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To support affordable housing, Palo Alto hikes developer 'impact fees'

City Council moves to increase fee from $39.50 to $68.50 per square foot

Construction workers gather at the site of a future mixed-use building at 2515 El Camino Real on April 2, 2020. Photo by Gennady Sheyner.

Commercial builders in Palo Alto will have to pay significantly more to support the city's affordable housing projects after the City Council voted on Monday night to hike up the city's "impact fees."

In a vote that harkens back to one of the council's deepest political divisions of the past decade, the council voted 5-2 to raise the city's impact fees for commercial and research-and-development projects from the current level of $39.50 per square foot to $68.50 per square foot.

Supporters of the change argued that the change is necessary to address the impacts of commercial growth on the region's housing stock, particularly when it comes affordable housing. Council member Eric Filseth, who led the charge on raising the fees, suggested that Silicon Valley has profited fabulously from the technology boom while failing to make the types of investments in housing and transportation that are necessary to ensure long-term prosperity. Requiring tech firms to contribute more for affordable housing is a way to address that, he maintained.

"If we're going to do this sustainably in the long run … then we and all the peer cities need to get out of kick-it-down-the-road mode and get into a mode where if we build something, we're upfront about true impacts and we've got a regular process in place for funding those," Filseth said.

The debate is far from new. In 2016, the City Council voted to significantly raise impact fees for affordable housing only to see its decision overturned in 2017 by a narrow majority of the newly elected council. Instead of raising the fees from $20.37 to $60 per square foot, as was originally proposed, the council voted 5-4 to set the fee at $35 per square foot (it had since gone up to $39.50).

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Filseth, Mayor Tom DuBois and council member Lydia Kou were all in the minority during the 2017 vote and all had supported going back to the larger amount. They pointed to Santa Clara County, which had adopted a fee of $68.50 for affordable housing when the Board of Supervisors reviewed Stanford University's plans to expand academic space and argued that it's time to revisit the issue.

In June, Filseth and Kou submitted a colleagues memo that made the case for raising the fee and cited the various projects that had benefitted from the city's affordable housing fund, including the preservation of Buena Vista Mobile Home Park and Wilton Court, a 58-apartment complex for low-income families and individuals with development disabilities that is currently being constructed.

"Since demand for housing, including housing affordable to low- and moderate-income residents, is driven primarily by job growth, it makes sense to fund Affordable Housing subsidies from that job growth, through commercial development impact fees which reflect that impact," the memo states.

Not everyone is convinced that the new fees are a good thing. Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, suggested that the fee proposal, coupled with the city's existing caps on commercial development and its exploration of a new business tax, would hinder the city's business community.

"And if companies do leave or downsize their operations due to these taxing measures, the city will not only lose tax revenue but also restaurants and hotels that rely on revenues generated by employees and business travelers will be significantly impacted," Weidanz said.

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Stanford University has also expressed concerns about the higher rate. Jean McCown, associate vice president for government affairs, noted in a letter that most neighboring cities have much lower affordable housing impact fees, generally between $15 and $30 per square foot. Redwood City has a fee of $20, while Menlo Park has a fee of $18.

"A significantly higher fee is likely to discourage types of businesses that could be desirable to have in Palo Alto — such as capital-intensive businesses in a variety of research and development fields that contribute to a stable economic ecosystem," McCown wrote. "We are concerned that increased fees might result in less investment and partnership in Palo Alto."

Council member Greg Tanaka, who was part of the 2017 majority that reversed the council's 2016 action, shared her concerns. He pointed to Tesla's recent decision to move its headquarters to Austin and suggested that the city's startup culture is suffering.

"I think it's a real wake-up call that innovation is leaving our city and it's not something to be taken for granted," Tanaka said. "By making it harder and harder to do business in our city, we're going to lose this innovation.

"Some might think that Palo Alto is always going to be the most desirable place to be and that's simply not true."

