The Fresno City Council on Thursday approved a hotly disputed tax on new homes and apartments even as city staff worked out the complex rules on the dais.

While the first city council meeting about the vehicle miles traveled (VMT) tax surrounded how home prices would be affected, the meeting on Thursday drew business owners asking how much more it will cost them to build.

Investor and developer Kanwal Singh said during the meeting the VMT program pushes Fresno backwards by “double-taxing” projects.

“If this passes as written, the math stops working. I will leave my land as is and halt the planned projects and move my investment to the neighboring cities where I can build with reasonable rules, not roadblocks,” Singh said at the meeting.

Granville Homes President and CEO Darius Assemi said he asked for a workshop about how VMT will be applied so property owners could know how their projects would be affected.

“It is unfortunate that for one of the largest tax hikes for new development in the city of Fresno had a very poor rollout and outreach not only to developers, but contractors and property owners,” Assemi said. “As a result, council had to debate the merits of the items in open session and city attorneys had to scramble to come up with answers.”

Editor’s Note: Assemi is the publisher of GV Wire

Related Story: Will Fresno Raise Taxes on New Homes and Businesses?

Commercial ‘Almost Entirely Ignored,’ City Attorney Says

The city’s VMT rules exempt small- and medium-sized commercial buildings, but large shopping centers — those more than 50,000 square feet — could be heavily taxed, depending on where in town they are built. While developers will be responsible for those fees, the increased costs will ultimately fall on consumers.

Most city councilmembers tried to accommodate business owners by proposing changes such as delaying when the tax is collected. The council had to delay discussion on the matter twice while Fresno City Attorney Andrew Janz’s office figured out whether the proposals would be legal.

When he returned with a solution, he said the rules about commercial construction were hazy, so attorneys deferred to what other California cities are doing with VMT.

“What was curious was commercial was almost entirely ignored,” Janz said of the city’s plan.

Despite Fresno City Council President Mike Karbassi asking to put off the decision until the next meeting to figure out the intricacies, other councilmembers were ready to approve the rules. Councilmember Tyler Maxwell said he wanted the rule approved that day.

Fresno City Council approved its VMT plan 4-2-1, with Karbassi and Councilmember Nick Richardson opposed. Councilmember Miguel Arias was absent.

“I really believe later on, if this passes, folks are going to say ‘these are the unintended consequences,’ but we’ll see what happens. I’m not prepared to pass this today,” Karbassi said.

2,925 Homes Stalled Without VMT Plan: Rose

The state’s VMT policy took effect in 2020 as a way to encourage infill development and lower how far people have to drive to shop, go to school, and work.

Cities around the state have been figuring out how to apply the state’s new complex rules, with some ignoring them, California Building Industry Association President Dan Dunmoyer told GV Wire in a previous interview.

Homebuilders, however, say they have been waiting on the city’s VMT rules. There are 2,925 homes stalled in the area because the city had not come up with a VMT plan, said Darren Rose, president and CEO of the Building Industry Association of Fresno Madera Counties.

Karbassi questioned those numbers, saying it wasn’t city council holding up those projects.

“Not having a policy in place adds risks and unknowns which complicate financial decisions by these builders,” Rose said.

He said without a plan, builders have to do costly environmental reviews that also raise home prices. Assemi previously said that large, master-planned communities have to do environmental reviews regardless. He said projects with homes next to shopping and schools — the kind VMT policy was supposed to encourage — should have lower fees.

The city’s plan reduces fees for new homes built next to shopping and job centers, but the amount is project specific, said City Manager Georgeanne White.

The city’s VMT plan could raise the price of new homes by more than $10,000 in some areas. Still, Planning Department Director Jennifer Clark said at the meeting that the city “chose a less stringent threshold than the state required.”

The city’s baseline VMT fee is $295, lower than many other cities in the state, attorneys told GV Wire in previous interviews. When multiplied based on VMT analysis, the new tax could be thousands to tens of thousands per home or apartment unit in Fresno.

Experts Have Trouble With City’s VMT Formula

Developer Jay Virk, who spoke at the meeting, said the city’s formula was so complex “even I have a hard time understanding.”

White told councilmembers that VMT calculations on new construction were highly variable and required project-specific information.

Still, Virk, who said he found out about the new proposal two weeks before the meeting, said he wanted to get analysis on existing projects rather than speculation because builders need to know how much rent to charge tenants.

One city example for a retail project at Fresno and Nees avenues — close to the city core — estimated a $950,000 assessment.

“Based on the other fees that are on there, it’s almost a 50%, 60% increase on commercial retail development,” Virk said.

Councilmember Richardson proposed a couple of different ideas — including delaying payment of the tax until a builder finds a tenant — but the city attorney’s office recommended against that plan.

The councilmember said the city needs to inform the public better about changes.

“I don’t think I’m opposed to the bones of the plan. I think that when it comes to the merits of it, I think there’s some solid foundation for this,” Richardson said. “The level of information to the public isn’t there based on what I’ve heard.”