Committee Report CR-2
The Housing Committee held a public hearing on April 22, 2015, beginning at 5:30 p.m. in the Sullivan Chamber, City Hall, 795 Massachusetts Avenue.
The purpose of the hearing was to 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, Councillor Nadeem Mazen, Mayor Maher, Councillor Leland Cheung, Richard C. Rossi, City Manager, Louis DePasquale, Assistant City Manager for Fiscal Affairs, Nancy Glowa, City Solicitor, Vali Buland, First Assistant City Solicitor, Iram Farooq, Acting Assistant City Manager, Chris Cotter, Housing Director, Jeff Roberts, Project Planner, Community Development Department (CDD), Lee Gianetti, Director of Communications and Community Relations, Neal Alpert, Aide to Councillor Simmons Mike Connolly, Aide to Councillor Carlone, and Paula M. Crane, Deputy City Clerk.
Also present were Kevin Sheehan, Boston Properties, Alexandra Lee, Kendall Square Association, Sarah Gallop, Co-Director, Office of Government and Community Relations, MIT, Kelly Thompson Clark, President and CEO, Chamber of Commerce, Arthur MacEwan, Professor of Economics Emeritus, UMass Boston, John Hawkinson, Hasson Rashid, Michelle Malvesti, and Cheryl Ann Pizza-Zeoli.
Councillor Simmons convened the hearing and read an opening statement (Attachment A) and gave an overview of the agenda for the meeting (Attachment B). She asked the Community Development Department to review the items that were discussed at the March 19, 2015 meeting, and to update the committee with any new information it may have.
Chris Cotter thanked Councillor Simmons for holding this discussion, and he stated that he was pleased with Mr. Seidman's presentation at the March 19, 2015 meeting. Mr. Cotter said that Mr. Seidman is present at tonight's meeting to answer any questions that may arise. Mr. Cotter said that the March 19th meeting was a very good discussion and there were a number of good questions raised at it. He said that, in preparation for tonight's meeting, the CDD has tried to summarize answers to the questions that came up, and that those are being provided as an FAQ handout sheet at this meeting (Attachment C). He gave a brief summary of same.
Mr. Cotter explained that Incentive Zoning and Inclusionary Zoning are both zoning requirements that promote affordable housing in the city. He stated that Incentive Zoning Ordinance was adopted in 1988 and applies to certain non-residential developments and establishes a per square foot rate that is paid to the City to mitigate the impact of new developments on affordable housing. He stated that the Inclusionary Zoning Ordinance, adopted in 1998, applies to residential development and establishes a set-aside of units within a residential development that must be affordable to low and moderate income households.
Mr. Cotter explained that the Nexus Study for the Incentive Zoning Ordinance recommends updates to the existing incentive requirements. He stated that this study analyzed and quantified the impact of non-residential development on the demand for affordable low, moderate and middle-income housing. He stated that a housing contribution rate to offset these impacts was recommended along with additional updates to the Ordinance. He noted that the Nexus Study has recommended an increase in the contribution rate from the current $4.58 to $10-$12 per square foot, expansion of the uses that would be subject to the ordinance, removal of the special permit trigger which currently limits the applicability of the incentive requirements to projects needing certain special permits, elimination of the 2,500 square foot exemption, continuation of the 30,000 square feet building size threshold, maintenance of a uniform housing rate for all uses and continuation of adjustments to the contribution rate by the Consumer Price Index.
Mr. Cotter stated that most national programs that require housing contributions from commercial development have the same basic structure of assessing a fee on certain types of commercial developments with some variations when looking at the types of projects the fee applies to.
Mr. Cotter stated that the Nexus Study by Mr. Seidman examined only the housing needs created by new non-residential development. He stated that this study did not consider a jobs linkage fee. He added that a living wage requirement was not considered in connection with this Nexus Study and that adoption of such a requirement would require a separate legal analysis and additional study.