While council member Alison Cormack joined him in dissent, the rest of the council supported the higher fee, which is based on a nexus study that the city had recently commissioned from its consultant, Strategic Economics. Vice Mayor Pat Burt recalled the council's debate over fees in 2016 and 2017 and argued that by nullifying the higher fee increase, the council majority had hindered the city's ability to support affordable housing.

"Millions of dollars for affordable housing was lost because of the reversal of what was then described as a 'pro-development' council majority that came into office in 2017 and cost our community huge amounts in ability to fund affordable housing," Burt said. "I'm glad this council … is going to be committed to help fund this affordable housing like it needs to be done."

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To support affordable housing, Palo Alto hikes developer 'impact fees'

City Council moves to increase fee from $39.50 to $68.50 per square foot

by / Palo Alto Weekly

Uploaded: Tue, Oct 19, 2021, 12:09 pm

Commercial builders in Palo Alto will have to pay significantly more to support the city's affordable housing projects after the City Council voted on Monday night to hike up the city's "impact fees."

In a vote that harkens back to one of the council's deepest political divisions of the past decade, the council voted 5-2 to raise the city's impact fees for commercial and research-and-development projects from the current level of $39.50 per square foot to $68.50 per square foot.

Supporters of the change argued that the change is necessary to address the impacts of commercial growth on the region's housing stock, particularly when it comes affordable housing. Council member Eric Filseth, who led the charge on raising the fees, suggested that Silicon Valley has profited fabulously from the technology boom while failing to make the types of investments in housing and transportation that are necessary to ensure long-term prosperity. Requiring tech firms to contribute more for affordable housing is a way to address that, he maintained.

"If we're going to do this sustainably in the long run … then we and all the peer cities need to get out of kick-it-down-the-road mode and get into a mode where if we build something, we're upfront about true impacts and we've got a regular process in place for funding those," Filseth said.

The debate is far from new. In 2016, the City Council voted to significantly raise impact fees for affordable housing only to see its decision overturned in 2017 by a narrow majority of the newly elected council. Instead of raising the fees from $20.37 to $60 per square foot, as was originally proposed, the council voted 5-4 to set the fee at $35 per square foot (it had since gone up to $39.50).

Filseth, Mayor Tom DuBois and council member Lydia Kou were all in the minority during the 2017 vote and all had supported going back to the larger amount. They pointed to Santa Clara County, which had adopted a fee of $68.50 for affordable housing when the Board of Supervisors reviewed Stanford University's plans to expand academic space and argued that it's time to revisit the issue.

In June, Filseth and Kou submitted a colleagues memo that made the case for raising the fee and cited the various projects that had benefitted from the city's affordable housing fund, including the preservation of Buena Vista Mobile Home Park and Wilton Court, a 58-apartment complex for low-income families and individuals with development disabilities that is currently being constructed.

"Since demand for housing, including housing affordable to low- and moderate-income residents, is driven primarily by job growth, it makes sense to fund Affordable Housing subsidies from that job growth, through commercial development impact fees which reflect that impact," the memo states.

Not everyone is convinced that the new fees are a good thing. Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, suggested that the fee proposal, coupled with the city's existing caps on commercial development and its exploration of a new business tax, would hinder the city's business community.

"And if companies do leave or downsize their operations due to these taxing measures, the city will not only lose tax revenue but also restaurants and hotels that rely on revenues generated by employees and business travelers will be significantly impacted," Weidanz said.

Stanford University has also expressed concerns about the higher rate. Jean McCown, associate vice president for government affairs, noted in a letter that most neighboring cities have much lower affordable housing impact fees, generally between $15 and $30 per square foot. Redwood City has a fee of $20, while Menlo Park has a fee of $18.

"A significantly higher fee is likely to discourage types of businesses that could be desirable to have in Palo Alto — such as capital-intensive businesses in a variety of research and development fields that contribute to a stable economic ecosystem," McCown wrote. "We are concerned that increased fees might result in less investment and partnership in Palo Alto."

Council member Greg Tanaka, who was part of the 2017 majority that reversed the council's 2016 action, shared her concerns. He pointed to Tesla's recent decision to move its headquarters to Austin and suggested that the city's startup culture is suffering.

