city also will be prioritized based on having large populations or significant recent population growth. Other factors include whether a neighborhood faces environmental or public safety threats.

Mayor Todd Gloria has praised the new policy as a significant shift toward a more equitable San Diego.

“For the past 40 years, we’ve used developer fees to pay only for specifically listed infrastructure in the communities where the fees were generated,” he said last fall. “Once upon a time, that made sense — but not anymore. Now that system only perpetuates historic inequities and leads to millions of desperately needed infrastructure dollars sitting unused.”

Livable San Diego, the group suing over the new policy, called it an attempt by Gloria to take more control over developer impact fees by creating a citywide fund he can use at his discretion.

The citywide infrastructure account will be divided into four separate accounts, one each for parks, fire stations, libraries and mobility — roads, bike lanes and related projects. ◆