As it relates to the threshold of 30,000 square feet, Mr. Cotter explained that this has been the threshold since the inception of the Ordinance. He stated that raising the threshold could exclude large developments from the requirement despite their impact on housing needs. Lowering the threshold could be problematic for substantially smaller developments and would be inconsistent with requirements in nearby communities. He stated that it is recommended that the threshold remain unchanged. He noted that the Ordinance currently exempts the first 2,500 square feet from incentive zoning rates and that the study recommends that this exemption be eliminated.
Mr. Cotter explained that that currently the Affordable Housing Trust can increase the contribution rate annually by the Consumer Price Index (CPI). He stated that the study recommends that annual adjustments based on CPI continue. He stated that continuing CPI adjustments by the Affordable Housing Trust will allow for an efficient and predictable means to maintain a system of regular adjustments. He stated that in addition, the Affordable Housing Trust has recommended an increase on the base rate of $1.00 per year for the first three years if the incentive rate is set within the recommended range of $10 to $12 per square foot. Mr. Cotter stated that it is advisable that a review of the ordinance and determination of whether a new study is appropriate take place every 3-5 years. He stated that the Affordable Housing Trust has suggested that the Trust conduct an annual review of the incentive requirements and advise the City Council when they believe a new study is warranted based on the program activity, economic trends and housing needs. He stated that the study recommends that the City Council adopt a single fee for all uses and added that CDD recommends a single rate for all of Cambridge as varying fee requirements in different parts of the city may have unintended consequences on location decisions and discourage development in areas where it is most appropriate or desired.
In response to a question by Councillor Simmons regarding the rate increase of $10-$12 and how this will meet housing needs, Mr. Cotter stated that funds generated by the incentive zoning payments are a key source but are not the only resource for affordable housing development. He stated that other city funds include Community Preservation Act funds and federal grants such as HOME and CDBG and are used to finance housing development.
Councillor Simmons stated that her hope is that the Housing Committee can, either at this meeting or at the next one, make recommendations that can then be taken up for discussion by the Ordinance Committee, and that the City Council could then take action on the final recommendations at the City Council's special summer meeting. She gave an overview of some of the recommendations that she would like to forward to the City Council. (Attachment D)
Councillor McGovern asked about the 30,000 square foot trigger and stated that if it were lowered to 25,000 square feet, is there a sense of how many additional buildings would be impacted, and how much more money this might generate? Mr. Cotter said that it would not be a big difference. He stated that there would be no effective difference. Councillor Simmons asked what if it were lowered to 10,000 square feet. Mr. Cotter said that lowering it to 10,000 certainly could make a difference. He stated that if you go too far it may be counterproductive. They can conduct further research on this. Councillor McGovern said he would be interested in lowering the number if it was going to yield community benefits. He stated he wants to know how to maximize community benefits while ensuring that development can still move forward. He stated that if dropping the amount of square footage will yield more money for the city, so long as it wouldn't hurt small businesses, he would drop it to 15,000 square feet. Mr. Cotter said that he would look at that. He stated the recommendations do represent the best advice of the CDD. He stated that the threshold, the exemption, and the rate are being looked at so as to be best tailored to provide public benefits. Mr. Cotter said that he will put a summary together. Ms. Farooq added that in the incentive ordinance, they need to maintain realistic as of right options for developers in the ordinance. She said that we don't want to put in so many constraints that it impacts all development.
Councillor Mazen focused on Question 18 from the FAQ sheet, noting that it says the cost of commercial development ranges from $329 to $395 per square foot. In Question 17, the CDD stated that the maximum recommended rate of subsidy is $24.30 per square foot. He said that this informational sheet states that "it is estimated that if that increase is passed on to tenants, rents would be raised by $2.29 per square foot, based on a 10-year lease." He asked if this ten-year projection is typically how these kinds of determinations are reached. Mr. Seidman said that it varies and that different leases have different time periods. Councillor Mazen asked if the effective lifetime of the building is 10 years. Mr. Seidman said that the effective lifetime is longer. He said that the useful life of a building can be somewhere over 50 years as a possibility. Councillor Mazen stated that the ways the costs are passed on to developers do not account for the lease rate. Mr. Seidman stated that it is in a developer's interest to pass cost onto tenants.
