Fremont City
California

Staff Report
3138

COMMERCIAL LINKAGE FEE - Public Hearing (Published Notice) to Consider the Planning Commission's Recommendation to Approve a Zoning Text Amendment Establishing a Commercial Linkage Fee for Affordable Housing (Adding Chapter 18.156 of the Fremont Municipal Code) (PLN 2017--00256). The proposed project is an implementation measure of the adopted General Plan for which a final Environmental Impact Report (EIR) (SCH#2010082060) was previously prepared and certified, and, therefore, no further environmental review is required. CONTINUED FROM JUNE 6, 2017 CITY COUNCIL MEETING

Information

Department:Community DevelopmentSponsors:
Category:Affordable Housing

Item Discussion

Executive Summary: As an implementation measure of the Housing Element of the General Plan, the City joined with several other jurisdictions in Alameda and Santa Clara counties to commission a study evaluating the nexus between commercial (non-residential) development and affordable housing and the feasibility of instituting a linkage fee.  Based on the results of the study, the recommendations of the consultant, and feedback received during public outreach, staff developed the proposed Zoning Text Amendment that would establish a commercial linkage fee.  The Planning Commission voted on April 27, 2017 to recommend Council adoption of the proposed Zoning Text Amendment.  The Planning Commission also voted to recommend to Council an initial fee effective January 1, 2018 of $2/sq. ft., increasing to $3/sq. ft. on January 1, 2019, and $4/sq. ft. on January 1, 2020, with annual indexed adjustments thereafter.  The recommendation includes a two-year exemption from the fee for corporate headquarters and for Class A office in the Warm Springs Community Plan area, as well as limiting the fee to the first 100,000 square feet per building for advanced manufacturing facilities.  At its May 15th meeting, the Human Relations Commission also voted to recommend that Council adopt the staff recommendation.  Staff recommends that Council adopt the proposed Zoning Text Amendment and the accompanying resolution for the reasons set forth in the report. 

Body

BACKGROUND: Fremont currently imposes an affordable housing fee on residential development, but not on non-residential development.  The Housing Element of the General Plan (adopted in December 2014) includes Action 3.01-G, Commercial Linkage Fee, which states that the City “will evaluate its fee structure to determine feasibility for a commercial linkage fee and proceed with Nexus Study.”  (Under state law, a commercial linkage fee can be imposed only if there is a demonstrable nexus between commercial development and the need for affordable housing).  The proposed time frame for performing this study was 20152017.

 

In late 2015, the City joined with 10 other agencies in Alameda and Santa Clara counties to conduct a multi-jurisdictional nexus study.  This coordination ensured that consistent methodologies were used, and also provided the City with savings on the study due to economies of scale.

 

The final nexus study for Fremont, prepared by the economic consulting firm Keyser-Marston Associates (KMA), was issued in October 2016 (Exhibit “B). The study showed a nexus between non-residential development and affordable housing that ranged from $48$279 per square foot, depending on the product type.  However, KMA noted that the legally supportable nexus amount was not a recommended fee level, since fees at the legally supportable level would likely make non-residential development cost-prohibitive.  KMA instead analyzed the fee level that could be imposed without inhibiting development, taking into account the local market for different product types and the total burden of development fees in Fremont compared with neighboring jurisdictions.  Based on that analysis, KMA recommended a fee ranging from $2-$8 per square foot, depending on product type.

 

Staff conducted a public outreach meeting on March 6, 2017, and also presented the results of the study to the Economic Development Advisory Commission, and to the Government Affairs Committee of the Chamber of Commerce.  Based on both the input received and also on staff analysis of the consultant recommendations, staff developed a draft Zoning Text Amendment and fee resolution that recommended a fee of $4 per square foot for all product types that would be phased in between January 1, 2018 and January 1, 2020.  Staff also recommended some limited exceptions to the fee as described later in the report.  On April 27, the Planning Commission voted 3-2 to recommend the Zoning Text Amendment drafted by staff (minutes from the Planning Commission meeting are included as Exhibit “C”).  On May 15, the Human Relations Commission also voted to recommend that the City Council adopt the staff recommendation (minutes from the Human Relations Commission meeting are included as Exhibit “D”).

