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Home My WebLink About7.2 NonResidAffordHousing CITY CLERK File # D@C!J[Q]-~iJ AGENDA STATEMENT CITY COUNCIL MEETING DATE: October 19, 2004 SUBJECT: ATTACHMENTS: RECOMMENDATION: ~ FINANCIAL STATEMENT: DESCRIPTION: PA 01-039, Nonresidential Development Affordable Housing Impact Fee Study and Task Force Recommendation r' Á ..,.// Report Prepared by Pierce Macdonald, Associate Planner~ l. Staff Report for City Council Agenda of October 21, 2003 (without Attachments) Minutes of City Council Meeting of October 21, 2003 Nonresidential Development Affordable Housing Impact Fee Study, dated October 7, 2003 2. 3. l. 2. 3. Receive Staff presentation and Public testimony; Question Staff and the Public; and, Provide Staff direction on the following: a. Whether a Nonresidential Development Affordable Housing Impact Ordinance should be prepared at this time, and, if so, whether a Fee Resolution should be prepared; or b. Whether additional analysis should be prepared and presented to City Council at a later meeting. None at this time. Background: On February 6,2001, the City Council adopted an Affordable Housing Implementation Program that included program and funding options. One funding option was to implement a commercial linkage fee, also known as a nonresidential development affordable housing impact fee. After discussion of the Affordable Housing Implementation Program, as a whole, the City Council directed Staff to undertake the study of a possible commercial linkage fee. The Affordable Housing Implementation Plan also included changes to the Dublin Inclusionary Zoning Ordinance, which ultimately increased the percentages of affordable units that must be built as part of market-rate residential development and increased the in-lieu fee for affordable units. On August 21,2001, the City Council approved a contract with Cotton/Bridges/Associates for the preparation of a study for a commercial linkage fee, entitled the Nonresidential Development Affordable Housing Impact Fee Study (Fee Study). On October 2,2001, the City Council passed Resolution No.713- 01 expressing the intent ofthe City to adopt a development fee to mitigate the impacts of nonresidential ------------------------------------------------------------------------------------------------------------- G:\P A#\200 t \0 t ..039 Commercial Link\2004\CCSRt 0- t 9-04.DOC COPIES TO: ill-House Distribution Task Force Members 't Z CJ 10"Q3 ITEM NO. development on the affordability of housing in the City of Dublin. The public hearing for the matter was noticed in the Tri-Valley Herald newspaper on September 22,2001. In addition, the City Council formed a Nonresidential Affordable Housing Task Force to meet with Staff and the City's consultants, Cotton/Bridges, to provide input related to a potential commercial linkage fee. The Task Force was constituted of Dublin residents, business people, developers, one member of the City Council, and one member of the Planning Commission. On October 21,2003, the City Council considered the recommendation of the Task Force to adopt a fee limited to $1 per square foot of commercial area (see Attachments 1 and 2). Members of the development community addressed the Council and expressed opposition to the fee, stating that the fee would be a burden to new development and could reduce the attractiveness of Dublin as the site of future development. Also, concerns were expressed regarding the City's economic climate, as well as the fairness of how to share the responsibility of affordable housing between residential and nonresidential development. The City Council approved a motion to table the discussion for one year. The Nonresidential Development Affordable Housing Impact Fee Study has been placed on the City Council agenda pursuant to City Council direction that the Fee Study be brought back in October of 2004. The Nonresidential Development Affordable Housing Impact Fee Study is included in Attachment 3. City Staff requests further direction from City Council as to whether or not to proceed with preparation of a Fee Ordinance and/or Fee Resolution at this time. Additionally, Staff is requesting City Council direction on whether or not additional analysis is needed by City Council to evaluate the current economic climate. Staffs analysis of the Fee Study's legal requirements, methodology, data sources, and maximum justifiable fees are discussed in the City Council staff report for October 21,2003 (included as Attachment 1). Analysis ofthe Task Force's recommendation for Nonresidential Development Affordable Housing Impact Fees is discussed in the analysis below. ANALYSIS: Task Force Review: After reviewing the Nonresidential Development Affordable Housing Impact Fee Study, the Task Force agreed that there is a link between job growth and the demand for affordable housing. The Task Force agreed that affordable housing is an important issue to the community. However, the Task Force reviewed the maximum justifiable fee established by the Study and agreed that the current development market would not support the maximum fees. Recent economic conditions have slowed commercial development in the Tri-Valley, especially in the office sector, and new fees could further impact the viability of new commercial projects. At the Task Force's last meeting on September 4,2003, deliberations focused on a choice of adopting a higher fee that would not go into effect for one year, or adopting a lower fee to take effect immediately. The Task Force agreed On the second choice; that the City Council adopt an ordinance and cap the fee at $ 1 per square foot of new nonresidential development due to the region's difficult economic conditions. The recommended fees are summarized in Chart 3-13, of the October 21,2003 staff report (included as Attachment 1). The total impact fees that could be collected at that time would have been limited to approximately $ 5.5 million. The Task Force also recommended that the City Council consider an exemption for projects that are currently under City review, called "pipeline proj ects." The Task Force agreed that the City Council could consider the exemption as part of their review of the proposed fee. 2~ CONCLUSION: In summary, on September 4,2003, the Task Force passed a motion to make the following recommendations to the City Council: 1. An ordinance should be drafted and adopted to charge a Nonresidential Development Affordable Housing Impact Fee. 2. Any potential fee should be capped at $1.00 per square foot of new nonresidential development due to current difficult economic conditions, and the fee should be adjusted to the different types of industries. 3. Consider exempting certain categories ofprojects that are currently under review ("pipeline projects"). RECOMMENDATION: Staff recommends that the City Council: (1) receive the Staff presentation and take Public testimony; (2) question Staff and the Public; and, (3) provide Staff direction on the following: (a) whether a Nonresidential Development Affordable Housing Impact Ordinance should be prepared at this time, and, if so, whether a Fee Resolution should be prepared; or (b) whether additional analysis should be prepared and presented to City Council at a later meeting. 3~ I t.ïtJ .,,~' CITY CLeRK File # D~~~-~~ AGENDA STATEMENT CITY COUNCIL MEETING DATE: October 21, 2003 SUBJECT: ATTACHMENTS: ~. RECOMMENDATION: 1. ~2. 3. PA 01-039, Nonresidential Development Affordable Housing Impact Fee Study and Task Force Recommendation Report Prepared by: Eddie Peabody, Community Development Director, and Pierce Macdonald, Associate Planner ~ 1. Minutes Authorizing Nonresidential Development Affordable Housing hnpact Fee Study, dated February 6, 2001 Nonresidential Development Affordable Housing Task Force Minutes Nonresidential Development Affordable Housing hnpact Fee Study, dated October 7, 2003 Notice of Intent to Adopt a Nonresidential Development Affordable Housing hnpact Fee 2. 3. 4. Receive Staff Report, Review the Task Force Recommendation. and Take Public Testimony Question Staff and the Public Give Staff Direction on: a. Whether a Nonresidential Development Affordable Housing Impact Ordinance Should Be Prepared; b. Whether a Fee Resolution Should Be Prepared; and c. Whether Certain Categories, of Projects Under City Review Should be Exempted. F1NANCIAL STATEMENT: None at this time. DESCRIPTION: &~gro~m , On February 6,2001, the City Council adopted an Affordable ousing Implementation Program that included program and funding options (included as Attachment i). One funding option was tó implement a commercial linkage fee. also known as a nonresidential devel pment affordable housing impact fee. After discussion of the Affordable Housing hnplementation Pr gram, asa whole, the City Council passed a motion to direct Staff to undertake the study of a possible co erciallinkage fee. The Affordable Housing Implementation Plan also included changes to the Du linInëlusionary Zoning Ordinance, which ultimately increased the percentage~ of affordable units that mu t be built as part of market-rate rf?sidential development and increased the in-lieu fee for affordable W1its. . ----------------------------------------------------------------- ------------------------------------------ G:\P A#\2001\Ot ..039 Commerelal Link\CCSRI0-21..o3.DOC In-House Distribution Task Force Membe 1\1 N0.