Councillor Mazen asked what is the actual cost per square foot? Mr. Seidman stated that rents vary according to where you are. He said that in East Cambridge, it would be in the $50-60 dollar range. He said that in West Cambridge, the rents are lower, closer to the $25-30 range. Councillor Mazen stated that the geography maybe ought to have an impact, even though he understands that Mr. Seidman has recommended against that. He said that $2.29 per square foot per year would be extreme in West Cambridge, but that it would be trivial in East Cambridge. Councillor Mazen stated that if we adopt a maximum right now, it would not be a problem. He said it's in the interest of developers to try to keep the rate down, and to raise the specter of competitiveness. He stated that maybe it shouldn't be the maximum for many reasons. He said that setting the linkage rate at $10-12 is ok, and we can go better, we could go to $15. He said he does not feel they absolutely need to land on $10-12. He said the difference between $12 and $15, whether to a tenant or to a developer, is going to be small.
Mayor Maher thanked the Community Development Department. He said that he had a general question he was looking to clarify: if someone is sitting on a large parcel of land and they are covered by incentive zoning, anything that they do outside of housing is covered. Is this correct? Ms. Farooq responded by saying that if this person had a parcel and wanted to do a building that is 10,000 sq feet, they would not be subject. She said when you hit 30,000, it becomes subject to the requirements. Mayor Maher stated that if one had a 50,000 square foot parcel, and if the FAR was 3.0, any project on that parcel is going to be covered by incentive zoning, correct? Ms. Farooq confirmed that such a project would be subject to the requirements. Mr. Seidman stated that it boils down to determining whether it is considered "a taking" of a person's property or not. Mayor Maher reflected on the 30,000 square foot threshold and said he would like to understand the reason that we have arrived at that size as the figure. For example, on Fresh Pond Parkway, where the new vitamin shop and mattress store are, that building is not 30,000 sq ft. It is a busy street and new development, and why would we have a policy that doesn't impact something like that? What do we think we are preventing by lowering that by 5,000 square feet or 6,000 square feet? Mr. Seidman responded that one consideration is that we want to have some capacity for property owners to build and not be subject to incentive zoning, from a legal perspective. There is a fairly small number of developments under 30,000 square feet, so there is not a lot of revenue that the city is foregoing at that threshold. That was the thinking behind that number, and he said that Somerville also has that threshold.
Councillor Simmons asked if it is also 30,000 just in Somerville, or if that threshold applies to all surrounding communities? Mr. Seidman responded by stating that Boston's threshold is 100,000 square feet.
Mayor Maher stated that he was still thinking about the issue around non-profits, and how some of the largest universities are in fact non-profits. He said there is a difference between community-based non-profits and heavily funded non-profits. He said that he might still want an exemption built in to protect smaller non-profits. He stated that in many instances we are trying to get non-profits to buy property to be able to remain in the city. In thinking about how often the City should engage in doing a full nexus study, he noted that it has been a number of years since one was done, that mandating a new one every three years seems to be maybe too quick a turnaround, and that every five years may make more sense. Mr. Seidman stated that his recommendation at the last meeting was for one every five years.
Mayor Maher stated that the question is about finding the right balance. He said one important thing to keep in mind is to remember that residential tax rates in the City have remained low, based on the strength of the commercial tax base. He said we must remember this is a very fine balance, especially for seniors in the city, who depend on knowing that their taxes are at least somewhat predictable.
Mr. Rossi, referring to the Mayor's concerns, stated it would be a beneficial exercise if people from the Assessor's Office and the Finance Director were given the opportunity to present to the City Council, to discuss the balance between commercial and residential. He said we are seeing a lot of growth in residential development, and if we do things to disincentivize that development, he would be concerned. He said that it would be wise for the City Council to hear from finance staff as it relates to growth in development dollars. He said that he wasn't preaching doom and gloom, but he stated that it would be a wise exercise to understand the market and what would happen.
