Committee Report CR-1
The purpose of the hearing was to provide an update and continue discussion on the incentive zoning study from the Community Development Department.
Present at the hearing were Councillor E. Denise Simmons, Chair of the Committee, Councillor Marc McGovern, Mayor David Maher, Councillor Dennis Carlone, Councillor Leland Cheung, Councillor Nadeem Mazen, Lisa Peterson, Deputy City Manager, Iram Farooq, Acting Assistant City Manager for Community Development, Chris Cotter, Housing Director, Community Development Department (CDD), Cassie Arnaud, Housing Planner (CDD), Linda Prosnitz, Housing Planner (CDD), Jeff Roberts, Land Use Planner (CDD), Louis DePasquale, Assistant City Manager for Fiscal Affairs, Lee Gianetti, Director of Communications and Community Relations, Vali Buland, First Assistant City Solicitor, Neal Alpert, Aide to Councillor Simmons, Mike Connolly, Aide to Councillor Carlone, and Paula M. Crane, Deputy City Clerk.
Also present were Karl F. Seidman, Dave Slaney, Sarah Gallop, MIT, Alexandra Lee, Executive Director, Kendall Square Association, Arthur MacEwan, Alexa Holmes, Carpenters Local 40, Kelly Thompson Clark, Cambridge Chamber of Commerce, Peter Daly, Cambridge Affordable Housing Trust, Lee Farris, Cheryl-Ann Pizza-Zeoli, Affordable Housing Trust, Susan Schlesinger, Affordable Housing Trust, Hasson Rashid, Esther Hanig, Elaine DeRosa, CEOC, Robin Lapidus, Central Square Business Association, Denise Jillson, Harvard Square Business Association, John Hawkinson and James Williamson.
Councillor Simmons convened the hearing and read an opening statement. (Attachment A). She advised the attendees of the agenda for the meeting (Attachment B).
Chris Cotter gave an overview of the ordinance. He stated that the Incentive Zoning Ordinance was adopted in 1988 and applies to commercial development over 30,000 gross square feet in which developers seek special permits to increase density. He stated that this ordinance requires housing contributions of $4.58 per sq. foot. He noted that the first 2,500 square feet are exempt. Mr. Cotter stated that from the years 2004 to 2013, this ordinance generated $1.79 million in housing contributions. Mr. Cotter then invited Mr. Karl Seidman to give his presentation.
Mr. Seidman gave an overview of his presentation. (Attachment C). He stated that the study purpose and scope of the study was to address the legal need to demonstrate a rational basis (nexus) for the requirement and contribution rate, update Cambridge's current rate, assess the existing policies and options and to recommend a new contribution rate and policy changes. He stated that the recommendations that have come out of the study are: expand uses subject to housing contributions, remove the special permit trigger, raise housing contribution from $4.58 to $10.00 to $12.00 per square foot, and to continue to apply a single contribution rate and make regular CPI adjustments.
Mr. Seidman explained the study methodology and its steps and noted that this methodology is a data driven methodology. He noted that the impact of the calculated contribution rate was considered and all of the information was wrapped into the final recommendations.
Regarding the estimate of projected new development and jobs, Mr. Seidman stated that this study is the foundation. He stated that these numbers are based on a number of factors, including market absorption, economic trends and industry growth. He noted that one thing that is different when looking forward ten years is the fact that in the last ten years, there was a large amount of institutional development, which is currently not the case.
When looking at the estimated housing demand from projected new development, Mr. Seidman stated that there would be a projected demand for 692 new units of housing which would consist of 108 low income units, 231 moderate income units, and 353 middle income units, based on development and employment projections. He noted that this is the demand for housing that the housing contribution rate is intended to address. Assumptions in the calculations note that the low-income units are all rental units, moderate income units are 30% ownership and 70% rental, and middle income units are 50% ownership and 50% rental. He gave a breakdown of the number of bedrooms per unit and noted that 446 would be rental units and 246 would be ownership units based on these assumptions.
Mr. Seidman explained that the methodology is different when looking at development costs and subsidy for rental units versus ownership units. He stated that the estimated total development cost for 446 rental units based on recent comparable projects is $214.4 million. The rental operating income is based on rent at 30% of household income less operating costs. The operating income of $3,752,690 supports mortgage debt of $53.019 million and equity investment of $4,691,000. He noted that the required subsidy is $156,717,000. Mr. Seidman stated that $118.3 million is the total development cost for 246 ownership units based on recent comparable projects. He stated that the sale price is based on 30% of household income to pay mortgage principal, interest, taxes and insurance with 5% down payment. He noted that the total revenue from housing sales equals $72.9 million with a required subsidy of $45,242,000.
