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Housing fee threatened with litigation, referendum

San Diego business leaders are reacting angrily to the City Council's decision last week to boost a housing impact fee requiring developers to help pay for affordable housing for the low-income workers who will be employed at their projects.

A letter from former Mayor Jerry Sanders, in his current role as president and CEO of the San Diego Regional Chamber of Commerce, warned of the possibility of lawsuits or a public referendum to overturn the measure, which will over the next two years raise the fee to 1.5 percent of current construction costs, or roughly five times higher than it is today.

"We are disappointed that the City Council disregarded the concerns of jobs creators and their constituents by adopting this counterproductive tax increase on job creation," read a letter signed by Sanders and Chamber Chairman Mike Niggli, the president and chief operating officer of San Diego Gas & Electric. "We will fight to defend the jobs that San Diego’s working families depend on from this jobs-killing tax.”

The letter warned that the San Diego Jobs Coalition, a group that was formed by the chamber and other business groups in the region, "will weigh options, including litigation and possibly referendum, in the coming days."

But Interim Mayor Todd Gloria, who led the 5-4 majority vote for the fee, defended raising the impact fee, which is officially the Workforce Housing Offset.

"For the first time in 17 years, the City Council has provided an appropriate funding stream for San Diegans who have jobs but struggle to afford to live here,” he said.

The offset was originally levied in 1991 to reflect 1.5 percent of construction costs, after a calculation to determine how many low-income workers per square foot would be employed at the developed project. Projects that mostly or totally employ high-paid workers can apply for an exemption or reduction of the fee.

The fee was chopped in half in 1996 and has never been adjusted for inflation, so the current fee is set at 0.75 percent of costs calculated at 1991 levels. "This is a fee that people have tried to avoid since I was in high school," said Gloria, who graduated from Madison High School in Clairemont in 1996.

On Monday, the council voted to raise the fee to 1.5 percent of 2013 costs in phase-in ending on July 1, 2015. The fee would not rise for companies whose projects are in the pipeline for approval by July 1, 2014, and developers would be able to defer payment on the fees.

In addition, the council will consider an amendment proposed by Council President Pro Tem Sherri Lightner to exempt some nonprofits — such as hospitals and universities — after hearing objections from executives from the Hospital Association of San Diego, Scripps Health and the University of San Diego.

Her amendment will be heard Nov. 21, when staffers from the city attorney's office will present a cleaned-up version of the proposal including last-minute changes that were proposed last week but were not translated into appropriate legalese.

The San Diego Housing Commission estimates that when the fee hike is fully implemented, it will generate an additional $8 million to $10 million per year for affordable housing, translating to 80 to 100 additional units per year.

The package is similar to one that was proposed in 2011, which would have gradually phased in the fee hike through 2017. That measure lost on a 5-4 vote, but only after then-Council President Tony Young said he would vote “no” on the condition that the business community come up with a better proposal for generating funds for affordable housing.

Gloria referred to Young's offer when the fee increase was passed, 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."

Even after the fee is raised, it will be much lower than existing fees in such cities as San Francisco, Oakland, Los Angeles, Sacramento, Seattle or Boston, which range from $8 to $16 per square foot, compared to the current 75 cents or so per square foot that most San Diego developments pay. A jump to 500 percent of current costs would raise that to $3.75 to $5. But critics warn that at some developments, the fee could rise by closer to 900 percent.

Most developers and other business leaders at Monday's meeting made clear they would be unhappy with any hike to the fee, especially since San Diego is the only jurisdiction in the county to charge such a fee.

"This really punishes businesses we should be bending over backward to attract," said land use attorney Neil Hytenin. "A lot of my clients are in competition with places like Carlsbad or Poway, and this would put those cities at a competitive advantage."

Architect John Ziebarth warned that the fee would boost the price of one current 34,000-square-foot project by around $100,000, compared to the $22,000 fee that is currently assessed on the project to support education. "I support affordable housing," he said, "but do we really want to say it's five times more important than our schools?"

But City Councilmember David Alvarez, who brought the fee proposal to the council, said that developers can avoid the fee by concentrating on projects that bring in higher-paying jobs.

The Jobs Coalition's first step may be the courts. City Attorney Jan Goldsmith said recent court decisions have created a higher hurdle for impact fees than existed in 1991, although he said his office would be committed to representing the fee once it is fully passed by the council.

Deborah Rosenthal, a real estate lawyer with Sheppard Mullin Richter & Hampton, echoed that theme when speaking before the City Council on Monday, saying that the court decisions implied that the fee was both illegal and unconstitutional.

Rosenthal said that recent court rulings imply that the fee is really a tax, which requires a public vote instead of an action by the City Council. She added that she sees no clear connection between the developers' actions and a negative impact to the public, which is the legal basis for imposing such fees.

In addition, there is recent precedent for floating public referenda against City Council measures that the business community disapproves.

The similarly named Protect Our Jobs Coalition on the waterfront is backing a referendum to overturn another initiative by the City Council: the Barrio Logan Community Plan, which would establish a commercial zone as a buffer between the industrial zone surrounding the shipyards on the southern edge of the city and local residences.

Members of the coalition last week delivered petitions with 53,000 signatures to overturn the community plan to the City Clerk's office, which requires 33,792 valid signatures for a referendum to be approved.

Referendums can cost the city several million dollars unless they are tied to an already-planned ballot.

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City of San Diego Executive(s):

Sherri Lightner

  • Council President Pro Tem

Kevin Faulconer

  • Mayor

Todd Gloria

  • Council President

Myrtle Cole

  • City Council Member

Mark Kersey

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Lorie Zapf

  • City Council Member

Scott Sherman

  • City Council Member

David Alvarez

  • City Council Member

Marti Emerald

  • City Council Member

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