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ITEM 9.e. TOWN OF FOUNTAIN HILLS STAFF REPORT Meeting Date: 4/21/2026 Meeting Type: Town Council Regular Meeting Submitting Department: Development Services Prepared by: John Wesley, Development Services Director Staff Contact Information: Phone: 480-816-5138 Email: jwesley@fountainhillsaz.gov Request to Town Council Regular Meeting (Agenda Language) PUBLIC HEARING, with CONSIDERATION AND POSSIBLE ACTION: Relating to Ordinance 26-02, amending Zoning Ordinance Chapter 27, Downtown Overlay, Section 27.02 A. regarding permitted density for residential development. Staff Summary (background) At the September 4, 2024, Town Council meeting, the Council adopted Resolution 2024-28 Approving the Downtown Strategy. This strategy was developed as part of the Council- directed staff effort to implement the 2023 Community Economic Development Strategy and was the culmination of a year's worth of public input. Staff held six focus group meetings with residents and businesses, conducted four electronic surveys and a public open house. Based on the feedback received, the Downtown Strategy focuses on four focus areas: • Land Use • Infrastructure • Economic Vitality • Public Spaces/Placemaking Following Council adoption of the Downtown Strategy, staff began actively taking steps to implement the strategy approved by the Council. Design work has commenced on the infrastructure and construction will begin later this year. Placemaking elements such as the utility box murals have expanded and attracted positive comments. Staff are working with a number of property owners and developers considering projects in the downtown. One of the approved implementation steps was to review the existing zoning for the downtown area and recommend modifications to achieve the goals and recommendations contained in the strategy. Based on this review, staff drafted, the Planning and Zoning Commission reviewed and recommended, and Council adopted Ordinance 25-02, Downtown Overlay District. This new overlay district was approved to replace the two existing overlay districts in the downtown area and put the tools in place to achieve the desired mix of uses for the downtown area. To achieve the goals of the Council's adopted Strategy, the new downtown overlay district includes: • Provisions that direct active retail and entertainment uses to The Avenue; • Maintains the primary non-residential focus of this commercial area; • Removes a roadblock to development by reducing the requirement for Special Use Permits for low-density residential development; • Expands the uses allowed in the Innovation District to encourage employment uses; and, • Provides for temporary uses of vacant properties. Following adoption of the new overlay district, staff initiated the process of rezoning the downtown area to remove the existing overlays and apply the new overlay district. This rezoning action was recommended for approval by the Planning and Zoning Commission at their regular meeting on November 10, 2025. The Town Council held a public hearing on December 18, 2025, for the rezoning. At that meeting, a few residents expressed concern about the provision overlay district that allows up to 35 dwelling units per acre by right on the upper floors of buildings in the Avenue and Business Districts. Based on those concerns, the Council requested that the Planning and Zoning Commission review the ordinance and consider possibly lowering this density. Over the years, staff have had multiple discussions with downtown property owners and individuals interested in developing in the downtown area. Most of those discussions have involved the desire for mixed-use buildings to make the projects financially viable. The property owners and developers staff have talked to believe there is not a strong market for additional commercial uses and activity in the downtown area. To make projects work, it is necessary to add a residential, mixed-use component. Because of the uncertainty and cost associated with processing a Special Use Permit, many property owners have not proceeded with development projects. A goal of the new overlay is to remove an unnecessary hurdle to development by raising the level of residential density allowed by right. With the Town's development regulations, it is important to make the desired development the easy option. By raising the density, any density up to the minimum level becomes easy. If it stays at 8 or is raised to just 15 units per acre, every development will need a Special Use Permit. Once the SUP is required, the developer may as well ask for 40 or 50 units per acre. The discussion by the Planning Commissioners highlighted the point that the density contained in the ordinance is just for the platted lots. Most multi-residential developments will include open space and parking as part of the density calculation. Based on this realization, allowing a density of up to 45 units per acre would result in an overall density for an entire block around 20 units per acre if every lot were developed at the maximum allowed. Based on the previous staff analysis, it would be good to add 400-550 additional dwelling units within the downtown area. At least 300 of these should be in Plat 208. The possible number of units that could be added to the area by density allowance are shown in this table. Dwelling Units/Acre # Units All Lots # Units Vacant Lots Density for Entire Block 15 