---AJJAGHMENI1 .. On August 21, 2001, the City Council approved a contract with Cotton/Bridges/ Associates fa? tRÞ ~z." preparation of a study for a commercial linkage fee. The study was titled the Nonresidential Development Affordable Housing Impact Fee Study (Fee Study). On October 2,2001, the City Council passed Resolution No.713-01 expressing the intent of the City to adopt a development fee to mitigate the impacts of nonresidential development on the affordabilityof housing in the City of Dublin. The public hearing for the resolution was advertised in the Tri-Valley Herald newspaper on September 22, 2001 (included as Attachment 4). The pwpose ofthe resolution was to alert developers and interested parties that applications for discretionary permits submitted after the passing of the resolution but before the adoption of the fee could be subject to a Nonresidential Development Affordable Housing Impact Fee. In addition, the City Council formed a Nonresidential Affordable Housing Task Force to meet with Staff and the City's consultants, Cotton/Bridges, to provide input related to a potential commercial linkage fee. The Task Force was constituted of Dublin residents, businesspeople, developers, one member of the City of Dublin City Council, and one member of the Planning Commission. The Task Force held its fIrst meeting on December 13, 2001. Delays in the release of detailed Census, 2000 housing and income information caused the Task Force to cease working for over one year. The delay was caused by postponements by the U.S. Census Bureau of the release of detailed City-specific data, as well as changes in the way the U.S. Census Bureau processed requests for customized reports needed for the Fee Study. The U.S. Census Bureau indicated that the city-specific information needed for the Fee Study would be released in March 2003 and the Task Force reconvened on February 27,2003. The customized report prepared by the U.S. Census Bureau for the Fee Study was released in May of2003. The Task Force met on July 31, 2003 to review the preliminary fIndings. The Task Force reviewed the Draft Nonresidential Development Affordable Housing Impact Fee Study (Fee Study) on September 4, 2003 and agreed to forWard a recommendation to the City Council that the City Council adopt a nonresidential development affordable housing impact fee (in Task Force minutes for September 4, 2003, included as Attachment 2). The Nonresidential Development Affordable Housing Impact Fee Study (Attachment 3) and the Task Force's recommendation are presented and discussed below. Staff's analysis includes the Fee Study's legal requirements, methodology, data sources, maximum justifiable fees, and the Task Force's recommendation for Nonresidential Development Affordable Housing Impact Fees. Legal Requirements for Non-Residential Development Affordable Housing Fees: Commercial affordable housing impact fees are subject to two overlapping sets oflegal requirements, both Federal constitutional requirements and California state law requirements, codified as the Mitigation Fee Act (ABJ600). The Federal constitutional requirements were addressed in Commercial Builders of Northern California v. City of Sacramento 941 F.2d 872. In that case, the Ninth Circuit Court of Appeals upheld a fee identical to the proposed fee against a chal1enge that the fee violated the Takings Clause of the U.S. Constitution. The Mitigation Fee Act (also known as AB 1600) requires that the City make certain findings prior to imposing any development impact fee, such as the nonresidential development affordable housing fee proposed by the Fee Study. The required findings are as follows: (l) Identify the purpose of the fee. (2) Identify the use to which the fee is to be put. If the use is financing public facilities, the facilities shall be identified. -;'b~~ (3) Determine how there is a reasonable relationship between the fee's use and the type of development project on which the fee is imposed. (4) Determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed. The Fee Study provides the support to make these findings. A full discussion of the legal requirements can be found on pages 3 and 4 of the Fee Study (Attaclunent 3). Study Methodology: Based on a survey of recently completed commercial linkage fee studies in Northern Californian (Oakland, Pleasanton, Livennore, Sonoma County, Menlo Park, and Mountain View), the Task Force, Staff and Cotton/Bridges developed a five-step approach to examining the relationship between new nonresidential development in Dublin and the demand and cost of producing affordable housing. The methodology is summarized below. Step 1: Determine total employees generated by· future nonresidential development based on employment generation rates for projected land uses in Dublin. Step 2: Calculate the distribution of householder earnings and household income generated from jobs/industries likely to migrate into the Tri-Valley area. Step 3: Determine the number of employees by income and earnings generated by land use designation who would be likely to seek housing in Dublin. . Step 4: Determine the cost of producing market rate single-family residences and apartments, and' detennine the gap between that cost and what very low, low, and moderate income households could afford to pay for such housing (known as the "airordability gap"). ~tep 5: Detenninethe maximum impact fee per square foot by multiplying employment generation factors ·by the affordability gap for households of different income levels, and by the contribution of the Inclusionary Zoning Ordinance housing program, and lastly, to examine the feasibility ofthe impact fee(s). Data Sources: The Nonresidential Development Affordable Housing Impact Fee Study used a variety of data sources, which are cited in Chapter 3 of the Fee Study, to provide detailed housing and income information. The Task Force, City Staff and the City's consultants, CottonlBridges, analyzed data sources including but not limited to: · Demographic data, economic dat~ and housing production trends from the 1990 and 2000 Census, including special tabulations for the Tri- Valley region related to household income by industry, household income by occupation, and the number of workers per household by income; · Employment generation data from the City of Dublin Community Development Department,. the Institute of Transportation Engineers, and San Diego Association of Governments; · Housing sales price trends from Dataquick Real Estate Services, rents from Real Facts, and data from the 1990 and 2000 Census; · Housing production cost information for apartments and single-family homes in Dublin from developers and from the Home Builders Association of Northern California. FINDINGS: As detailed in Chapters 2 and 3 of the Fee Study, a strong demand for housing in Dublin, fueled in part by strong employment growth in the Tri- Valley region, has resulted in a growing gap between housing costs and the ability of area workers to afford housing. While median housing costs increased between 55 and 120 percent :fÌ"om 1990 to 2000 (depending on the type of housing), the median income in Dublin ~~z.. increased by 44 percent (additional detail is included in Chart 2-1 and page 2-2 of the'Pie Study, Attachment 3). According to the calculations of the City's consultants, Cotton/Bridges, the City of Dublin has the potential to create 31,270 additional jobs between 2003 and 2025. It is expected that a significant percentage of these jobs will be filled by individuals living in very low-, low, and moderate-income households. It is these households that experience the greatest difficulties in finding affordable housing in Dublin. A portion of the future affordable housing need will be met through the City's Inclusionary Zoning Ordinance housing program, in which 12.5 percent of new housing units constructed in Dublin must be affordable to very low-, low-, and moderate-income households. Of the affordable units constructed under the City's inelusionary program, 30 percent must be affordable to very low-income households, 20 percent to low-income households, and 50 percent to moderate-income households. Nevertheless, a significant gap will remain between the need and demand for affordable housing in Dublin and the number of affordable housing units available to very low-, low-, and moderate-income residents. One method of bridging that gap is to charge an affordable housing fee to nonresidential developments. The Fee Study defines nonresidential development as office, corporate headquarters, light industrial, research and development, connnercial, retail and hotel development. Nonresidential developments create employment that generates a need and demand for affordable housing based on the anticipated income levels of the workforce in those developments. Revenues from the affordable housing fee would be used to build housing in Dublin that very low-, low-, and moderate-income households can rent or own. Staff estimates that there are approximately 10.9 million square feet of commercial development remaining to be built, including the Transit Center Master Plan. On July 15,2003, the City Council approved the Fairway Ranch proj ect, which waived any potential commercial linkage fees for commercial development in Dublin Ranch. The fees were waived as part of the Fairway Ranch developnient agreement to build affordable housing in excess ofInclusionary Zoning Ordinance requirements. Subsequently, approximately 7.6 million square feet of commercial development could be subject to the potential nonresidential development impact fee. All fees collected would be used to implement the City's Affordable Housing Implementation Program (City Council minutes outlining and authorizing the program are included as Attachment 1). Maximum Justifiable Fee: Based on the Fee Study methodology described above and reviewed by the members of the Task Force, the maximum justifiable fee for the different industries projected to locate in Dublin ranges from $4.70 per square foot ofnonresidentÎal floor area to $ 13.72 per square foot, as outlined below and in Chart 3- 12 of the Fee Study, reproduced below. Chart 3~12 Maximum Justifiable Fees Future Land Use Building Size Maximum Fee KSF1 Li t Industrial 840 $ 5.46 Office 4,345 -1,301'" $ 13.72 Co orate H s 862 $ 13.72 R&D 861 - 861 ... $ 8.81 Nei borhood Retail 235 $ 10.99 Commercial 3.643 - 1,153 * $ 5.50 Hotel 122 $ 4.70 · The number in parentheses represents the square footage exempted from the fee as part of Fairway Ranch. 56l) ~.