In an unusual move that reflected Palo Alto's shifting political dynamics, the City Council reversed on Monday night its December decision to significantly raise the fees that office developers must contribute to support affordable housing.
Instead, a divided council voted 5-4 to adopt a new schedule that lowers the affordable-housing fees for certain types of developments -- including offices and hotels -- from the previously approved levels. While in most cases, the fees would still be higher than those currently on the books, the increase is in some cases far more modest than what was approved by the prior council in December.
The vote followed the council's usual ideological division, with those supporting more development voting to lower the fees for offices and those favoring a slow-growth approach favoring the fee structure that was approved by December. But with the pro-growth side now enjoying a narrow majority, it was their proposal that carried the day, with Councilman Adrian Fine leading the way.
The biggest change concerns office and research-and-development projects, which currently get assessed an affordable-housing fee of $20.37 square foot. The council in December moved to raise it to $60 per square foot, a decision that was informed by a extensive studies by staff and consultants. On Monday night, the council's more growth-friendly wing, which consists of Mayor Greg Scharff, Vice Mayor Liz Kniss, Adrian Fine, Greg Tanaka and Cory Wolbach, moved to enact a less steep increase, setting the new office rate at $35 per square foot.
The council also rolled back a December decision to raise the housing impact fees for hotels from $20.37 to $30 per square foot, leaving it at its previous rate.
At the same time, the council raised the fees that would be charged for detached single-family homes from the previously approved level of $50 to $75 per square foot. For condominiums and attached single-family homes, the fee would be $50 per square foot, the same level that was adopted in December.
The council's change of course on affordable-housing fees was made possible by the vagaries of its calendar. When the council approves an ordinance, it typically has to formally adopt it at a subsequent meeting on what is called a "second reading." Though the second reading is usually a formality, in this case it occurred in January, shortly after the new council was sworn in. Led by Fine and Greg Tanaka, who was also elected in November, the council then moved to reopen the issue and take fresh votes, effectively nullifying the December ordinance before it ever had a chance to kick in.
Fine, who reviewed the ordinance last year as a member of the Planning and Transportation Commission, said he and others were worried that the city was moving too quickly on the fees -- which help fund affordable-housing projects -- and that it hasn't "reached the sweet spot" for encouraging fees without discouraging development. He also argued that the fee of $60 per square foot that the council adopted in December is too high and made a pitch for reducing it to $35.
"We don't want to use fees to punish development or halt office growth," Fine said.
The four dissenting voters -- Lydia Kou, Tom DuBois, Karen Holman and Eric Filseth -- all supported sticking with the December changes. Once Kou's motion to do that failed, they made several other attempts to adjust the fee schedule, with each failing by the same 5-4 vote. In each case, they were outvoted by Mayor Greg Scharff, Vice Mayor Liz Kniss, Fine, Tanaka and Cory Wolbach.
While Fine crafted the bulk of the new motion, Scharff made a few significant contributions. One was raising fees for single-family homes to $75 per square foot, up from $50 that was approved in December and supported by Fine. But he agreed with Fine that the council went too far when it raised the fees for office projects to $60 per square foot, far higher than in any neighboring jurisdiction.
DuBois supported the higher fees that were approved in December, arguing that properties developed in Palo Alto bring in a greater return on investment than in other cities. The city, he said, is facing impacts from all these developments and the higher fees will create opportunities for more affordable housing, an amenity that every council member agrees is sorely needed.
"I don't think the council should be focused on serving developers," DuBois said. "We should be serving voters, we should be trying to get affordable housing."
But Scharff called the $60 fee that the council approved for office projects in December "outrageous."
"I actually think the notion that we should make policy and incentivize not having office through a fee structure and not zoning is inappropriate," Scharff said. "What you want to do is be judicious and not move in a radical way. Going from $20 to $60 is a radical and not judicious movement in my view."
But those in the slow-growth camp all took issue with the newly proposed fee structure, which makes fees for detached single-family homes twice as high as for office developments. Filseth, Holman and Kou all agreed with DuBois that this sends the wrong message, with Kou calling Fine's proposal "disingenuous." But Holman's proposal to raise fees for office developments to $50 per square foot faltered by the familiar 4-5 tally.
While unusual, the decision to reverse an already approved decision wasn't particularly surprising in this case. Scharff, Kniss and Wolbach had all voted against the December ordinance and Tanaka and Fine – their political allies during the November election -- had each expressed concerns about it as members of the Planning and Transportation Commission.
For DuBois, Holman and Filseth, all of whom had voted in December on the new fees, the Monday vote was a disappointing reversal. Filseth called the new schedule worse than the one that was on the books before the December vote (and which – because of the lack of a second reading – is still on the books). Holman was blunt in her assessment.
"I think this really is a step backward," she said.