Mr. Seidman stated that when looking at the combined subsidy and unadjusted calculated impact contribution rate, the total development subsidy is $202 million dollars. He noted that other non-Cambridge sources help fund required subsidy for low and moderate income housing. He stated that the Affordable Housing Trust Fund contributed 33.9% of subsidy to recent low and moderate income projects. He added that no outside subsidy is assumed for middle income units.
Mr. Seidman then spoke of the regional context which factors into the competitive analysis. He presented Cambridge's current policy compared to that of Boston, Somerville, and Barnstable County. He gave a summary of the competitive impact of the incentive requirements and noted that if Cambridge's rate is raised to a level well beyond neighboring communities it could lead developers to look at locating new developments there. This fee will add to project development costs.
Remove the special permit trigger and apply housing contributions to all projects over 30,000 square feet with defined uses
Expand the project definition to add seven uses (Hotel/motel, radio/TV studios, institutional health, education and social services, light industry/wholesale and heavy industry
Set rate at $10 to $12 per square foot which will limit disparity with surrounding communities and reduce the impact on Cambridge competitiveness
Councillor McGovern stated that as it relates to the dollar amount, we all want to maximize the amount of money that we get to put toward affordable housing. He stated that his emotional response is to try to get every penny that we can get, but if we seek too high a rate, we may well end up with no new development. He asked Mr. Seidman about the risks when setting the rate of linkage fees. Mr. Seidman responded that it does involve an educated judgment. The first impact in setting a high rate would be that developers would see Cambridge as a less desirable place to build, which could slow new investment and development. Another factor is that developers may increase rents as a result of a high linkage fee. He stated that Cambridge would then see development, but it might then be difficult to find tenants for said development. He stated that the developer could also pass on an increase within the rental cost. He noted that large firms will pay the added cost, but stated that Cambridge might lose the ability to retain small firms.
Councillor McGovern stated that it has been a long time since Cambridge has increased its incentive rate. He questioned that if the City does not increase the fee to the maximum amount, what would be the timeframe in which the City would need to review and conduct a "check and balance." Mr. Seidman responded that five years is a reasonable time to look at the issue again.
Councillor McGovern asked if there is concern about the preservation of affordable housing and expiring use buildings when thinking of building new affordable housing. He questioned if there is a portion of money that could be set aside if the city needs to step in and purchase some of these expiring use buildings. Mr. Seidman stated that this scenario was not included in the scope of the study. Mr. Cotter pointed out that the Affordable Housing Trust could use funds to assist in such a sale if necessary. He noted that preservation of expiring use buildings has been and remains a priority for the Community Development Department.
Councillor McGovern asked if any other factors can be included in the ordinance such as the hiring of a certain percentage of Cambridge residents and other pieces beyond. Mr. Seidman responded that the intent of the study was to look at the impact of development on affordable housing and the financial aspects of that. He noted that no research was undertaken regarding jobs and hiring or other potential policies. Councillor McGovern asked Mr. Seidman if he was aware of any cities that have policies regarding local hiring, procurement, etc. in place. Mr. Seidman responded in the affirmative.
Councillor Simmons stated her belief that there was a recommendation in the report wherein the City Council should build into the ordinance an automatic increase in linkage payment after a certain timeframe which would result in less lag time between rate increases. Mr. Seidman stated that there is currently a provision for an annual increase based on cost of living. He stated that the Affordable Housing Trust can do that on its own and he believes that is wise to do so. He stated that having it built into the ordinance ensures that it happens regularly. He stated that within the scope of the study, the City Council could authorize a gradual increase within the calculated impact. Councillor Simmons stated that it would make sense to have a natural progression so that there would not be another long period of time before any adjustment.
Councillor Carlone stated that the process has been done correctly. He stated that one other effect is that an increase may lower the price of land. From an affordability point of view, he stated that buying land is almost out of the question. He noted that if land value goes up, affordability becomes even more expensive. He stated his recommendation of a linkage fee of $10-$12. He asked what happens with the other $12 per square foot. Mr. Seidman responded that there are few options. The city could allocate other revenues to cover some of that. It also may be possible to address some of that need through other housing programs and policies. Councillor Carlone stated that to meet the full demand it would be an additional $10 million. Mr. Seidman stated that it varies from year to year. Councillor Carlone stated that if the total subsidy is $214 million we are only meeting half of it. Mr. Seidman referred Councillor Carlone to Slide #11. Councillor Carlone stated that the unit count is based on new development pressures but there are existing development pressures. Mr. Seidman stated that the Incentive Zoning Ordinance is based on addressing the impact of new development.