~ This maximum justifiable fee, however. could be modified to a rate that is comparable to non-residential development rates of adjacent communities, so that Dublin can continue to attract new employment generation in the future. Most cities surveyed adopted impact fees that were 9 to 34 percent of the maximum justifiable fee (see Chart 3-10 in the Fee Study for comparable maximum justifiable fees). The Task Force reviewed the maximum fees and detennined that given the current development environment. the City could not continue to attract new businesses and employers if the maximum fees were implemented. The Task Force's recommendation is discussed in the section below. Task Force Review: After reviewing the Nonresidential Development Affordable Housing hnpact Fee Study. the Task Force agreed that there is link between job growth and demand for affordable housing. The Task Force agreed that affordable housing is an important issue to the community. However, the Task Force reviewed the maximum justifiable fee established by the Study and agreed. that the current development market would not support the maximum fees. Recent economic conditions have slowed commercial development in the Tri-Yalley, especially in the office sector, and new fees could further impact the viability of new commercial projects. The Task Force reviewed the potential fee in the context of fees adopted by other jurisdictions and in the context of comprehensive fees. All of the jurisdictions reviewed in the Study, with the exception of Livermore, adopted an actual nonresidential fee that was 9 to 34 percent of the maximum justifiable fee detennined by their commercial linkage fee studies. Livermore adopted 100 percent of its maximum justifiable fee which was determined to range from $.7 to $.81 per square foot. The City of Livermore's maximum justifiable fee was reviewed by Staffand found to be an aberration, as LiveImore's fee study used significantly lower construction costs, reviewed only multi-family rental construction costs, and used low factors for employment generation. In addition, the Task Force discussed CUITent comprehensive development fees (i.e. water, sewer, traffic, etc.) for Livermore and Antioch, cities projected to have job growth similar to Dublin's. Comprehensive development fees for Antioch were found to be incomparable because of the jurisdiction's reliance on Mello-Roos taxes to mitigate impacts. Comprehensive development fees for Livermore were found to be comparable to those of Dublin. At its last meeting on September 4, 2003, the Task Force deliberations focused on a choice of adopting a higher fee that would not go into effect for one year, or adopting a lower fee to take effect inunediately. The Task Force agreed on the second choice. that the City Council adopt an ordinance and cap the fee at 1 KSF symbol denotes'l,OOO square feet of floor area. ~71h~Þ $ 1 per square foot of new nonresidential development due to the region's difficult economic cõ\fditions (Task Force Minutes included as Attachment 2). The recommended fees are summarized in Chart 3-13, below. Chart 3-13 reflects the projected amount of revenue expected to be generated by the proposed fee. Chart 3-13 Recommended Fee Future Land Use Building Size Fee Impact Fees Li t Industrial 840 $ .40 $ 336,000 Office 3,044 $ 1.00 $ 3,044,000 Co orate H s 862 $ 1.00 $ 862,000 R&D 0 $ .64 $ 0 Nei borhood Retail 235 $ .80 $ 188,000 Commercial 2,490 $ .40 $ 996,000 Hotel 122 $ .34 $ 41,480 Total: 7,593 $ 5,467 480 The Task Force agreed that it was important to establish a Nonresidential Development Affordable Housing Program, although the total impact fees that could be collected at this time would be limited to approximately $ 5.5 million. Staff explained that the City Council reviews all impact fees On an annual basis and may revise fees at that time. In addition) the Task Force discussed City Council Resolution No. 713-01, which expressed the intent of the City to adopt a Nonresidential Development Affordable Housing Impact Fee. The public hearing for the resolution was advertised in the Tri- Valley Herald newspaper on September 22, 2001 (included as Attachment 4) The purpose of the resolution was to alert interested parties that applications for discretionary pennits submitted after the passing of the resolution but before the adoption of the fee could be subject to the fee. The Task Force recommended that the City Council consider an exemption for projects that are currently under City Review, called "pipeline projects." The Task Force agreed that the City Council could consider the exemption as part of their review of the proposed fee. Ifpipeline projects were to be exempted,. Staff would require direction as to the category ofprojects to be included in the exemption. Stafffeels that there are many points-at which a project could be considered in the development pipeline. These points include: pre-application submittal, formal project application submittal, approval by the Planning Commission and/or City Council of discretionary pennits, and Building Permit application submittal. Staff would recommend that the City Council discuss the concept of exemptions for pipeline projects and provide Staff with that direction. In summary, on September 4, 2003, the Task Force passed a motion to make the following recommendations to the City Council: 1. That an ordinance be drafted and adopted for charging a Nonresidential Development Affordable Housing hnpact Fee. 2. That any potential fee at this time be capped at $1.00 per square foot of new nonresidential development due to current difficult economic conditions and that the fee be scaled to the different types of industries. 3. That the City Council consider exempting certain categories ofprojects that are currently under review ("pipeline projects"). 1Ob~~ RECOMMENDATION: Staff recommends that the City Council receive the Staff report, review the Task Force recommendation, take Public testimony, question Staff and the Public.and give Staff direction on: (1) whether a Nonresidential Development Affordable Housing Impact Ordinance should be prepared; (2) whether a Fee Resolution should be prepared; and if so (3) whether certain categories of projects currently under City Review should be exempted from the potential fee. ßao~ 2.. Ms. Lowart suggested putting the Fire Station event into December. Mayor I.ockhart advised that she will not be here on November 22nd. The Council agreed to do the Fire Sta,tionson Nove,mber 15th. The Council agreed to hold the underpass event on December 6th, from 10:00 a.m.- noon. This date is based on whether the Artists can be there that day. . .. ........"' . ... " ." NONRESIDENTIAL DEVELOPMENT AFFORDABLE HOUSING..IMPACT FEE STUDy AND TASK FORCE RECOMMENDATION PA 01-039 ,.. '~,_ . ".._. ,. , __"-I, ,. 12:00 midnight 8.3 (430-80) Community Development Director Eddie Peab()dy presented the Staff Report. The City Council reviewed the ,Nonresidential Development Mfordable Housing Impact Fee Study that was prepared and reviewed by the Nonresidential Development Mfordable Housing Task Force. On September 4, 2003, the Task Force made a recommendation to the Council that afee ordinancebt;_c~þlÞIisþ¢, that the fee be limited to $1 per square foot due to current economic conditions, and that the City Council consider exempting projects under City review. Staff requests City Council direction on: a) whether a Nonresidential Development Affordable Housing Impact Ordinance should be prepared; b) whether a Fee Resolution should be prepared; and c) whether certain categories of projects under City review should be exempted. Mayor Lockhart talked about TaskForce discussion to do something as a two-pronged approach. Everyone said do it now at a lower rate. Vm. McCormick commented on . one Qf thecÞart~.ªfl,lª~!~ f()r.,ªn~~rnple of neighborhood retail. ' Mr. Peabody stated this çouldbe.a.sllutllsbopping center like Safeway Center. General commercial could be like Scarlett Court. Car dealerships, and Hacienda Crossings are general commercial uses. Cm. Sbranti asked how fees were determined. What methodology was used? CITY COUNCIL MINUTES···· VOLUME 22 REGULAR MEETING October 21, 2003 PAGE 654 ATTACHMENT ¿ qøt~ ~, Ms. Macdonald stated the consultants used census information about indusµy and income. Office generally has more empioyeespërsquare'fooi~'" ......",....,,,....... Cm. Oravetz questioned the figure at build out. We will only generate $5 million out to 20251 Mr. Peabody explained that there were exemptions. Mayor Lockhart stated the TaskFqrce Wªssupporting the lowest fee possible. This led to some really interesting conversations. Tony Beatty representing IKEA, stated they are all for affordable housing. They carefully analyze all the fees before they go in for an application. They made application in August and anticipate they will fall under the category of exemption. They are comfortable with the fees they have anticipated. Additional fees will be drastic. He $tated Dublin has the highest fees of any other project he has been involved with. Mr. Peabody stated Staff would bring back examples of things they could exempt should they choose to do so. Vm. McCormick asked how far along IKEA is. Mr. Peabody advised that they filed an application and Staff is reviewing it, but they haven't been reviewed by the Planning Commission or City Council. This is a decision of the City Council on where they want to break it off. This ordinance would go through the normal timing of introduction and adoption, and there would then be a GO-day period before it can go into effect. Mayor Lockhart commented she went into this thinking everybody needs to pay their fair share. She understands that.cOtLCept quite well, but when they started looking at what the real costs' were and the benefits, versus the economy right now, she was concerned about doing this at all right now. We have done the work with the study. She would like to see us table the program for a year and look at a healthier economy and look at focus of where the money is needed. Is there really a gain to implement this right now? She w~sn't sure right now is the time to implement this. Vrn. McConnick stated she . felt we need to l()Ok Æit our own revet1ues and tlte number of businesses stacked up to come in. This is ourevaluationofthe economy. Ïf' wedeIay . this, we need to come back and look at howfue"Çity is doing, and base it on that. Are ·cI1'ycö@êILMìNifT'ES·'·..