Despite outspoken opposition from local builders and developers, the San Diego City Council on Monday voted 5-4 to boost the size of the housing impact fee, otherwise known as the linkage fee, that it charges developers to pay for affordable housing.
But the developers' worst fears that the impact fee will soon jump by 500 percent or more will not come true — at least not immediately.
Instead, the council introduced several measures to blunt the impact, including phasing in the hike over two years, grandfathering in projects that are already in the permitting pipeline and allowing developers to defer payments until there are tenants on the property.
Interim Mayor and Council President Todd Gloria called it a "reasonable compromise," adding that "if at any time opponents bring in ideas that would generate more money, I would be happy to repeal this and go with that idea."
But the compromise was not enough to prevent the council from splitting along party lines, with the Democratic members in favor of the fee hike and Republicans against.
"I'm very opposed to any compromise," said Councilmember Scott Sherman, one of the most vocal opponents. Sherman warned that raising the fee would create the perception that "now that the economy is getting better, as soon as people get a little money in their pockets, we're going to find a way to take it."
The impact fee is based on a complex calculation of how many low-income jobs per square foot will be created by particular development projects.
"If you don't want to pay the fee, don't create poverty-level jobs," said City Councilmember David Alvarez, who introduced the measure. "It would be ideal if everyone who was creating good jobs was paying good wages, and that way nobody would have to pay the fee."
First set in 1991 at 1.5 percent of then-current construction costs, the fee was chopped in half in 1996 to 0.75 percent of construction costs. And it has never been adjusted to inflation, so it is still assessed based on calculations of how much construction would have cost in 1991.
Originally, the City Council was considering a proposal that would have immediately raised the fee to 1.5 percent of current construction costs, which could have resulted in jumps of 500 percent to 900 percent for some projects, according to critics.
Under the proposal, the fee would rise Jan. 1 to 1.5 percent of 1991 costs. But projects that are still in the permitting pipeline would be exempt from the fee as long as they gain approval by the beginning of the next fiscal year July 1, when the fee would rise to half the difference between 1.5 percent of the 1991 and 2013 construction costs.
On July 1, 2015, the fee would raise to 1.5 percent of the 2013 costs, with annual inflation-related adjustments beginning in 2016.
But City Attorney Jan Goldsmith warned that recent court decisions raise doubts about whether the fee is legal and whether it should be considered a fee or a tax, which could subject it to a citywide vote.
"The risk that we would face, as with all fees, is that we could get sued, and if the court comes to the conclusion that we were wrong, we'd have to give a refund," he said, although he pledged his department would defend whatever rule the council crafted.
In the meantime, the immediate impact of the fee will be delayed, but perhaps not enough to assuage the developers, who fear that it might chase businesses to nearby communities that don't pay the fee.
During more than three hours of public comment, Rick Alexander, head of the Commercial Real Estate Alliance of San Diego, told the City Council that he was representing a 20,000-square-foot project that was trying to attract a Canadian firm.
"Our fees would have jumped from $10,000 to around $100,000," he said. "The landlord doesn't have the money to pay for that. The tenant doesn't. The developer doesn't. So if it was enacted, the Canadian company would just go elsewhere. And if the building was left empty, that doesn't benefit anybody."