HomeMy WebLinkAboutStaff Report 5.B 12/03/2003CITY OF PETALUMA, CALIFORNIA
AGENDA BILL
Agenda Title: Discussion And Possible Action Regarding The
Meeting Date: December 1, 2003
Adoption Of An Ordinance Implementing An Affordable Housing
Linkage Fee For Nonresidential Development In The City Of
Meeting Time: 3:00 PM
Petaluma
X 7:00 PM
Category (check one): ❑ Consent Calendar ❑ Public Hearing X New Business
❑ Unfinished Business ❑ Presentation
Department:
Director:
Contact Person:
Phone Number:
Economic
Paul Maran ella
Bonne Gaebl
778 -4484 (direct line)
Development
Cost of Proposal: $4,500 (Estimated cost of staff i e and
Account Number: 903 - 400 -5401
materials)
Name of Fund:
Amount Budgeted: $4,500
PCDC Administration
Attachments to Agenda Packet Item:
1. Executive Summary of The Sonoma County Workforce Housing Linkage Fee Study
2. Draft Ordinance
Summary Statement: In March 2001, the City and County governments in Sonoma County jointly
commissioned a study analyzing the connection between commercial development and the demand for
housing created by that development. In particular, the study considered the opportunity to increase
funding for affordable housing through the adoption of fees linked to the creation of jobs. Economic &
Planning Systems (EPS) completed the study, The Sonoma County Workforce Housing oge fee Study
in December 2001. State law requires that development fees of this type be based on an objective
connection or "nexus" between the development activity and the demand the development imposes on the
community.
Recommended City Council Action /Suggested Motion: Discussion And Possible Action Regarding The
Adoption Of An Ordinance Implementing An Affordable Housing Linkage Fee For Nonresidential
Development In The City Of Petaluma
Revie ed bv Finance Director:
Reviewed by City Attorney:
Date:
Approved ky City Manager:
Date:
Date:
x
aToday's ate:
Revision # and Date Revised:
File Code:
#
Commlinkstaffrept
November 15, 2003
CITY OF PETALUMA, CALIFORNIA
DECEMBER 1, 2003
FOR
Discussion And Possible Action Regarding The Adoption Of An Ordinance Implementing An Affordable
Housing Linkage Fee For Nonresidential Development In The City Of Petaluma
1. EXECUTIVE SUMMARY: In March 2001, the City and County governments in Sonoma County jointly
commissioned a study analyzing the connection between commercial development and the demand for housing
created by that development. In particular, the study considered the opportunity to increase funding for
affordable housing through the adoption of fees linked to the creation of jobs. Economic & Planning Systems
(EPS) completed the study, The Sonoma County Workforce Housing Linkage inkage fee Study in December 2001.
State law requires that development fees of this type be based on an objective connection or "nexus" between
the development activity and the demand the development imposes on the community.
2. BACKGROUND: The basic findings of the Workforce Housing Linkage Study, dated December 2001, are
summarized as follows:
• Workforce housing is a countywide issue
• The Sonoma County housing market has become less affordable in recent years
• Future employment growth will contribute to demand for housing at a range of prices
• A job /housing linkage fee could provide dedicated revenues for affordable housing finance:
(1) This fee would generate revenue for affordable housing production based on the nexus
between the increase in jobs among various land use types and the wages paid for jobs in those
different land use types. These relationships have been assessed and quantified in the study and
the resulting fee calculations serve as a starting point for policy discussion regarding the extent
to which these fees can and should be used to generate housing production funds.
(2) As an initial proposal, it was recommended that the jobs /housing linkage fee contribute 10%
of the subsidy needed to provide affordable workforce housing, as calculated over a five year
time period.