·"'···"·<,·"·,·<"··"·,~······.,'.,,,,.. VOLUME 22 REGULAR MEETING October 21, 2003 PAGE 655 ,~," ". .,:. .", .',..,.":'r~,,, .,:', .,,,;. '.,'. ",.,.-... ..','.:'. :.. ~,~ IDti~ our revenues okay? Do businesses still want to come in? IKIA is in the pipeline so they shouldn't be subject to this. Mayor Lockhart stated she wants to make sure we dOn't lose our competitive edge. Cm. Oravetz commented we may need to look at why are we doing this? We are doing a really good job with affordable housing right now. If we put more taxes on busines~$... coming in, it might drive them to neighboring cities. He agreed to table this for a year. Cm. Sbranti commented if we are telling the residential builders.they have to build 12 ~ %, but then businesses who bring :in the jobs which cause the need for affordable housing are given a break, he was struggling with the fairness of this. Mr. Beatty stated he also represents Airborne DSL and he came up with 35 vacant buildings in the Dublin-Pleasanton area.The~is no c9m.mercial ¡'uilding going on. Dublin is geographically better off than a lot of cities. Cm. Sbranti stated he didn't want to see the issue tabl~4 fOrever.. He believesÎA the fairness of the fee. IJe wa,ntsto see thjs.ÇQme}~~.~4·f,º~::f~~{;Ss;··wë'dôÌ1eea.·to"··'···' implement it at some point. On motion of Mayor Lockhart, seconded by Cm. Oravetz, and by unanimous vote (Cm. Zika absent), the Council determined that tlti$ jssµç~,taÞJ~4JºI:'ºº,e year. . _.0......'.. OTIIER BUSINESS 12:31 a.m. Cm. Oravetz reported that he went to a League of California Cities meeting Jast Thursday in Moraga and they had folks from ABAG speak about affordable housing. He suggested that he and Julia Abdula contact Matthew CallihaIl and invite him to speak at a City Council meeting on a lease-ownership plan. Mayor Lockhart advised that the.Mfordable :tI9l1:$ing Committee that meets had a presentation by the ABAG group and the Tri- Valley Affordable Housing group will be a clearing house where this information will be provided. . ,'...." ,.".',' . CITY COUNCIL MINUTES VOLUME 22 REGULAR MEETING October 21, 2003 PAGE 656 ll~v Cm. Sbranti stated he was happy to report that school test scor~s distJ;ictwi4e w~nt ~p dramatically this year. Dougherty Elementary School went over 900 and all the schools did exceptionally well with all the testing. There will be some positive press on this later this week. Mayor Lockhart adjourned the meeting in honor and memory of Donna Kolb Miller, who passed away this week. She was our historian and did a fabulous job with our students. Condolences go to her family. ..- . . ,... . ADJOURNMENT .. 11.1 There being no further business to come before the Council, the meeting was adjourned at 12:35 a.m. AITEST: (J~ --;.. &.nu~j,,) Mayor Pro Tempore Pit . CITY CÕûNCILMÎNUTÉS VOLUME 22 REGULAR MEETING October 21, 2003 PAGE 657 ¡ ¡Dþ Î ~ City of Dublin Nonresidential Development Affordable Housing Impact Fee Study October 21, 2003 City of Dublin Nonresidential Impact Fee F:inal Report PA 01-039 ATTACHMENT 3 Introduction J~'b)Þ III This chapter provides an introduction to the Nonresidential Development Affordable Housing Impact Fee Study, including the purpose of the study, the methodology of the study, and data sources used to generate the analysis. A. Introduction The State of California, Bay Area, and Tri-Valley region have experienced unprecedented economic growth during the latter half of the 1990s. Concurrent with this economic growth, the region continues to have a significant demand for new housing. Because the supply of housing has not kept pace with the demand for housing created by new jobs, single-family home prices and apartment rents have increased dramatically, making housing less affordable to low and moderate income households. In 2000, the Dublin City Council recognized that affordable housing would continue to be an important issue in Dublin. In February 2001, the City of Dublin adopted an Affordable Housing Implementation Plan which ultimately resulted in an Inclusionary Housing Program that requires developers to set aside 12.5% of all new r.esidential development as affordable to very low, low, and moderate income households. In the Affordable Housing Implementation Plan, the City Council also expressed a desire to examine the relationship between job growth and housing, as the second important factor of affordable housing demand. The City of Dublin retained Cotton/Bridges/Associates (CBA) to perform an analysis of the impact of job growth on the affordability of housing and to recommend an impact fee program to mitigate this impact. The analysis reviews. the types of industries projected to locate in Dublin, the number of employees those industries will attract (reduced for commuting patterns), and the income ranges those employees would receive as salaries, wages and other income. In addition, the analysis reviews the cost of constructing housing in the Tri-Valley area, as it relates to the number of employees whose household incomes fall within the very low, low and moderate-income ranges. The analysis determines the price of closing the gap between what employees can afford to pay for housing and what new construction costs, and the analysis links that price to the size of the business' facility, as an impact fee. ' CBA began work on the Nonresidential Development Affordable Housing Impact Fee Study (Fee Study) in August 2001. Soon thereafter, it became clear that current data on household income, employment, and industries in the Tri-Valley area was limited. Although the U.S. Census 2000 was gradually being released, detailed cross tabulations needed for the analysis were not readily forthcoming. Moreover, alternative data City of Dublin Nonresidential Impact Fee 2 Final Report 4ob~Þ sources also proved to be less than satisfactory for the study. Therefore, the Fee Study was suspended in June 2002 until U.S, Census data became available. In late 2002, the Census Bureau indicated that staff was available to perform the detailed cross tabulations necessary for the Nonresidential Development Affordable Housing Impact Fee Study. CBA requested the appropriate cross tabulations from the U.S. Census Bureau, which were provided in May 2003, The report findings herein provide the results of the analysis. B. Legal Requirements In recent years, as municipalities have struggled to address their residents' needs for affordable housing, cities have imposed fees on proposed nonresidential developments to help finance the production· of affordable housing for the employees that the nonresidential development attracts. The U.S. Court of Appeals, Ninth Circuit, upheld one such fee against a Constitutional challenge in its decision, Commervial Builders of Northern California v, City of Sacramento (941 F2d 872). In 'short, the Appellate Court upheld a fee on nonresidential development to offset burdens created by such development, based on a housing impacts study. Commercial impact fees are subject to two overlapping sets of legal requirements, The Federal constitutional requirements of ~nexus" and "rough proportionality" set forth under Nollan v. California Coastal Commission (1987) 483 U.S.825 and Dolan v. City of TigBrd (1994)512 U.S.374 are generally inapplicable to fees imposed on a legislative basis on all similarly situated development. (See Ehri/ich v. City of Culver City (1996) 12 CalAth 854; City of Monterey v. Del Monte Dunes (1999) 5267 U.S. 687.) California's ~reasonable relationship· requirements are set forth in California case law and codified in sections 66000-66010 of the California Government Code, which the Legislature adopted in 1987 (known alternatively as the Mitigation Fee Act or AS 1600). Although distin'ct, these two standards are substantively similar and the California Supreme Court, in Ehrlich v, City of Culver City (1996) 12 Cal.4th, concluded that the two standards in the context of legislatively enacted and generally applicable development fees for all practical purposes have merged. The Mitigation Fee Act also requires that the City adopt certain findings prior to imposing a development impact fee, such as the nonresidential development affordable housing fee proposed by this study. The required findings are as follows: (1) Identify the purpose of the fee. (2) Identify the use to which the fee is to be put. If the use is financing public facilities, the facilities shall be identified. (3) Determine how there is a reasonable relationship between the fee's use and the type of development project on which the fee is imposed. (4) Determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed. City of Dublin Nonresidential Impact Fee Final Report 3 I S-'t)3 ";--- The Fee Study provides support for these required findings. The Sacramento decision affords considerable deference to local agencies to develop a reasonable methodology for establishing the nexus between commercial development and affordable housing and the appropriate fee amount. The courts do not require mathematical precision in developing a commercial impact fee, provided that the fee meets the requirements of the Mitigation Fee Act. The fee upheld in the Sacramento case met the reasonable relationship standard by demonstrating that non-residential development has an impact on the affordability of housing, by (a) creating new low·income jobs in the City, which (b) create additional demand for low·income housing. The amount of the fee upheld in Sacramento was based on the difference between the incomes of such low-income workers available for housing expenses and the cost to produce housing to house them. A portion of this deficit was imposed on non·commercial development as the fee. Therefore, if a local jurisdiction follows the aforementioned principles in developing a commercial impact fee, the courts generally have upheld the fees as justifiable. To develop the fee structure, the Task Force, City Staff and CBA