Councillor Mazen asked if we know the differential rate of growth of residential development versus commercial development currently. Mr. Rossi stated that in the last couple of years there has been increased residential growth and it is outpacing the growth on the commercial side. Louie DePasquale stated that one of the things that his department is cautious of is how the tax rate works. He stated a shift could go back to the residential bill. The last time there was a shift in that direction was in 2005. In 2005, there were almost 2,000 abatement applications. We want to ensure that this scenario does not happen again. This could happen if commercial slows down and residential continues. Over the past nine years, they average 110 abatement applications. We want to be cautious to prevent that from happening.
Councillor Mazen stated that he assumed when there is increase in residential development that would not be so much of a burden because they are paying a higher rate than some 2-3 families that are getting mitigation on the full rate. Mr. DePasquale stated that he is talking about the overall assessment. If residential development continues to grow and a number got high enough to slow down commercial development, the burden shifts to residential tax. Councillor Mazen asked why we wouldn't then just put the residential tax burden on those with the greatest income, who would not be burdened by this, and Mr. DePasquale said that is something we could look at. Mr. Rossi stated that he is not preaching doom and gloom and predicting worst case scenarios, but this is another piece of information that everyone should look at as they come to conclusions about what is a good, informed decision.
Councillor Mazen asked about Question #14, referring to the shortfall in the $24.30 per square foot needed for affordable housing, as advised by this study. He asked about whether that shortfall is addressed by CPA funding. He asked if we know what the shortfall is after the secondary sources of funding are applied. Mr. Cotter stated that the $24.30 per square foot amount comes from a projected need based on projected development. He said that this is hard to determine with specificity, and that is one reason why it is a good idea to have a regular update to the nexus study, which will allow the city to course correct as needed. Councillor Mazen asked how mitigation fees stack up if they adopt $12 per square foot. Mr. Cotter stated that it would depend on development as it happens.
Councillor McGovern stated that in terms of what is the dollar amount, he would like clarification on what other expenses that we as a city put on developers that increase the cost of projects. He said that other surrounding communities are not sitting by quietly watching Cambridge get business. They are working hard to attract new business and also to get Cambridge business. He stated that a gradual increase that is predictable would be a good thing. Ms. Farooq stated that it is complex to pin down a specific dollar amount because of the various difference in projects. She said that some items that add to a project's costs are the green building requirements, transportation mitigation, and storm-water mitigation. She said that the City is also concluding the Getting to Netzero process, which could also contribute to escalating requirements upon developers. She said that every project is expected to have high quality and urban design, which have cost implications. She said that all of these factors do add up. She added that one of the things that is important for developers is to have predictability, and the fact that there are a lot of moving pieces, adds to the unpredictability. She said that is one reason why this conversation is so important, and it is great to be able to nail some things down. She stated that if the rate is too high in development, a business will not necessarily move from Cambridge to North Carolina, they may just move to Boston. In that scenario, the biggest negative is that we would not have the benefits coming with the development.
Councillor McGovern stated that he reached out to people who live in Cambridge and are affordable housing experts and are impartial. He stated that he was told that $24 per square foot would kill the city. He stated that it has been too long since the City has raised the fee. He stated that he would hate to see this drag on, we don't want to lose momentum, and that the sooner we move, the sooner we see the benefits. Nevertheless, he wondered whether hearing from people who do this work at the state level would be beneficial. He said that he struggled between wondering if that would be beneficial to discuss, or whether this would contribute to a delay towards making a much needed decision, and he wanted to put this idea out there for the other committee members to consider.
Councillor Cheung asked if you take a particular hypothetical 50,000 square foot development, with the incentive, how many units would the City get out of it. Mr. Seidman said that with the full $24 per square foot fee, this is intended to cover a third of the cost of 692 units of low, moderate and middle income housing. He said that there would be other revenue streams to support these costs as well.