"I think it's a real wake-up call that innovation is leaving our city and it's not something to be taken for granted," Tanaka said. "By making it harder and harder to do business in our city, we're going to lose this innovation.

"Some might think that Palo Alto is always going to be the most desirable place to be and that's simply not true."

While council member Alison Cormack joined him in dissent, the rest of the council supported the higher fee, which is based on a nexus study that the city had recently commissioned from its consultant, Strategic Economics. Vice Mayor Pat Burt recalled the council's debate over fees in 2016 and 2017 and argued that by nullifying the higher fee increase, the council majority had hindered the city's ability to support affordable housing.

"Millions of dollars for affordable housing was lost because of the reversal of what was then described as a 'pro-development' council majority that came into office in 2017 and cost our community huge amounts in ability to fund affordable housing," Burt said. "I'm glad this council … is going to be committed to help fund this affordable housing like it needs to be done."

Comments

ALB
Registered user
College Terrace
on Oct 19, 2021 at 2:15 pm
ALB, College Terrace
Registered user
on Oct 19, 2021 at 2:15 pm

How curious that Cormack, Tanaka and McCowan are always on the other side. The fee increase is long over due.


mjh
Registered user
College Terrace
on Oct 19, 2021 at 5:08 pm
mjh, College Terrace
Registered user
on Oct 19, 2021 at 5:08 pm

Could it be if Alison Cormack and Greg Tanaka have ambitions for running for higher office it is necessary to pander to certain non-resident interests? Using election to the Palo Alto Council as a jumping off point is certainly a tried and true practice.


rsmithjr
Registered user
Duveneck/St. Francis
on Oct 19, 2021 at 5:34 pm
rsmithjr, Duveneck/St. Francis
Registered user
on Oct 19, 2021 at 5:34 pm

I am concerned that the funds collected for affordable housing through this proposal will be diverted to some project the city regards as more important. I really don't believe that the city considers this important.

The city doesn't want to allocate city funds to affordable housing, they want someone else to pay. In this case, it is the developers who will supposedly pay, but once the city gets the funds, will the city actually use it for affordable housing?

Look at the trouble we are having getting the city to pay back the utility monies that the court has ruled the city did not have the right to take.


Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 19, 2021 at 5:51 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 19, 2021 at 5:51 pm

mjh is of course right that Cormack and Tanaka are pandering to the deep-pocketed developer and tech whales at our expense. Then they can join Berman in claiming those petty little details are just too too complicated to bother with.

Have you noticed that whenever Cormack wants to stall something, she refers it right back to staff even though or BECAUSE staff has ignored most of the details in favor of the developer? Remember the Town & Country "medical retail" conversion proposal she backed so long and so strongly and staff failed to even DEFINE what "medical retail" was??

"Oh please, let's stop discussing these pesky details of compensating homeowners for the damage done to THEIR properties. Let's ask staff. Please. Mr. Shikada /Mr. Lait, what's YOUR take on this? Don't you think we need to ask the builders/developers business what they think their liability should be!"

Innumerable other examples abound.


RPopp
Registered user
Monroe Park
on Oct 20, 2021 at 10:41 am
RPopp, Monroe Park
Registered user
on Oct 20, 2021 at 10:41 am

The result of this will not be a significant increase in funds for affordable housing - Developers or land-owners wishing to make improvements will just go elsewhere as this fee, on top of all the other costly processes, analysis, and protracted timeframes for working in Palo Alto, combine to limit the viability of work here. The collateral damage this unbalancing will create should be interesting to observe...


