When Palo Alto approved last month a sharp increase to the fees that developers are required to pay to support affordable housing - making them the highest in the region - city officials hailed the move as a positive step toward addressing an urgent problem.
Now, before they'd even been tested, the rates may be in for another revamp.
On Monday, in an unusual move, the council decided not to approve on a "second reading" the new fees, which the City Council approved on Dec. 12. Though a second reading is usually a formality after a law is passed, in this case there was one key difference: between the December meeting and this week's discussion, three new council members were sworn in. And two of them - Adrian Fine and Greg Tanaka - have serious reservations about the new fee structure.
Given the concerns, the council agreed on Monday not to formally approve the recently passed ordinance but to reopen the discussion and hold a fresh public hearing on the new fees.
The proposal to reopen the process came from Fine, who last year served as chair on the Planning and Transportation Commission. Councilman Cory Wolbach and Vice Mayor Liz Kniss, who both voted against the fees last month, joined Fine in removing the item from the council's "consent calendar," where noncontroversial items typically get approved in bulk by a single vote.
Considering that Mayor Greg Scharff was against the new fees, which passed by a 5-3 vote, and that newly elected Councilman Greg Tanaka has expressed his own deep reservations while reviewing the fees as a planning commissioner, the decision to reopen the discussion could prompt a significant, last-minute pivot for an update process that has stretched for well over a year.
Under the new fee structure, which last year was approved by the council's Finance Committee and by the planning commission, developers looking to build office or research-and-development projects would have to pay $60 per square foot of new development, almost three times the prior level of $20.37 per square foot and far more than any other city in the area. Redwood City charges $20, while Mountain View's fee is $25, with a 50 percent discount for new floor area under 25,000 square feet. Builders or market-rate housing would have to pay a fee of $50 per square foot to support affordable housing as opposed to the prior method, in which the fee is based on a percentage of the sales price. Developers of rental housing, who previously didn't have to pay any housing-impact fees, would now be required to pay an impact fee $20 per square foot.
Proponents of the new fees all argued over numerous meetings the new rates are a sensible way to generate revenue to support affordable housing. The new fees are based on recent nexus studies that the city had commissioned and that established the $60 level as the "maximum feasible" fee for commercial developers.
During the December hearing, Councilman Tom DuBois pointed to the studies and said that the new fees are "an opportunity to make a statement.
"We live in an expensive area," DuBois said. "The impact fees aren't kept up. ... We have a choice. Do we want to really enable building affordable housing or do we want to continue to have developments that don't raise enough money to have affordable housing?"
Councilwoman Karen Holman said the new fee is a "message we're sending that we're serious about housing" and noted that even at the higher level, impact fees still represent a tiny fraction of the construction cost.
The planning commission, meanwhile, was far more skeptical. Though it ultimately approved the higher fees, most members raised doubts about the increase and called for more analysis, including a "sensitivity study" that would look at whether the new fees would deter construction altogether.
Now, two of these commissioners are on the council and they have three political allies, all of whom voted against the ordinance last month.
Fine, who proposed pulling the approval of the higher fees off consent, told the Weekly after the meeting that he didn't think the new proposal was "fully baked" because the city didn't adequately analyze the impacts of the higher fees on new construction.
"Raising fees to $60 per square foot may actually inhibit those funds from being generated for affordable housing," Fine said. "There is also a fee for rental housing, which may or may not be correct.
"I do believe Palo Alto needs to raise its fees and assess them. I just don't think we did enough."
Some proponents of affordable housing have also expressed reservations about the new law, which should ostensibly help them. Bonnie Packer, speaking on behalf of the League of Women Voters, urged the council Monday to reconsider some provisions in the new housing rules. Packer, who also serves on the board of Palo Alto Housing, which administers the city's below-market-rate-housing program, cited the uncertainty over the impact that the revised fees would have on the city's affordable housing fund.
Tanaka, for his part, proposed during the commission's final discussion of the fees an entirely new way of assessing fees to residential developments: Rather than charging everyone a fixed fee per square foot, the city should have different rates for units, based on size, he argued. Smaller apartments, under Tanaka's scheme, would be assessed a lower rate per square foot.
"That's one way to actually encourage smaller units to be developed," Tanaka said at the Nov. 30 meeting. "And thus more housing stock available."