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City drops affordable-housing fee hike

Sidestepping the prospect of a costly ballot referendum battle, the San Diego City Council on Tuesday scrapped its proposed increase of a fee that commercial real estate developers are required to pay to support affordable housing.

The move puts an end to a campaign by the San Diego Jobs Coalition, an ad hoc group led by the San Diego Regional Chamber of Commerce and local developers, to overturn the fee hike through a referendum on the June 3 ballot.

But Council President Todd Gloria warned that the council might reinstate the fee hike if its opponents in the business community fail to come up with an alternate way of funding affordable housing projects.

The Council gave the Jobs Coalition until the end of June to come up with an alternate proposal, with the goal of putting it into effect next year.

"I'm a passionate believer in affordable housing," Gloria said. "I'm taking people at their word today that we're going to come back with something."

But he said that after 17 years of inaction on the issue and four years of debate, he was not confident that a compromise would be found.

At issue is a 1990 fee — formally known as the "workforce housing offset" — requiring commercial developers to pay a percentage of the value of their projects to support affordable housing. The fee was originally designed to represent 1.5 percent of the costs of the project. But the percentage was cut to 0.75 percent in 1996 and the estimated construction costs were never adjusted for inflation, meaning developers have been paying the fee based on what they would have spent in 1990, rather than current costs.

The City Council last November voted to gradually boost the fee to 1.5 percent of current costs by 2016. But developers and businesses complained that the fee hike would be too costly, prompting them to launch the ballot referendum.

"We will fight to defend the jobs that San Diego’s working families depend on from this jobs-killing tax,” Chamber of Commerce CEO Jerry Sanders and then-Chairman Mike Niggli said when announcing the petition drive.

Qualcomm — which plans to add up to 1.2 million square feet over the next four years — dropped hints that it might expand beyond city limits if the fee wasn't dropped. It said the fee hike could add $5 million to its construction costs.

Last week, the City Clerk officially notified the City Council that the Jobs Coalition had gathered more than enough petitions to put the matter to a vote. But in Tuesday's meeting, the coalition members held out an olive branch.

"Let's see if we can put all unpleasantness behind us," said Matt Adams, representing the local chapter of the Building Industry Association. "Let's roll up our sleeves, shock the world and make some real changes; 46,000 people are on the waiting list for affordable housing. Let's see if we can come to some sort of comprehensive real and fair program to address their needs."

Craig Benedetto, lobbyist representing the NAIOP development association and Building and Office Managers Association, said he was confident the Coalition would win if the measure were put to a vote.

But Benedetto added that the costs that the city would have to spend — estimated at between $200,000 and $250,000 — and the costs that the Coalition would face would be "enormous." As of Dec. 31, the Coalition had spent $75,000 just to gather petition signatures.

"Please help us de-escalate. We don't need to go down this path," he said. He added that "if we can put down our weapons," the fee hike's opponents would immediately launch a task force aimed at coming up with a compromise solution.

City Councilmember David Alvarez, who had been one of the fee hike's staunchest supporters, introduced the measure to quash the hike.

"Maybe it's my age — everyone in the city knows I'm 33, thanks to a lot of people in this room — but I've still got a willingness to work hard to find solutions," he said, jokingly referring to the attack ads — heavily funded by real-estate concerns — that were aired against him during last month's mayoral campaign.

Councilmember Marti Emerald was much more outspoken, saying that the "so-called Jobs Coalition was running a snow job on the city of San Diego."

In response, Councilmember Scott Sherman said he found it "unconscionable" that someone would "demonize the job creators in San Diego."

Gloria said he had his doubts, especially since the City Council abandoned a similar fee hike in 2011 under the promise that developers would come up with an alternate solution.

Now that the fee hike has been temporarily dropped, Gloria half-jokingly told Qualcomm's representative at the meeting that he expects to see the company sign a lease for expanding in San Diego as quickly as possible.

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