Anonymous
Registered user
Duveneck/St. Francis
on Oct 20, 2021 at 11:35 am
Anonymous, Duveneck/St. Francis
Registered user
on Oct 20, 2021 at 11:35 am

Palo Alto has always been a successful, prosperous suburban city adjacent to Stanford.
Industries here have attracted educated talent (after orchards died)
It is mostly built out. Roads are filled.
Expecting to cram in many “affordable” units or subsidized units is ridiculous. The premise is childish, those favored selective..
Politicians penalize PA for being an educated, successful employment center. They ought to thank us for supplying a huge world class Tech economy, WE pay huge income taxes.
Most people change jobs - especially in recent decades - so notion that housing must be supplied close nearby is silly.
Why should we taxpayers supply housing (except for documented disabled)?
Teachers, for example, make good money here.
How about infilling and building up the spread-out city of San Jose?? Land is far cheaper and there are multiple transit options and expressways. San Jose has not fulfilled its potential by any means.
What’s more, I oppose the whole premise of taxpayer subsidized, complicated housing with ever more bureaucracy and formulas for eligibility.
Paying people to stay home, to have more kids they can’t support, reward of “basic income” - all these premises are misguided.
We have plenty of government and charitable support for those in temporary need, which is appropriate.
I don’t owe anything to those who’ve broken the Law and entered this country illegally.
Live where you can afford; improve your education and credentials (community colleges are all over and very affordable).
I’d love to live in Pacific Palisades but can’t afford it. Should I demand half my rent in a new building be paid for by taxpayers there!?
Don’t kill the golden goose, politicians. All developers are not the enemy. Like anything - they vary.
Common sense local zoning control must be reinstated (I expect a voter initiative after politicians who ill represent citizens and legal residents homeowners of CA gleefully passed the deceptive SB 9 and 10).


William Hitchens
Registered user
Mountain View
on Oct 20, 2021 at 2:29 pm
William Hitchens, Mountain View
Registered user
on Oct 20, 2021 at 2:29 pm

Isn't new housing already far too expensive for renting and ownership??? This is NOT a zero sum game.


mjh
Registered user
College Terrace
on Oct 20, 2021 at 2:46 pm
mjh, College Terrace
Registered user
on Oct 20, 2021 at 2:46 pm

Commercial space in Palo Alto contributes only 25% of Palo Alto's property tax, continuing to fall year on year.

Forty years ago the property tax revenue was split approximately 50%-50% between residential and commercial. Legal "sweetheart" deals allow commercial property to change ownership without being a technical sale, thereby avoiding a new property tax assessment as occurs when a residential property changes hands.

In addition, most office space does not produce a product which generates a sales tax for Palo Alto. However, every additional square foot of new office space drives the demand for a place to live on an ever upward trajectory.


mjh
Registered user
College Terrace
on Oct 20, 2021 at 2:49 pm
mjh, College Terrace
Registered user
on Oct 20, 2021 at 2:49 pm

I do find it quite funny when the likes of council member Greg Tanaka and Alison Cormack try to pull the wool over our eyes. With all seriousness argue the imposition a higher fee will put Palo Alto at a disadvantage by driving development to neighboring cities. Because all Palo Alto is doing is bringing our housing fee into line with these other cities!


tmp
Registered user
Downtown North
on Oct 20, 2021 at 6:56 pm
tmp, Downtown North
Registered user
on Oct 20, 2021 at 6:56 pm

Even at the current level the fee is not nearly enough. The rule should be - add a job, build a house!! That is all we need. No more jobs without a house being built by the employer.

This fee isn't going to scare any developers away. They are always clamoring to build stuff here and whining about the fees and how they need to build it higher to make it "pencil out". This is all just part of developer shenanigans to get more height and more density and more PROFIT, which is all they care about. The city should stick to our size and height limits, never give them anything extra and charge them as much as we can until we can force them to build their own worker housing.


Evan
Registered user
Crescent Park
on Oct 22, 2021 at 4:37 pm
Evan, Crescent Park
Registered user
on Oct 22, 2021 at 4:37 pm

Fees will rise until prices fall. What could go wrong!


It'sJustUgly
Registered user
Palo Verde School
on Oct 22, 2021 at 5:12 pm
It'sJustUgly, Palo Verde School
Registered user
on Oct 22, 2021 at 5:12 pm

There is no free lunch.