(3) The following per- square -foot fees were recommended in the study report. These fees
represent about 10% of the maximum fees justified in the nexus study:
Commercial: $2.08
Industrial: 2.15
Retail: 3.59
The cities and Sonoma County will need to supplement existing resources and develop additional
ones to help meet the housing not met through the linkage fee. The City of Petaluma has in place
four funding sources which can be utilized for the development and preservation of affordable
Housing:
The 20% Low -Mod housing Set -aside Fund (PCDC Requirement)
The Housing In -Lieu Fund (Housing Element Requirement)
Community Development Block Grant (HUD funding)
HOME Program Funds (HCD funding)
However, even with these available sources of revenue for housing, the projected gap in revenue over the
next ten years to address our housing need is $137,000,000. A calculation using the above referenced
proposed fee structure over that ten -year period could fill a portion (approximately $10,920,000) of that
gap.
N
On November 14, 2002 the Mayors' and Council members' Association approved a process for review of the
model linkage fee ordinance by a working group consisting of an elected official and staff person from each city
and the County. Council member Healy and Housing Administrator Gaebler represented the City of Petaluma
on that committee.
In four meetings between February 6 and April 17, 2003, the Working Group conducted a section -by- section
review of the model ordinance and of the options presented in the model ordinance. Participants also identified
issues of particular concern to their agencies from both policy and administrative perspectives. In general,
agency representatives to the Working Group agreed on the concept of flexibility for each agency using the
ordinance. It was noted, however, that the Ordinance was based upon the nexus study and therefore any wide
variances could present a legal problem.
At Council direction, staff worked with the Petaluma Chamber of Commerce Economic Development
Committee to elicit their review and comments. After two meetings, the committee made the following
recommendations:
Phase in the proposed fees. Following that recommendation, staff suggests that one -third of the fee
amount would go into effect on January 1, 2005; the second one -third of the fee would go into effect
on January 1, 2006; and the full amount would go into effect on January 1, 2007.
The fees would be calculated at 50% for any commercial, industrial, or retail development in
the City's two redevelopment areas.
The draft ordinance (Exhibit #2) is based on the model ordinance and modified to incorporate Petaluma's State -
certified Housing Element goals and policies, the findings of a community -based work force housing task force
(which met for a year and produced a report on their findings), and our community's unique 20 -year old
housing program.
3. ALTERNATIVES: (1) Adopt an Ordinance Implementing An Affordable Housing Linkage Fee For
Nonresidential Development In The City Of Petaluma. (2) Modify the ordinance; return to Council with
appropriate changes. (3) Reject ordinance.
4. FINANCIAL IMPACTS: A very brief report on the amount of non - residential development in the City from
1990 -2001 was completed by the General Plan Administration staff. The data reveals that 4,000,000 square feet
of non - residential development occurred during that eleven -year period. A linkage fee averaging $2.60 (the
average of the three levels proposed by the study) would have generated $10,425,000 and the Housing Division
currently leverages our housing funds at a ratio of $10 -12 outside dollars for every local dollar.
5. CONCLUSION: Although the City of Petaluma has a very successful history of addressing its housing goals,
including meeting our Fair Share goals as calculated by the Association of Bay Area Governments, the high
cost of housing in our community has never diminished, even during the recent economic recession. We remain
the 4th least affordable housing market in the country. There are various sources of outside funding available
for very -low income families, seniors and persons with special needs. There are few sources which wiltallow
funding for those working class people who fall between low- income and those who can afford "trophy" homes.
This commercial linkage fee would provide the City with the capability of filling that need in our goal of
serving the broad spectrum of housing needs in the community.
6. OUTCOMES OR PERFORMANCE MEASUREMENTS THAT WILL IDENTIFY SUCCESS OR COMPLETION:
Success will be measured by the number of workforce housing units which are developed utilizing the proceeds
of this linkage fee.
7. RECOMMENDATION: Adopt the draft ordinance.
a
EXECUTIVE SUMMARY
EXHIBIT 1
December 12, 2001
This Draft Report sets forth the preliminary findings of the Sonoma County
Workforce Housing Linkage Fee Study conducted by Economic & Planning
Systems, Inc. (EPS) on behalf of a coalition comprised of Sonoma County and its
nine incorporated jurisdictions. The findings are summarized as follows:
1. Workforce housing is a Countywide issue.
• Sonoma County is unique in the Bay Area region in that the labor force is
highly self contained. Most jobs in the County are held by residents of the
County and most County residents work within the County.