Mayor Maher stated that the subject is easy to understand with the information that has been presented. He stated that he is pleased to have this matter before the committee. He stated that it looks to him as if it is about finding the right balance. He stated that The Globe recently wrote about Akamai locating its business to outside of the City of Cambridge due to the rising cost of commercial space. He stated that the reality is that commercial rates and rents are high. Regarding Slide #17 and the expanded project definition, Mayor Maher asked that if a community group got together and put a center in, would we be saying that this would be applied to that group. Mr. Seidman stated that the notion is to be consistent in development that is generating employment that will lead to demand for affordable housing. He stated that all development has that impact. He noted that while Cambridge has some large non-profit institutions, to say that non-profits would be excluded would include drivers of development. Mayor Maher stated that he is concerned with community-based non-profits. Mr. Seidman responded that there may be a way to define use categories to make a distinction. Mayor Maher asked about the rationale of a 30,000 sq. ft. base. Mr. Seidman stated that it is the standard that is in place now, but that it would not have huge impact if that number was raised, and could also be lowered and noted that it is a balancing issue. That is an option. Regarding Slide 15, Mayor Maher asked when Boston, Somerville and Barnstable last adjusted their fee. Mr. Seidman responded that Somerville adjusted their fee last year and in Barnstable it was adjusted circa 2009. He stated that Boston adjusted their fee in November of 2013. Mayor Maher asked if a CPA designation is a big part of the difference. Mr. Cotter responded that CPA funds have been used to preserve existing buildings and to create new development and have allowed the city to carry out its housing goals. Mayor Maher asked what the estimated CPA revenue has been for housing. Mr. Cotter responded approximately $115 million dollars. He noted that CPA funds were used to aid in 1,500 units.
Councillor Mazen stated other cities have clear ordinances. He asked about the non-profit vs. for-profit. He wondered what the marginal increase in cost due to this fund is. He questioned the cost of building new space. Mr. Seidman stated the increment is what the contribution rate is. Councillor Mazen asked about other total costs. Mr. Seidman stated that the developer has to raise money to build a project. The amount that a lender will provide is based on the appraised value. He stated that it could play out differently for different developers. Councillor Mazen stated that as the value of being in Cambridge continues to increase, developers see return but at the same time that number is increasing. He commented that there is a moving target and Cambridge needs to arrive at a number that is still attractive.
Councillor Simmons asked about the impact of other requests/fees that apply in the City of Cambridge. She questioned if there is a way to incorporate a living wage ordinance and a "hire local' provision to the ordinance. Mr. Seidman responded that it would be valuable for the city to look at the combined impact of the several requirements. He explained that some developers mentioned that they are often asked to build parks. He stated that he does not know what the combined impact is. He stated that a hire local provision is a very important issue that might also be examined in a study. He stated that it is important to look at how city policy could lift the citizens' well-being in addition to raising incomes and economic well-being as another way to deal with housing related issues.
Councillor McGovern stated that if we went with 12 or 15, there is a gap that the city would have to make up. If we expand the definition of what is included, how much does that make up? Mr. Seidman stated that that is already built into the analysis. He recommended including new uses including industrial and tv/radio stations. That development would have comparable types of impact.
