TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Scott Agajanian, Economic Development Director
PREPARED BY: Martha Coleman, Management Analyst
SUBJECT:
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Development Impact Fee Reduction for Certain Commercial Lodging Land Uses
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RECOMMENDATION
recommendation
Adopt Resolution No. 25-4869 entitled: A Resolution of the City Council of the City of Murrieta, California, Amending Resolution No. 25-4827 to Create A Tiered Development Impact Fee for Commercial Lodging Land Uses Excluding Time Shares, Short-Term Vacation Rentals and Properties Under Fractional Ownership.
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PRIOR ACTION/VOTE
On December 5, 2006, the City Council adopted Resolution No. 06-1651, adjusting the City’s public facilities Development Impact Fee according to the Dodge Building Cost Index or a comparable index as authorized in the Murrieta Municipal Code (Vote: 5-0).
On September 16, 2008, the City Council adopted Resolution No. 08-2107, creating a tiered Development Impact Fee for Commercial Lodging Land Use in the City of Murrieta
Council (Vote: 4-0-1).
On April 15, 2025, the City Council approved Resolution No. 25-4827, adopting the Development Impact Fee Schedule (Vote 4-1).
CITY COUNCIL GOAL
Aggressively pursue economic development.
BACKGROUND
The City of Murrieta’s (City) current Development Impact Fee (DIF) program was established in 1998, based on a Master Facilities Plan and Development Impact Fee Calculation Report. Since then, the City has modified its DIFs based on updated Master Facilities Plans and Development Impact Fee studies prepared by financial services consultants and adopted by the City Council. Consistent with State law, Murrieta Municipal Code Chapter 16.36 (Development Code) ensures that impacts associated with new development in the City are properly mitigated through the construction of new public facilities and infrastructure and/or the acquisition of land to preserve habitat and open space.
Pursuant to Section 16.36.030 of the Murrieta Municipal Code, a public facilities DIF must be paid for each new building constructed in a non-residential development or new square footage added to a building in a non-residential development, in an amount established by resolution of the City Council, prior to issuance of a building permit for that building. Non-residential developments include commercial, office, and industrial land uses.
The current DIF rate for Commercial Land Use is $13.27/square foot of new building area. This amount applies to all types of commercial zoning, including Regional Commercial, Community Commercial, Neighborhood Commercial, Recreational Commercial, and Professional Commercial. Commercial uses include the general category of retail services and thus include outlets ranging from restaurants to auto repair shops to shopping centers. As such, commercial lodging land uses, such as hotels and motels, currently fall within this category and are required to pay the DIF for Commercial Land Use at a rate of $13.27/square foot per the Fiscal Year 2025/26 Development Impact Fee.
Proposal
Hotels bring visitors to the City who pay Transient Occupancy Tax (TOT) and spend money in local restaurants and businesses, generating Sales Tax, which is one of the City’s primary General Fund revenue sources to provide essential services. To encourage and attract higher quality hotels to develop in the City of Murrieta, staff recommends once again creating a tiered DIF structure for hotels based on the proposed amenities provided by the hotel being developed. The proposed categories are general quality indicators based on the hotel’s amenities, including, but not limited to, business services, food services, hotel features, and room amenities based on the AAA Diamond Rating System. Although the proposed categories are general quality indicators, this rating system is a commonly accepted industry method of quantifying the quality of a hotel or motel in the travel and tourism industry.
Staff recommends the following DIF structure for commercial lodging land uses:
Category IV (AAA Five Diamond Rating): 0% of the Commercial Land Use DIF/square foot
Category III (AAA Four Diamond Rating): 25% of the Commercial Land Use DIF/square foot
Category II (AAA Three Diamond Rating): 50% of the Commercial Land Use DIF/square foot
Category I (AAA Approved Rating): 75% of the Commercial Land Use DIF/square foot
Staff recommends that the City Council adopt the attached Resolution No. 25-4869 to include this proposed tiered DIF structure for commercial lodging land uses into the annual DIF update as adopted by Resolution No. 24-4827, as amended from time to time, to establish an update to the Public Facilities Development Impact Fee Schedule on an annual basis based on the California Construction Cost Index (CCCI). The fee structure is based on a base DIF rate of $13.27 per square foot, with a discount applied for each diamond level the hotel achieves.
Staff evaluated the benefits to the overall community as a result of developing higher-quality hotels. It is anticipated that such hotels will generate an increased amount of: (a) transient occupancy tax, as higher-quality hotels charge higher rates; (b) sales tax, due to the increased sales of goods and services procured by the guests and staff of the hotel; and c) property tax, resulting from increased property values. Additionally, higher-quality hotels will attract other prime developments, further increasing profitable engagement from tourists and business travelers. Encouraging first-rate hotels and developments is consistent with the City Council’s goal of promoting economic development within the community.
The City has determined, based on the 2024 Development Impact Fee Study and Master Facilities Plan conducted by Willdan Financial Services, that the tiered public facilities development fee is proper and bears a reasonable relationship to the expected benefit each category of hotel will provide to the city based on the higher-quality development to be constructed.
Staff will determine the category (I, II, III, IV) to be used in calculating the DIF amount for hotel developments. This decision will be based on the amenities being offered at the proposed hotel, according to the attached AAA Lodging Approval Requirements & Diamond Rating System. A hotel must meet the requirements for each specific category. A developer may apply for reconsideration of the category rating according to the procedures outlined in the City of Murrieta Municipal Code section 16.36.050. Properties excluded from the DIF Reduction Program proposed here include Time-Shares, Short-Term Vacation Rentals, and properties under Fractional Ownership. The final determination of the hotel diamond rating category and the Development Impact Fee will be at the discretion of the Director of Development Services and is appealable only to the City Manager.
FISCAL IMPACT
The City anticipates collecting less total Development Impact Fees (DIF) as a result of the tiered fee amounts for higher-quality hotels. It is also anticipated that higher-standard hotels will generate increased amounts of Transient Occupancy Taxes, along with increased sales and property taxes, which will be offsetting the reduction in DIF. Premium hotels will attract other high-end developments, aligning with the City Council’s goal of aggressively pursuing economic development.
ATTACHMENTS
1. Development Impact Fee Reduction for Commercial Lodging
2. Resolution No. 25-4869