• Commuting into or out of the County, as a percentage of the total
workforce, is relatively minor; however, commuting across jurisdictions
within the County is prominent.
• Some cities are net providers of jobs (i.e., contain more jobs than
employed residents) while other cities and communities serve primarily as
housing locations.
• Communities that primarily provide housing are required by State law
(following
• ABAG's RHND calculations) to provide a disproportionate share of
affordable housing for workers in other jurisdictions.
• Communities that have a higher proportion of jobs to housing typically
benefit from the higher public revenues (e.g., sales taxes) and lower
service costs associated with employment uses, while more housing -
dominated communities may bear higher service costs and receive
comparatively lower public revenues.
• Throughout this report, the term "affordable housing" describes housing
affordable to very low, low, and moderate income households who pay a
maximum of 30 percent of income for housing.
• Many moderate income households cannot afford to purchase median -
priced, single family homes in the County; very few multifamily units are
available (for purchase or rent) that would otherwise provide an affordable
alternative. As a result, families earning up to 120 percent of the median
income may need assistance in securing housing and should be eligible for
G:AHousing \CommLink Exhibits.doc
housing programs funded through the proposed jobs /housing linkage fee
schedule.
2. The Sonoma County housing market has become less affordable in
recent years.
• Housing in Sonoma County has gotten significantly more expensive in
recent years, with every jurisdiction showing similar increases in housing
prices. Moderate income households that could once purchase a single
family home no longer have this option.
• The great majority of homes in Sonoma County are single family detached
residences, which command increasingly high prices. In recent years, the
proportion of Sonoma County homes in the single family detached
category has actually increased, as fewer apartments and other multifamily
units have been constructed.
• While townhomes and condominiums are priced within reach of many
households, few of these units are being produced in Sonoma County, as
is the case in many other communities.
• The rental market in Sonoma County has also become significantly more
expensive. A recent survey of apartment complexes indicates that the
Sonoma County rental market has experienced a 70 percent increase in
rental prices since 1990.
3. Future employment growth will contribute to demand for housing at a
range of prices.
• A very high proportion of future job growth in the County is expected to
occur in relatively low- paying jobs.
• the great majority of new households in Sonoma County associated with
this employment growth will not be able to afford to buy a median priced
home.
• The financial difficulty of buying or renting a home in Sonoma County will
cause employers to pay higher wages and /or cause employees to suffer a
housing cost burden, live in overcrowded conditions to save money, or
commute from outside Sonoma County and thus increase congestion on
Sonoma County roads.
• High housing prices and unavailability of affordable housing options could
reduce the attractiveness of Sonoma County to potential employers,
weakening economic development and job opportunities for the County's
residents.
G:\Housing \CommLink Exhibits.doc
[+
4. A jobs / housing linkage fee could provide dedicated revenues for
affordable housing finance.
• A jobs /housing fee would generate revenue for affordable housing
production based on the nexus between the increase in jobs among
various land use types (e.g., office, industrial, or hotel development) and
the wages paid for jobs in those different land use types. These
relationships have been assessed and quantified in this study, and the
resulting fee calculations serve as a starting point for policy discussions
regarding the extent to which these fees can and should be used to
generate affordable housing production funds.
• As an initial proposal, it is recommended that the jobs /housing linkage fee
contribute ten percent of the subsidy needed to provide affordable
workforce housing (as calculated over a five year time period).
• It is initially recommended that the jobs /housing linkage fee be applied to
three land use categories: Commercial, Industrial, and Retail.
•A fee representing ten percent of the needed subsidy would result in the
following fees per square foot:
Commercial: $2.08 per square foot;
Industrial: $2.15 per square foot;
Retail: $3.59 per square foot.
• If employment growth and associated development occur at their projected
rates over the next five years, jobs /housing fees at the levels listed above
could generate as much as $35.5 million dollars.