examined five commercial impact fee models used by surrounding jurisdictions. These included the cities of Oakland, Livermore, Pleasanton, Menlo Park. Mountain View, and Sonoma County. The cities of Danville, Hayward, San Ramon, San Leandro, and Union City and counties of Alameda and Contra Costa were not examined because these jurisdictions do not have impact fees for nonresidential development. CBA examined the assumptions and data sources used by each jurisdiction and then developed a hybrid approach tailored for the City of Dublin. Chapter 3 provides the methodology used to meet the aforementioned legal requirements. C. Methodology Based on the survey, the Task Force, City Staff and CBA developed a five·step approach to examining the nexus between new nonresidential development in Dublin and the demand and cost of producing affordable housing. The methodology is summarized below. Step 1: Determine total employees generated by future nonresidential development based on employment generation rates for projected land uses in Dublin. Calculate the distribution of household income generated from jobslindustries likely to migrate into the Tn-Valley area. Determine the humber of employees by income generated by land use designation who would be likely to seek housing in Dublin. Determine the cost of producing market rate single-family residences and apartments and the gap between that cost and what very low, low, and moderate income households could afford to pay for such housing (known as the "affordability gap"). Step 2: Step 3: Step 4: City of Dublin Nonresidential Impact Fee Final Report 4 U~I1b)~ Step 5: Determine the maximum impact fee per square foot by multiplying employment generation factors by the afford ability gap for households of different income levels and by the contribution of the Inclusionary Zoning Ordinance housing program, and, lastly, examine the feasibility of the impact fee(s). D. Data Sources Data for the Nonresidential Development Affordable Housing Impact Fee Study is drawn from a variety of sources, which are cited in Chapter 3. These data sources are as follows: · Employment, population, and households growth projections from the Association of Bay Area Governments (ABAG Projections Series); · Demographic data, economic data, and housing production trends from the 1990 and 2000 Census, including special tabulations for the Tri-Valley region related to !household income by industry, number of people in occupations by industry groups, household income· by occupation, and number of workers per household by income, and other detailed information; · Inventory of available sites for residential and nonresidential development as well as the type of industry or project anticipated for each site based on an analysis by the City of Dublin Community Development Department; · Employment generation data from the City, of Dublin Community Development Department, the Institute of Transportation Engineers, Trip Generation Manual (1997), and San Diego Association of Governments Trip Generator Study; · Comparable commercial impact fee studies from the City of Oakland, Pleasanton, Livermore, Sonoma County, Menlo Park, and Mountain View; · Housing sales price trends from Dataquick Real Estate Services, and apartment rents from Real Facts, the 1990 and 2000 Census, and other city survey data; · Housing production cost information for apartments and single-family homes in Dublin from developers and from the Home Builders Association of Northern California. E. Committee Review To develop the commercial impact fee, the City Council appointed a six~member task force to oversee the development of the nexus study and commercial impact fee analysis. The City Council and Planning Commission each had one member in attendance. Developers and the local business community were also represented. Members were as folloWS: · Don Johnson, Imprint Works, for the Dublin Chamber of Commerce · Adib Nassar, the Dublin Planning Commission · Janet Lockhart, Mayor of Dublin · Brad Kaune, Home Marketing Alternative Project Services · Pat Cashman, Alameda County Surplus Property Authority · Michael Parker, KolI Development Corporation Final Report City of Dublin 'Nonresidential Impact Fee 5 ... I1lfb '"i' z.,... The Task Force met on four occasions, December 13,2001. February 27,2003, July 31, 2003, and September 4,2003, The first two meetings focused on an introduction to the key economic and housing issues facing Dublin over the next decade, as well as a discussion ofthe methodology to be used to calculate the nexus study. At the July 31, 2003 meeting, the Fee Study preliminary findings were distributed to the Task Force for comment. City Staff returned at the last meeting on September 4, 2003, with further information in response to the Task Force's comments. Based on the information provided and the Task Force discussion, the Task Force passed a motion expressing the Task Force's recommendation to the Dublin City Council. F. findings Summary As detailed in Chapters 2 and 3, a strong demand for housing in Dublin, fueled in part by strong employment growth in the Tri-Valley region, has resulted in a growing gap between housing costs and the ability of area workers to afford housing. While median housing costs increased between 55 and 120 percent from 1990 to 2000 (depending on the type of housing). the median income in Dublin increased by 44 percent (see chart 2- 1 and discussion on p.2-2 for additional detail). Dublin has the potential to create 31.270 additional jobs between 2003 and 2025. A significant percentage of these jobs will be filléd by individuals living in very loww, low, and moderate-income households. It is these households that experience the greatest difficulties in finding affordable housing in Dublin. A portion of the future affordable housing need will be met through the City's inclusionary housing program, in which 12.5 percent of new housing units constructed in Dublin must be affordable to very low-, low-, and moderate-income households. or the affordable units constructed under the City's inclusionary program, 30 percent must be affordable to very low·income households, 20 percent to low-income households, and 50 percent to moderate-income households. Nevertheless, a significant gap will remain between the need and demand for affordable housing in Dublin and the number of affordable housing units available to very low-, low-, and moderate-income residents, One method of bridging that gap is to charge an affordable housing fee to nonresidential developments. Nonresidential developments create employment that generates a need and demand for affordable housing based on the anticipated income levels of the workforce in those developments. Revenues from the affordable housing fee would be used to build housing in Dublin that very low-, low-, and moderate-income households can rent or own. This maximum justifiable fee. however, could be modified tp a rate that is comparable to non-residential development rates of adjacent communities, so that Dublin can continue to attract new employment generation in the future (see Chart 3-10 for comparable rates). Recent economic conditions have slowed commercial development in the Tri- Valley and any potential fee could be reviewed for its effect on the viability of commercial projects. At the September 4, 2003 meeting, the Nonresidential Development Affordable Housing Impact Fee Task Force made the fOllowing recommendations: that the City Council City of Dublin Nonresidential Impact Fee Final Report 6 I~Øb .~~ adopt a Nonresidential Development Affordable Housing Impact Fee Ordinance; that due to current economic conditions, the City Council adopt a fee resolution capped at $1 per square foot of new nonresidential development floor area, which is scaled to the impacts of different industries; and that the City Council consider exempting projects which are currently under City review. City of Dublin Nonresidential Impact Fee Final Report 7 / l~Gb ,~ Employment/Housing Trends This chapter provides a general background and history of the Tri-Valley area, and then focuses on economic and housing market changes in Dublin. A. Tri.. ValléY Planning Area The City of Dublin is situated in the Tn-Valley area, an area encompassing more than 350 I·· square miles in the Diablo, San Ramon, and Livermore/Amador valleys. The Tri-Valley includes the cities of Danville, Dublin, Livermore, Pleasanton, and San Ramon, and the surrounding parts of Alameda and Contra.Costa counties. /alley Areo Over the past fifty years, cities in the Tn-Valley area have developed in a consistent pattern. Each has sho~n similar demographics, housing markets, and economic conditions. Understanding the changes and transition of the Tri-Valley area are therefore important in that these changes will likely occur in Dublin as well. Until the 19508, the Tri~Valley area was primarily agricultural in nature. Pleasanton and Livermore incorporated in the 19th century, providing services for the local agricultural economy. However, the establishment of the Lawrence Livermore Laboratory and other major research facilities during the 19508 began a new direction that would shape the future character of the Tri~Valley. The completion of the freeway systems in the 19605 and 1970$ (Interstates 580 and 680) opened the area to extensive single-family suburban development in unincorporated areas. With the rapid suburbanization of the Tri~Va1ley area, the clties of Dublin in Alameda County and Danville and San Ramon in Contra Costa County incorporated in the early 1980s. These cities also included large tracts of land within their spheres of influence. During the 1980s, the Tri-Valley area became a major center of employment for the region, with the development of the Bishop Ranch Office Park in San Ramon and the Hac/enda Business Park In Pleasanton. Employment development accelerated through much of the 19908. City of Dublin Nonresidential Impact Fee Final Report 8 B. Du~lin Market Trends Dublin experienced substantial population and employment growth during the 19905. ABAG's Projections 200.3 show that the City of Dublin experienced a 70% increase in job growth from 1990 through 2000 (Chart 2...1)1. However, according to the U.S. Census Bureau, the City experienced a 41 % increase. in housing units and a 29% increase in population during the same period of time2. As a result, the jobs-housing ratio in Dublin significantly increased since 1990 from 1.84 jobs per housing unit in 1990 to 2.2 jobs per housing unit by 20003. Dublin's rapid growth and demand for housing is evident in the changes in housing prices over the decade as well. Chart 2-2 details housing price trends from 1990 to 2000. According to Dataquick, the median sales price of a condominium rose 55% to $291,0004. Meanwhile, the median sales price of a single-family home increased 120% to more than $450,0005. Although long- term trends on apartment rents are not available, the Census Bureau reports that the median contract rent for apartments and . single-family residences has increased by approximately 54% to $1,245 in 20006. '-" :2DÞb ~ ÿ Chart 2·1 Population, Job, and HousIng Growth City of Dublin, 1990~2000 800/.. 