L.A. Council Committee Approves Fee on Developers

By Craig Clough, City News Service

A Los Angeles City Council committee Tuesday supported one of Mayor Eric Garcetti’s top priorities, requiring real estate developers to help fund the construction of affordable housing through a “linkage fee.”

Although two members had expressed some reservations about the proposal at a meeting in June, the committee approved without objection some new recommendations that would create a tiered fee structure depending on the market rate of the neighborhood.

“We are very proud here today to bring this very important proposal before the committee for action,” said Councilman Jose Huizar, who is the Planning and Land Use Management Committee’s chair, at a news conference before the meeting.

“We want to come away with as many dollars as possible with a committee and council vote and create what we have not had in the city of Los Angeles for a number of years now — a steady, funded revenue stream specifically earmarked for affordable housing.”

Garcetti first proposed the idea for a linkage fee two years ago and called on the City Council to pass it during his State of the City speech in April, but the fee has proven to be divisive.

“This is by far one of the most divided subject matters, depending on who you talk to that are in this space. Everybody’s got a different opinion,” Councilman Mitchell Englander said.

“This is like navigating a live mine field, that if we make it through it somehow, we’ll live. But if we misstep at all, we don’t, and the consequences are devastating.”

Some key business groups, including the Los Angeles Area Chamber of Commerce, have also come out against the linkage fee and argued it would slow the construction of affordable housing by increasing the cost of building.

“The business community strongly supports affordable and workforce housing, but this proposal will make low- and middle-class housing more expensive to build and more expensive to rent or own,” according to the chamber.

The fee approved by the city’s Planning Commission in February would have charged $5 to developers for every square foot of new commercial construction and $12 per square foot for new residential projects. On Tuesday, however, the committee instead voted to approve a tiered structure, ranging from $8 to $15 per square foot for residential and $3 to $5 for commercial, depending on the market value of the neighborhood.

The vote, if approved by the full council, directs the city attorney to craft an ordinance creating the fee. The ordinance would then need to be voted on and signed by Garcetti before it could become law.

When Garcetti first proposed the idea, he estimated the linkage fee could raise up to $100 million per year for affordable housing, but a staff report approved by the commission downgraded the estimate to $75 million to $92 million per year.

A Department of City Planning and Housing and Community Investment Department report estimated the fee could raise between $93.7 million to $114.3 million per year with the tiered structure.

Garcetti set a goal in 2014 for construction of more than 100,000 units in Los Angeles by 2021 as a way to combat a housing shortage that has contributed to rising rents and an increase in homelessness in the city.

However, not all city leaders are convinced the linkage fee will help affordable housing or that it won’t lead to other problems.

Englander in June expressed worry that the fee could end up harming low-income people because developers and landlords will just pass the cost on to tenants.

“Everybody wants to stick it to the developer,” Englander said. “Hey, that would be a great option. At the end of the day we are sticking it to the nurse, the teacher, the firefighter and they can’t afford it and they are moving out of Los Angeles and they are commuting two hours.”

Councilman Curren Price said at the same meeting that a “one size fits all” fee could end up harming low-income neighborhoods.

However, Englander and Price both ended up supporting the new tiered fee, and Englander said he has always supported a linkage fee, it has just been a question of finding the right “sweet spot” that doesn’t slow development.

The fee would have various exemptions, and the committee recommended adding a few more, including exemptions for all hospitals and nonprofits, although it asked staff to report back on what the fiscal impact would be.

Although he is not on the committee, Councilman Gil Cedillo, who chairs the Housing Committee, has also expressed doubts about the fee.

“If we think this is the whole solution we are really making a mistake,” Cedillo told City News Service in June

“There’s a sense — and I’ve said this publicly and in forums — I don’t want people to think we are solving the problem. And people get attached to process and to the battle and they’re not looking at how we should approach the war.”

The report from the departments of planning and housing and community investment concluded that the fee would not result in a significant increase in housing prices.

The report also concluded that developers are unable to pass on the costs of new housing impact fees to tenants and home buyers because most developers are introducing a relatively small number of units into a community, where the price has already been set by the marketplace.

The idea for a linkage fee to fund affordable housing is not new. Other California cities such as Oakland, San Diego and San Francisco have one, as do other cities around the nation.

“I’m from New England. I went to school in Boston,” Councilman Mike Bonin said at the news conference.

“When I was in college, Boston established an affordable housing linkage fee. When they were talking about it, I remember the headlines in The Boston Globe — the sky was going to fall and the world was going to end, housing would stop and the boom in Boston would end. It didn’t happen.”

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August 24, 2017  Copyright © 2012 Eastern Group Publications, Inc.

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