• Revenues from a jobs /housing fee would combine with other funding
sources to construct affordable units. Significant annual sources of funds
for housing programs include federal low- income housing tax credits,
CDBG, and HOME funds, and RDA housing set - asides.
• Approximately 22 percent of housing developed in Sonoma County since
1996 has been specifically targeted to lower income households. A total of
2,809 units have been constructed to serve families, seniors, and disabled
residents in very -low, low and moderate income groups. County -wide
jobs /housing fees at the levels proposed in this report could generate
enough funding to construct up to 1,180 affordable units over five years.
These potential units represent the equivalent of 42 percent of affordable
units constructed in the County from 1996 to 2001.
5. Efforts to implement a jobs / housing fee can be enhanced by
cooperative action of local governments and the private sector.
• As part of the implementation process, the cities and County of Sonoma
G:\Housing \CommLhik Exhibits.doc
s
will need to make important strategy decisions regarding level of
jurisdictional cooperation, fee collection, and fee distribution.
• Expanded public /private cooperation will be important to successfully
adopting a jobs /housing fee.
A jobs /housing linkage fee schedule is only one component in achieving
affordable housing goals. Other equally and perhaps more important
factors include the supply of sites suitably zoned for affordable units as
well as community attitudes toward affordable projects.
G:\Housing \ComniLink Exhibits.doc
EXHIBIT 2
AN ORDINANCE IMPLEMENTING A
COMMERCIAL LINKAGE FEE
FOR NONRESIDENTIAL DEVELOPMENT IN THE CITY OF PETALUMA
WHEREAS, the City of Petaluma along with all other cities in Sonoma County and the
County of Sonoma participated in the creation of a study to establish a link between the
continued growth of employment and the need for affordable housing; and
WHEREAS, the City Council has reviewed and considered the findings and conclusions
of the Sonoma County Workforce Housing Linkage Fee Study on which this ordinance is based;
and
WHEREAS, the City Council held a duly noticed public hearing on said fee on October
27, 2003 and December 1, 2003.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
PETALUMA AS FOLLOWS:
Section 1. The Petaluma Municipal Code is hereby amended to add Chapter 17.35
"Affordable Housing Linkage Fee" to read as follows:
Chapter 17.35
Commercial Linkage Fee
17.35.010 PURPOSE.
a. Mitigation of Affordable Housing Impacts Linked to Nonresidential Development. The
purpose of this chapter is to (1) implement the goals and objectives of the General Plan Housing
Element of the City of Petaluma; (2) mitigate the housing impacts caused by new, changed and
expanded nonresidential development in the City of Petaluma; (3) provide housing affordable to
persons who earn between 80 -100% of the area median income. The City Council has
determined that affordable housing requirements are needed, has found the following
requirements to be consistent with its General Plan and, pursuant to Government Code Section
65913.2, has considered the effects of the fee with respect to the City's housing needs as
established in the City's Housing Element, as amended from time to time pursuant to state law.
17.35.020 FINDINGS.
a. Need for Affordable Housing. The City Council has found that persons of low -and
moderate - income are experiencing increasing difficulty in locating and maintaining adequate,
safe and sanitary affordable housing.
b. Housing Needs and Impacts Created by Nonresidential Development. Pursuant to the
Sonoma County Workforce Housing Linkage inkage Fee Study published by Economic and Planning
Systems Inc. in December 2001, the City Council finds that the construction or expansion of
nonresidential development is a major factor in attracting new employees to the City of Petaluma
and the County of Sonoma. A substantial number of these new employees and their families seek
residence in the City and County and place a greater strain on an already impacted housing stock.