 

DISCUSSION/ANALYSIS: The proposed Zoning Text Amendment would add a new Chapter 18.156 entitled “Affordable Housing for Nonresidential Developments” that includes:

 

·         A basic requirement imposing an affordable housing fee per square foot on all nonresidential developments exclusive of parking garages, trash enclosures, equipment yards, exterior arcades, and atriums; and instituting annual increases based on a construction cost index (provided the resulting fee is at or below the allowable fee pursuant to the nexus study).

·         Exemptions from the basic requirement for governmental and other public purpose buildings such as hospitals and utility districts; and for additions of less than 1000 square feet.

·         Alternatives to payment of the fee including construction of affordable housing or property dedication for affordable housing.

·         A requirement that fees generated under the ordinance be used exclusively to acquire, construct, develop, rehabilitate, and/or finance affordable housing, and for administering these programs.  No more than five percent of the fund may be used for direct administrative costs. 

·         A provision allowing the City Council to enact exemptions or reductions of the fee by resolution.

In its report, KMA recommended fee levels of $2-$4 per square foot for retail, light industrial and warehouse development; and fee levels of $4-$8 per square foot for office, research and development, hotel, and manufacturing.  Staff is recommending that all non-residential development be charged the same fee of $4 per square foot.  A uniform fee is easier to administer, eliminates disputes regarding definitions (for example, light industrial vs. R&D vs. manufacturing), and eliminates the need to recover additional fees if uses change over time.  The proposed fee is within the range recommended by the consultant for all product types.

 

In addition, staff is recommending a January 1, 2018 effective date and then a phase-in period of two years to reach the full fee level. This is a similar approach to that used for the affordable housing fee for residential development, which was also phased in over a two year period.  The phase-in period lessens the financial impact on projects that were conceived and financed prior to the adoption of the fee.

 

Economic Development Considerations

Subsequent to the publication of the nexus study, staff received numerous comments from the development community suggesting that a fee would serve as a disincentive to specific types of development that the City has previously sought to promote.  After careful consideration, staff is recommending three exceptions to the fee, as described below:

 

·         Class A Office Space in Warm Springs Community Plan Area—Two Year Exemption

The City Council has identified achieving the vision of the Warm Springs Community Plan as one of its top priorities.  An important component of that vision is the establishment of a cluster of Class A office space in the Community Plan area, in order to achieve employment goals and further drive retail and hospitality amenities.  Because Class A office space is unproven in that sub-market, staff is recommending that no linkage fee be assessed on Class A office space in the Community Plan area until January 1, 2020.  This exemption would have the benefit of encouraging Class A office development prior to that date, helping to establish the market. 

 

·         Corporate Headquarters Operations—Two Year Exemption

Given the City’s thoughtful planning efforts in Warm Springs/South Fremont and Ardenwood, Fremont has an opportunity to attract one or more headquarters offices of major corporations.  Attracting such operations would have a significant effect on Fremont’s business “ecosystem” and would also generate substantial property tax and business-to-business sales tax for the City.  These tax revenues would assist in bolstering all City services, including those supporting low-income residents.  As a way to encourage large corporations to choose Fremont as their headquarters, staff is proposing an exemption from the fee until January 1, 2020. 

 

·         Cap on Square Footage of Advanced Manufacturing Buildings Subject to Fee

Advanced manufacturing is a pillar of Fremont’s Economic Development Strategy and results in significant and ongoing property investment.  The ability for developers to recoup investment is more limited based on the rent structure for advanced manufacturing space, which is driven by low margins.  In addition, although it is reflected to some extent in the KMA study, advanced manufacturing is characterized by extremely large spaces with relatively few employees, thus having relatively less impact on the need for affordable housing.  Staff is therefore recommending a per building cap on the fee, where the fee is charged only on the first 100,000 square feet of space.

