1. Implementing SB 1525: An Update Cheyenne Walsh Squire Sanders (US) LLP Government Finance Officers Association of Arizona Winter Conference Prescott, Arizona February 20, 2014

2. Dec. 21, 2013 Publish IIP *no more than 60 days Feb. 17, 2014 First Public Hearing (IIP) Mar. 19, 2014 Adopt IIP/Notice of Intent to Assess DIF Apr. 18, 2014 Second Public Hearing (DIF’s) May 18, 2014 Final Action on DIF Aug. 1, 2014 Effective Date 60 Day Notice 30 Day Waiting Period* Min.30 Day Notice Period 30 Day Waiting Period* 75 Day Delayed Effective Date TIMELINE TO IMPLEMENT SB 1525 BY AUGUST 1, 2014 DEADLINE Phase III Phase IV

3. Where You Should Be Today At this point, you should have completed the following:  Phase I: – Update development fee ordinance to reflect the new requirements of SB 1525 (required as of Jan. 1, 2012)  Phase II: – Develop land use assumptions and Infrastructure Improvements Plan (“IIP”) – This includes determining which fee categories will be assessed, defining service areas, calculating need and growth assumptions, etc. – IIP published and ready for first public hearing 3

4. Then What? Assuming your IIP is complete:  Phase III: – Land use assumptions and IIP must be published for public comment within 60 days of completion (on your website) – Put together your Advisory Committee (if you choose this option) – First public hearing (on the IIP) – Adopt land use assumptions and IIP  Phase IV – Notice of intent to assess a Development Impact Fee (“DIF”) posted – Advisory committee – Second public hearing (on DIF) – Adopt DIF 4

5. Phase III- The IIP Adoption Process Publish land use assumptions and IIP 60 day waiting period Advisory committee comments First public hearing 30-60 day waiting period Formally adopt land use assumptions and IIP 5

6. Phase IV- The DIF Adoption Process Notice of intent to adopt a DIF  Cannot be published until the IIP is adopted  Can be done on the same day as IIP adoption Minimum 30 day waiting period Advisory committee comments Second public hearing 30-60 day waiting period Formal adoption 75 day delayed effective date 6

7. Advisory Committee The advisory committee is a stakeholder group required by statute to be made up of:  Five members  50% from the real estate, development, or building community – At least one homebuilder  No municipal employees Must be appointed and procedural rules for the committee must be adopted prior to:  Proposed or updated land use assumptions  IIP and/or  New or modified development fees Alternative: biennial audits of land use assumptions, IIP, and development fees  Must be done by qualified professionals  Cannot be same professional that created the fee study  Public comment and public hearing required 7

8. Grandfathering Timing:  Commercial, industrial, or multifamily developments: 24 months from final development approval (site plan or subdivision plat)  Residential developments: 24 months from the date the first building permit is issued under an approved site plan or subdivision plat No new fees or increases in existing fees may be assessed during the grandfathering period  Decreases in fees must be applied, however Automatic fee indexing is prohibited  Instead, can include expected inflation in fee calculations Tracking applicable fees by development  Suggested approach: Issue written “frozen” fee schedule to developer at the time of the grandfathering period trigger with the 24 month expiration date clearly noted  If number of service units increases, the increased or new fees may be applied to those additional units 8

9. Notice and Reporting All notices, reports, and documentation relating to DIFs must be published on the municipality’s website  If the city does not have a website, it may publish with the League of Arizona Cities and Towns Annual Reports  The annual reporting requirement was expanded to include: – Each service area addressed – Debt service obligations for any facility for which DIFs are a source of funding, and the time frame to repay these obligations – Funds advanced by the municipality that will be repaid from DIFs, including the source of funds and the terms of repayment 9

10. Other Considerations Right to immediate service  Use of development agreements and IIP Refunds  For DIFs collected after July 31, 2014, fees must be refunded for infrastructure not completed within the time frame specified in the IIP, not to exceed 10 years (15 years for water infrastructure) Credits  Required whenever a developer provides NPS that was included in the IIP or will substitute for infrastructure in the IIP  Transferable credits are not required Offsets  Only “new” requirement is offsets for certain portions of construction sales tax  Must continue to offset taxes, fees, assessments, or other revenues attributable to new growth that will be used to pay for NPS included in the IIP 10

11. Using Existing Fee Revenues For fees collected for a purpose no longer authorized by the statute:  Continue to spend for the purpose for which the fee was collected  Spend in the same “category” of NPS If not expended by January 1, 2020, the statute requires that the monies be distributed equally among the remaining fee categories  This is likely unconstitutional- so spend the money! 11

12. Changing Course without Amending IIP Can alter planned infrastructure without amending the IIP where:  The alteration addresses only infrastructure in an existing IIP AND – Changes will not, individually or cumulatively with other amendments, increase the level of service in a service area; OR – Cause an increase in the DIF greater than 5% when a new or modified fee is assessed as a result of the changes to the IIP  Notice of such amendments must be published 30 days prior to adoption, and the advisory committee must be informed. IIP and land use assumptions must be reviewed or updated at least every five years  If an update is necessary, the public hearing process must be utilized before the expiration of the five-year period  If an update is determined to be unnecessary, notice of this determination must be given, and the city or town must provide a process for written objections to be filed 12

13. Roundtable Discussion QUESTIONS? Cheyenne C. Walsh cheyenne.walsh@squiresanders.com 602-528-4013 13