At this time Councillor Simmons asked that four communications received by the committee be made part of the permanent record of the committee. Said communications were received by The Cambridge Residents Alliance, John T. Kiely, Jr., Forest City Enterprises, the Cambridge Affordable Housing Trust, and Sarah E. Gallop, Co-Director, Government and Community Relations, MIT. (Attachments D-G)
Dave Slaney, Norfolk Street, stated that he has been a member of the Living Wage Commission and the Income Security Commission. He stated that he is speaking on his own behalf. He noted that he supports all of the recommendations with the exception of a higher rate per square foot. He asked the committee add an additional component to the Incentive Zoning Ordinance. He suggested that there be a requirement that any developer covered by ordinance place a 25-year entailment on their developments mandating that owners and tenants of such developments comply with Fair Employment practices and require any contractors/subcontractors they hire to do the same. He stated that he would like preferential hiring for Cambridge residents. He stated that this would be the components of a fair employment practice policy. He stated that there is not a local hiring preference and he would like this proposed. The problem with the current Living Wage Ordinance is that it only applies to people who have contracts to do business with the city, which is a small number. If we could bring more employers under the provisions of the Living Wage Ordinance it would be beneficial. He noted that if people earn more money they can better afford to live in Cambridge. He stated that if you look at his proposal, it does not impose any direct additional costs on any developer. He stated that this proposal is being discussed in the Income Security Commission. He stated that he would like the committee to discuss this matter further. (Attachment H)
Sarah Gallop, MIT, on behalf of MIT, stated that MIT believes that the Incentive Zoning Ordinance has served the Cambridge community well. She stated that MIT is concerned about the impact of the proposed fees on the trajectory of the City's vital knowledge economy. She stated that Cambridge's ability to compete in the regional competitive market relies, in part, on the existence of a reliable level-playing field in the region. She stated that higher standards than those in Boston and Somerville can impact development decisions and the attractiveness to innovative companied because of increased costs. She stated that Kendall Square/Cambridge is viewed as the most promising innovation district in the world and we do not want to create obstacles in the path of that progress. She stated that there are several new regulations coming on-line in Cambridge related to other laudable efforts, including new sustainability requirements and other policy initiatives. She stated the concern about the cumulative impact of current and proposed policies and regulations on the City's business sector. She stated further analysis of the impact of the proposed increase is warranted.
Alexandra Lee, Executive Director, Kendall Square Association, stated that housing is an important commodity in Cambridge and adjacent cities and towns. She stated that this is a regional issue and is addressed in the Boston Foundation report produced by Barry Bluestone at Dukakis Center which was released this week. She stated that many members of the Kendall Square Association have perspectives on this study. She stated that a jump from $4 to $10 or $12 dollars seems high in comparison to Boston, particularly, with Boston's threshold of 100,000 square feet and in light of Vertex moving and news of Akamai considering relocation. She stated that perhaps this high a jump would trigger unintended consequences.
Mark McEwen stated that it is important to keep in mind that when thinking of new development, you are not just talking about high level professionals. There are cleaners, security guards, etc. that would be affected. He stated that this is important to keep in mind due to the number of people that would be affected by the Living Wage Ordinance. He stated the difficulty with the report is that we don't know in general what the rates of return are in Cambridge as opposed to rates of return elsewhere. He stated that his sense is that many of the large developments are not readily transferrable. He stated that he lives near University Park. He stated that these developments benefit due to their close proximity to MIT. That is a great value of the city from the point of view of investors. He stated that the city needs to get an idea of what the potential is for some large exodus. He stated that in order to get the general picture we need analysis of the difference that it makes. He noted that Cambridge is a special place from a business point of view and stated his belief that it is safe to raise the fee well beyond Boston.
Kelly Thompson Clark read from a prepared statement (Attachment I). She stated that the Cambridge Chamber of Commerce acknowledges that it has been over 25 years since the linkage fee has been analyzed for adjustment and that reevaluating the contribution rate to the Affordable Housing Fund is appropriate. She stated that the proposed rate changes have the Chamber concerned based on the impact these fees will have on Cambridge's development activity. She stated that Cambridge is fortunate to experience growth that other communities wish they were experiencing. She stated that additional units of housing are being built, new companies are relocating to Cambridge and existing companies are expanding. She noted that each of these constituencies, both owners and renters, would be impacted greatly by an immense increase. She asked for further analysis of the proposed increase.
Peter Daly stated that this has been a long time coming and would like to see this enacted. This is the right approach. He looks forward to a second hearing and recommendations following.
Lee Farris, 269 Norfolk Street, Cambridge Residents Alliance (CRA), stated that the CRA gave a letter to the City Council in January when the report was considered by the City Council saying that they like the proposed changes with the exception that the rate is higher. As it relates to the issue of land price going down if the fee is higher, she asked if there could be an answer to that question? She stated that Cambridge has a large amount of commercial development compared to residential. She stated that if this amount increases, it seems to her that it would tend to slant the balance towards residential. Is that correct? She asked if the city has to have the same fee all over Cambridge. She stated that she appreciated the Affordable Housing Trust proposal for an increase for the next three years and likes the idea of reviewing this subject every three years.
Cheryl-Ann Pizza Zeoli stated that the City Council has the ability and responsibility to look at this every three years. She is in favor of increasing the rate to $10 - $12, as this raises the rate to an appropriate degree, without going so high that it chills development. She also says that the Affordable Housing Trust can be helpful in this conversation in determining how to increase the creation and preservation of affordable housing.