Current and new employees who are unable to find affordable housing in the jurisdictions in
which they work are forced to commute long distances. This situation adversely affects their
quality of life, consumes limited energy resources, increases traffic congestion and has a
negative impact on air quality. Employers have or will have problems attracting a labor force
because of the shortage of housing affordable to many workers.
c. Means of Meeting Affordable Housing Demand. Increasing the production and
availability of affordable housing is problematic. Prices and rents for affordable housing remain
below the level needed to attract new construction. At the same time, escalating land costs and
rapidly diminishing amounts of land available for development hinder the provision of affordable
housing units solely through private action. Federal and State housing finances and subsidy
programs are not sufficient by themselves to satisfy the affordable housing needs associated with
employment resulting from nonresidential development. Programs and activities to expand
affordable housing opportunities can be accomplished through public /private partnership action.
It is the purpose of this chapter to establish a feasible means by which developers of
nonresidential development projects assist in (1) increasing the supply of low- and moderate -
income housing and (2) increasing the supply of housing in proximity to employment centers.
d. Imposing Housing Requirement on Developers Whose Projects Create the Need. It is
appropriate to impose some of the cost of the increased burden of providing housing for low- and
moderate - income people necessitated by such development directly upon the sponsors of a
development, and indirectly upon the occupiers. The imposition of an affordable housing unit /fee
requirement is an appropriate means to accomplish the purpose of this chapter. In calculating the
affordable housing unit /fee requirement, the City Council has taken into account other factors in
addition to the simple calculation of contribution. These include impact of the unit requirements
on construction costs, special factors and hardships associated with certain types of development,
and legal issues.
e. Rational Relationship Between. Affordable Housing Need Created and Fee
Requirement. The unit requirements and housing fees contained in this chapter are designed to
create a rational relationship between the amount of housing need created by the land use and the
size of the fee, taking into account the effect of such fee requirement on providing affordable
housing opportunities and the economic feasibility of imposing such requirements.
17.35.030 DEFINITIONS.
As used in this section:
Addition shall mean adding gross square feet to an existing development project or building
subject to this ordinance.
Affordable housing shall mean the total cost of monthly housing payments does not exceed
thirty (30) percent of gross household income.
Changed Nonresidential Development shall mean the transition of existing nonresidential
space from one type of nonresidential use to another or a change from residential to
nonresidential.
City Manager shall mean the City Manager of the City of Petaluma or his/her designee.
Development or development project for purposes of this Chapter shall mean any project
resulting in new, expanded, remodeled, or changed nonresidential development.
Director of Community Development shall mean the Director of Community Development
for the City of Petaluma or his /her designee.
Expanded Nonresidential Development shall mean construction that results in a net increase
in the gross square footage of an existing nonresidential space.
Gross square feet or gross square footage shall mean the area included within the
surrounding walls of a nonresidential development. This area does not include enclosed parking
for vehicles.
Low- and moderate- income shall mean a household with total annual income between 80 -100
percent of the area median income, adjusted for family size, and in accordance with the Area
Median Income Schedule as published annually by the U.S. Department of Housing and Urban
Development for the Santa Rosa MSA.
Nexus Study shall mean the Sonoma County Workforce Housing Linkage Fee Study
published by Economic and Planning Systems, Inc. in December, 2001 as may be amended from
time to time.
Remodeled Nonresidential Development shall mean all interior tenant or owner
improvements to existing nonresidential space.
17.35.040 APPLICATION OF FEE.
a. Determination of Development Projects. The fee requirement shall be applied to
nonresidential development projects involving the construction of a new building, construction
of additional gross square footage to existing nonresidential buildings, interior remodels of
existing nonresidential buildings, or a change in nonresidential use or a change from residential
to nonresidential use in an existing building that increases the number of employees.
b. Determination of Land Uses. For the purposes of, this ordinance, nonresidential land uses
shall be divided into three (3) classifications: commercial, retail, and industrial. Where
necessary, the Director of Community Development shall determine the land use classification
that best describes the nonresidential development, or portion thereof in the case of "Mixed Use"
developments, for the purposes of assigning the fee to be charged.
c. Application of Fee. The fee shall be applied as provided in Sections 17.35.040 (a) and (b)
commencing on January 1, 2005 and shall automatically increase on January 1, 2006 and on
January 1, 2007 as follows:
Effective Date
Commercial Fee
Retail Fee
Industrial Fee
January 1, 2005
$0.69 /square foot
$1.19 /square foot
$0.71 /square foot
January 1, 2006
$1.38 /square foot
$2.38 /square foot
$1.42 /square foot
January 1, 2007
$2.08 /square foot
$3.59 /square foot
$2.15 /square foot
The fee shall be applied to all building permits issued on or after the applicable effective date.