7()I'1e> 60% 50% 40% 30%- 20% 10% 0% Population 70% Jab Growth Housing Chart 2-2 Housing Price Increases 140'% 120% 1Y/ó 100'10 80% 60% 40'% 2a'/ó 0% O::ndarinium Single-fa'l'lily Qlnlmd Rent I-bne 1 According to ABAG's Projections 2003, the total number of jobs in Dublin in 2000 was 21,870. The 1990 figures from ABAG's Projections 2002 totals 12,870 jobs. 2 U.S. Census Bureau figures for housing total 9.872 units in 2000 and 6,992 units in 1990. Population totals 29,973 people in 2000 and 23,229 people in 2000. 3 2000 U.S. Census 4 Condo median starting price of $187,500 in 1990 S Single-family home median starting price of $210,000 in 1990 6 Median contract rent starting price of $811 in 1990 City of Dublin Nonresidential Impact Fee Final Report 9 ¿ lrsb 3;¡ In contrast, the 1990 and 2000 Census reports that the median household income of Dublin residents increased 44%, considerably slower than housing prices 1. Changes in household income afe largely affected by two conditions: 1) The pace of net migration and turnover among households. For example, new households moving to Dublin tend to have higher incomes, on average, than existing residents, including those moving out of the community. The rate at which higher income households replace lowef~income households will affect the pace of income growth in a community. 2) The rate of increase of incomes. among existing residents. Most workers experience significant gains in income as they progress in their careers, and average incomes rise with age, at least through retirement. The rate of income growth in a community will also be affected by the percentage of workers who stay in a community through their peak earning years (typically ages 45 to 54). According to the City of Dublin Community Development Department projections, Dublin is expected to continue its rapid pace of development through 2025. Dublin's employment is expected to increase 160% from 19,500 jobs in 2002 to 50,770 jobs in 2025. Other indicators, such as Association of Bay Area Governments (ABAG), also point towards rapid development. According to ABAG projections for Dublin for the period of 2000 to 2025, Dublin's population is projected to increase 120% to 65,900 persons, and households are expected to increase 138% to 22,220 (Projections 2003). These changes will significantly increase the demand for suitable housing. These growth projections have long-term implications for the City of Dublin. Lower- income residents often live in subsidized units and have limited choices to move elsewhere. This creates a condition where upper income households who have homes or lower-income persons who have subsidized units remain in the City. However, moderate income families and the workforce of the City, including teachers, public safety workers, nurses, and others leave the community entirely, or find affordable housing elsewhere and commute to work in Dublin. This trend affects traffic and commuting patterns, impacts quality of life, and makes it difficult for employers to attract and retain employees 1. 1 MeQian income for Dublin residents was $53,710 in 1990 and $77,283 in 2000, according to the U.S. Census Bureau. 1 Section 4,6.3 of the Eastern Dublin Specific Pian discu$$es the adVtintages of a jobs/housing balance (page 30). City of Dublin Nonresidential Impact Fee Final Report 10 ~Î.Ø'b ~,.. Jobs-Housing Demand Linke e This chapter analyzes projected employment growth and evaluates the impact of this growth on the need for affordable housing. This analysis is intended to demonstrate the nexus between employment growth and the demand for housing, and calculate the maximum justifiable fee that could be charged for affordable housing. Population growth in Dublin is attributable, in part, to nonresidential development. As available land is gradualfy developed with commercial and industrial businesses, new job opportunities are created. New jobs will attract a workforce, many of whom may wish to live in Dublin if suitable housing is available. The first step in detelTTlining the demand for housing is therefore to estimate the number of new jobs generated from nonresidential development in Dublin. The calculations are illustrated to the right and in Charts 3-1 and 3~2 on the following page. To that end, City Staff providéd an inventory of developable nonresidential land in Dublin. For each, City Staff determined the type of use (e.g., commercial, industrial, school, par1<land, etc.) expected to occupy each site and trip generation rates. Using recognized data sources, the project consultants, CBA, calculated the total amount of devetopable acreage and the number of jobs generated from different types of commercial, manufacturing, industrial, retail, and other U$$$. Taken together, Dublin can expéCt to accommodate 32,808 additional jobs by build--out (projected to be 2025). A. Employment Growth Employment Available Acreage x Industry Employee Generation Rate x Commuting Rates Employees to live in Dublin Regardless of employment projections, not all employees will choose to live in Dublin. Households choose a community for a variety of reasons, induding quality of schools, availability of affordable housing, proximity to family and relatives, publfc service levels, etc. ACcording to a 1990 study by the Tri~VaUey Planning Committee2, an association of planning directors and other public agency officials in the Tri..Valley area, only 48% of all employees will eventually choose to Dve within the Trt-Valley area. This factor was applied to projected employment to estimate the demand for housing in Dublin.' The employment generation rates and the projected employment generation totals are shown in Charts 3-1 and 3-2. The total projected building floor area is approximately 10.9 million square feet. 2 Woticing Paper #3. TJi..Vatley Planning Committee, ABAG 1990 Census Transportation PackaSe (According to ABAG, the Tli-Valley Planning Committee was formed out of the Tn-Valley Tram;portation Council with a one-time grant from ABAG to produce a subregional planning strat~y.) City of Dublin Nonresidential Impact Fee 11 Final Report Chart 3..1 Employment Generation Rates Em 10 ment Generation Rates ITE Average Adj. Rate for Future Land Uses in Industrial Density Commuters Dublin Code 1 er KSF2 er KSF3 110 1.69 0.81 710 3.85 1.85 714 3.85 1.85 760 2.47 1.19 814 2.04 0.99 820 1.96 0.94 310 0.47 0.23 Light Industrial Office Corporate Headquarters Research and Development Neighborhood Retail Commercial4 HotelS Notations 1. ITE Codes provided by Dublin Staff; employment densities from ITE. 1997 2. Eastern Dublin Specific Plan, surve¥. infortnation, and Institute of Transportation Engineers. ¡rip Generation Manual, 5 Edition. 1997 3. Employment density adjusted for average 52% commute factor for Tri-Valley (Tri~ Valley Planning CQmmittee) 4. Commercial employment rate from Eastern Dub"n Specific Plan 5. Hotel rate of .47 per KSF adjusted for 8 24Q..room hotel at 508 &Quare feel pet room (based on SUNey of Monarch Hotel, Amerisuites and Holiday Inn Extended stay) 6. SChool employment rate from SANOAG Traffic Generator Study 7. Government rate of 1.5 based on survey of proposed Alameda County Courthouse Chart 3..2 Employment Generation Totals From 2003 to Build Out Em 10 ment Generation Totals .. Employees to Live In Dublin! 680 8,038 1,595 1,025 233 3,424 28 Future Land Dublin Uses in Light Industrial Office (Includes Transit Ctr.) Corporate Headquarters Research and Development Retail (inctudes Transit Ctr.) Commercial Hotel Total Building Size (KSF) 1 840 4,345 862 861 235 3,643 122 New EmplOyeea2 1,420 16,728 3,319 2,127 479 7,140 57 10 908 31 270 15,023 Notations 1. City of Dublin provided building size capacity by different land uses 2. Total employment detennined by calculating employment generation rate by building size 3. Employees expected to live in Dublin detennined by adjusting employment generation for average 52% commuting (actor for Tn-Valley (Tri-Valley Planning Committee). City of Dublin Nonresidential Impact Fee Final Report 12 ,;?