Susan Schlesinger, member of the Affordable Housing Trust, stated that it is a pleasure to hear the comments about how important it is to get some action related to this. She knows that there is a lot going on but she urged the committee to move expeditiously on this matter. She stated that the Affordable Housing Trust is usually rabid for money. She stated that incentive zoning is not the final answer when dealing with housing need. She stated that there is a range of other things that could close the gap. The $10-$12 square foot range makes sense as a pilot and then look at it again in three years. She stated that the Affordable Housing Trust will help in any way possible.
Hasson Rashid stated that it is not clear to him where the homeless sector have a place in this conversation. Nothing has been mentioned about the homeless. They are an element of the local region. He is concerned that the city will allow developers to come into the city and exploit resources that are supposed to be used to eradicate and ease homelessness.
Esther Hanig stated that the Affordable Housing Trust is excited that the study is out. She stated that she supports the Affordable Housing Trust proposal of going up every year and re-looking at the matter again in three years. She stated that this is overdue and she implored the City Council to act upon this as expeditiously as possible.
Elaine DeRosa, 4 Pleasant Place, stated that the study is comprehensive. The other piece is extending the base of who it applies to and it levels the playing field. She stated that with regard to the amount being proposed, what makes it effective is that it is legally sound. She stated that in terms of affordable housing, Massachusetts is #3 in terms of income equality in the nation. The living wage is a token but it is a beginning. She stated that there are thousands in Cambridge that cannot stay in Cambridge. She stated her support for the annual increase.
Robin Lapidus, Executive Director, Central Square Business Association, stated concerns about the impact of the proposed fee increase on potential improvements and activation of Central Square. She stated that the business and cultural district desperately needs both exciting things and to be full of more residents now and in the future. She stated that fees increased to the higher magnitude could damage the City's ability to have both. She stated that higher fees will likely be passed on to tenants and businesses and eventually passed along to resident consumers, employees, visitors and students, making Central Square less affordable for smaller and less wealthy companies and individuals. She stated that a reasonable and appropriate adjustment is in order and she urged the committee to carefully consider the future impacts on the business community as it seeks balance. (Attachment J).
Denise Jillson, stated that if the city begins to discourage additional commercial development, other cities will want the business. She stated that if we think that developers are not looking elsewhere, we are fooling ourselves. She stated that it is important to remember the link between commercial tax revenue and quality of life. She stated that she was reminded by an event she attended earlier in the day that the children of Cambridge should have the ability to live and work in Cambridge in the future. She stated that if development is jeopardized, the ability to build workforce development is also jeopardized.
James Williamson stated that he would like to see consistent language and fairness when it comes talking about subsidies. He stated that a problem is that it is difficult to gain a good understanding when people talk about not wanting to push too hard. He stated the need to be better-educated about the details. He noted the need for a better understanding of the numbers involved when thinking about development projects. He stated that the city needs to be careful not to put all our eggs in one basket when it comes to incentive or inclusionary zoning.
Peter Graham, Just A Start, stated that as an agency on frontlines of supporting affordable housing, they applaud the long overdue recommendations and urged action. He noted that the suggested fee is a prudent number and well-balanced.
Councillor Carlone said that it would be great to learn what the CPA contributions and projection numbers were yearly over the last 10 years to better understand the gap. This study focuses on new pressures and this would give a sense of existing pressures.
Iram Farooq stated that this is clearly a complex topic. She stated that when thinking about how much a developer can afford to pay, it is not uniform across Cambridge. She stated that the Community Development Department is trying to get people who understand topics and convene meetings for edification. She suggested the possibility of bringing together developers or developer finance individuals to discuss the issue in general as it applies to the metro region because this problem is not only a Cambridge problem. She noted that to better understand housing policy, regional housing policy experts would be helpful. She stated that Mr. DePasquale and Mr. Reardon would be important to these conversations. She stated the possibility of gathering experts for a panel discussion.
Councillor Mazen then asked about the fee scale and questioned if the fee needs to be the same throughout the city. Mr. Cotter stated that differing fees throughout the city is not something that has been discussed. He stated that CDD will consider this. Councillor Mazen stated that at the next meeting of the committee he would like to procure numbers to be able to see tradeoffs to consider all different parameters. Mr. Cotter stated that it is difficult to predict how changes will impact the overall revenue as the study can only estimate project development but it is something that can be discussed.
Councillor Simmons encouraged her colleagues to submit to her any questions which would then be forwarded to the Community Development Department in advance of the next meeting.