294 88 6.7 25 468 149 10.4 35 662 208 15 45 920 267 20.9 When averaged over the entire block, as is typical for calculating residential density, the 35 units per acre for a lot, equals out to the 15 units per acre for the entire block. Some members of Council suggested 15 units per acre as an appropriate density before sending this back to the Planning and Zoning Commission. Several projects have been approved in the downtown area with densities in excess of 45 units per acre. The Planning and Zoning Commission reviewed Ordinance 26-02 at a public hearing on January 12, 2026, and followed up with additional discussion at their meeting on March 9, 2026. The Commission members were unable to focus their discussion strictly on the question of density and ended up not recommending approval of the ordinance as drafted and recommended by staff. A couple of citizens spoke to the Commission and expressed the following concerns: • Sales tax dollars will be minimized because most of the renters will be seasonal. At this point, we do not know if the multifamily units will be apartments or condominiums. Based on a recent review of residents in larger complexes in the downtown area, over 90% of the residents are year-round residents. • Having the residential units will thwart the establishment of the downtown "fun zone." The main concern is that residents will not want to live above active restaurant and entertainment uses. Given that the primary "fun zone" area will be along the Avenue and that area is already built, it is unlikely there will be second story residential in this area. Further, anyone moving into a dwelling above an active commercial use will do so know those conditions. • We need goals for the downtown area. There is a vision and a goal established in the Downtown Strategy that Council approved and staff is working to implement. The established vision includes increasing the resident population in the downtown area to increase the general vibrancy of the area, providing places for people who want to live and work downtown, and increasing the customer base for businesses. Pros and Cons of a Special Use Permit (SUP) • SUP's are used to allow consideration of uses that might not always be appropriate in a given zoning district. • SUP's give the public and council the opportunity to review a specific situation and place conditions on approval. • SUP's slow down the development process. • SUP's can discourage development due to the time, cost, and uncertainty associated with the review and approval. • SUP's can and should be used in a manner that will encourage and facilitate the desired development. Summary of this Issue • The ONLY ISSUE before the Council is what density of residential development is allowed by right within the overlay. • The ordinance DOES NOT allow first floor residential in the Avenue District. • The ordinance REQUIRES an SUP for first floor residential in the Business District. • Plat 208 ownership will NOT allow development of the common property. • The Council approved strategies for the improvement of downtown includes increasing residential development in the area. • Any development with a residential component with a density above that set by right will REQUIRE Council approval. It is important that this density be set at a level that will encourage development. • Calculations show around 300 dwelling units should be added in Plat 208. • A density of 45 units per acre would be consistent with other development in the downtown, set a level that encourages development, and meets the target for residential development in the downtown. Related Ordinance, Policy or Guiding Principle N/A Risk Analysis N/A Recommendation(s) by Board(s) or Commission(s) The Planning and Zoning Commission discussed this change to the Overlay District at two meetings. During the first meeting, the Commission Chairperson brought in calculations demonstrating the density should be set at 45 units per acre for the platted lots, but there should be a limit on the density for a block as a whole, just in case conditions changed, and the existing parking area could also be developed. There was additional discussion regarding related matters of the overall design of Plat 208. The Commission continued their discussion to their March meeting. At the March meeting, staff presented a revised ordinance that kept 35 units per acre for the buildable lots, but added a limitation on the maximum density allowed on a total block. Following discussion, a motion was made to recommend approval of the proposed ordinance revision. That motion failed on a 2-4 vote. The effect of the Commission action is to leave the current ordinance allowing 35 units per acre in place. Staff Recommendation(s) Staff recommends maintaining a base allowance for a downtown residential density that will encourage continued investment and development in downtown. At a minimum, the 35 units per acre in the adopted ordinance should be maintained. Staff supports increasing the allowed density to at least 45 units per acre with the provision that the overall density of a block cannot exceed 20 units per acre. Suggested Motion MOVE TO: DENY Ordinance 26-02, which will leave the current ordinance allowing 35 units per acre unchanged. or ADOPT Ordinance 26-02 with the density Council determines is appropriate for Plat 208. FISCAL IMPACT Fiscal Impact: N/A Budget Reference: N/A Funding Source: N/A ATTACHMENTS 1. Draft Ordinance 26-02