~'ò~~ 2~Øb)Þ-- B. Job-Related Earnings and Income Having calculated the additional jobs created by projected nori·residential development, the question that arises is: How does one determine the wages and salariés of anticipated future jobs? To that end, the !,J.S. Census Bureau provided specialized cross tabulations of earnings of householders working In the Tn-Valley area (2000 Census). Since many households have more than one worker, the Census Bureau also provided information in its cross--tabulations on the income of all members of the household, called "Household Income." As shown in Chart 3..3, the Task Force, City Staff and the project consultants, CBA, first calculated the median earnings of householders employed in various industries, as well as the income of the entire household of that employee. Household income is a broad measure of all monetary gains reported by a household. Many households have more than one worker and sources of income in addition to earnings, which increases their abiftty to pay more for housing. For this reason, household income is used as the basis of the nonresidential development impact fee. Industry categories were collapsed into broader categories in order to match the types of industries likely to occupy the particular general plan land use designations in Dublin. Chart 3-3: Median Eamings and Income by Industry, Census 2000 Median Median Median Class Industry Householder Householder Household Earnings Earnings Income (Averaged) 1 Manufacturing $ 77,216 $77,216 $107.320 2 Construction $61.213 Transport.. Warehouse, and Utility $58,904 Wholesale Trade $64,759 $62,440 . $91,416 3 Retail Trade $49,923 $49,923 $85,072 4 Information $71,618 Finance and Insurance $67,609 Real Estate, Rental and leasing $57,846 Professional, ScientifIC, and Tech. $76,116 Administrative Support $42,571 $69,801 $99,960 5 Educational Services $48,824 Healthcare and Social Assistance $49,112 $48,984 $79.103 6 Arts. Entertainment. and Rec. $31,737 Accommodations and Food $29,468 Other Services $41,609 $35.482 $65,427 7 Public Administration $65,343 $65,343 $95.957 City of Dublin Nonresidential Impact Fee Final Report 13 z~ð'ò?J.-- Chart 34 summarizes the household incomes by householder industry distributed to very low, low and moderate income groups. For example, using the chart below, one can calculate that out of 100 employees or jobs within the Education/Social Services industry in the Tri~Vatley, ten employees or jobs could be expected to be within the low-income range set by the State's Department of Housing and Community Development {HCD)1. Chart 3--4: Tri-Valley Household Income By Industry Distribution . Household Income Very Low~ Low~lncome Moderate- Industry Income Income Manufacturing 4.5% 6.5% 21.6% Other Industrial 3.8% 4.4% 15.5% Retail Trade 8.5% 9.8% 21.2% Professional 5.7% 6.2% 17.1% EducationlSocial 7.8% 10.1% 25.4% ArtslEntertainment 18.2% 14.3% 21.7% Public Administration 3.7% 4.6% 16.6% Source: U.S. Census, 2000 adjusted for income thresholds developed by HCD. C. Employment Generation by Land Use Section A calculated the total number of jobs expected to be generated in Dublin from nonresidential. development. Section B then calculated the expected distribution of household income of a householder working in each industry. This section determines the employment densities, by income, associated with each land use. The calculations for this step are illustrated in the sidebar to the right. Employees Per Land Use Adjusted Employee Generation Rate x Square footagè of each land use (weighted for different industries) x Income Distribution profi'le (weighted for different industries) Number of very low, low,· and moderate income employees per land use Based on the developable land remaining in Dublin, the Study estimated the distribution of industries likely to occupy a particular site based on SpecifiC Plan land use designations and tM North American Industry Classification System (NAICS) also used by the U.S. Census Bureau. For example, on commerciaklesignated sites, the City estimated that the site would contain 60 percent retail industry uses, 26 percent leisure (arts, entertainment and food uses), and 14 percent information uses (professional and administrative offices). This mix of uses was forecasted using the Waterford commercial center as the model, because it is a recent commercial project in the Eastern Dublin Specific Plan area. 1 The California Department of Housing and Community Development (HCD) detennines income ranges for Alameda County based on the median househqld income, adjusted for household size. Very low income means 50% or less of the County's median income. Low income means more than 50% to 80% oftha median Income. Moderate means more than 80% to 120% of the median income. City of Dublin Nonresidential Impact Fee Final Report 14 "ZlÞØb'3¡" ;:lart 3-$: EmDloyment Generation Per Land Use Specific Plan LandOses by Percentage . ...... Light Office Corp. Re8& Retait Comm. HoteU semi Industry Mix Industr: Hdqtr Dev Artsl Public Goods 100% 0% 0% 0% 0% 0% 0% 0% Manufacturing 0% 0% 0% 0% 0% 0% 0% 0% Retail 0% 0% 0% 0% 100% 60% 0% 0% Professional 0% 100% 100% 100% 0% 14% 0% 0% Education/Social 0% 0% 0% 0% 0% 0% 0% 100% Arts/Entertain 0% 0% 0% 0% 0% 26% 100% 0% Having estimated the mix of industries on each land use, it is possible to determine the number of future employees by household income that can be expected to work and live in Dublin. The Study developed by CBA multiplied the employee generation rate (adjusted for commuting) by the amount of developable land to yield the total number of employees per land use. This total was then multiplied by the distribution of ~ousehold income generated by householders working in those industries. This calculation yielded the number of employees by household income, generated per 1,000 square feet of floor area. Chart 3-6 provides a summary of the calculations. Chart 3--6: Employment Generation Per Land Use Land Uses Light Industrial 0.04 0.05 Office 0.11 0.12 Corporate Headquarters 0.11 0.12 ResearchJDevelopment 0.07 0.07 Retail 0.08 0.10 Commercial 0.42 0.48 Arts/Entertain 0.04 0.03 Note: Figures refer to employees per 1,000 square feet of floor area. Number of Employees Per 1.000 Square Feet Very Low Income Low Income Moderate- Income 0.17 0.32 0.32 0.20 0.21 0.09 0.05 D. Housing Prices and Affordablllty Gap Having determined the number jobholders by industry and income projected to locate in Dublin, the focus turns to the housing market. This section develops the average cost of producing market rate housing in Dublin and contrasts that with the amount that can be afforded by very low, low and moderate income households (the "afford ability gap"). The City of Dublin's consultants. CBA, developed an apartment proforma based on three recent projects built. in Dublin between 2001 and 2003 for the analysis. In addition, the Study used the single-family home proforma (essentially a smal¡"'lot condominium) City of Dublin Nonresidential Impact Fee Final Report 15 ...... z 1ðb:;'" developed by the Homebuilders Association for the City's inclusionary program in 2001. Chart 3...7 provides a summary of the cost of producing affordable rental projects and the market pñces of a condominium development In Dublin. Chart 3...7: Housing Proformas in Dublin , ." ... . La,nd Cqsts Soft Costs Construction Costs Ave e Cost Notes: 1. B$$OO on average of three proformø. of apartn\ènt projeéts built in Dublin (2001-2003), average unit si2:e,af793 square féet, 2. Data provided by HomeBuilder Association for the City's inclusionary program (2001), unit size of 1,200 square feet. The Task Force determined the breakeven rent and sales price for these projects using residential Industry standards for financing, operating costs, and vacancies based on information provided by CBA and Task Force members' knowledge and expertise. The Study calculated the maximum amount that could be afforded by households of different income levels. The difference (called the "affordability gap) was annualized and discounted using a 7 percent capitalizatJon rate, which is the market interest rate for permanent loan$. This calcu1ation provJdes the lump sum amount necessary to corrtpensate a property owner for renting at below market rents. Calculating the "affordability gap" for single-family residences was more straightforward. The maximum affordable payment for moderate..income households was calculated based on standard assumptions regarding annual property taxes and insurance, a 5 percent down payment, and a 30~year fixed loan at a 7 percent interest rate. The difference between the sales price and maximum affordable pñce represented the lump sum amount necessary to compensate a property owner. 11 should be noted that the sales price of a singfe~family home used in the above analysis ($282,OOO) is substantially below the market rate price for single-family residences being built in Dublin today. The difference could be due to the small lot size for the unit(3,500 square feet) as well as the higher densities allowed. Still. even with those qualifications, the $282,000 price used for the inclusionary analysis is probably more reflective of the sales price of condominiums. Chart 3..s summarizes the results of the affordability gap analysis. City of Dublin Nonresidential Impact Fee Final Report 15 Chart 3-8: Affordability Gap Analysis ~iSb~; AffordabUIty Apartment Pr~lect Sinale-family Residence (Condo) Calculation Very Low Low Moderate VerY Low Low Moderate Annual HH Income $ 32 200 $48 450 $77,300 $35,800 $57,280 $85,920 Max. Affordable Rent' $730 $1,136 $1,858 $81,166 $166,129 $279,414 I Price3 Breakeven $1,668 $1,668 $1,668 $282,000 $282,000 $282,000 Rent/Sales4 Affordsbilltv GaDJUnit ~ $938 $532 $l189} $200.834 $115.871 $ 2.586 Annualized $11,259 $6,384 $(2,271) N/A N/A N/A Affordabilitv GaD Lump Sum to Compensate Property $180.838 $91,195 $(32,448) $200,834 $115,871 $ 2,586 OwnerP Notes: 1. Annualtncome determined by HCD Income limits. For apartments, a three-person household was assumed; a four·person household was assumed for a single-family residence (three-bedroom size). 2. Maximum affordable rent refers to payments of no more than 30% of income toward housing after utility payments. 3. MaxlmJm affordable sales price assumes a SOlo down payment. 30 year loan at 7% Interest rate and standard assumptions regarding property taxes and insurance. 4. areakeven rent was detenTIined by calculating the likely financing costs of a 100% financed loan for 30 years at an interest rate of 7%. The Institute of Real Estate Management provided standard assumptions for calculating the operating costs of apartment projects. For single-family residences. the breakeven pt1ce was assumed to be the sales price. 5. Difference between the breakeven rent for an apartment unit or home sales price and the maximum that could be afforded by a very low, low. and moderate Income household. . 