San Jose Could Give Commercial Developers More Fee Breaks

By Jana Kadah, San Jose Spotlight

March 28, 2022

Commercial developers in San Jose may see another fee cut — and some advocates say it’s at the expense of affordable housing.

The City Council on Tuesday will consider providing a 20% reduction in commercial linkage fees to developers citywide if the fees are fully paid before construction. The fee is a cost per square footage.

The plan also increases the maximum square footage for fee exemptions and provides credits for constructing affordable housing.

Under the proposal, each affordable unit provided would receive credit for satisfying the fee for a given square footage. Developers can also receive credits for preserving market-rate units, based on affordability of the unit.

Housing advocates say giving wealthy developers more fee breaks will jeopardize efforts to build low-income housing.

“The City Council did a study and knows what they need to charge to offset the impacts of commercial development,” Sandy Perry, executive director of the Affordable Housing Network, told San José Spotlight. He noted that the fees were already too low. “Reducing the fees even more just helps the rich get richer.”

The program, adopted in 2020, requires developers of office, retail, hotel, industrial, research and development, warehouse and residential care spaces to pay $12-15 per square foot, unless they promise to build the equivalent in affordable housing. For developments outside the downtown core, the fees are $5 per square foot.

The fees generate $6.4 million annually for affordable housing development.

Less is more

Commercial developments are that under 100,000 square feet do not have to pay fees for the first 40,000 square feet – a number the city is looking to change to 50,000 square feet. Of the 294 projects required to pay the fees, 103 projects would be exempt because they are less than or equal to 50,000 square feet.

Right now, developers can create a payment plan to pay the fees throughout the construction process, but city officials say they have a hard time tracking the payments. The proposed changes could make it easier to collect the fees, officials said.

Councilmembers Magdalena Carrasco, Sergio Jimenez and David Cohen say developers should pay the fees in full when they get building permits — instead of allowing a discount to pay the fees before construction.

They said because the city doesn’t have a way to track fees paid through a deferred payment program, which would be a costly strain. So requiring payments up front would simplify the process.

However, Derrick Seaver, CEO of the San Jose Chamber of Commerce, said mandating fees upfront would make it harder for developers to finance their projects.

“These fees are necessary,” Seaver said. “But at the end of the day, it’s about the bottom line. So anything that raises that cost is going to be to some in some way, obstructive.”

He said these proposed changes incentive commercial development — and more commercial development means more tax revenue for the city.

Perry, however, said the fees implemented two years ago were already low and more fee breaks mean less money to build homes for poor people.

“Every time they do a commercial project, the housing crisis gets worse,” Perry told San José Spotlight. “We have just an incredible housing crisis here. And the City Council just continues to keep doing the same thing – more commercial development.”

Perry said commercial projects that add more jobs to the economy mean more San Joseans looking for a place to live – increasing already soaring rental costs. Perry wants to see the city increase commercial linkage fees and slow down commercial development.

“The whole political culture here is to satisfy the development industry. And people just get hammered. People become homeless,” Perry said. “But the city could fix this.”

Job creation

Mayor Sam Liccardo says the proposed fee cuts are a step in the right direction because high fees can undermine the city’s job-creation goals.

“San Jose (is in a) uniquely challenged situation as the major city with the worst jobs-to-employed resident ratio in the United States,” Liccardo wrote in a memo.

Councilmember Dev Davis said she would like to see the city provide credits to developers who preserve the city’s historical sites and create environmentally sustainable structures. Davis wants to delay the vote by two weeks to ensure the credits are legal.

Both Liccardo and Carrasco, Jimenez and Cohen also want the city to have a plan to increase fees in the future – in line with promises made in 2020 to reassess fees in two years.

The councilmembers want the fees to increase by September, but Liccardo says the city should wait until another study is done to better understand the feasibility of such fees for developers – which is expected to be ready by December.

The fees will be discussed on Tuesday. Learn how to watch and participate.

Contact Jana Kadah at jana@sanjosespotlight.com or @Jana_Kadah on Twitter.

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