Councillor Cheung asked if there is a way to incentivize mixed use developments. Mr. Cotter stated that one of the things in the current ordinance, and he hopes that it continues, is the option for a developer of a mixed use project to provide housing in lieu of the fee. That provision is in place and has not been used to date, and it is something that the CDD continues to look at to see how it can be better incentivized. He said that it would always be our preference for a developer to create new affordable units. Councillor Cheung stated that if this is an option that hasn't been used to date, do we need to change it in any way to encourage its use? Mr. Cotter stated that it is always easier for the developer to make a payment rather than create new units, under the current plan, but that this option must be looked at further to see if it can be made more viable to developers.
Mayor Maher stated that we have not seen a project in the city as of yet that is comparable to the building on Clarendon Street in Boston, at the corner of Stuart Street. He said its first eight floors are commercial, and the next 18 floors are housing. He asked how does that work. Mr. Cotter stated that CDD would look at that scenario as both an incentive and an inclusionary project. He said that this would trigger a discussion with the developer to determine how to best move forward, and it would be good to have flexibility in those discussions.
Councillor Simmons asked that communications received by the Chair from MIT, the Cambridge Chamber of Commerce and Harvard University (Attachments E, F, G) be made part of the official minutes of the meeting.
. He stated that they agree with the objectives of the incentive zoning ordinance and they agree with periodic evaluation of the rate, but they are concerned with the amount of the rate raise and the potential impact on development and on Boston Property's customers. They do not have the magic number, but they echo some suggestions, including that it is good idea to benchmark the rate around those set by surrounding communities. As a long term property owner and developer, they would be happy to participate in any further analysis and discussions on this issue.
Alexandra Lee, Executive Director of the Kendall Square Association, read from a prepared statement (Attachment H) and stated that a balanced approach is a legacy. She said that the City's richness stems from its diversity, and noted that a balanced approach is important. She advised that further study on this issue is necessary, and she urged that this matter not be advanced to the Ordinance Committee without further discussion.
Kelly Thompson Clark, Cambridge Chamber of Commerce, read from a prepared statement (Attachment I) and stated that she was speaking on behalf of herself and Sarah Kennedy. She stated that the local businesses offset the tax rate by almost 70%. She stated that there are lots of things coming down the pike and businesses are willing to pay their share but we must look at financial implications over all. She said a balanced approach is required, and she said the Chamber of Commerce is very concerned about more than doubling the current rate. She worries about how this would impact local businesses, and local restaurants. She said that local businesses need to stay competitive.
Arthur MacEwan identified himself as a member of Councillor McGovern and Councillor Simmons's Income Insecurity Commission, and he stated that they will be asking for a living wage requirement to be expanded along with requirements on developers. He said it is important to think of the problems that people have with housing and other income issues. He stated that the living wage ordinance covers very few people. He stated that the issue for him as an economist is not how much the rate is being increased, but on what kind of impact it will have on development and its cost. He said that all we have heard so far is speculation. He stated that he would be all for further study, if we could do the kind of studies that have been done with minimum wage. He said he wonders if there could ever be a study that satisfies everyone's concerns and gives rock solid assurances. He said that he can trot out his anecdotes, the other side can trot out opposing anecdotes, and it is sad that we may base our policies on anecdotes. There must be some studies on this issue, but we cannot afford to wait years while countless studies are done before policy is set. He said we should not wait years and years to set policy.
Hasson Rashid, 820 Massachusetts Avenue, read from a prepared statement (Attachment J) and stated that the nexus study does not consider homelessness. He stated that the homeless population is not addressed by this study, it was not part of the scope of the study.
Sarah Gallop stated that MIT supports the purpose and objectives of this meeting, but it is concerned about the possibility of more than doubling the current rate. She said she wonders how we define what constitutes an appropriate increase. She said that Cambridge truly has it all, and how do we ensure that we don't create unintended consequences in adjusting the rate. She said the city is an ecosystem, and we must be mindful of the health of each part of this ecosystem. She urged that the committee take more time to analyze this issue, and that we determine how all the cumulative conditions we impose on developers may impact development. She suggested putting together an advisory committee, representing various aspects of the city's ecosystem, to review this issue further. She said careful analysis is a hallmark of the Cambridge way of doing things.
