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San Jose Approves Commercial Development Fees for Affordable Housing

By Carly Wipf, San Jose Spotlight
SAN JOSE (CBS SF) -- After more than five years of stalled talks, San Jose plans to start charging commercial developers fees to fund affordable housing - a move housing advocates said is long overdue.

Following hours of debate past the 12 a.m. curfew on Sept. 2, the City Council implemented the controversial fees in a 7-4 vote. Councilmembers Raul Peralez, Magdalena Carrasco, Maya Esparza and Sylvia Arenas opposed, arguing that fees should be higher.

Under the new plan, office developers with projects more than 100,000 square feet will have three fee options: $12 per square foot if paid upon the certificate of occupancy, $15 per square foot if paid in phases or no fee if the developer agrees to build affordable housing.

The fee amounts were proposed by Mayor Sam Liccardo, Vice Mayor Chappie Jones and Councilmembers Lan Diep, Dev Davis and Pam Foley in an Aug. 28 memo, and they were higher than those proposed by city housing and economic development officials who recommended $10 per square foot for downtown office developments with 100,000 square feet or more and $5 per square foot for outside of downtown.

Supporters of the fees say that as commercial developments, such as the massive Google campus planned for downtown, bring more jobs to the city, the need for additional affordable housing will increase. The commercial linkage fee will offset the cost of building that housing, but opponents worried the fee would deter development, especially considering the economic fallout from COVID-19.

"This fee helps us be able to build the much needed affordable housing and that is something we know we have been failing in," Peralez said. "We really want to push the limit - not too far, but push it to where it needs to be to address the concerns we have today."

For projects less than 100,000 square feet, the council decided the first 40,000 square feet will have a $0 fee, with a cost thereafter of $3 per square foot.

Sandy Perry, executive director of the Affordable Housing Network of Santa Clara County, called the proposed fees a public relations stunt and said San Jose leaders would be at the behest of Google and other developers if they adopted such a low fee.

"Any fee that's lower than the fees listed in the Nexus Study is, by definition, a plan to aggravate and worsen the San Jose housing and displacement crisis," Perry said. "The fees proposed in the mayor's memo are so low they will displace thousands of San Jose residents - especially black and brown residents."

Councilmember Dev Davis posed a counterargument against critics who called a low fee a giveaway to developers.

"Commercial development and businesses employ our residents and they also provide crucial tax revenue that goes to fund the services our residents demand and deserve," Davis said. "We're not giving away anything when we say we want businesses to come here and employ our residents."

Councilmember Johnny Khamis, who initially opposed the fee, asked that retail buildings, senior living facilities and hotels be exempt for the first three years. He also suggested small business projects be spared 50,000 square feet in fees. The council will explore Khamis' suggestions.

Eddie Truong, director of government and community relations at the Silicon Valley Organization, called the study outdated and said it could deter development and job growth amid the pandemic. He suggested reducing office development fees to $3 per square foot and excluding retail, hotel and residential care developments.

"All three industries are struggling hard during the coronavirus recession," Truong said.

Retail developers fees will be $0, regardless of their size, due to increased retail vacancies during the pandemic.

While fee critics cited COVID-19 as a reason to give businesses a break, Jimenez argued there will never be a right time to implement fees. If the economy was booming, he said, opponents would say the fees would slow down growth.

"What we do know is that many of the families that will benefit from the money are going to continue to struggle unless we do something," Jimenez said. "There is no perfect time. We need to move forward with this."

The council will explore allowing incentives such as fee reductions for developers who choose to build affordable housing right away and will create an additional fee structure for projects above one million square feet in the future - which may or may not affect Google.

City officials said Google has agreed to pay whatever affordable housing fees it's charged, but also noted that the tech titan has agreed to a slew of other community benefits.

Councilmembers called for a future feasibility study in two years to monitor the impact of the fees in an economy recovering from COVID-19.

© Copyright 2020 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. Bay City News Service contributed to this report.

This story originally ran on San Jose Spotlight.

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