 

General Plan Conformance

 

The proposed Zoning Text Amendment stems directly from goals, policies and actions laid out in the Housing Element of the General Plan.

 

GOAL 3: Encourage the Development of Affordable and Market-Rate Housing in Order to Meet the City’s Assigned Share of the Regional Housing Need Allocation (RHNA).

 

Very Low Income

1,714

31%

Low Income

926

17%

Moderate

978

18%

Above-Moderate

1,837

34%

Total RHNA:              

5,455

100%

 

POLICY 3.01 Be creative and a leader in identifying and leveraging available funding resources in order to provide the maximum amount of affordable housing.

 

Action 3.01-G:  Commercial Linkage Fee

The City will evaluate its fee structure to determine feasibility for a commercial linkage fee and proceed with Nexus Study. 

 

The proposed fee exceptions are intended to reflect policies and actions laid out in the Economic Development Element of the General Plan. 

 

POLICY 6.1.1. Increasing the Tax Base.   Encourage economic development that generates sales tax, property tax, and other revenues that help sustain municipal services.

 

POLICY 6.1.2.  Fremont as a Business-Friendly Community.  Promote Fremont as a business-friendly community and location of choice for a broad range of business types. 

 

POLICY 6.1.3.  Business Recruitment/Retention.  Through business-friendly policies, recruit new businesses and retain existing businesses that provide revenues to the City and jobs to the community.

 

Implementation 6-1.3.B:  Fee/Tax Impacts on Business Attraction/Retention

Consider the impact of establishing new or revising existing fees and taxes on business attraction and retention.

 

Implementation 6-3.2.C:  Private Reinvestment

Consider measures to encourage private reinvestment in vacant or underutilized industrial land to adapt such property to changing economic needs. 

 

CITY FEES

 

The fee structure being proposed by staff is as follows:

 

Table 1 (Summary of Basic Requirements)

 

 

January 1, 2018

January 1, 2019

January 1, 2020

All Non-Residential Projects

Affordable Housing Fee1, 2, 3,

$2.00

$3.00

$4.00

 

     Each January 1st thereafter

--  Rates Indexed4 --

 

1Fee per gross square foot exclusive of parking garages, trash enclosures, equipment yards, exterior arcades, and atriums.

 

2Class A Office space within the Warm Springs Community Plan area only and Corporate Headquarter Offices citywide shall be exempt from payment of this fee through January 1, 2020.

 

3Advanced Manufacturing buildings shall only pay for the first 100,000 gross square feet of space within the building

 

4Based upon Engineering News Record Building Cost Index for San Francisco but no higher than justified by the Nexus Study.

 

FISCAL IMPACT: The proposed fee will generate revenues that will be used to construct new affordable housing.

 

ENVIRONMENTAL REVIEW:  A Final Environmental Impact Report (EIR) (SCH#2010082060) was previously prepared and certified for the General Plan.  The proposed Commercial Linkage Fee is an implementation measure of the General Plan Housing Element and the proposed exemptions are consistent with policies of the Economic Development Element.  As such, no further environmental review is required.

Document Comments

RECOMMENDATIONS:

1.              Hold public hearing.

2.              Find the proposed Zoning Text Amendment is an implementation measure of the General Plan for which an Environmental Impact Report was prepared and certified and that no further environmental review is required.

3.              Find that the proposed Zoning Text Amendment is consistent with the General Plan as described in the staff report.

4.              Find that the proposed Zoning Text Amendment furthers the public interest, convenience, and general welfare of the city as described in the staff report.

5.              Adopt the findings contained in the Affordable Housing Nexus Study dated October, 2016 regarding the impacts of non-residential development on the need for affordable housing.

6.              Introduce an ordinance approving the proposed Zoning Text Amendment as set forth in the Draft Ordinance (Exhibit “A”).

7.              Adopt a Resolution approving an amendment to the Master Fee Schedule regarding commercial linkage fees for affordable housing.

8.              Direct staff to prepare and the City Clerk to publish a summary of the ordinance.