John Hawkinson reminded the Housing Committee that that K2C2 zoning passed includes a $10 contribution beyond anything else. He said the current zoning requires review every three years. He stated that the City Council can let that deadline slip, and he suggested that it would be best to make sure it happens every three to five years. He suggested that exploring a gradual increase over a number of years would be interesting to discuss, but he cautioned that this could potentially lead to a rush of development before the rates increase. He stated that it would be wise to try to see what is happening and then freeze the rate or lower its acceleration. He stated that it is important to discuss phasing. He stated that with phasing there is the ability to watch and decide if there is a problem. He stated that the City Council should shoot high and if the development is falling off because of the shift then they can freeze the rate or lower its acceleration.
Robin Lapidus from the Central Square Business Association stated that a recalibration is appropriate, since the fees have been stagnant for such a long time, but that the fee should not be set too high. Being competitive in the region is incredibly important. She said all the development fees and incentives need to be considered in their entirety.
Jan Devereaux stated that the term ecosystem has been used to describe Cambridge, and that is fitting. She stated that some parts of the ecosystem are better represented tonight than others. She stated that the implications from the nexus study by Mr. Seidman is that, if the rate was raised to the full $24 it would support the 690 units, so if you only raise the fee to $12, you would only get half that amount of units. In regards to Mr. MacEwan's comments, she agrees that there is no hard data and she noted that Harvard and MIT probably aren't going anyplace else, regardless of a rate change. She said that the ecosystem in Kendall Square thrives on its proximity to these institutions. She said that Cambridge has established itself as a world center for the biotech industry. She stated that in the scheme of things, the developers will pay a one-time fee for Cambridge and it will benefit their workers. She stated that she agrees with Mr. MacEwan that subsidies are only one half of the equation. She stated that the city needs to go above the recommended $10-12, and that we should "go for the full amount."
Councillor Simmons stated that she would like to return recommendations to the committee to review. She said there is an interest for more information relative to some of the recommendations, so she will put these in writing, she will ask for these to be reviewed, and then she will call another meeting. She said that we will never get perfect policy, but we can still get a good job done. She said it has been a very long time since the linkage fees have been raised and it would not be wise for the City Council to let this sit in committee and go nowhere. She said she would like input on her recommendations and then the committee can decide. She said at the next meeting, she wants to make decisions and move this out of committee to the full City Council. She asked if her colleagues had any closing comments.
Mayor Maher said that he would like to take Mr. Rossi and Mr. DePasquale's recommendation to have a conversation about finances with this committee.
Councillor Mazen stated that he also wants to be sensitive to the other expenses imposed on developers. He said that at some point, you reach the straw that breaks the camel's back. He stated that he has heard that when a new expense hits, it is typical that it is fought against and fought against, and when it eventually lands, it turns out that everything is actually ok. He stated that the blowback is always going to come from additional expenses. He stated it is important to look more at additional expenses as opposed to full context of expenses, which have already been taken into account by developers.
Councillor Mazen stated that, in regards to CPI and adjustment, he agrees that we should adjust automatically over the next couple of years. He said whatever we can do to stagger that would be great. He asked about the living wage, and the possibility of new study on using mitigation funds to supplement a living wage. In terms of FAQ question #5 and #6, Chris Cotter had stated that it is a different analysis that would need to be done, and Councillor Mazen stated that this is something that is important to him. He said it is important to increase people's stability and income. Councillor Mazen said that this important work, and that he supports the idea of having a study examine this. He said he was a proponent of the recent "Fight For 15" movement around minimum wage.
Councillor Simmons reminded those present that the next meeting to discuss affordable housing is the May 11, 2015 Roundtable in the Sullivan Chamber. She said that she is looking for recommendations to bring before the committee.