For any "changed nonresidential use" that does not require a building permit, the fee shall be
applied at the time a new business license is issued.
d. Application of Fee in Redevelopment Project Areas. Any nonresidential development as
provided in Sections 17.35.040 (a) and (b) located within the adopted boundaries of a City of
Petaluma Community Development Commission redevelopment project area shall pay a fee
equal to one -half the amount established by the table in Section 17.35.040 (c) or, after January 1,
2007, as may be adjusted from time to time.
17.35.050 FEE CREDIT OR REFUND.
a. Fee Credit. A developer of any project subject to the fee requirement may apply to receive
a credit against the total amount of fees due, or a portion thereof, if said developer provides
affordable housing through some other means agreeable to the City of Petaluma.
b. Refund of Fee. If the affordable housing fee is paid and the building permit is later
canceled or voided, or the permit which triggers the application of the fee fails to vest within the
terms of said permit, the Director of Community Development may, upon written request of the
developer, order return of the fee if (1) the fees paid have not been committed, and (2) work on
the private development project has not progressed to a point that would permit commencement
of a new, changed, or expanded use for which a fee would be payable.
17.35.060 USE OF FEES.
a. Use and Disbursement of Monies in the Fund: Monies collected pursuant to this Chapter
shall be used in accordance with and in support of activities to implement the City's adopted
Housing Element, Consolidated Plan, and Implementation Plan. Activities shall be limited to
direct expenditure for the development of affordable housing as defined herein or incidental non-
capital expenditures related to such projects, including but not limited to land acquisition,
applicable pre - development costs, construction, rehabilitation, subsidization, counseling or
assistance to other governmental entities, private organizations or individuals to expand
affordable housing opportunities to low- and moderate - income households. Monies in the fund
may be disbursed, hypothecated, collateralized, or otherwise employed for these purposes from
time to time as the City Council so determines is appropriate to accomplish the purposes of the
affordable housing fund. These uses include, but are not limited to, assistance to housing
development corporations, equity participation loans, grants, predevelopment loan funds,
participation leases, loans to develop affordable housing or other public /private partnership
arrangements. The affordable housing funds may be expended for the benefit of both rental or
owner - occupied housing.
b. Accounting of Fees. All fees shall be deposited into a segregated account and all
expenditures of funds from the same shall be documented and available for public inspection
during regular business hours.
17.35.070 EXEMPTIONS.
a. Public facilities, public and private schools, and churches are exempt from the provisions
of this section.
17.35.080 FEE ESCALATORS.
a. After January 1, 2007, this fee shall be annually increased to reflect the percentage
increase in the cost of construction or public improvements as reported in the Engineering News
Record - Construction Price Index for the San Francisco Bay Area.
b. This fee may be adjusted from time to time, based upon amendments or updates to the
Nexus Study, or based on any other data and analysis which the City Council determines to be
applicable to the continued establishment of this fee.
Section 2. All code provisions, ordinances, and parts of ordinances in conflict with the
provisions of this ordinance are repealed. The provisions of this ordinance, insofar as they are
substantially the same as existing code provisions relating to the same subject matter shall be
construed as restatements and continuations thereof and not as new enactments. With respect,
however, to violations, rights accrued, liabilities accrued, or appeals taken, prior to the effective
date of this ordinance, under any chapter, ordinance, or part of an ordinance shall be deemed to
remain in full force for the purpose of sustaining any proper suit, action, or other proceedings,
with respect to any such violation, right, liability or appeal.
Section 3. The City Cleric is hereby directed to post /publish this ordinance for the period
and in the manner required by the City Charter.
Section 4. This ordinance shall take effect thirty (30) days after its passage.
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