The fees the City imposes on developers simply results in even MORE expensive housing. The fees don't come out of the developer's pocket...it becomes part of the development soft project costs.

So on the path to finding more affordable housing, the City is doing just the opposite...making housing more expensive to build.

If you want more affordable housing, the City must SIMPLIFY the development process. The less time it takes to get a project approved, the less expensive it is to build.

It's easy to pick on Cormack and Tanaka for being against the proposal, but at least they see the damage all of these outragous fees do to the cost of building housing in Palo Alto. The other council members are either pandering or have insufficent understanding of economics to make a well informed decision.


Native to the BAY
Registered user
Old Palo Alto
on Oct 24, 2021 at 6:05 pm
Native to the BAY, Old Palo Alto
Registered user
on Oct 24, 2021 at 6:05 pm

Quote: "Council member Eric Filseth, who led the charge on raising the fees, suggested that Silicon Valley has profited fabulously from the technology boom while failing to make the types of investments in housing and transportation that are necessary to ensure long-term prosperity." Really?! Hello local taxes are meant to do this. Capitalism is not a democratic value but taxes are -- Kou, Filseth and DuBois are killing any chance at affordable housing here. Three for three: Tax, tax, tax the rich and greedy, not dump on the poor and needy.


Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 24, 2021 at 6:40 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 24, 2021 at 6:40 pm

In this case, Filseth is absolutely right. Workers outnumber residents about 4:1 or 5:1 so their workers and their buses disproportionately use the roads and other resources while they spend multi-millions of dollars lobbying to deny gig workers benefits and a living wage -- or even pay a business tax! -- while sticking US with the costs of providing for the homeless and to house their workers, often while discriminating against US workers.

Big tech uses more contractors than employs full-time workers with benefits, a figure that's steadily rising. And a few days ago Facebook was found guilty of discriminating against US workers in favor of cheap foreign contractors and ordered to pay $14,000,000 Web Link got sued for and settled for

WASHINGTON — Facebook is paying a $4.75 million fine and up to $9.5 million to eligible victims to resolve the Justice Department's allegations that it discriminated against U.S. workers in favor of foreigners with special visas to fill high-paying jobs."

(Looking for that cite, I see they've got similar lawsuits against them in Europe, too)

When reading about Google and Facebook "funding" housing projects, compare the number of new jobs with the new housing units. There's always more jobs than housing units. And then look at the neighborhoods displaced for their new offices and the number of moderate/low income housing units lost and THEN check out the net gain/loss of truly BMR housing units!

Eric's sure right.



Tecsi
Registered user
another community
on Oct 25, 2021 at 12:14 pm
Tecsi, another community
Registered user
on Oct 25, 2021 at 12:14 pm

@tmp: Great comment: "The rule should be - add a job, build a house!! That is all we need. No more jobs without a house being built by the employer".

You connected the key dots: offices and housing. Thanks.

Interested to connect with you. Can you email me at: [email protected]?


GaleJohnson
Registered user
Adobe-Meadow
on Oct 25, 2021 at 6:10 pm
GaleJohnson, Adobe-Meadow
Registered user
on Oct 25, 2021 at 6:10 pm

Wrangle, wrangle, wrangle!

My gut feeling is to go with the increase. I wish there was an equivalent city to compare with, one that has experienced this same situation, but unfortunately there is probably no other city that matches PA’s model. The opponents are supporting the idea that the companies that have benefited from having a PA address, and that have caused the problems, don’t have any responsibility in sharing the cost of that privilege, and in trying to solve the problems. Let’s see if all the doom and gloom predictions come true. I’m a skeptic and I trust the PACC members who brought this forward for a vote.

Worst case scenario could be a good case scenario for some of us old time residents, if we’re willing to see our property values drop dramatically, reverting back to the 50’s-60’’s-70’s,..before the commercial growth and high tech brought all the opportunities, wealth, and subsequent problems, to our community. We’ve benefited in some ways (net worth) but suffered in other ways. It’s up to our diverse community of citizens (generations, wealth. race, and cultures) to figure out the right path.going forward.


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