A proposal in Palo Alto to sharply raise the fees that developers would have to pay to support affordable housing faced significant scrutiny and criticism Wednesday, with several planning commissioners and housing advocates making the case that the change may actually hinder the city's efforts to make progress on the increasingly urgent issue.
The ordinance would make the city's impact fees much higher than those of any other municipality in the region. Developers of office space would be charged triple the current fee, from $20.37 per square foot to $60.
For the first time, developers of rental housing would have to pay an affordable-housing impact fee, a notion that met with stiff opposition from the Planning and Transportation Commission. No one was more passionate than Commissioner Kate Downing, who called the proposal "outrageous."
The proposed fee ordinance came as a recommendation from the City's Council Finance Committee, but given the large number of questions and concerns about the proposal, the commission unanimously agreed Wednesday not to endorse the ordinance just yet. Instead, the commission debated the merits and drawbacks of changing the fees, requested more analysis and agreed to continue its discussion on Aug. 31.
In addition to the hike for the fee charged to developers of office projects, the rate for hotel developers would go up from $20.37 to $30 per square foot, while for retail and restaurant developers it would remain at its current level of $20.37.
The ordinance would also change how the city collects fees from developers of housing projects. Currently, the impact fee for a new housing development is between to 7.5 percent to 10 percent of the sales price of the new homes (the city collects the fee after the sale). The new proposal would change it to $50 per square foot, which Planning Director Hillary Gitelman said would make the collection process easier.
Perhaps the most significant proposal concerns rental housing. While the city requires for-sale housing developments to ensure 15 percent of their units are below market rate, no such requirement exists for rental projects (a 2009 court case determined that requiring rental housing to provide below-market-rate units would violate the state's Costa Hawkins Act). With the change, rental housing would be subject to an impact fee of $50 per square foot to pay for affordable housing.
In approving the proposal by a 3-1 vote on June 21 (with council members Eric Filseth, Karen Holman Cory Wolbach supporting it and Greg Schmid dissenting), the Finance Committee took the position that the higher fees would help the city address one of its most intractable problems: a housing shortage that, when combined with soaring rents, is making it difficult for many longtime residents to remain.
But on Wednesday night, planning commissioners took a different view, arguing that the higher fees would be counterproductive.
"Honestly, looking at the fee increases and how massive and aggressive they are, I can't help but feel like everything (here) is about: How do we not build any more housing ever again in Palo Alto?" Downing said.
She noted that the council is not considering more significant proposals that would increase affordable housing, such as allowing more height or density for projects that offer such housing. She also noted that since she joined the commission in November 2014, she has not seen a single multifamily housing project come before the commission. She also questioned whether the impact fees, once collected, would even be used for affordable housing.
"We have a City Council that trembles at the thought of a four-story apartment building," Downing said. "Even with all the money in the world, I do find it incredible that we'll spend it on affordable housing."
Even some of the city's biggest proponents of affordable housing had trepidation about the proposed changes. Staff from the Palo Alto Housing Corporation, the nonprofit that manages affordable-housing developments and oversees the city's below-market-rate program, suggested that the high fees would simply halt development. In most nearby cities, impact fees for office development hover around $20 per square foot. In Menlo Park, the fee is $15, with an exemption for buildings of 10,000 square feet or smaller; in Cupertino it's $20; and in Mountain View it's $25.
"It is our belief that this ordinance will discourage developers from building in Palo Alto when the fees are significantly lower in other jurisdictions," said Lauren Bigelow, the Housing Corporations' below-market-rate program administrator. "At that point, we lose housing on site and we lose the affordable-housing fund."
Bonnie Packer, board member at the Housing Corporation and president of the League of Woman Voters of Palo Alto, submitted a letter on behalf of the League, making a similar case. The letter posed several questions, including: Will the proposal to impose fees on rental housing cause the high rents in Palo Alto to become even higher, making it even more expensive to live here? If a developer wants to claim that building affordable units would be too great a financial burden, and thus pay the fee instead, are the requirements of proof so onerous as to discourage all types of development and thus reduce the sources for these funds and units?
The commission ultimately agreed that it can't answer these questions without more information and asked that staff further analyze how the fees would impact the housing fund and production of housing.
Commissioner Michael Alcheck also proposed a "sunset" clause on the fees and a guarantee from the city that public funds would be used to subsidize affordable housing if the fund becomes depleted.
"I do feel as a city we could participate in a great way, regardless of the impact fees collected, in subsidization of affordable housing," Alcheck said.