6. The lump sum payment needed to compensate 1he property owner for renting or selHng a unit at below market rates is detennined by a 7% èapitaU~tion' rate. ' E. Maximum Justifiable Fee The, final step was to determine the maximum justifiable commercial impact fee, and the fee's feasibility. To maximize the utility of the fee, the fee was based on very low and low-income households living in apartments and moderate. income households living in small lot single-family homes. The fee calculation methodology is represented in the sidebar to the right. City Staff and CBA also surveyed one dozen jurisdictions to compare their maximum justifiable fees with the results of the analysis. From this pool, three jurisdictions were selected from Alameda County (Pleasanton, Livermore, and Oakland) and three were outside the City of Dublin Nonresidential Impact Fee Maximum Justifiable Commercial Impact Fee -.----_.. Step A: Employment Generation Rate for Each Industry Adjusted for Commuting x Step B: Income Distribution of Householder employed by Industry x Step C: Weighted Employment Generation Rate by income for different Land Uses x Step D: Affordability Gap for Apartments and Condominiums Final Report 17 "2" db -; ,.., County (Sonoma County, Menlo Park, and Mountain View). The adjacent cities of DanviUe, Hayward, San Ramon, San Leandro, Union City and counties of Alameda and Contra Costa were not selected because these jurisdictions do not have housing impact fees for nonresidential development Dublin's fee methodology is comparabJe to the latter four studies, conducted after 2000. Fees for the first two, Livermore's study (DMG, 2001) and Pleasanton (EPS. 1990 updated in 2000), were the lowest. The Livermore study derived the lowest fees. primarily due to significantly lower construction costs estimated at approximately $77,000 for a multi~family apartment unit and low proportions of very low and low-income jobs. Chart 3.10 shows the comparable jurisdictions with maximum non-residential affordable housing impact fees, below. Chart 3·10: Maximum Justifiable Fee (Per Square Feet) . Industries :)akland Mountain Menlo Park Sonoma Uvennore Ple.santon View County Light $12.85 16.97 $24.72 $20 $.07 ~ $.26 $4.58 Industrial Office $35.11 16.97 45.32 $31 $.52 $13.62 Corp. HQ $24.72 $.52 R and D 16.97 45.32 $4 $5.37 Retail $32.39 14.84 $24.72 $36 $.81 $6.26 Commercial $24.72 HoteI/A&E $12.91 13.90 $24.72 $32 $397/room $7.46/room Public/Semi $24.72 $31 -Public In most cases, except for the City of Livermore, the cities surveyed did not adopt the maximum fees estabtished in their studies. but opted Instead to adopt fees that were on average 9 to 34 percent of the maximum justifiable fee. For example, the City of Pleasanton recently adopted an impact fee of $2.28 per square foot for new commercial development. The City of Livermore adopted the maximum fee. which was calculated as totaling between $0.7 and $.81 per square foot. City of Dublin Nonresidential Impact Fee Final RepOrt 16 '3o"tJY F. Dublin's Maximum Justifiable Fee The City of Dublin's maximum justifiable fee is calculated in a manner similar to the jurisdictions above. In addition, the Task Force recommended that the contributions of the City's Inclusionary Zoning Ordinance in meeting the City's housings needs, including workforce housing, be considered when calculating the maximum justifiable fee. The Fee Study recognizes that the maximum justifiable fee by industry could be adjusted for the percentage of very low·, low- and moderate-income housing units anticipated to be produced under Dublin's inclusionary housing program. The inclusionary program requires that 12.5 percent of all new units produced be affordable to low- and moderate- income households, of whi¢h 30 percent should be áffordable to very low-income households, 20 percent to low-income househotds. and 50 percent to moderate-income households. The number of units affordable to very low, low and moderate income level residents, expected to be produced under the Inclusionary Zoning Ordinance is approximately 1.260 units3. These units could house 2,772 employed residents within the City of Dublin or approximately 52 percent of the very low, low and moderate income jobholders projected to be employed by business~s locating in Dublin. The City of Dublin's housing needs· and the contribution of the Inclusionary Zoning Ordinance are described in Chart 3-11 below. Chart 3-11, Contribution of Incluslonary Program to Housing Employed Residents Remaining 12.5% Number of Employed State of Units Inclusionary Workers at 2.2 Residents within California to Build by Year Requirement per Unit Very Low, Low Regional 2025 and Moderate Housing Needs Income Ranges Assessment To Year 20254 (1999 - 2006) 10.084 1.260 Units 2.772 5303 5436 The Study recommends that by reducing the maximum justifiable fee by the percentage of affordable housing that will be created by the City's Inclusionary Program, the non~ residential development fee program would not duplicate the Inclusionary Zoning Ordinance's contribution to providing affordable housing to jobholders. Using this formula. the maximum justifiable fees to provide affordable housing to jobholder residents, as a direct result of commercial development in Dublin, are as follows (Chart 3..12): 3 Affordable Housing Priority Areas map approved May 1. 2002 by City Council Resolution 57-OZ. totals 10,084 units remaining to be built in Dubiin. inolusionary requirement of 12.5% produces 1.260.5 units. .( Employed Residents are the percentage of workers who would desire to move to Dublin at 48%. Average of very low, Low and Moderate Income workers is approximately 35.3% of total employed residents. CIty of Dublin Nonresidential Impact Fee Final Report 19 3\øt> 3~ Chart 3·12, Maximum Justifiable Fees Future Land Use Fee $ 5.46 $ 13.72 $ 13.72 $ 8.81 $ 10.99 $ 5.50 Li ht Industrial Office Co orate Has , R&D Nei hborhoocl Retail Commercial G. Task Force Recommendation At the September 4. 2003 meeting, the Nonresidential Development Affordable Housing Impact Fee Task Force made the following recommendations: that the City Council adopt a Nonresidential Devetopment Affordable Housing Impact Fee Ordinance: that, due to current market condi~ons, the City Council adopt a fee resolution capped at $1 per square foot of new nonresidential floor area, which is scaled to the impacts of different industries; and that the City Council consider exempting projects which are currently under City review. The Task Force approved a motion to make the fallowing recommendations to the City Council: 1.) That ari ordinance bé adopted for charging a commercial linkage fee. 2.) That, due to current market conditions, a fee be capped at $1.00 per square foot of new nonresidential floor area and that it be scaled to the impacts of different industries. . 3.} That the City Council consider exempting certain categories of projects that are currently in the pipeline and under City review. As recommended, the adopted fees would range from $.34 to $1.00 per square foot of commercial development based on the type of commercial use or business tenant. as outlined in Chart 3ø13, below. The fee would be collected prior to issuance of a building permit. The fee would be levied one time. with the construction of new commercial floor area. 5 KSF symbolizes 1,000 square feet of floor area. City of Dublin Nonresidential Impact Fee Final Report 20 iZD'bJr Light Industrial Office Corporate HQs R&D Neiahborhood Retail Commercial Hotel Total Chart 3~13, Recommended Fee Future Land Use Building Size (KSF)8 840 3,044 862 o 235 2,490 122 7,593 Feel Impact Fees $ .40 $ 1.00 $ 1.00 $ .64 $ .80 $ .40 $ .34 $ 336,000 $ 3,044 000 $ 862,000 $ 0 $ 188.000 $ 996,000 $ 41.480· $ 5.467,480 The City estimates that there is approximately 10.9 million square feet of commercial development remaining to be built, Including the Transit Center Master Plan and the Dublin Ranch commercial development. Due to the terms of some development agreements, approximately 7.6 million square feet of commercial development would be sUbject to the potential nonresidential development fees. H. Conclusion A strong demand for housing in Dublin, fueled in part by strong employment growth in the Tn-Valley region, has resulted in a growing gap between housing costs and the ability of area workers to afford housing. This trend may continue as Dublin has the potential to create 31,270 additional jobs between 2003 and 2025. According to Census data for the Tri-Valley area, a significant percentage of these jobs will be filled by individuals living in very low.., low, and moderate-income households. It is. these households that will experience the greatest difficulties in finding affordable housing in Dublin. The City of Dublin has established an Inclusionary Zoning Ordinance which requires 12.5 percent of all residential units be made affordable to very low, low and moderate income families and individuals. Nevertheless, a significant gap will remain between the need and demand for affordable housing in Dublin and the number of affordable housing units available to these residents. One' method of bridging that gap is to charge an affordable housing impact fee to nonresidential developments. A justification for such a fee is that nonresidential developments create employment that generates a need and . demand for affordable housing based on the anticipated income levels of the workforce in thœe developments. Revenues from the Nonresidential Development Affordable Housing Impact Fee would be used to build housing in Dublin that very low~, low~. and moderate"income households can rent or own. . 6: Total building floor area projections include areas within the Dublin Ranch development whiCh have been exempted from any potential nonresidential development impact fee. T Fee calculated per square foot of nèW commercial development floor area. S Total floor area subject to the fee 1$ reduced by the approximately 3.3 million square feet of commercial floor area exempted by the Fairway Ranch development agreement. City of Dublin Nonresidential Impact Fee Final Report 21