Commercial Linkage Fee Research In March, Staff met with the City Council Housing Subcommittee to discuss the topic of housing displacement and potential policies that can relieve the stress on the housing market, such as establishing a Commercial Linkage Fee. Commercial Linkage Fee Research City of San Carlos | October 2016

Bay Area Policies That Seek to Address Housing Displacement Tools Currently Adopted in San Carlos Condominium Conversion Regulations Transit-Oriented Development Incentivized Land Use Controls Affordable Housing Impact Fees Tools Adopted in Other Bay Area Jurisdictions Community Benefits Agreements Rent Stabilization Just Cause Eviction Commercial Linkage Fees These are a few of the tools that are used to protect residents from displacement. The underlined are ones that the City of San Carlos currently has adopted Have an annual limit on the number of condo conversions to keep existing apartments on the market Encourage transit oriented development Provide City density bonuses And have adopted a Below-Market-Rate program that mitigates the impacts of market rate residential development Other municipalities have Community Benefits requiring developers to provide certain goods to neighborhoods Rent stabilization limiting the amount a rent can increase for certain units Just cause eviction clauses s to limit spurious evictions And Commercial Linkage Fee Programs City of San Carlos | Commercial Linkage Fee Research | October 2016

Since 2000, new development in San Mateo County was 84% commercial; this rate for the City of San Carlos was 92%. * New development has been predominantly Commercial in San Carlos and has Source CoStar; City of San Carlos City of San Carlos | Commercial Linkage Fee Research | October 2016

There is a significant affordability gap between the salary required to afford a one bedroom unit in San Mateo County and the average salary of several sectors. * Source: San Mateo County Housing Leadership Council; City of San Carlos City of San Carlos | Commercial Linkage Fee Research | October 2016

There is a significant affordability gap between the salary required to afford a one bedroom unit in San Mateo County and the average salary of several sectors. $63,450 Affordability Gap 30.8% Projected Job Growth * Source: San Mateo County Housing Leadership Council; City of San Carlos City of San Carlos | Commercial Linkage Fee Research | October 2016

Commercial Linkage Fee Nexus Study Study required by law to determine an “essential nexus” & “rough proportionality” of a project and a fee. Quantifies linkage between new commercial square feet and demand for affordable housing. Sets a legally-defensible, “Maximum Justified Fee” level for the fee program. The City’s Nexus Study was conducted as part of a Countywide Nexus Study by 21 Elements. * City of San Carlos | Commercial Linkage Fee Research | October 2016

Maximum and Recommended San Carlos Commercial Linkage Fee Levels * City of San Carlos | Commercial Linkage Fee Research | October 2016

Commercial Linkage Fees are typically charged on a net-new, per square foot basis. Most San Mateo and Santa Clara County cities have only adopted the fee in recent years. With the exception of Palo Alto, Commercial Linkage Fee programs, are very new on the Peninsula Each jurisdiction structures its program slightly differently, charging different fee levels on different land uses. In all cases, a nexus study isconducted to determine what the appropriate fee level for a given city is. It takes into account total development cost, and acceptable financial returns to the developer to ensure that the fee level does not stop development in the City. The San Carlos Nexus Study recommended the City adopt the fee at $15 for Hotel $5 for Retail/Restaurant/Services $20 for Office/R&D/Medical Office Staff and the Housing Subcommitee agreed that reducing the fee to $10 for hotel would keep the City competitive with nearby jurisdictions. Source: 21 Elements; City of San Carlos City of San Carlos | Commercial Linkage Fee Research | October 2016

Palo Alto’s Utilization of Fee Revenues for Affordable Housing Production “The goal and purpose of this chapter is to lessen the shortage of low-income and moderate-income housing in Palo Alto by requiring developers of large commercial and industrial projects, as a condition of using land for the privilege of development, to contribute to programs that increase the city's low-income and moderate-income housing stock.” (1984, Ordinance 3560 § 1)   Palo Alto constructed 377 new affordable housing units over 24 years of their program (an average of 15 units per year). Palo alto was one of the first cities to adopt a Commercial Linkage Fee Program (1984) in Northern California. Source: City of Palo Alto City of San Carlos | Commercial Linkage Fee Research | October 2016

Potential Revenue Stream from Fee Program The 2030 General Plan estimated commercial growth from 2008-2030 to be about 3,437,200 SF. San Carlos could support construction of an estimated 75 affordable units from projected Commercial Linkage Fee revenues. * Being a fee that is calculated on a per project basis, it is difficult to estimate the exact amount of potential revenue. However, if the 2030 General Plan commercial growth figures are used as an assumption, it is estimated that the commercial linkage fee program could provide nearly $23.7 million in revenues for the production of affordable housing. This would translate into roughly 75 affordable housing units. City of San Carlos | Commercial Linkage Fee Research | October 2016

Options For City Council Consideration Should there be a fee exemption for particular uses (e.g. religious buildings, non-profit space, hospitals, etc.)? Housing Subcommittee and Staff recommend exemption. Should there be a fee exemption or reduction for buildings of less than a certain size? Staff and Housing Subcommittee recommend 5,000 SF or less Economic Development Advisory Committee (“EDAC”) recommend 10,000 SF of less The following jurisdictions exempt certain projects: Menlo Park: 10,000 SF or less County of San Mateo: 3,500 SF or less Redwood City: 5,000 SF or less Should the City provide a 25% fee reduction for projects employing prevailing wage? Staff and Housing Subcommittee recommend this reduction. EDAC did not recommend this reduction. Should developers be given an option to build housing units (either on- or off-site) and/or dedicate land instead of paying the linkage fee? Housing Subcommittee did not recommend this option be given. EDAC recommends this option be given. As was mentioned earlier, jurisdictions can tailor their programs to best fit the local community. As such, a few options are being presented to City Council to be considered for a potential fee program. (read 1-4) City of San Carlos | Commercial Linkage Fee Research | October 2016

Next Steps Study Session Regarding Commercial Linkage Fee Ordinance on October 10th Council Meeting Potential First Reading of the Commercial Linkage Fee Ordinance on October 24th Council Meeting Potential Second Reading of the Commercial Linkage Fee Ordinance on November 14th Council Meeting City of San Carlos | Commercial Linkage Fee Research | October 2016

Questions? City of San Carlos | Commercial Linkage Fee Research | October 2016