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“Nobody’s happy,” said one of the architects of a new deal that will hike a fee on commercial development by much less than a Council vote earlier this year that it later undid.
If you grade a negotiation by making your opponent unhappy, this week’s housing fee compromise was a score for both sides.
On one side, business groups that fought off an earlier attempt to hike a fee on commercial development projects by about 500 percent to help pay for subsidized housing projects agreed to stand aside. Under the new deal, the city will increase that fee by a much smaller amount.
In exchange, the subsidized housing industry accepted getting a lot less money than it had hoped for. The deal also potentially includes a series of regulatory changes aimed at making it cheaper to build normal, market-rate homes that the business groups wanted (but subsidized housing builders already wanted those anyway, so it’s hard to count them as much of a concession).
“Nobody’s happy, and I guess that’s what makes it a good compromise,” said Craig Benedetto, the business groups’ lobbyist who successfully forced the City Council to undo its more dramatic hike of the housing fee by collecting enough signatures to put the item to city voters if they didn’t.
“A compromise is an ugly baby,” said Rick Gentry, president of the San Diego Housing Commission, which runs subsidized housing programs for the city. “It’s always got something that’ll displease someone.”
The compromise still requires a City Council vote, and will get its first shot when a Council committee takes it up on July 17. If it goes into effect, it’d be the first time the city successfully increased the fee in 24 years. (That said, it’d also only increase the fee to its level when it was first approved 24 years ago).
The fee was initially instituted at 1.5 percent of construction costs back in 1990. In 1996, the City Council cut it in half, to 0.75 percent of construction costs, though it was really a bit lower than that, since “construction costs” were defined by the level of the building index in 1990.
Last year, the city decided to increase the fee to 1.5 percent of today’s construction costs. That would have meant an increase of a few hundred percent, depending on the type of project, but the Council undid that move earlier this year, facing the threat of getting overturned by voters at the ballot box.
Now, it’ll go back to 1.5 percent of 1990’s construction costs. There’s also some types of construction getting exceptions — manufacturing, warehouses, research and development and nonprofit hospitals.
Technically, the exceptions mean the city’s pot of money that goes to building new subsidized housing will get about 70 percent more per year, or about $1.5 million in additional dollars. That’d let the city build another dozen or so subsidized units a year.
But it’s a bit of a surprise a compromise happened at all, given how the parties found their way back to the negotiating table.
Faced with the possibility voters could overturn their decision, the City Council undid the increase, but Council President Todd Gloria directed four people to get back to the drawing board and bring something back to the Council for action in the coming months.
The Housing Commission’s policy director, Colin Parent, and the Chamber of Commerce’s COO, Aimee Faucett, joined Benedetto and Gentry in negotiations.
It didn’t seem like those trying to increase the housing fee had much leverage. Business groups had just succeeded in getting the increase shot down. But fee-hike opponents did have to reckon with the fact that the Council could simply vote to increase the fee again, and again force the business industry to spend money to overturn it. And come November, Democrats could lose their veto-proof majority, depending on who wins in the District 6 election.
“Part of the issue, frankly, is that everybody was tired,” Gentry said. “For a quarter of a century, there have been either discussions or warfare over this. Sometimes, the factor that leads to compromise is fatigue. Both sides were ready to move on.”
In the final agreement, Benedetto’s side got some things they’ve always wanted: regulatory changes to make it cheaper to build new housing. The Council will need to vote for each of those changes individually, but if they don’t make enough progress in the next three years, the fee hike will go away entirely.
Those changes could mean things like expanding density bonus programs — ways developers can build more homes on a given site by agreeing to provide other benefits, such as subsidized housing — or further easing parking restrictions for projects near public transportation, thereby letting developers build more homes on a given lot.
The city also needs to formally change at least two community plan updates — blueprints for future development in specific parts of the city — as part of the agreement. Often, but not always, community plan updates will increase the amount of housing that can be built in an area.
These are all changes that were specifically named or alluded to in the housing plans Mayor Kevin Faulconer released during his campaign, and after his first 100 days in office.
“There are five milestones they have to meet in order to make sure the fee increase doesn’t sunset,” Benedetto said. “Our hope is we blow past those five items and we pass 25 of them.”
Initially, though, he said the negotiations got held up by Council offices that didn’t want to have any milestones. Essentially, they didn’t want to be forced to take any further action, like undoing regulations to allow developers to build more homes.
“I said, ‘You need to give us a commitment to something,'” he said. “If we were just going to give you the fee increase, we wouldn’t have referended it in the first place.”
He didn’t really need to twist Gentry or Parent’s arms. To them, the regulatory changes discussed benefit subsidized housing and market-rate housing alike.
“The point is, we’re organizing it this way to say, there are things we can do for affordable and market-rate housing that have common interests,” Parent said.
“The way I’d phrase it is, there’s a quid pro quo,” Gentry said. “The quid is our additional funding. The quo is the reform items.”
“That’s the funny part about it, the regulatory reform, it benefits subsidized housing just like it benefits market-rate housing,” Benedetto said.
But there was an earlier deal that could have secured even more additional funding for subsidized housing.
Instead of doubling the fee basically right away, it would have instead increased by 50 percent a year every year for three years. Let’s say it’s at $5 today. It would have increased to $7.50 this year, $10 the year after and $12.50 the year after that. But the Council would have needed to meet certain milestones along the way to keep making increases.
Instead, it’ll increase to $10 right away, but the Council needs to make the agreed-on regulatory changes at some point in the next three years, or it’ll go all the way back to where it is today.
That deal got shot down, Benedetto said, because the Council didn’t want to endure the political fist-fight of three votes.
A spokeswoman for Gloria said there were many discussed proposals, and she wouldn’t speculate on the rationale council members had for shooting down anything in particular.
Benedetto also wanted to get the City Council to use general fund money to match whatever new revenue was generated by the fee increase.
“They said ‘housing is a huge priority for us, but we aren’t going to put our own dollars into it.’ That’s the way we took it,” he said.
Bruce Reznick, executive director of the San Diego Housing Federation — a nonprofit representing the city’s subsidized housing industry — has come out against the compromise.
“Honestly, I think we only would have got the first 50 percent increase, and then we would have killed ourselves for three years,” he said. “But if I didn’t know at that time the alternative was an increase that was going to sunset in three years. (The three vote alternative) isn’t a good deal either, but I’d take it relative to the current deal.”
His biggest problem is with the exceptions built into the new agreement. He said he’d rather have a permanent 50 percent increase than a three-year increase that comes with a series of permanent exceptions.
The commission, though, says the deal is a good start.
“Sometimes people can be in a fight so long, they don’t know how to make peace,” he said. “What we’re looking for is enough points of common interest to go forward together.”
The deal also directs the independent budget analyst to find other ways the city can add money to its pot for subsidized housing.
“The way this is set up, there are opportunities for a variety of increases in the future in a variety of ways,” he said.