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Linkage fee plan sent back to drawing board

After four months of working, the San Diego Housing Commission and the business-led Jobs Coalition unveiled a tentative framework for creating more affordable housing in the city, ranging from streamlining regulations to doubling the so-called "linkage fee" on most commercial developments.

But a report by the city's Independent Budget Analyst blasted the proposal for being "deficient in a number of areas," including failing to include specific targets for measuring the plan's effectiveness or calculations about how its proposed tax deferrals and exemptions might affect the budget.

Those charges were echoed by members of the City Council's Smart Growth and Land Use Committee, which heard the proposal Thursday.

The City Attorney's office said the plan was so sketchy it could not even use it for a draft for the committee to vote on. So the authors were given until Sept. 24 — the committee's next meeting date — for a more complete version, with the goal of implementing it Jan. 1.

"You've done a lot of work in a short amount of time. I think you're remarkably close," Lorie Zapf, who chairs the committee, told Richard Gentry, CEO of the Housing Commission, and Craig Benedetto, who heads the Jobs Coalition, an ad hoc committee funded in large part by the San Diego Regional Chamber of Commerce.

But committee member Sherri Lightner said the authors need to work more closely with the mayor's office and Planning Department to plug some of the holes in the proposal.

The debate over how to fund affordable housing began last fall, when Interim Mayor Todd Gloria proposed an increase in the linkage fee, which requires commercial developers to help fund affordable housing, based on the number of low-income jobs their projects are projected to create.

The fee had been set in 1990 at 1.5 percent of construction costs, but it was halved to 0.75 percent in 1996 and has never been adjusted for inflation, so that it is currently based on 1990 costs.

In a 5-4 vote, the City Council last year passed a full restoration of the fee, including inflation adjustments, which could have led to a nine-fold increase in the fee on some construction projects.

The Chamber of Commerce and local developers successfully conducted a petition drive to overturn the measure through a public vote. But in March, they agreed to work with the city to develop a compromise, which they said would be ready by the end of June.

"Now maybe they'll see how hard it can be," Gloria said at the time.

Under the compromise proposal, the linkage fee would still double Jan. 1, but not with an inflation adjustment, so the fee on an office project, for example, would rise from $1.06 per square foot to $2.12 per square foot, instead of the $5.32 that Gloria had proposed.

But the increase would expire in 2018 as long as some milestones for home construction were met.

In addition, manufacturing, warehouse and nonprofit health care projects would be exempted from the fee increase, the fee would be frozen for research and development laboratories, and fee payments would be deferred until after the projects are completed.

Instead of relying on fees to subsidize affordable housing, the proposal suggests making changes to city codes, regulations and policies that would make the construction less costly for developers, with hopes of making homes less expensive for consumers.

But the Independent Budget Analyst said that the authors failed to calculate how the changes in city codes would affect costs or how the exemption of broad categories of construction projects would affect the city's revenues.

And for many of the construction deadlines "there are no end goals or expectations defined. … If the City does not deliver (on the milestones) the fee will be reduced back to its lowest level … with no further annual adjustment. How can the City deliver when the milestones have not been specifically defined?"

Gentry agreed that more work needed to be done. But he said that at least the next steps in the process are centered around the mechanisms and process of carrying out the plan instead of ideological arguments over funding affordable housing, which have marked the debate in previous years.

"That's not a bad space to be in," he said.

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